FTC to Investigate Supply Chain Interruptions
As reported in the last several months, the Federal Trade Commission (“FTC”) and other federal agencies continue to carry out the objectives of the Biden Executive Order on Promoting Competition in the American Economy through various initiatives and enhanced investigatory tools.
In its latest effort, the FTC unanimously voted 4-0 on November 29 to conduct a study of the effect on competition from the supply chain interruptions that have occurred over the past year. The study will look to answer two central questions that may be of interest to manufacturers: (i) why did these disruptions occur and (ii) whether they are leading to specific “bottlenecks, shortages, anticompetitive practices or contributing to rising consumer prices.” According to the FTC announcement, the orders will be sent to nine large retailers, wholesalers and consumer good suppliers in the United States. In addition, the FTC is soliciting voluntary comments from retailers, consumer goods suppliers, wholesalers, and consumers regarding their views on how supply chain issues are affecting competition in the market for consumer goods.
To conduct the study, the FTC will exercise its authority under Section 6(b) of the FTC Act. According to the FTC, Section 6(b) allows it to engage in “wide-ranging studies that do not have a specific law enforcement purpose.” The orders seek information about "the primary factors disrupting [the companies’] ability to obtain, transport and distribute their products; the impact these disruptions are having in terms of delayed and canceled orders, increased costs and prices; the products, suppliers and inputs most affected; the steps the companies are taking to alleviate disruptions; and how they allocate products among their stores when they are in short supply.” In addition, the FTC explained that the orders seek internal documents including “strategies related to supply chains; pricing; marketing and promotions; costs, profit margins and sales volumes; selection of suppliers and brands; and market shares.”
Companies that receive such questions should view them in the same light as a Civil Investigative Demand (“CID”) or subpoena from the FTC. Upon receiving an order from the FTC, companies should promptly consult with legal counsel regarding how best to respond to the FTC inquiries, as companies only have 45 days to respond by the terms of the orders.
It will take several months for the FTC to conduct its study so the results of the inquiry will not be known for some time. However, manufacturers should be mindful of these types of inquiries. While the initial orders focus only on nine retailers, wholesalers and suppliers of consumer goods, the FTC certainly could expand its probe to include other companies including manufacturers in the supply chain or other industries. Since this action is a continuation of what we’ve seen in the last several months with enforcers continuing to focus on more robust antitrust scrutiny of commercial activities, manufacturers will be well served to actively monitor business practices that may raise potential antitrust risks such as exclusive agreements, allocation systems, or sudden price increases.