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Federal Judge Finds Qualcomm Violated the FTC Act Through Monopolistic and Exclusionary Conduct

On May 21, a California federal judge ruled in favor of the Federal Trade Commission (FTC) in its suit against Qualcomm in a much-anticipated decision, concluding that Qualcomm violated the FTC Act by maintaining its monopoly position as a modem chip supplier through a number of exclusionary practices, including refusing to license standard essential patents (SEPs) on fair, reasonable and non-discriminatory (FRAND) terms. Qualcomm likely will appeal the decision to the US Court of Appeals for the Ninth Circuit, but in the meantime, the court’s sweeping decision is likely to affect the course of dealing between SEP-holders and licensees. The decision is likely to substantially affect the ways in which SEP-holders take their technology and associated components that they manufacture to market.

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THE LATEST: FTC Settles Civil Complaint for Wage-Fixing

A recent settlement shows that the US Federal Trade Commission (FTC) will use its enforcement authority to target employer collusion in the labor market.

WHAT HAPPENED
  • The FTC brought a complaint against a medical staffing agency, Your Therapy Source, LLC, and the owner of a competing staffing agency, Integrity Home Therapy, for allegedly agreeing to reduce the rates they would pay to their staff. Simultaneously, the FTC settled the case with a consent order that forbids the parties from any future attempt to exchange pay information or to agree on the wages to be paid to their staffs.
  • This was the first FTC wage-fixing enforcement action since the FTC and US Department of Justice (DOJ) issued their joint Antitrust Guidance for Human Resource Professionals in October 2016. That guidance stated that naked wage-fixing and no-poach agreements—e.g., agreements separate from or not reasonably necessary to a larger legitimate collaboration between the employers—are per se illegal under the Sherman Act.
  • The respondents in the Your Therapy Source case are staffing agencies that allegedly provided therapists such as physical therapists, speech therapists and occupational therapists to home health agencies on a contract basis. The respondents were responsible for recruiting the therapists and paying them a “pay rate” per visit or per patient.
  • According to the complaint, the alleged unlawful agreement began when one home health agency unilaterally notified Integrity that it was going to reduce the “bill rates” that it paid Integrity for its therapists, thus cutting into Integrity’s profit margins. Integrity’s owner then reached out through one of his therapists to the owner of Your Therapy Source and the two exchanged information about their respective rates paid to therapists. The two firms then reached an agreement via text message to reduce the rates they paid therapists.
  • Once the respondents had reached the agreement to reduce therapists’ pay, Integrity’s owner allegedly reached out via text to four other competing therapy-staffing agencies to solicit their participation in the agreement.
  • The FTC’s complaint alleged that this conduct violated Section 5 of the FTC Act, which prohibits unfair and deceptive acts and practices.
WHAT THIS MEANS
  • Wage-fixing cases have been notable in the health care industry, with prior DOJ enforcement against a hospital buying group and several class actions against health care providers in the 2000s that alleged the fixing of nurses’ pay.
  • Companies should strictly avoid colluding with other firms on wages, salaries, fringe benefits or other remuneration paid to workers. Companies should also exercise extreme caution in information exchanges regarding wages and benefits, which can lead to improper agreements or result in independent antitrust liability if not properly supervised.
  • Firms should be mindful of the DOJ/FTC’s joint guidance on information sharing in the health care industry (see link at p. 50), which also provides a useful template for how the US antitrust agencies will analyze information sharing more generally. The joint [...]

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Bag Fee Case Highlights Antitrust Risk Of Public Statements

For publicly traded companies, earnings calls are routine business events, as are press releases, speeches, investor conferences and trade association meetings. However, in the world of antitrust law, words uttered in these situations can provide fodder for plaintiffs to claim that instead of providing information for investors and the public, the communication’s purpose was to invite competitors to unlawfully collude. In the past several years, allegations that competitors used public statements to carry out a price-fixing agreement have been a common thread in antitrust class actions and multidistrict litigations.

Recently, a federal district court granted summary judgment in an antitrust case based on earnings calls in the airline industry. While the defendants ultimately prevailed, the case stands as a reminder to publicly traded companies to be mindful of antitrust considerations in earnings calls and other public communications.

Read the full article.

Originally published in Law360.com, April 11, 2017.




FTC Commissioner Brill Urges Congress to Act on Patent Trolls

In a speech at the American Antitrust Association (AAI) and Computer & Communications Industry Association (CCIA) Conference on Innovation, Patents and PAEs on December 10, 2014, Federal Trade Commissioner (FTC) Julie Brill reported that the FTC hopes to complete its study of patent assertion entities (PAEs) by the end of 2015.  She cautioned against complacency, however, and said there is much Congress and enforcement agencies can do even before the study of so-called patent trolls is complete.

