Court’s “FTC v. Amazon” Decision Endorses Agency’s Disregard for Economic Analysis

amazonOn May 24, 2016 a subcommittee of the House of Representatives Energy and Commerce Committee held a hearing on a number of bills (17, to be exact) regarding the Federal Trade Commission’s consumer-protection mission. A number of proposals seek to fortify the vigor and transparency of the economic analysis FTC must perform when taking action against alleged “unfair” acts or practices under § 5 of the FTC Act. Some observers, (including former FTC Commissioner Josh Wright, who testified at the hearing) feel the Commission often gives short shrift to the “not-outweighed-by-countervailing-benefits-to-consumers-or-competition” language in the statute’s Unfairness Statement.

Wright’s testimony offers as an example the Commission’s 2014-2015 actions against several mobile app sellers’ “in-app purchase” sales practices. While on the Commission, Wright dissented from FTC’s complaint that Apple acted unfairly in how it designed the mechanism for app buyers to make purchases within the app. FTC alleged that Apple did not do enough to prevent children from making in-app purchases their parents did not authorize. In his dissent, Wright criticized FTC for failing to consider the countervailing benefits of Apple’s approach, such as relieving consumers of the need to constantly enter passwords, as well as the costs associated with government micromanagement of app design.

A WLF Legal Pulse post this time last year applauded Wright’s In re Apple dissent and discussed the broader importance of economic analysis in FTC “unfairness” determinations. An incomplete or half-hearted cost-benefit analysis, we argued, empowers FTC to impose its subjective judgment as to what’s best for the consumer. That approach evokes memories of the Washington Post calling FTC the “national nanny” in the late 1970s, a reputation that led Congress to rein in the Commission’s consumer-protection authority. A digital national nanny, we concluded, “would be disastrous for businesses large and small, and for consumers whose lives are enriched by fast-paced innovation.”

That post also noted that Amazon refused to settle with FTC over its in-app purchase practices, forcing the Commission to file suit in the Federal District Court for the Western District of Washington. On April 26, 2016, the court granted FTC’s motion for summary judgment, fully endorsing the Commission’s unfairness case. The opinion assessed the Commission’s application of § 5’s Unfairness Statement, including the “no countervailing benefits” part of the test. The court rubber-stamped FTC’s non-analysis and brusquely rejected Amazon’s economic and consumer-benefit arguments.

The Amazon decision, and particularly the court’s refusal to check FTC’s disregard for economic analysis, did consumers and the digital economy a disservice. We encourage those currently debating the Commission’s consumer-protection authority to consider the outcome of FTC v. Amazon and its regrettable endorsement of FTC micromanagement.

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