FTC Shifting Priorities, Relying Less on Economic Data in Developing Markets, Say Current, Former Officials

The FTC has continued its assertive stance on in-app purchases, filing a lawsuit against Amazon over similar issues. The shifts under FTC Chairwoman Edith Ramirez are “nothing dramatic,” Wright said, but “the priorities are shifting around into areas like privacy or cases like Apple.” And in these areas, “one-sided economic analysis in multi-sided markets is a recipe for a consumer protection policy that does more harm than good,” he said. “This is especially so in those high-tech and digital markets that are driving economic growth and generating remarkable welfare gains for consumers.” James Cooper, a former deputy director of the FTC Office of Policy Planning who left the commission three years ago, asked, “Is a zero consumer complaint where the market needs to go?"

"The FTC has a myopic vision” of what the appropriate in-app purchase system looks like, said Geoffrey Manne, executive director of the International Center for Law and Economics. The FTC, Wright said, “simply substituted its own judgment for a private firm’s decisions as to how to design its product to satisfy as many users as possible, knowing some harm would come to a small group of consumers.” It failed to back up its judgment with rigorous economic data, Wright said -- a pattern that is becoming commonplace, Manne added. The FTC’s complaints are “formulaic” and “obfuscate who was injured,” Manne said. Such thin economic rigor might not survive a motion to dismiss, he said. One FTC data security case, against hotel chain Wyndham, did stand up to a motion to dismiss.

The Apple case was backed by robust data, said Pauline Ippolito, a former deputy director of the FTC’s Bureau of Economics and briefly the bureau’s acting director in 2013. The settlement evolved based on internal debates over that data, added Ippolito, who retired after a three-decade FTC career shortly after the Apple settlement. “Because we had data, the case that Apple began as, is not at all the case it ended as,” said Ippolito. The internal debate “produced a very different outcome than what was the initial proposal,” she said. “That’s completely invisible to the business community.” The Apple case gave a rare, albeit incomplete, glimpse into the behind-closed-doors maneuvering, Ippolito said. In addition to Wright’s dissent (http://1.usa.gov/K3I5F7), Commissioner Maureen Ohlhausen issued a separate concurring statement (http://1.usa.gov/19uG14m). “That’s unusual,” she said. “That’s one of the real challenges on the consumer side."

Economic data is particularly salient in policymaking cases, like Apple, Ippolito said. “That’s where ideally the economists play a bigger role,” she said. But the FTC is primarily setting policy in nascent markets, such as the mobile app and platform space. “It is difficult in emerging areas to get good data,” said Howard Beales, director of the FTC Bureau of Consumer Protection from 2001 to 2004. “That limits what the economists can do and the influence that they can have on the nature of the decisions that are made.” Ippolito conceded, “when you're doing theory against anecdote, anecdote wins."

Absent sufficient economic data, the FTC should refrain from making legislative or best practice recommendations, Ippolito said. “A lot of people up on the Hill only have time to read the ‘what are they suggesting?’ and, ‘Should we put that in legislation?'” The FTC in May unveiled a slate of legislative proposals for data brokers to require more transparency, limit data uses and heighten user consent standards. “I think there ought to be a more solid foundation if we're going to be making recommendations on legislation certainly, and even best practices,” Ippolito said. “The government as management consultant makes me nervous.”