The FTC is currently conducting an extensive review of PAE activity, using its authority under Section 6 of the FTC Act.  The Commission’s authority under section 6(b) enables it to conduct broad economic studies that do not have a specific law enforcement purpose. Under this provision the Commission may also publicize portions of the information it obtains where such publication would serve the public interest.

The FTC has devoted substantial attention to PAEs in recent years. It has hosted or co-hosted a number of workshops to explore PAE-related issues.  Although workshop participants shared numerous anecdotes describing the increasing PAE activity, a common refrain in those workshops was the lack of comprehensive and reliable empirical evidence about the costs and benefits of PAE activity. The FTC study was conceived to help fill this gap.

Although the study is underway, Commissioner Brill urged Congress not to await its outcome before taking concrete reforms that could “make it more difficult for PAEs and others that seek to profit by bringing and threatening to bring frivolous patent infringement lawsuits.”  She noted that Congress is currently considering several reform proposals. “There is no need to wait for completion of our 6(b) study to act on these and other key legislative patent reform proposals,” Commissioner Brill said.  She also emphasized that the ongoing study will have no impact on appropriate law enforcement actions. She said that if the FTC, the Department of Justice or the states “uncover PAE activity that is in violation of current law, they should act expeditiously to take whatever enforcement actions are warranted to stop inappropriate PAE abuse.”




North Carolina Dental Board Urges Reversal of FTC’s “Radical” Stance on State Action Immunity

North Carolina’s State Board of Dental Examiners has urged the U.S. Supreme Court to reject the Federal Trade Commission’s (FTC’s) “radical departure” from decades of established precedent that offers state actors immunity from antitrust scrutiny, arguing that the FTC’s approach contradicts the federalist principles that originally gave rise to the state action immunity doctrine.

Earlier this year, the Court agreed to consider whether the Fourth Circuit erred in upholding the FTC’s ruling against the Board.  The Board presented its arguments in a brief submitted in advance of oral arguments, which are scheduled for October 2014.

The Board’s brief is but the latest salvo in a long-running battle with the FTC that dates back to 2010.  The North Carolina state agency—which includes practicing dentists among its members—licenses dentists in the state and can take disciplinary measures against licensees. Approximately a decade ago, following complaints from dentists practicing in the state, the Board launched investigations into teeth-whitening services provided by non-dentists and ultimately issued dozens of cease-and-desist letters to such service providers. The FTC issued an administrative complaint in 2010 charging that the Board violated the FTC Act by acting to exclude non-dentist teeth whiteners from the market in North Carolina. Relying on its status as a state entity, the Board has maintained that it is immune from scrutiny under the antitrust laws. The FTC has argued that the presence of market participants on the board means the board is more akin to a private actor, which must be subject to active state supervision in order to benefit from immunity.  The FTC maintains that such supervision is lacking here. The Fourth Circuit sided with the FTC in 2013, and the Supreme Court agreed to review that decision.

In its brief, the Board contends that the FTC’s position runs contrary to long-established precedent.  The Board especially challenges the FTC’s arguments that state action immunity is available only where decisions are made by “disinterested public officials.” According to the Board, the FTC seeks to apply to public officials the test that is applicable to private actors seeking the benefit of state action immunity.  The Board contends this is erroneous and that the federalist principles that justified prior state action immunity decisions render the self-interest of individual public officials irrelevant.

The Supreme Court’s resolution of this conflict could have significant repercussions for state regulatory bodies, many of which rely upon participation of professionals and other market participants. 23 states have filed an amici brief that similarly urges the Supreme Court to reverse the Fourth Circuit’s decision.




FTC Promotes Competition Among Professionals Through Advocacy, Enforcement

On July 16, 2014, Andrew Gavil, Director of the Office of Policy Planning at the Federal Trade Commission (FTC), testified on the subject of “Competition and the Potential Costs and Benefits of Professional Licensure” before the House Committee on Small Business.  Gavil explained the FTC’s rationale for evaluating the competitive effects of different licensing regimes and described its strategy of promoting competition among professionals through a combination of advocacy and enforcement.

