Rapidly Changing Marketplace Demands New Practices for Government, Businesses, and Consumers, Says FTC Staff

“Increasing globalization and rapid innovation are profoundly altering the marketplace, creating new possibilities and raising new problems for consumers, businesses and government agencies,” according to a ground-breaking Federal Trade Commission staff report. If the U.S. marketplace is to function competitively in this new world economy, government must understand and keep pace with these developments, the staff concludes.

The report, a comprehensive analysis of how increasing global competition and dynamic technologies are affecting businesses and consumers, explores how one government agency, the FTC, can work to ensure that the marketplace continues to operate competitively and fairly for businesses and consumers in the 21st century. Public hearings, initiated by the Commission last fall, were the basis for the report. At those hearings, businesses and consumers stressed that vigorous enforcement of competition and consumer protection laws is crucial to maintain a marketplace that benefits U.S. consumers and that positions U.S. firms to compete fiercely abroad.

In releasing the report, Chairman Robert Pitofsky said: “It is not enough for regulatory agencies to simply enforce those laws entrusted to them. It is at least equally important to be alert to the question of whether the laws they are enforcing are up-to-date and continue to make sense. That is particularly true in the commercial world where vast changes in global competition and in the pace and importance of technology rivalry has changed and will continue to change the nature of competition.”

As a first step toward considering new policies, the FTC today asked the Justice Department’s Antitrust Division to join it on a task force to reexamine how cost savings created by a merger should be taken into account in analyzing whether the merger violates antitrust laws. Although, currently the agencies and courts may consider such merger-generated cost savings, there is uncertainty as to when and how they should be weighed. Under one approach described in the staff report, a merger’s likely cost savings would have to be considered to determine whether they were likely to prevent any anticompetitive effects from the merger.

In reaching its conclusions, the staff proposes adjustments to federal antitrust policy and considers new ways to protect consumers and businesses. The report says, “government alone cannot resolve all of the novel issues that are arising. To solve certain problems, we need to think of ourselves not only as law enforcers but also as a potential partner with consumers, businesses, non-profit institutions, and other government agencies.”

The report, titled “Anticipating the 21st Century: Competition and Consumer Protection Policy in the New High-Tech Global Marketplace,” summarizes extensive public hearings on global and innovation competition held from October to December 1995. Released in two volumes, the report’s analysis proceeds from testimony at the hearings, but relies on many other sources as well.

Volume One, titled “Competition Policy in the New High-Tech, Global Marketplace,” examines changes in business conduct and transactions in response to global and innovation competition. Its goal was “to articulate recommendations that would effectively ensure the competitiveness of U.S. markets without imposing unnecessary costs on private parties or governmental processes.” To ensure that U.S. markets continue to remain competitive in the 21st century, the staff report includes the following proposals, along with many others:

• EFFICIENCIES--According to the report, “One strategy for businesses seeking to improve their competitive position today is to achieve efficiencies--that is, cost savings--through mergers.” Current antitrust merger analysis does not consistently require consideration of the probable competitive effects of cost savings likely to be achieved through merger. The FTC report establishes a strong basis for reexamining this approach. One of the report’s proposals suggests that in both agency review and court litigation, enforcers address whether merger- created efficiencies may affect the merged firm’s abilities and incentives in ways that are likely to prevent decreased competition.

• INNOVATION--The report proposes that the FTC continue and, in some cases, expand its ongoing activities to ensure that consumers benefit from competition caused by firms racing to innovate better and faster. First, the report proposes that when examining mergers, the FTC should continue the same careful approach to “innovation market” analysis that it already uses for intellectual property licensing issues. This approach would ask whether a proposed merger likely would harm consumers by eliminating, delaying or lessening the diversity or quality of research and development efforts directed to a particular product. Second, the report suggests that the Commission consider how to inform other federal authorities of possible anticompetitive issues if software and biotech intellectual property rights are overbroad. According to the report, it is preferable to address any competitive concerns posed by possibly overbroad patents before they are issued, rather than to investigate later whether complex business conduct made possible by broad patents may be anticompetitive. Finally, for new technologies involving networks and standards, the report points out that they tend to involve instances when heightened antitrust scrutiny is necessary.

• *SMALL BUSINESSES--Government and private entities should find ways to keep small businesses better informed about what types of collaborative activity do and do not raise antitrust concerns.

Volume Two, titled “Consumer Protection in the New High-Tech, Global Marketplace,” reports on hearings held last fall on consumer protection issues. It offers a broad and comprehensive description of the challenges and opportunities consumers are apt to confront as a result of the changes in information technologies. The hearings focused on telephone, television, and computer technologies.

The report emphasizes that while these technologies will give consumers access to unlimited amounts of information, a global marketplace and more control, they also can provide fertile ground for old-fashioned scams. Government and industry must work together to see that sound consumer protection principles remain firmly in place.

According to the report, “[T]here is no sign that low-tech scams will go away, and strong evidence that ?next-tech’ scams will increase and be more difficult to detect and track across international borders. Law enforcement agencies must work harder, smarter, and in concert to maximize the impact of their limited resources.

“Meaningful consumer protection in the 21st century will take coordinated law enforcement against fraud and deception; private initiatives and public/private partnerships; and consumer education through the combined efforts of government, business, and consumer groups,” the report says.

The report highlights the obstacles to global commerce presented by a “patchwork” of laws in different nations. A variety of regulations in such areas as telemarketing, food and pharmaceutical marketing and environmental claims “creates obstacles for legitimate businesses engaged in global trade, which must incur the costs of compliance with a variety of legal standards, and which often face uncertainties about the legal standards that apply to their transactions.”

In response, the FTC is reviewing its regulations “to assure that they are well-suited to the new global marketplace, and adapt them where circumstances warrant.” The report cites its current initiative to revamp its Care Labeling Rule, for clothing and other textile products, as “an important first step in that direction.”

Noting that new technology is pushing certain issues--such as privacy and marketing to children--to the forefront of public debate, the report identifies a number of issues that will be discussed at a Bureau of Consumer Protection workshop on online privacy to be held June 4 and 5. The report will be used to “help the Commission staff plan a consumer protection agenda” for the near term.

The Commission’s vote to release the staff report was 5-0.

In a separate concurring statement, Commissioner Roscoe B. Starek, III, stated he actively supported the Commission’s Hearings on Global and Innovation-Based Competition-- and the not insignificant diversion of Commission resources they have required. “I think that those enforcing the law have an obligation to hear the views of business leaders, academia, and the bar on how this agency is doing its job,” he said. Commissioner Starek went on to say that he had some reservations regarding the competition law and policy sections of the Staff Report. “On many significant issues, it is by no means clear where the Report’s objective assessments end and its policy advocacy begins. This is particularly regrettable because it obscures so much that is of value in the document,” he said. The Commissioner concluded by stating that although the hearings called upon the Commission to examine critically some of its basic assumptions, the Report seems to favor the substitution of certain new orthodoxies for several of the old. “If that is to be the legacy of this endeavor, the respect accorded to the views of this agency will only be diminished,” Commissioner Starek said.

Copies of both volumes of the report are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov

(FTC Matter No.: P95 1201)