FTC Withdraws From Joint Vertical Merger Guidance

The FTC voted 3-2 along party lines Wednesday to withdraw from its 2020 joint vertical transaction guidelines with DOJ, despite “anxiety” from Commissioner Rebecca Kelly Slaughter and protests from Republican commissioners (see 2109100043). The guidelines remain at DOJ, the department said.

Rescinding the guidelines, which take a “dangerous and incorrect approach” toward the benefits of vertical mergers, is the right decision, said Slaughter during commissioners’ meeting. “Nonetheless I will confess anxiety about” withdrawing “without a replacement proposed jointly by the commission and DOJ,” she said. She said the agency won’t revert to relying on 1984 vertical deal guidelines but instead the statutory language in the FTC Act, as noted by Chair Lina Khan.

Khan committed to working closely with Justice on a comprehensive review of merger guidelines and to move beyond “outdated categories” that no longer apply to market realities. Given the guidelines’ “misguided discussion about the reported procompetitive benefits of vertical mergers,” Khan worried they will become difficult to correct if relied upon by courts. The 2020 guidelines were based on unproven or disproved assumptions and provided a blueprint for companies to engage in illicit conduct, said Commissioner Rohit Chopra.

Commissioner Christine Wilson warned the commission against withdrawing another “sound policy” based on economic analysis unilaterally without opportunity for public input. She proposed the FTC follow the 2020 guidelines until new ones are in place, which Commissioner Noah Phillips seconded. The topping motion failed 3-2, despite Slaughter saying the agency can use the public record from the 2020 effort to improve the rescinded guidelines.

The rescission is part of a “disturbing trend” at the agency in which the majority is “knocking over guardrails” intended to prevent politicization of antitrust, said Phillips, noting DOJ’s stance. Two agencies applying different standards is “bad government” and “bad policy,” he said. The guidelines are useful guideposts for companies to ensure their conduct is lawful, he added. He proposed a topping motion for the agency to seek public input on the proposed rescission, which failed 3-2 on party lines.

DOJ is doing a “careful review of the Horizontal Merger Guidelines and the Vertical Merger Guidelines to ensure they are appropriately skeptical of harmful mergers,” said acting Assistant Attorney General Richard Powers. “The department’s review has already identified several aspects of the guidelines that deserve close scrutiny, and we will work closely with the FTC to update them as appropriate.” DOJ is collaborating with the FTC on a “robust public engagement process” to seek comment on how to improve the guidelines, he said.

Other Votes

Commissioners voted 4-1 to establish a “process to receive public input on rulemaking petitions by external stakeholders,” with Wilson voting against. The new process will ensure the FTC is accessible “even to those who lack well-heeled counsel or personal connections,” said Khan: It’s part of a broader effort to democratize work at the agency. It will allow members of the public to petition the agency to issue certain rules.

Current policy allows the agency to docket petitions case by case, noted Phillips: “But I’m certainly comfortable with the change we are making to that practice” by putting all petitions for rulemaking out for public comment. As Khan noted, it will provide more guidance for petitioners on how to craft petitions, which is useful for those without expensive lawyers, he said.

Wilson said policy decisions are more informed with input from stakeholders, but automatically posting every petition for public comment might drain agency resources. She raised concerns about transparency for groups petitioning the agency. She suggested the FTC implement a mechanism for funding disclosures to identify when Big Tech or other corporations are funding efforts. She asked Khan to postpone the rulemaking amendments until the general counsel adds appropriate funding disclosure provisions.

The other four members expressed interest in pursuing funding disclosure protections, but no one seconded Wilson’s topping motion. “I’m learning a lot from what Commissioner Wilson is saying, and I think it’s a really important issue,” said Phillips. “I would like to continue working on that with her.” Slaughter said funding transparency is “absolutely a valuable thing for the agency to get,” but the commission shouldn’t delay the rulemaking amendments. Chopra said he’s “happy to constructively work on the substance” of the issue Wilson raised. “Recent case law may make this path problematic in certain ways, but I’m committed to continuing the conversation and thinking through how we might proceed,” said Khan.

Moving forward without funding disclosures is another example of the “transparency paradox” at the FTC under Khan, said Wilson: The majority says it cares about transparency but repeatedly acts to reduce it. “Because today’s proposal does not include procedural safeguards to protect the FTC from the influence of dark money, I will vote no,” said Wilson.

Members voted 3-2 to issue a policy statement on the “importance of protecting the public from privacy breaches by health apps and other connected devices.” The health breach notification rule was issued more than a decade ago, but the FTC has never brought enforcement action, said Khan. The policy statement will clarify that the HBNR applies to health apps and similar technologies, so the agency can keep up with evolving technologies, said Khan. The policy statement is inconsistent with statute and would apply the rule far beyond the underlying law, said Phillips. The statement “short-circuits” ongoing rulemaking and “improperly expands” the agency’s statutory authority unilaterally, rather than in concert with other federal agencies, said Wilson. The statement makes clear the FTC will enforce against health data app operators engaged in wrongful conduct, said Chopra and Slaughter.

Public Knowledge welcomed the agency’s withdrawal from the takeover guidelines. “Far from waving through vertical mergers based on vague procompetitive promises, the FTC should carefully scrutinize vertical deals that threaten competition,” said PK Policy Counsel Alex Petros.