The FTC’s approach in this area is to evaluate the pros and cons of specific licensure regulations on a case-by-case basis.  In a nutshell, the agency recognizes that, “although licensure may be designed to provide consumers with minimum quality assurances, licensure provisions do not always increase service quality,” and indeed “may . . . discourage innovation and entrepreneurship” and “impede the flow of labor or services.”  Advocacy is an important component of the FTC’s strategy because state and local licensing regimes are often not actionable under the federal antitrust laws.  Instead, the agency utilizes tools such as comments, testimony, workshops, reports and amicus briefs to encourage policymakers to consider the likely competitive effects of proposed regulations.  Gavil noted a recent example in which, at the request of Chicago Alderman Brendan Reilly, FTC staff provided a comment assessing the potential competitive effects of a proposed Chicago ordinance creating a licensing scheme to regulate mobile ride-sharing apps.  The comment, available here, details how certain provisions of the ordinance might “unnecessarily impede competition in these services without providing any apparent consumer protection benefits,” for example, by placing licensees at a competitive disadvantage to traditional transportation services or by restricting innovative pricing models.

The FTC also keeps an eye out for opportunities to flex its enforcement muscle and discourage anticompetitive conduct by independent regulatory boards that are not protected by the state action doctrine.  For example, the Fourth Circuit last year sided with the FTC in a suit challenging the North Carolina Board of Dental Examiners’ practice of issuing cease-and-desist letters to non-dentist providers of teeth-whitening services.  See N.C. State Bd. of Dental Examiners v. FTC, 717 F.3d 359 (4th Cir. 2013), cert. granted, No. 13-564, 5014 WL 801099 (U.S. Mar. 3, 2014).  In particular, state agencies comprised mostly of industry participants who are chosen by other industry participants must take special precautions to avoid violating the antitrust laws.  Many of the examples of enforcement actions Gavil provided in his testimony concerned the healthcare arena, which is consistent with the FTC’s ongoing commitment to promote competition in that sector.

The text of the Commission’s prepared statement is available here.

 




Patent Enforcement Protected by First Amendment?

After receiving a draft complaint and a stipulated order from the Federal Trade Commission (FTC) banning its allegedly deceptive letters to infringers of its scanning technology, MPHJ Technology Investments LLC (MPHJ) filed suit against the FTC in the Western District of Texas, alleging violations of the First Amendment.  The complaint alleged that the FTC’s investigation prevented MPHJ from its government-granted right to enforce its patent, a form of free speech under the Bill of Rights.  On March 28, 2014, the FTC filed a motion to dismiss the complaint, and MPHJ filed its response on April 18, 2014.

The FTC argued in its motion to dismiss that the controversy was not ripe for suit because there had been no final agency action, that MPHJ was not immune from suit because patent enforcement activity is not protected by the First Amendment and that the FTC is not looking to prevent MPHJ from sending letters, only looking to prevent the deceptive statements within those letters.

MPHJ contended in its response that the FTC’s draft complaint was a sufficient “credible threat” of suit to make the case ripe for adjudication.  MPHJ’s patent enforcement conduct included a threat to sue the alleged infringers, and it was this conduct, in part, that was subject to the FTC investigation and also protected by the First Amendment.  MPHJ argued that in order to sue it under Section 5 of the FTC Act, the FTC must overcome the First Amendment protection for plaintiffs in a lawsuit from allegations of misconduct related to bringing that suit, which applies unless the suit brought was “objectively baseless.”  MPHJ argued that the FTC has not overcome the burden of showing objective baselessness, because in its investigation of MPHJ’s conduct, it concluded only that the letters threatening to sue infringers were “deceptive.”  According to MPHJ, allowing the type of enforcement activity pursued by the FTC would prevent patent holders like MPHJ from threatening to sue infringers.  MPHJ further argued that the District of Nebraska entered a preliminary injunction against the attorney general when faced with identical facts.

The case is MPHJ Tech. Inv., LLC v. FTC, case number 6:14-cv-00011, pending before the U.S. District Court for the Western District of Texas.




FTC Commissioners Disagree on Section 5 Authority

Section 5 of the Federal Trade Commission (FTC) Act confers broad enforcement powers on the Commission to prohibit “unfair methods of competition.”  In her February 13, 2014 keynote address to the Competition Law & Economics Symposium at George Mason law school, FTC Chairwoman Edith Ramirez argued that it would be a mistake for the Commission to circumscribe its authority by issuing guidelines for Section 5 enforcement.  While Chairwoman Ramirez “do[es] not object to guidance in theory,” she believes any guidance should be descriptive rather than prescriptive.

Other commissioners, however, have strongly backed providing companies with a clearer set of rules.  Commissioner Maureen K. Olhausen has said that she would refuse to support any Section 5 enforcement actions until the FTC establishes guidelines, while Commissioner Joshua D. Wright has already proposed such guidelines.

