Consumer Protection Powers, Competition Policy Goals, and Institutional Design

Spencer Weber Waller

Germany is currently considering the 12^th Amendment to the Act against Restraints of Competition that would give the Bundeskartellamt increased powers in the consumer protection area. Germany is one of many countries that have debated whether one agency should enforce both competition and consumer protections. Internationally, there are many different models of agencies, some that work exclusively on competition or consumer protection matters and others that have both competition and consumer protection powers to varying degrees. While institutional design matters, there is an ongoing, and probably unsolvable, debate about which model is best in the abstract and what is desirable for any given jurisdiction.

We are U.S. law professors, and not experts in German law, but wanted to share our recent work that there is an important synergy from having one agency with both types of powers that frequently is overlooked. We argue in forthcoming work (Darren Bush & Spencer Weber Waller, Using Consumer Protection Law to Achieve Competition Policy Goals, forthcoming in Why Competition? Voices from the Antitrust Community and Beyond (Concurrences Books 2024), https://fmos.link/21908) that agencies with integrated competition and consumer protection powers can resolve market failure problems by using their consumer protection powers to achieve results in the real world that also help solve competition issues and vice versa. Our work is based on a natural experiment in the United States where it happens that there are two federal agencies – the Antitrust Division of the Justice Department which only has competition powers and the Federal Trade that has both competition and consumer protection powers.

We do not believe that this is a panacea, nor do we suggest that this is “cheat code” to avoid the substantive or procedural requirements of either body of law. We do suggest that thinking creatively about the problem that the agency is trying to fix in the real world and using a combination of different competition and consumer protection causes of action can produce better real-world results, especially when housed in the same agency.

The FTC’s basic enforcement powers are spelled out in Section 5 of the FTC Act. The FTC derives its competition powers from the portion of the FTC Act that prohibits “unfair methods of competition” (UMC). At the risk of oversimplifying, U.S. courts agree that the FTC’s UMC authority covers all violations of the letter of the Sherman and Clayton Acts, as well as some set of “incipient” violations of the antitrust laws and conduct that violates the “spirit” of the antitrust laws.

In contrast, Congress has amended the unfair and deceptive acts and practices (UDAP) portion of Section 5 defining unfairness by statute. It requires that any consumer protection conduct deemed “unfair” in consumer protection cases must cause, or is likely to cause, substantial injury to consumers which is not reasonably avoidable by the consumers and not outweighed by any positive effects of the conduct in question. There are separate agency guidelines as to when conduct can be deemed “deceptive” under the UDAP prong of Section 5.

These two distinct powers can be used to investigate and challenge conduct that violates the two halves of Section 5 of the FTC Act. A UMC case and a UDAP case can be investigated together, or separately, and challenged in two separate cases, or as separate counts of a single case against the same respondent. The FTC can also cooperate (or defer to) other agencies that may have better enforcement powers over the same conduct.

The FTC has begun to use its UDAP powers to challenge conduct that also could potentially be challenged as unfair methods of competition but fit more naturally as a consumer protection UDAP violation. While such matters as commercial surveillance by web sites, the proliferation of junk fees, abuse of non-compete clauses in employment contracts, restrictions on rights to repair, and privacy violations could potentially be shoehorned into antitrust violations and unfair methods of competition, consumer protection theories are often a better fit for theories of liability and remedies that also help restore competition in the real world (or at least lower barriers to

effective competition). It then becomes a matter of agency discretion and resources whether to bring two separate cases or one combined case against the respondent.

Separate pending complaints by the FTC against Amazon, one for consumer protection violations and a separate complaint for monopolization of online commerce illustrate the potential of such an approach.

The FTC’s antitrust complaint against Amazon alleges several issues that could be the basis of an unfair and deceptive acts claims. For example, the FTC’s antitrust complaint alleges that Amazon prevents merchants from steering customers to a lower-cost platform—that is, a platform that charges a lower take rate—by offering discounts off the price it charges on Amazon. Amazon threatens merchants’ access to the Buy Box if merchants are caught charging a lower price outside of Amazon, a variant of a most favored-nation (MFN) restriction. In other words, Amazon will not allow merchants to share any portions of its savings with customers as an inducement to switch platforms; doing so would put downward pressure on Amazon’s take rate, which has climbed from 35 to 45 percent since 2020.

The Complaint also alleges that Amazon ties its fulfillment services to access to Amazon Prime; a merchant seeking Amazon Prime must use Amazon fulfillment—often at inflated rates. Given the importance of Amazon Prime to survival on Amazon’s Superstore, Amazon’s policy is effectively foreclosing the ability of merchants to “multi-home”, shipping from multiple online sites.

The FTC’s Antitrust complaint suggests that many suppliers would prefer “multihoming”:

Finally, the Complaint alleges that Amazon gives its own private label brands preference in search results. The complaint states:

A potential remedy for such conduct might well be to break Amazon up or something more innovative. Or to leave it intact as an essential facility. However, judicial reticence to such approaches might leave unaddressed the problem without much in the way of supervision, such as a decree lasting a few years with minimal oversight.

But unlike the DOJ – who had difficulty implementing such remedies in its case against Microsoft –, the FTC possesses the potential for enforcement or rulemaking under its consumer protection umbrella. Those consumer protection mechanisms could serve to remedy such issues perhaps more effectively, even more broadly than just Amazon. Under consumer protection rulemaking, one might envision the conduct as a variant of a junk fee, regarding which the FTC and other agencies are currently engaged in rulemaking, if the prices on both platforms match, but are enhanced on the competing platform due to the MFN clause.

The tying of delivery and sale (the multihoming problem) could be viewed as similar to the contact lens and prescription glasses problem (https://fmos.link/21909). The purchase takes place at the portal and compels the delivery via the same owner, assuring higher prices. Prior to the glasses rule, a prescription was obtained at the optometrist and the glasses were compelled to be delivered by the same entity.

The “expert recommendation” issue is perhaps the strongest consumer protection claim. For if the basis of the recommendation is payment, this would indeed appear deceptive. Here, we note that the FTC has begun rulemaking on the issue of paid reviews and other methods that deceive consumers.

The FTC also brought a separate UDAP complaint against Amazon shortly before the broader antitrust/UMC case. This complaint alleges Amazon “knowingly duped millions of customers” into enrolling in Amazon Prime, all the while making it exceptionally difficult to cancel. In some instances, customers could be enrolled in Amazon Prime without making a purchase.

This complaint was brought under the UDAP arm of the FTC and the Restore Online Shoppers' Confidence Act. The complaint seeks an injunction barring the practices, civil penalties, and other relief. A win in this consumer protection case has the potential to lower barriers to exit for customers who might otherwise buy a product on another platform, thus lowering barriers to entry for competitors through multihoming.

It does not matter whether the UDAP case was brought separately or whether it was brought as an additional count in the larger antitrust/UMC complaint. Either is substantively and procedurally correct. What does matter is how the FTC can use the full array of its statutory powers to remedy harm in the real world.

We do not suggest that integration of consumer protection remedies to mitigate antitrust harms is a panacea in the United States or Germany. We do suggest that there are important commonality of issues arising in both the consumer protection and the antitrust context. To the extent that the harms arise from similar sources, the more expedient path to remedy would also be the most beneficial, especially if the competition enforcer has both sets of statutory tools.