Category Archives: Law

CEI Podcast for July 24, 2014: Victory in Halbig v. Burwell

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General Counsel Sam Kazman talks about what the Halbig decision means for the Affordable Care Act, as well as broader principles such as taxation without representation and the rule of law. Click here to listen.

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CEI Podcast for July 1, 2014: John Holdren’s Poor Data Quality Control

General Counsel Sam Kazman talks about presidential science advisor John Holdren’s refusal to comply with the federal Data Quality Act when CEI questioned some discredited scientific statements in a video he put up on an official White House website. Click here to listen.

Suing the IRS – And Winning

Proving that sometimes good guys can win, our friends at the Institute for Justice are celebrating a big win against the IRS. In a move supported by large, established tax preparation firms, the IRS tried to require all tax preparers to get licenses. The licenses, along with other requirements such as annual continuing education courses, would raise costs for smaller firms and put many individual preparers out of business entirely; one sees why large firms would welcome the extra burden. They would face less competition. IJ sued to put a stop to his perfidy and preserve a more open competitive process.

A few years ago, before IJ filed its lawsuit, now-CEI Adjunct Scholar Caleb Brown and I co-authored an op-ed warning why mandatory tax preparer licenses are a bad idea:

Since the IRS has the power to revoke registrations, tax preparers will have to be careful not to advocate too aggressively for their clients. Besides this chilling effect, mandatory registration reduces consumer choice.

There are at least 600,000 unregistered preparers. Many of them are retirees. Others have jobs, but prepare taxes on the side to help make ends meet. Still others are volunteers. They give their services for free to people who can’t afford a tax preparer. How many will give up, rather than jump through the proposed regulatory hoops?

The IRS estimates the total cost of the new regulations at $48.5 million, plus 1.71 million hours of paperwork and record-keeping burdens. That’s equivalent to 855 full-time jobs — and not the kind that will spark an economic recovery.

Read the whole piece here. Read more about IJ’s victory here, and see a short video they produced about the case here.

CEI Podcast for October 30, 2013: Bringing Transparency to the Consumer Financial Protection Bureau

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Have a listen here.

George Mason University law professor and Mercatus Center senior scholar Todd Zywicki discusses his paper, “The Consumer Financial Protection Bureau: Savior or Menace?” His thesis is that this “independent agency inside another independent agency, presided over by a single director who is insulated from presidential removal,” which is also immune to Congress’ power of the purse, is a return to a Nixon-era approach to agency structure. He gives several recommendations for improving actual consumer protection.

CEI Podcast for August 8, 2013: CEI Appeals Dismissal of Dodd-Frank Lawsuit

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Have a listen here.

A federal judge has dismissed a lawsuit brought by CEI, 11 state attorneys general, and the State National Bank of Big Spring challenging the constitutionality of several sections of the Dodd-Frank financial regulation act. CEI general counsel Sam Kazman discusses plans to appeal the case.

CEI Podcast for July 18, 2013: The NSA Gets Sued

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Have a listen here.

In the wake of the NSA’s spying scandal, several groups are filing a lawsuit challenging the NSA’s actions as unconstitutional. Associate Director of Technology Studies Ryan Radia shares many of the suit’s criticisms of the NSA, and adds a few of his own.

The FTC’s Uneasy Relationship with Innovation

The Sherman and Clayton Acts form the backbone of U.S. antitrust policy. But another piece of legislation gives the government the power to regulate business practices on scales smaller than monopoly. In 1914, President Woodrow Wilson signed the Federal Trade Commission Act into law, which created the FTC. In particular, section 5 of the FTC Act  should give pause to America’s entrepreneurs. It states:

“Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices… are hereby declared unlawful.”

Deceptive business practices should be, and are, illegal. Fraud has been against the law for a long time. The worrying part is the term “unfair methods of competition,” which the law never defines.

Congress could have enumerated which business practices were to be made illegal, but it chose not to. FTC Commissioner Joshua Wright, in a recent policy statement, cites (p.3) a Senate Committee Report on the 1914 FTC Act noting “that there were too many unfair practices to define, and after writing 20 of them into the law it would be quite possible to invent others.” So Congress delegated its lawmaking authority over to the new FTC.

Its primary reason for doing so was a then-fashionable Progressive Era emphasis on scientific, expert management. Congressmen, being generalists, lack the specialized knowledge that full-time agency employees have. Since the agencies know better, they should be given wide discretion as to defining what constitutes an unfair business practice.

A public choice theorist might add that delegation also allows Congress to shift blame away from itself when FTC actions prove unpopular. Delegation could also give members plausible deniability if the FTC decides to punish businesses for political or ideological reasons.

Commissioner Wright’s policy statement attempts to give more clarity to what business practices the FTC will and will not allow, and he even addresses some public choice concerns. Some of his major principles:

  • Consumer harm is the rationale for antitrust policies, not competitor harm.
  • Maintaining the competitive process is more important than maintaining certain individual competitors.
  • The FTC is not allowed to punish businesses to advance public policy goals. It may only intervene for economic reasons, such as when the competitive process is in danger.
  • An unfair business practice will have the effect of “increased prices, reduced output, diminished quality, or weakened incentives to innovate.” (p.7)

He goes on to provide several examples of business practices that are and are not allowed.

Wright also cites a wise quote from Ronald Coase, who won the economics Nobel in 1991. It neatly sums up the antitrust enterprise:

“[If] an economist finds something – a business practice of one sort or another – that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of ununderstandable practices tends to be very large, and the reliance on a monopoly explanation, frequent.”

Coase’s observation has consequences for the tech sector, which relies heavily not just on new, continuously evolving technologies, but on new business practices that haven’t been tried before. Without a prior track record of how a practice works, it is difficult for the defendant to prove that it increases efficiency, or or for the plaintiff to prove it is anti-competitive. The result is a lot of legal uncertainty in a sector that already has more uncertainty than most.

Hopefully Wright’s efforts to clarify the FTC’s muddled enforcement criteria will bear some fruit. Until then, watch out, especially if you’re a tech company trying out new, untested business practice. As Coase has warned, It may come back to haunt you.