FTC Signals Aggressive Antitrust Policy as Part of Government Pro-Enforcement Agenda
The Situation: The Federal Trade Commission ("FTC"), which now has a 3-2 Democrat majority, held its first Commission meeting since President Biden appointed a new Chair, Lina M. Khan. The Commissioners voted on a number of measures that signal important changes from prior agency policy, paving the way for expanded antitrust enforcement and regulation.
The Result: A majority of the Commission, along party lines, voted to expand its interpretation of the agency's power to combat anticompetitive conduct and, at the same time, contract procedural safeguards. Specifically, the FTC voted to rescind a policy that defined limits to challenge "unfair competition" violations under FTC Act Section 5. The FTC also voted to remove certain restrictions on its rulemaking and to empower individual Commissioners to serve subpoenas in certain industries, enabling a single Commissioner, rather than a majority of the Commission, to launch an industrywide investigation.
Looking Ahead: The measures can be expected to result in increased FTC activity in the form of more rulemaking, investigations, and enforcement. The changes are consistent with recent proposals by the administration, legislators, and other policymakers to expand the U.S. antitrust laws to target perceived problems with industry concentration and dominant companies. Nevertheless, the goal of increased enforcement may be hindered by the well-established framework for antitrust analysis adopted by federal courts, the agency's current merger guidelines, and career staff.
Expansion of FTC's Interpretation of Its Antitrust Enforcement Authority
The Commission majority has reinvigorated a longstanding but dormant debate about the bounds of the FTC's authority under Section 5 of the FTC Act. While some of this debate is esoteric, the implications could be huge for businesses and consumers. Often dubbed "standalone" Section 5 authority—that is, authority to challenge conduct that violates Section 5 but not a separate antitrust statute—the FTC Act allows the agency to combat "unfair methods of competition," an amorphous phrase with no defined standard. In 2015, under Democrat leadership, the FTC issued a bipartisan statement that defined the Commission's view of the bounds of this authority. Standalone Section 5 authority, it said, would be tethered to the policies underlying the antitrust laws, decades of precedent construing those laws, and economic analysis.
During the July 1 FTC meeting, the three Democrat Commissioners voted to rescind the 2015 statement. The majority reasoned that the 2015 statement contributed to "longstanding failure to investigate and pursue 'unfair methods of competition,'" contravened the FTC Act's "text, structure, and history," and effectively interpreted away the agency's standalone Section 5 authority. In no uncertain terms, the majority stated their intention to use standalone Section 5 to "police" activities found to be unfair methods of competition, "even if they are outside the ambit" of antitrust statutes.
The two Republican Commissioners voted against this change and issued dissenting statements. Commissioner Phillips stated that the majority's vote "unleashes unchecked regulatory authority on businesses," while "keeping those businesses in the dark about which conduct is lawful and which is unlawful." Commissioner Wilson echoed the same concern, adding that the rescission of the 2015 statement was a step toward a "concerted effort by the Commission to exceed the FTC's authority regarding the use of Section 5." Business groups too have voiced their concerns about the changes.
Looking ahead, the Democrat Commissioners may seek to issue new guidance or propose new rules to clarify the types of practices that warrant scrutiny under standalone Section 5. In the meantime, in the midst of much uncertainty, one thing is certain—the FTC will seriously consider using standalone Section 5 authority to challenge conduct that would have been allowed under prior Commissions.
Removal of Procedural Safeguards, Making It Easier for the FTC to Enact Antitrust Regulations
Antitrust law in recent history has been developed entirely through case-by-case adjudication, not by government regulations that prescribe marketwide rules designating certain conduct as unlawful. This latter method—referred to as "rulemaking"—is a tool the FTC has historically used to further its consumer protection mission, but never its competition mission. Chair Khan has advocated that this should change, arguing that the FTC should promulgate antitrust rules and not rely solely on case-by-case adjudication.
