Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: Commissioner Wright publicly criticizes FTC’s enforcement action against Apple, (Aug 1, 2014)

By Greg Hammond, J.D.

FTC Commissioner Joshua D. Wright criticized the FTC’s complaint and March 2014 consent order against Apple yesterday during a panel on the agency’s use of economics held in Washington, D.C. In his prepared remarks, entitled “The Economics of Digital Consumer Protection: One Commissioner’s View,” Wright urged the Commission—moving forward—to properly weigh the costs and benefits to consumers when pursuing enforcement actions on the basis of “unfairness.”

“I dissented from the Commission’s issuance of an administrative complaint and consent order because I felt that the Commission did not adequately weigh the costs and benefits of Apple’s business decisions prior to bringing a case alleging that Apple unfairly failed to obtain express informed consent on its billing platform,” Wright remarked.

“In-app purchases.” The FTC’s administrative complaint against Apple, which was filed in January 2014, alleged that the company engaged in “unfair acts or practices” by billing parents and iTunes account holders for the activities of children on Apple mobile device software applications. Specifically, the Commission charged that because Apple did not expressly inform account holders that entering a password once would open up a 15-minute time period for users to make additional purchases, without re-entering the password, Apple billed parents and iTunes account holders without their express informed consent when children made “in-app purchases” (In the Matter of Apple Inc., File No. 112 3108, Docket No. C-4444).

Unfairness. In 1994, Congress created Section 5(n) of the FTC Act, which allows the Commission to pursue enforcement action on the basis of “unfairness” when an act or practice “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.” According to Wright, “this standard calls for an economic analysis of the allegedly unfair business practice.” Further, “the economic analysis it invites is an appropriately flexible one—incorporating not only the harms to aggrieved consumers but also any benefits to consumers or to competition more generally.”

While the Commissioner conceded that the evidence clearly supported an inference that Apple’s business practice harmed at least some consumers, he noted that it was an “extremely small—and arguably, diminishing—subset of consumers.” To the contrary, “the overwhelming majority of consumers used the very same mechanism to make purchases,” he said, and “those purchases were properly authorized.” Further, he asserted that Apple’s choices with how its products are designed, including how Apple communicates with consumers about their billing platform for in-app purchases, improves some consumers’ experiences and enhances the value of Apple’s platform and products.

According to Wright, “the unfairness standard places upon the Commission the burden of showing that the harms from Apple’s choices outweigh the benefits. But the Commission offered no such evidence.” He concluded, “I strongly believe that the Commission should have conducted a much more robust analysis to determine whether the injury to this small group of consumers justified the finding of unfairness and the imposition of a remedy.”

Recommendations. In moving forward, Commissioner Wright suggested three critical lessons and recommendations for incorporating economic analysis, including the application of unfairness to high-tech markets, into FTC decision-making. He recommended: (1) “the Commission should take seriously the fact that unfairness analysis does not contemplate a rule of strict liability or per se illegality;” (2) “cost-benefit analysis in multi-sided markets and software platforms necessitates analysis of the harms and benefits on all sides of the market in order to fully understand the impact of the practice upon consumers and competition as required;” and (3) economic analysis of potential harms and benefits must take into account fundamental differences between latent defects that can only harm consumers, and practices that impact the value of consuming the product itself.

The remarks were delivered during a program sponsored by TechFreedom and the International Center for Law and Economics.

News: ConsumerProtection FederalTradeCommissionNews