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Hints of a Narrowing of the FTC’s Section 5 Authority Under a Trump Presidency

The transition of power from President Barack Obama to President-Elect Donald Trump is underway.  Although President-Elect Trump did not lay out specific policy prescriptions about data privacy or consumer protection during his candidacy, his recent choice of Dr. Joshua D. Wright to lead transition efforts at the Federal Trade Commission provides some hints as to the direction the agency may take under a Trump administration.

Overview of the FTC

Congress established the Federal Trade Commission (FTC) as an independent agency in 1914.  The FTC organizes its work into three bureaus: the Bureau of Competition; the Bureau of Consumer Protection; and the Bureau of Economics.  See www.ftc.gov (noting that the Bureau of Competition “enforces the nation’s antitrust laws;” the Bureau of Consumer Protection “stops unfair, deceptive and fraudulent business practices” by “collecting complaints,” “conducting investigations,” and “suing companies and people that break the law”; and the Bureau of Economics “helps the FTC evaluate the economic impact of its actions”).  Whereas economists generally participate in all investigations of alleged antitrust violations, as a general matter, the Bureau of Economics’ role on the consumer protection side of the FTC is less well-ingrained.

Today, the FTC describes itself as the “chief federal agency on privacy policy and enforcement.”  It derives certain enforcement authority from Section 5(a) of the FTC Act (§ 5), which empowers the FTC to “prevent persons, partnerships, or corporations . . . from using . . . unfair or deceptive acts or practices in or affecting commerce.”  In 1994 Congress added § 5(n), which specifies that conduct is “unfair” only if it “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or competition.”  During the Obama administration, the FTC has aggressively pursued enforcement actions under Section 5.

The FTC is headed by five Commissioners, nominated by the President and confirmed by the Senate, each serving a seven-year term.  The President chooses one Commissioner to act as Chairman and no more than three Commissioners can be of the same political party.   

The FTC currently has two open seats on its five-member panel.  President-Elect Trump’s first task will be to fill two seats and appoint a new Chairman.  Thus, for the first time in nearly a decade, the FTC will have a 3-2 Republican majority.

The Future of the FTC Under President-Elect Trump

On November 15, 2016, President-Elect Trump named Dr. Joshua D. Wright to lead transition efforts at the FTC. 

Dr. Wright holds a B.A. in Economics at the University of California, San Diego and a J.D. and a Ph.D. in Economics from the University of California, Los Angeles.  Prior to this appointment to President-Elect Trump’s transition team, Dr. Wright was a professor at George Mason University (GMU) School of Law where he also served as Director of the Global Antitrust Institute at the Law and Economics Center and held a courtesy appointment in GMU’s Department of Economics.  He has published more than 60 articles and book chapters, co-authored a casebook, and edited several book volumes focusing on antitrust law, economics, and consumer protection. 

Dr. Wright’s history of service with the FTC dates back to 1997, when he served as an intern in the Bureau of Economics and the Bureau of Competition.  He returned to the FTC in the Bureau of Competition as its inaugural Scholar-in-Residence from 2007 to 2008, where he focused on enforcement matters and competition policy.  In 2012, Dr. Wright, a Republican, was nominated to the FTC by President Obama to replace Commissioner J. Thomas Rosch, also a Republican, whose term had expired.  He was unanimously confirmed by the U.S. Senate on January 1, 2013. 

During his tenure as a Commissioner, Dr. Wright pushed for greater guidance on the meaning and scope of the FTCs authority to police “unfair” and “deceptive” practices under Section 5.  He argued that additional guidance was necessary to give the business community clarity and predictability on FTC enforcement practices.  Dr. Wright served as a FTC Commissioner until his resignation on August 24, 2015.  Immediately before this departure, Dr. Wright played a large role in negotiating a bipartisan agreement for the FTC to publish guidance on the boundaries and meaning of its Section 5 unfair methods of competition authority.   

After his resignation from the FTC, Dr. Wright returned to GMU as a professor.  In January 2016 he joined the antitrust practice of the firm Wilson Sonsini Goodrich & Rosati as Senior Of Counsel in the Washington, D.C., office.

Although there are many uncertainties as to the future of the FTC’s enforcement priorities, Dr. Wright’s vision for the FTC has been quite public and provides some hints as to the possible direction of the agency under President-Elect Trump’s leadership.  In particular, Dr. Wright delivered a speech in November 2015 in which he discussed, among many things, his recommendations for how the FTC can be made better and stronger.  See Joshua D. Wright, The FTC and Privacy Regulation: The Missing Role of Economics, Remarks at George Mason University School of Law Center for Privacy Economics Briefing on Nomi, Spokeo, and Privacy Harms, Arlington, Virginia (Nov. 12, 2015) available at http://masonlec.org/site/rte_uploads/files/Wright_PRIVACYSPEECH_FINALv2_PRINT.pdf.

