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The FTC is Searching for Weak Links in its Investigation of the Retail Supply Chain

Posted  December 6, 2021
By Allison F. Sheedy, Janice Johnson

Last week the Federal Trade Commission began an investigation searching for the weak links causing supply chain disruptions in the U.S. economy.

The FTC issued orders under Section 6(b) of the FTC Act—administrative subpoenas seeking detailed information—to nine of the country’s largest retailers, wholesalers, and consumer goods suppliers, including Amazon, Walmart, Proctor & Gamble, and Kraft Heinz Co.  The FTC’s stated goals are understanding current supply chain disruptions and how these disruptions may be affecting competition.  This broad ranging investigation follows on the heels of recent media reports about supply chain disruptions and ongoing consumer goods shortages.  The investigation is not focused on enforcement, at least not yet.

While many business lawyers and executives are familiar with Section 5 of the Federal Trade Commission Act (the FTC Act), which outlaws unfair or deceptive trade practices, one of the lesser-known powers of the Federal Trade Commission (FTC) comes under Section 6 of that same Act.

Section 6(b) empowers the Agency to conduct broad-based industry studies and seek any relevant information. The statutory provision authorizes the FTC to conduct these studies without a specific law enforcement purpose.  As part of this process, the FTC issues Section 6(b) “orders” that are typically wide-ranging requests for documents and data (similar to Civil Investigative Demands under Section 5).

This statutory provision, arguably, is a relic of a different age, when the FTC, as an administrative agency, was tasked with becoming an expert in particular industries.  It enables the agency, without going on a war footing (i.e., opening an investigation where they allege a violation of the law), to engage in broad discovery related to a particular industry practice and its potential effects on competition and consumer welfare.

These investigations typically, but not always, result in a public study summarizing the findings and sometimes recommending further actions by the FTC or industry participants.  These studies are classified as policy and research work product rather than serving a specific law enforcement purpose.

During the past decade, the FTC has spearheaded approximately 12 other 6(b) investigations in a wide swath of industries.  A list of these investigations and formal outcomes is included in the table at the end of this article.

While some 6(b) investigation seem to have ended with a thud, others arguably have informed the FTC’s competition and consumer protection enforcement programs going forward.  For example, it is unlikely that the FTC’s 6(b) investigation on the effects of unreportable transactions by large technology firms that it started in February 2020 had no relationship to the FTC’s decision in February 2021 to decrease the size of reportable transactions.

One noteworthy aspect of  the FTC’s current supply chain investigation is its focus on firms at the back end of the chain.  Many of the news reports on the supply chain have explored issues having to do with ocean shippers, congestion at ports, and container transport as underlying the disruptions.  One might question why the FTC has issued 6(b) orders to retailers and suppliers of consumer products (e.g., the purported victims) rather than those involved in the transportation of goods.

One answer is that ocean shippers enjoy a limited exemption from the antitrust laws, including specifically from the FTC Act, by virtue of the Shipping Act.  While the FTC may not have the jurisdiction – today—to investigate many transportation issues that underlie supply chain disruptions, the antitrust immunity conveyed by the Shipping Act has recently come under criticism by the Biden administration.

An integral part of the Section 6(b) process is an opportunity for entities with legitimate grievances to put their best foot forward, factually, and present evidence to the Commission as to why there are problems in the industry that go beyond normal business practices.  The Commission may well be intent on creating a record, with this investigation, of why shipping immunity is no longer warranted.

FTC 6(b) Investigations of the Past Decade

Date Industry Target Outcome
December 14, 2012 FTC issued orders to 9 data brokerage companies seeking information regarding their collection & use of consumer data.

 

May 27, 2014 study recommending legislation requiring increased transparency in the data broker industry.

 

September 27, 2013 FTC began process of initiating orders to Patent Assertion Entities (“PAEs”) to understand how PAEs impact innovation and competition.

 

October 6, 2016 study recommending patent litigation reforms to address asymmetries in PAE patent litigation.

 

March 7, 2016 FTC issued orders to 9 companies that conduct Payment Card Industry Data Security Standards (PCI DSS) audits seeking information on the auditing of payment card companies.

 

No public study.

 

May 9, 2016 FTC issued orders to 8 mobile device manufacturers, seeking information on the issuance of security updates to smartphones, tablets, and other mobile devices. February 2018 study recommending more immediate security and better record-keeping.
November 14, 2016 FTC issued orders to 8 class action claims administrators seeking information on the procedures used to notify class members about settlements and the response rates associated with various methods of notification. September 2019 study presenting findings.
March 26, 2019 FTC issued orders to 7 internet broadband providers, seeking information on their collection, retention, use, and disclosure of consumer information. October 2021 study presenting findings.

 

 

October 3, 2019 FTC issued orders to 6 e-cigarette manufacturers, seeking information regarding their sales, advertising, and promotional practices. No public study.

 

October 21, 2019 FTC issued orders to 5 health insurance companies and 2 health systems, seeking information regarding the effects of certificates of public advantage (COPAs) on competition. No public study.

 

February 11, 2020 FTC issued orders to 5 large technology firms, seeking information on the terms, scope, structure, and purpose of transactions related to prior acquisitions and mergers not reported under the Hart-Scott-Rodino Act. September 2021 study presenting findings.
December 14, 2020

 

FTC issued orders to 9 social media and video streaming companies, seeking information on their collection, use, and presentation of personal information, their advertising practices, and the effects of their practices on children and teens. No public study.
January 14, 2021 FTC issued orders to 6 health insurance companies, seeking information regarding the effects of physician group and healthcare facility consolidation. No public study.
March 1, 2021 FTC issued orders to 5 e-cigarette manufacturers, seeking information about their 2019 & 2020 sales, advertising, and promotional expenditures. No public study.

 

Written by Allison F. Sheedy and Janice Johnson

Edited by Gary J. Malone

Tagged in: Antitrust Enforcement,