Section 5 may confer broader powers than the Sherman Act and Clayton Act in theory, but many courts have in practice treated Section 5 as coterminous with these other antitrust statutes and the far more extensive body of caselaw interpreting them.  Whether the FTC can extend its power with Section 5 may depend on the specific circumstances of any action.  Invoking Section 5, however, is a somewhat fraught exercise for the Commission, which would not want an unfavorable court decision that could tie its hands in the future.  Indeed, Chairwoman Ramirez made a point of saying that for “most of [its] antitrust cases,” the FTC has no need of Section 5.

The scope of Section 5 may remain uncertain, but one can be sure the debate will continue.




FTC Commissioner Wright Renews Calls for Section 5 Guidelines

Federal Trade Commission  (FTC) Commissioner Joshua Wright continues to press for a “policy statement” that would define, and perhaps limit, the scope of the FTC’s authority to police unfair methods of competition under Section 5 of the FTC Act.  Commissioner Wright first advanced his proposed policy statement in June 2013.  A lively debate has ensued, with contributions from his fellow Commissioners as well as leading academics and practitioners.  Commissioner Wright published additional comments in November and also spoke on the issue in December during testimony before the House Subcommittee on Commerce, Manufacturing and Trade.

Commentators have long noted the vagueness inherent in Section 5’s prohibition of “unfair” methods of competition.  Some see this vagueness as a virtue that allows the Commission the potential to police activities that fall outside the reach of other tools of antitrust enforcement.  Others, however, view Section 5 as creating significant uncertainty for businesses subject to the law.

In his remarks entitled “Recalibrating Section 5: A Response to the CPI Symposium,” Commissioner Wright argues that this uncertainty is magnified by the “administrative process advantages” enjoyed by the FTC. For Wright, “the institutional framework that has evolved around the application of Section 5 cases in administrative adjudication is quite different than that faced by Article III judges in federal court in the United States.”  Wright points to empirical observations which show that, over the past 20 years, defendants in FTC proceedings face far less likelihood of success than they do against private plaintiffs in the federal courts of appeal:  “In other words, in 100 percent of cases where the administrative law judge (ALJ) ruled in favor of the FTC, the Commission affirmed; and in 100 percent of the cases in which the ALJ ruled against the FTC, the Commission reversed.”  According to Wright, private plaintiffs on appeal are likely to win only about 50 percent of the time.

Wright suggests that the agency’s institutional and procedural advantages, coupled with the vague nature of the Commission’s Section 5 authority leads to over-enforcement. Faced with the ambiguities of Section 5 and the Commission’s “perfect” record, many firms will prefer settlement of questionable Section 5 claims to the expense of lengthy administrative litigation.

In testimony before the House Subcommittee on Commerce, Manufacturing and Trade in early December, Wright echoed these concerns and again pushed for the Commission to issue guidelines on the application of Section 5. Wright’s fellow Commissioners have not shown signs that they are ready to pursue establishment of any Section 5 guidelines, but it appears this topic is likely to remain a subject of debate that bears watching.




Republicans Press FTC to Establish a Clear Standard for Section 5

In a letter to the Federal Trade Commission (FTC) on Wednesday, October 23, eight GOP lawmakers from both the House and the Senate called on the FTC to publish clear guidance on Section 5 of the FTC Act.

Section 5 grants the Commission broad authority to regulate “unfair methods of competition” beyond the scope of the Sherman Act and Clayton Act.  In FTC v. Sperry & Hutchinson Co., 405 U.S. 233 (1972), the Supreme Court opined that the FTC was authorized to consider public values beyond the letter or spirit of the antitrust laws when enforcing Section 5.  Then, during the 1980s, courts began rejecting the FTC’s attempts to bring Section 5 actions, out of concern that the agency had failed to put forth adequate standards.  More recently, the FTC has used Section 5 in various agency actions to target invitations to collude and breaches of standard-setting commitments, but no cases have been affirmed by the courts.

In their letter, the legislators warned that “the absence of clear parameters . . . based on empirical and economic justifications, engenders uncertainty in the business community,” which in turn deters innovation and stifles economic growth.  Over the summer, Commissioner Brill questioned the need for a formal statement, citing the fact that no business executive had ever addressed the lack of guidance with her.  The letter also contended that defendants in administrative cases often settle due to “economic pressures rather than substantive agreement,” and these settlements leave no room for judicial review – pushing back on Chairwoman Ramirez’s belief that a policy could be developed through agency enforcement actions.

Both Commissioners Wright and Ohlhausen announced policy proposals earlier this year, which the lawmakers pointed to as evidence to refute Chairwoman Ramirez’s statement from a congressional oversight hearing that it is difficult to articulate the outer bounds of Section 5 authority and that the existing informal guidance is sufficient.




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