When Breaking the Law Becomes a Business Strategy, the Federal Trade Commission Should Step In
Open Markets Legal Director Sandeep Vaheesan argues companies that systematically violate labor, consumer, copyright, environmental, and other laws to undercut rivals are engaging in an unfair method of competition
Companies shouldn’t be able to gain a competitive advantage over honest rivals through large-scale lawbreaking.
That’s the argument Open Markets Institute Legal Director Sandeep Vaheesan makes in a new law review article, “Lawbreaking as a Method of Competition,” which documents how major corporations have used violations of labor, consumer protection, intellectual property, environmental, and other laws to cut costs, gain market share, and put law-abiding competitors at a disadvantage.
Published in the American University Law Review, Vaheesan argues that the Federal Trade Commission has the authority to challenge such conduct as an unfair method of competition.
“Business competition is not a free-for-all in which firms can compete and triumph by hook or crook,” Vaheesan writes. “Instead, market rivalry is a process structured by laws of general application and sector-specific rules.”
The paper examines how lawbreaking can become a business strategy, including:
Uber and other gig companies, whose classification of workers as independent contractors has allowed them to avoid many of the wages, benefits, taxes, and legal obligations borne by traditional employers.
Walmart, whose policy and practice of illegal union-busting have contributed to a labor-cost advantage over grocery competitors whose workers are unionized.
OpenAI and other AI companies, which face allegations that they used copyrighted works without authorization to train their models.
Volkswagen, which built a major U.S. market for supposedly “clean diesel” vehicles while secretly circumventing federal emissions requirements.
The result, Vaheesan argues, can be a race to the bottom. Businesses that obey the law lose customers to competitors that flout their legal obligations. Law-abiding firms face the choice to either continue to lose sales and market share or keep up by becoming lawbreakers themselves.
That makes large-scale corporate lawbreaking a competition problem as well as a labor, consumer protection, copyright, or environmental problem.
Vaheesan argues that this is precisely the kind of conduct Congress empowered the FTC to address when it prohibited “unfair methods of competition.” He calls on the agency to target sustained, large-scale violations of generally applicable laws when companies use those violations to gain a competitive advantage.
Such enforcement would complement and reinforce the work of agencies responsible for enforcing those underlying laws while protecting businesses that play by the rules.
“The FTC would be abdicating its statutory duty if it categorically stood aside as firms flouted federal statutes to capture sales from rivals and take over entire markets,” Vaheesan writes.
The proposed enforcement program would channel competition in more socially beneficial directions. Instead of allowing companies to treat fines and settlements as a cost of doing business, the FTC could bring to bear powerful remedies such as industry bans for scofflaw firms and executives.
FTC action would ensure that breaking the law does not pay and raise the plane of market competition. Without the option to compete through lawbreaking, businesses would feel pressure to grow and succeed by treating their customers, workers, and suppliers fairly, investing in new products and production methods, and undertaking research and development.
Read Sandeep Vaheesan’s “Lawbreaking as a Method of Competition" here.