What the FTC’s investigation of McKinsey means for consultants tasked to compare wages or pricing
On July 23, 2024, the Federal Trade Commission (FTC) announced that it has issued inquiries to McKinsey & Co. and seven other third-party consulting firms concerning their provision of so-called surveillance pricing services. These firms are known for providing expensive and expansive competitor reviews on wages and pricing data, and by the view of the FTC, these services could provide a means for circumventing price and wage-fixing restrictions underlying the Federal Trade Commission Act and the Sherman Antitrust Act. In announcing the investigation, FTC Chair Lina M. Khan stated:
“Firms that harvest Americans’ personal data can put people’s privacy at risk. Now firms could be exploiting this vast trove of personal information to charge people higher prices. Americans deserve to know whether businesses are using detailed consumer data to deploy surveillance pricing, and the FTC’s inquiry will shed light on this shadowy ecosystem of pricing middlemen.”
Notably, the inquiries come in the form of a Rule 6(b) order, which gives the FTC authority to conduct a wide-range study that does not have a specific law enforcement purpose. The inquiries ask for information on four topics including: (1) the type of products and services being offered; (2) the data collection inputs, including whether particular platforms or methods are used to collect data; (3) the use of customer and sales information and what those customers planned to do with the services provided; and (4) impacts on consumers and pricing. In theory, the information collected from the “special reports” could serve as a basis for future enforcement actions.
The FTC’s inquiry is grounded in the repeal of the 1993 safe harbor for the exchange of wage and pricing information. The safe harbor formally provided an “antitrust safety zone” for any third party that provided anonymized wage or pricing information, so long as the information was: (1) collected by a third party; (2) the survey information is retroactive and more than three months old; and (3) the survey or cost information is collected from more than five separate entities. Although the safe harbor was directed at the health care industry, it was broadly relied upon by third-party comparison firms on wage and pricing, including consultants like McKinsey.
In 2023, the Department of Justice Antitrust Division and the FTC withdrew the safe harbor. The FTC announced at the time that the statements “no longer serve their intended purpose of providing accurate guidance to market participants,” and finding that in some cases, the guidelines were “overly permissive.” The FTC noted, “[i]n particular, companies have sometimes used the safety zone for information exchanges in contexts and industries that were never contemplated by the agencies, including to share competitively sensitive wage and benefit information with other employers.”
In addition to the FTC studies, the withdrawal of the safe harbor also led to a wave of wage-fixing cases in the meat and protein industry, including wage-fixing cases against chicken processors, tuna processors, pork processors and beef processors, which, as alleged, used a third-party service provider to survey and compare wage information for salaried and hourly employees. See e.g., Brown et al. v. JBS USA Food Company, et al., Case No. 22-cv-02946 (D. Colo. 2022); Jien et al. v. Perdue Farms, Inc., et al., Case No. 19-cv-0023521 (D. Md. 2019). These cases are ongoing.
We will continue to monitor the FTC’s inquiry and report the results of its findings. In the meantime, consulting companies and third-party survey providers should be careful in providing wage and competitor information so as not to be accused as violating the antitrust restrictions. The classic hub-and-spoke conspiracy can be the basis for not only a government investigation, but also private litigation. Violations of the Sherman Act, in particular, create significant enterprise risk, including treble damages and joint and several liability. This risk not only will impact traditional service providers, but also, as we have written about previously, artificial intelligence (AI) and algorithmic service providers that aggregate data on pricing. We expect state and federal regulatory agencies to be increasingly aggressive and expect to see algorithmic price-fixing theory applied in other industries.
This document is intended to provide you with general information regarding the FTC's policy related to wage and price comparisons. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.