FTC Chairman Discusses Importance of Attacking Public Restraints on Competition

Federal Trade Commission Chairman Timothy J. Muris today addressed Fordham University’s Annual Conference on International Antitrust Law and Policy on the role of competition policy in attacking public restraints on trade. Muris emphasized that restraints imposed by governments are as important a focus of competition policy as private restraints on trade, such as those imposed by firms, emphasizing that an antitrust policy that addresses only one type of restraint likely will be ineffective. He also discussed the FTC’s work against public restraints in the United States and compared it to the European approach to the issue.

Muris stated that focusing solely on combating private restraints only addresses part of the issue, as it leads firms to believe that private, objectionable business practices can be accomplished through public channels: “If you create a system in which private price fixing results in a jail sentence, but accomplishing the same objective through government regulation is always legal, you have not completely addressed the competitive problem – you simply have dictated the form that it will take.” He noted that, in most instances, rational firms prefer governmental restraints, as they eliminate the need to maintain secrecy and often are more effective at restraining competition.

Muris stated that despite significant differences between U.S. and EU institutions, there are “impressive” similarities between their approaches to addressing the issue of public restraints. He noted that the U.S. and the EU share parallel histories in creating and implementing competition policy. He said that both uphold the importance of open markets, limit member states from burdening interstate commerce, and give central institutions the responsibility to curtail protectionism. Muris stressed that despite their progress, both the U.S. and EU must continue to use all available tools to fight public restraints on competition, including persuading other government bodies and their constituents to adopt policies that promote competition.

Muris stated that a prime example of public restraints, or “rent seeking,” involves the regulated professions, specifically overly strict licensing rules. “When it effectively restricts the supply of qualified professionals, licensing tends to raise prices,” Muris said. He explained that U.S. competition authorities have encouraged states to adopt professional regulations that stimulate competition, rather than suppress it, and cited several recent cases in which the FTC has urged state bars to reject proposals to prevent nonlawyers from competing with lawyers for services both could provide. He noted that policymakers largely have welcomed the FTC’s efforts, and that the agency has been particularly successful when it offers empirical evidence on the potential impact on consumers. For this reason, Muris stressed that the “competition agency of the future should commit itself to thorough conceptual and empirical analysis.”

Muris addressed the issue of the state action doctrine, first articulated by the U.S. Supreme Court in 1943. The doctrine states that certain regulatory conduct is shielded from federal antitrust enforcement, provided that the conduct is in furtherance of a clearly articulated state policy and is actively supervised by the state. He stated that “some courts have expanded the protection of the state action doctrine well beyond its original scope,” and explained that the FTC created a State Action Task Force in June 2001 to re-examine the scope of the doctrine, issuing a report in September 2003. The report concluded that “steady erosion of existing limitations on the doctrine” has contributed to a considerable increase in the doctrine’s scope, which “may raise significant antitrust concerns.”

The Task Force Report recommends clarifications to bring the doctrine more closely in line with its original objectives, including: reaffirming a clear articulation standard tailored to the doctrine’s original purposes; clarifying and strengthening the standards for active supervision; and undertaking a comprehensive effort to address emerging state action issues through the filing of amicus briefs in appellate legislation. Muris cited several recently filed FTC cases that involve these recommendations, including South Carolina Board of Dentistry, in which the FTC alleges the Board unlawfully restrained competition in the provision of preventive dental care, and several cases involving household goods movers, in which movers’ associations allegedly engaged in the establishment of collective rates to be charged by competing movers.

Muris concluded that “public intervention can rob the marketplace of its vitality at least as effectively as purely private conduct.” He stated that “competition law,” which encompasses issues of both private and public restraint, is a more accurate and descriptive term than “antitrust law,” which implies exclusively stopping private behavior that restrains trade. He stressed the importance of collaboration at a time when the world’s competition policy is becoming increasingly complex. “Our collective experience presents not simply problems to be solved, but also opportunities to be grasped,” Muris said. “With the wisdom to adopt the good ideas of others, we can achieve a policy synthesis that surpasses what we could accomplish in isolation.”