Federal Intrusion: Too Many Apps for That

[Commentary] The Federal Trade Commission claims the authority to second-guess product-design decisions under Section 5 of the 1914 Federal Trade Commission Act. The FTC may deem a product design "unfair" if it causes "substantial injury" to consumers that cannot reasonably be avoided. One caveat: The FTC by law must show that the consumer harm outweighs the design's countervailing benefits. But under Section 5, the FTC has especially broad discretion to decide what practices are "unfair." And because nearly all high-tech enforcement actions end in settlements, there is almost no case law to rein in the agency. These settlements -- known as consent orders -- always include significant oversight. And they are becoming common for tech companies. The FTC prefers consent orders because they extend the commission's authority with little judicial oversight, but they are too blunt an instrument for regulating a technology company. For the next 20 years, if the FTC decides that Google's product design or billing practices don't provide "express, informed consent," the FTC could declare Google in violation of the new consent decree. The FTC could then impose huge penalties without establishing that any consumer had actually been harmed.

[Manne is founder and executive director of the International Center for Law and Economics, which receives support from businesses, trade associations and individuals]