This speech—delivered shortly after Dr. Wright’s resignation from the FTC and at a time when President-Elect Trump was just a contender for the Republican nomination—provides insight into the possible enforcement priorities of the FTC during a Trump administration.  A review of these recommendations is discussed below:

  • Recommendation #1 – The Bureau of Economics must serve the Commission, not the Bureau of Consumer Protection, when those two conflict.

In his first recommendation, Dr. Wright builds upon his April 2015 dissent in a recent FTC enforcement action about mobile device privacy, In the Matter of Nomi Technologies, Inc.  Nomi is a consumer analytics company that assists retailers to track in-store consumers by collecting their cell phone MAC addresses.[1]  The Nomi privacy policy claimed to offer mechanisms for opting out of this tracking at retail locations.  Despite this policy, no mechanism for opt-out was implemented at the retailers’ physical locations and, instead, was available online only.  On April 23, 2015, the five-member FTC voted 3-2 to accept a proposed consent order that would settle claims arising from these alleged misrepresentations in the online privacy policy.  In his dissent, Dr. Wright argued that the lack of an opt-out method at the retail stores was never shown to be “material” in light of an opt-out mechanism made available online.  Without such a showing of materiality, Dr. Wright argued that the FTC enforcement action was entirely unnecessary.

Building on this dissent in Nomi, Dr. Wright’s November 2015 speech rejects the notion that the FTC’s Bureau of Economics “should be a litigation and research support team” for the Bureau of Consumer Protection.  Instead, he indicates that the FTC should use the Bureau of Economics to “encourage a deeper integration of economics and cost-benefit analysis into the consumer protection framework at the Commission.”  He criticizes current consumer protection efforts of the FTC, noting that “[s]ometimes, from an economic perspective, the direction the FTC is going in terms of consumer protection enforcement does not make economic sense.” 

If Dr. Wright’s comments are reflective of President-Elect Trump’s vision for the FTC, then the FTC may require greater empirical economic evidence of when and how consumers are harmed by deceptive statements and omissions in privacy policies.  The FTC under President-Elect Trump may also hesitate to bring enforcement actions where the sole deceptive act is the failure to adhere to stated policies and practices.

  • Recommendation #2 -The FTC Should Be an Intellectual Leader in the Movement to Create Economically Coherent Privacy Regulation

Next, Dr. Wright suggests that the FTC should increase the rigor of its work product and economic analysis.  Specifically, he recommends establishing a “rigorous research agenda for understanding the economics of privacy policies.”  He notes that the FTC publishes staff reports that can and do impact public policy debates.  And he strongly suggests that the FTC must beef up the rigor in its publications and economic analysis.  “The FTC has the legal authority, the human capital, and the economic talent to be a leader in the economic approach to privacy. It should do so.”  Dr. Wright’s comments may reflect the FTC pursuing a more thoughtful and data driven enforcement philosophy during the Trump administration.

  • Recommendation #3 – The FTC Should Require the Bureau of Economics to Make Public Its Views in All Consents

Most FTC cases applying the “unfairness” prong of Section 5 are resolved by consent decree.  Dr. Wright’s final recommendation seeks to increase the transparency and reasoning of FTC’s thought process in entering into these decrees.  He recommends that the Bureau of Economics take a public position on all consent decrees entered into by the FTC.  By making the economic analysis public, Dr. Wright seeks to create “a mechanism to discipline privacy consents that are not supported by sound economics.”  Such a policy, if implemented, will help clarify the parameters of what the FTC considers  a “reasonable” data security policy, thereby assisting companies ensure their own policies are not “unfair” within the meaning of Section 5.

Conclusion

During the Obama administration, the FTC has used its Section 5 authority to conduct enforcement actions in a number of areas related to data privacy and data protection.  See Jessica Rich, Director of the FTC Bureau of Consumer Protection, Consumer Protection 2015: Back to Basics for the New Media (June 11, 2015) available at http://bit.ly/2f9q87k.  While we do not yet know the Trump administration’s priorities for the FTC, it is fair to say that—with Dr. Wright leading the transition efforts—the wind is shifting and changes in Section 5 enforcement priorities may be expected. 


[1] The Media Access Control (MAC) address is a unique 12-character identifier (e.g. 00:00:00:00:00:0X) for a specific piece of hardware, like the network adapter located in WiFi devices.