Antitrust Law Daily FTC adopts repair restriction policy statement, rescinds merger enforcement ‘prior approval’ statement
Wednesday, July 21, 2021

FTC adopts repair restriction policy statement, rescinds merger enforcement ‘prior approval’ statement

By Jeffrey May, J.D.

During an open meeting, the Commission also voted to retain its Care Labeling Rule. Republican commissioners questioned the agency’s new virtual meeting process and suggested a lack of deliberation.

The FTC today voted unanimously to adopt a proposed policy statement on improper repair restrictions imposed by manufacturers and sellers and to retain the Commission’s Care Labeling Rule. The Commission also voted to rescind a 1995 policy statement regarding "prior approval" and "prior notice" remedies in merger cases; however, that vote was along party lines. The two Republican commissioners also took the opportunity to question the new virtual meeting process and the lack of deliberation that they believe has resulted from the new approach.

Right-to-repair effort. A unanimous Commission adopted a policy statement aimed at manufacturer practices that make it extremely difficult for purchasers to repair their products or shop around for other service providers to do it for them. The move follows a 2018 workshop on the topic and a recent "Nixing the Fix" report to Congress that concluded that manufacturers use a variety of methods—such as using adhesives that make parts difficult to replace, limiting the availability of parts and tools, or making diagnostic software unavailable—that have made consumer products harder to fix and maintain. The report identified how manufacturers, including mobile phone and car manufacturer, may limit repairs by consumers and repair shops, and how those limitations may increase costs, limit choice, and impact consumers’ rights. The right-to-repair effort also was among the competition initiatives identified by the Biden Administration in its July 9 Executive Order.

"By enforcing against restrictions that violate antitrust or consumer protection laws, the Commission is taking important steps to restore the right to repair," said FTC Chair Lina Khan in describing the effort.

"The adoption of today’s Policy Statement makes clear that the Commission will investigate unlawful repair restrictions using the Magnuson-Moss Warranty Act and other consumer protection laws, as well as antitrust law, to promote fair and open repair markets," said Commissioner Rohit Chopra. He added that the Commission needed to go beyond enforcement and consider assisting states in crafting right-to-repair laws.

In supporting the adoption of the policy statement, Commissioner Christine Wilson noted the need for preserving legitimate intellectual property rights in this area. "IP rights can create barriers in repair markets, but manufacturers have IP rights that may justify certain restrictions," said Wilson. "A full exploration of those IP issues fell outside the scope of the report, but I am confident that we will be asked to consider those issues in upcoming cases and we should do so thoughtfully."

Expressing concern about the need for encouraging innovation, she added that did not support a "blanket condemnation of exclusionary design choices." Wilson suggested proceeding "with the appropriate level of caution in considering instances in which manufacturers also are competing downstream in repair markets" and urged the "Commission to adopt this approach when evaluating the issue of exclusionary design."

Following the vote on the policy statement, members of the public commented on the effort as well as other Commission matters. For instance, Edward Salamy, Executive Director of the Automotive Body Parts Association (ABPA), was among the speakers who supported the FTC’s adoption of the policy statement on repair restrictions. The ABPA is a founding member of the Consumer Access to Repair (CAR) Coalition, which applauded the earlier report.

Mark Hennessey, President/CEO for the Iowa-Nebraska Dealers Association, on the other hand, contended that right to repair already exists in the agricultural sector.

Prior approval/prior notice policy statement rescission. Along party lines, the Commission voted to rescind a Clinton-era policy statement regarding "prior approval" and "prior notice" remedies in merger cases. An agency press release said that the 1995 policy statement made it more difficult and burdensome to deter problematic mergers and acquisitions. However, Republican Commissioners Wilson and Noah Joshua Phillips disagreed with that view.

In 1995, the Commission did away with a requirement that companies that had violated the law in a previous merger obtain prior approval by the FTC for any future transaction in at least the same product and geographic market for which a violation was alleged. The shift was based on the presumption that the Hart-Scott-Rodino Act premerger notification requirements would suffice.

According to Khan, since the 1995 policy statement, the Commission has included "prior approval" provisions in only a handful of cases. The majority took the position that the 1995 policy statement forced the Commission to re-review the same transaction on numerous occasions at considerable expense.

"Since the FTC substantially reduced using these prior approval provisions, the agency has encountered numerous examples of companies repeatedly proposing the same or similar deals in the same market, despite the fact that the Commission had earlier determined that those deals were problematic. Companies have also in several cases sought to buy back assets that the Commission ordered those same companies to divest," Khan during the meeting. "Without a prior approval provision, the Commission must initiate a whole new investigation and then go into court to block the deal anew. This additional burden drains the already strapped resources of the Commission."

In her dissenting statement, Wilson said that the policy statement had worked for 25 years, and that rescission of the policy statement created uncertainty for business. Wilson and Phillips called on the agency to seek public comment on rescission; however, the effort was shut down by the Democratic majority.

Slaughter rejected the notion that the move creates uncertainty. She said that the rescission provides certainty that the Commission "intends to aggressively enforce the antitrust laws to use all of the tools at our disposal."

Chopra added that the rescission ends a policy that "undermined deterrents and promoted repeat offenses of illegal merger activity." He suggested that this was a "simple requirement that a law violator in the merger context be required to gain the approval of the Commission before trying to do the same or similar unlawful deal."

Care labeling rule. In addition, the Commission voted 5-0 to maintain its Care Labeling Rule. In July 2020, the FTC sought public comment on whether rescinding the rule was in the public interest. The vast majority of responses supported maintaining the rule, it was noted.

Wilson voted to retain the rule but did question the use of symbols that do not meet international standards. She added that she was pleased that the Commission would consider updates to the rule but would have preferred if the Commission had set a firm timeline.

Questions of process. The two Republican commissioners also discussed during the meeting their concerns about new Commission processes and the lack of deliberation that they believe has resulted from the new approach. Wilson suggested that the new approach has led to "monologues with no interaction," resulting in meetings that are "akin to theater." She added: "Crushing internal dialogue diminishes the quality of our decision-making."

Fellow Republican Phillips echoed Wilson’s concerns about process. In objecting to the rescission of the 1995 policy statement, Phillips said "for the second time this month with the minimum notice required by law, virtually no public input an no analysis." Phillips was referring to the Commission’s vote on July 1 to rescind a 2015 antitrust policy statement that has constrained the agency’s use of its authority to stop anticompetitive business tactics under Section 5 of the FTC Act. Phillips and Wilson issued a dissenting statement. In today’s meeting, Phillips did note, however, that the effort to address improper repair restrictions demonstrated bi-partisan collaboration and deliberation.

MainStory: TopStory Antitrust AcquisitionsMergers GCNNews ConsumerProtection FederalTradeCommissionNews

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