A newly announced change in Federal Trade Commission (FTC) policy could have dramatic implications for the ways manufacturers of everything from cell phones to cars draft warranties, design products, and distribute replacement parts. Specifically, the FTC has set its sights on repair restrictions.
On July 21, the Commission unanimously voted to approve a policy statement announcing increased antitrust and consumer protection enforcement against business practices that make it difficult for consumers to repair their own products, or use independent repair shops. Manufacturers should take note of this import change in enforcement policy, and promptly evaluate their exposure.
Notably, the FTC’s announcement comes on the heels of President Biden’s executive order “Promoting Competition in the American Economy,” which encouraged the FTC to address “anticompetitive restrictions on third-party repair or self-repair of items…” It also follows a recent report by the FTC to Congress addressing repair restrictions, and a July 2019 FTC workshop examining the issue.
One area of particular concern for the FTC is product warranties that require the use of specific service providers or parts. Section 102(c) of a 1975 federal law known as the Magnuson-Moss Warranty Act (MMWA) prohibits companies from conditioning warranty coverage, expressly or impliedly, on a consumer’s use of an article or service identified by brand, trade, or corporate name, unless the company provides that article or service without charge or the company has received a waiver from the FTC.
Recent reports, including empirical analyses cited by the FTC in its report to Congress, suggest that violations of Section 102(c) are widespread. Indeed, one recent analysis by a prominent public interest group alleged that 45 out of 50 companies whose warranties the group examined appeared to violate the provision. Accordingly, Section 102(c) enforcement is likely to play a prominent role in the FTC’s crackdown.
It also appears that the FTC intends to use its broad authority under Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices,” to challenge a wide range repair restrictions. In its report to Congress, the FTC highlighted the following practices in particular as “restricting independent repair or repair by consumers:”
“Physical restrictions” and “product designs that complicate or prevent repair”;
Purposely making parts, repair manuals, and diagnostic software and tools unavailable;
Designs that make independent repairs less safe, such as the use of glue to fasten lithium ion cells into mobile phones and other devices;
Steering consumers to preferred repair networks using telematics;
“Policies or statements that steer consumers to manufacturer repair networks”;
“Application of patent rights and enforcement of trademarks;
Disparagement of non-OEM parts and independent repair”;
“Software locks, Digital Rights Management and Technical Protection Measures”; and
“End User License Agreements.”
The diverse range of practices that the FTC has identified make this shift in enforcement an important issue for a wide range of companies. Still, there are clues to how the FTC may deploy its scarce resources in this area, at least initially.
First, its prior enforcement may provide an indication. In 2015, [...]
President Biden recently issued an executive order affirming his administration’s policy of enforcing the antitrust laws to “combat the excessive consolidation of industry” and cited healthcare markets as one of several priorities. The Federal Trade Commission (FTC) and US Department of Justice (DOJ) already have been actively enforcing the antitrust laws in provider consolidation matters. The FTC is currently challenging the proposed merger of two health systems in New Jersey, and in the past year unsuccessfully challenged the combination of Jefferson Health and Einstein Health in Philadelphia and successfully challenged the proposed combination of two health systems (Methodist Le Bonheur and Saint Francis) in Memphis.
The executive order follows a proposed bill to increase budgets for the FTC and DOJ, FTC resolutions on compulsory process in healthcare investigations, congressional calls to investigate the use of COVID-19 Provider Relief Fund payments for acquisitions, the FTC physician practice acquisition retrospective and other health antitrust developments.
On June 6, 2021, the US Senate passed the Merger Filing Fee Modernization Act of 2021. The bill is co-sponsored by Senator Amy Klobuchar (D-MN), the Chairwoman of the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights; and Senator Chuck Grassley (R-IA).
The bill amends the premerger notification provisions of 15 U.S.C. § 18a and substantially increases the Hart-Scott-Rodino Act (HSR) filing fees for large mergers, while also effectuating a slight decrease in HSR filing fees for smaller mergers. The text of the bill can be found here.
The adjusted HSR filing fees are as follows:
The proposed HSR filing fees are subject to annual increases based on the Consumer Price Index (CPI), unless the CPI increase is less than 1%. Any changes must be published by the Federal Trade Commission (FTC) each year (no later than January 31). The HSR filing fee thresholds themselves will remain correlated to Gross National Product (GNP).
The competition agencies also stand to directly gain from the passage of this bill. Section 3 of the bill authorizes the appropriation of increased funds for both the Department of Justice Antitrust Division (DOJ) and the FTC. The bill appropriates $252 million to the DOJ and $418 million to the FTC, substantially increasing the resources at the disposal of the regulatory agencies and even exceeding the FTC’s requested budget for FY 2022.
The bill is still subject to approval in the House of Representatives and by President Biden. But given the bipartisan support for this bill, its passage appears likely, and it raises the potential for additional bipartisan antitrust legislation in the future.
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