At the July 1 meeting, the majority voted to change procedural rules to provide the Commission greater control over the rulemaking process, possibly paving the way for antitrust regulations. For example, rather than using an independent, nonpartisan administrative law judge as the Presiding Officer in a rulemaking matter, now the Chair will serve as, or will designate, the Presiding Officer. While these changes are procedural rather than substantive, they should by no means be ignored. The Democrat majority explicitly flagged that they are "signal[ing] a change in Commission practice and ambition" with these procedural changes. The FTC majority will try to use its rulemaking authorities more broadly to combat unfair competition.
Commissioner Wilson's dissenting statement warned that the FTC should not return to the "unbounded rulemaking activity" of the 1970s, which led to subsequent backlash that resulted in the FTC being stripped of funding and certain authorities. Commissioner Wilson cautioned that going down the current path may again lead to a similar result.
Broadening the FTC's Ability to Open Investigations and Obtain Evidence Against Big Tech and Other Industries
The Democrat majority also voted to make it easier for the agency to open investigations and subpoena evidence in industries, including current focus areas of technology platforms, health care, and pharmaceuticals. Rather than require the vote of the full Commission to issue civil investigative demands and subpoenas, a single Commissioner can now individually approve such requests. The reform is framed as a way to "cut back delays" and "red tape" bureaucracy, but the FTC's press release explains that the reform "will broaden the ability for FTC investigators and prosecutors to obtain evidence."
In her dissenting statement, Commissioner Wilson argued that the reform removes "significant swaths of Commission oversight" from the agency's investigation with minimal justification.
Those significant changes are part of a broader effort by the new administration and some in Congress that is distinctly unfriendly to large businesses. Just as the FTC changes target certain industries, including big tech and pharmaceuticals, so do bills in Congress like the Competition and Antitrust Law Enforcement Reform Act ("CALERA") proposed by Senator Amy Klobuchar and the Trust-Busting for the Twenty-First Century Act proposed by Senator Josh Hawley. And in the week following the FTC actions, President Biden announced an executive order to encourage Executive Branch departments to consider competition in their decisionmaking, with particular emphasis on effects on labor and on transportation, agriculture, and financial services sectors (detailed in this Commentary). The President also urged the DOJ and the FTC to update their merger guidelines, an effort the antitrust agencies quickly said would be underway.
We expect the FTC to continue on this aggressive enforcement trend, utilizing the new rule changes (and enacting others) to expand its enforcement capabilities. Chair Khan has announced a plan to hold monthly open Commission meetings, which will likely lead to more departures from longstanding FTC policy. Indeed, the agenda for the next meeting shows that the Commissioners will vote on whether to rescind a 25-year-old rule that lessened the burden on parties to settle merger challenges.
Nevertheless, the pro-enforcement trend will face some resistance as it meets inconsistent precedents in the courts, political opposition by legislators responding to business constituents, and the difficulties of making quick changes to established views among agency staff. For example, Chair Khan has argued that the current framework for antitrust analysis, specifically the "consumer welfare" standard, which focuses antitrust analysis on whether there is harm to consumers as distinct from competing producers, fails to fully serve competition policy goals. Without legislation, changing antitrust jurisprudence is going to take time. More importantly, other changes will be required to work a sea change, including continuing service of the current Commission majority (or continuity of their views) beyond just a few short years, appointment of judges with similar views, and persistent public support for aggressive government interference.
Six Key Takeaways
- The FTC recently made a series of changes to its procedures that are in line with broader proposals across the government aimed at increasing U.S. antitrust enforcement.
- The Commissioners voted to abandon its previous bipartisan commitment to tether its "unfair competition" powers under Section 5 to antitrust precedents.
- The Commission changed its rulemaking procedures to allow the agency to more easily promulgate new and unprecedented antitrust regulation.
- The Commissioners voted to make it easier for the agency to issue subpoenas to investigate alleged anticompetitive conduct and mergers in digital markets, pharmaceuticals, and other specific markets.
- In sum, the reforms likely will result in increased enforcement activity by the FTC, chiefly in the form of new agency rulemakings, more sectoral and conduct-focused investigations, and increased enforcement under Section 5.
- Nevertheless, court precedents, limited tenure of decisionmakers, and political opposition will slow the FTC in working enormous change in this established area of government enforcement.
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