FTC Overreach is Not the Way to Change the Antitrust Laws

As someone wise in the exercise of power has counseled, “[p]reach the need for change, but never reform too much at once.” Every administration seeks to put its stamp on antitrust policy and enforcement. But astute agency leaders recognize that their time is limited, and that they are more likely to succeed if they seek incremental rather than wholesale change. The Federal Trade Commission (FTC) under Chair Khan is not heading that wisdom.

On a party line vote, the FTC last November issued a policy statement purporting to provide guidance on the scope of “unfair methods of competition” (UMC) under section 5 of the FTC Act. The guidance is sweeping, asserting the authority of a majority of the Commission to declare “unfair” business practices with which they disagree.

According to the statement, the “unfairness” determination will be made according to a two-part test. A first step will seek to determine whether the conduct in question is “coercive, exploitative, collusive, abusive, deceptive, predatory, or involve[s] the use of economic power,” or “otherwise restrictive or exclusionary.” After that, the inquiry will explore whether “[t]he conduct…tend[s] to negatively affect competitive conditions” by “affecting consumers, workers or other market participants.” These factors will then be “weighed according to a sliding scale,” and can include conduct that “may or may not be covered by the literal language of the antitrust laws or that may or may not fall into a “gap” in those laws.” The end goal seems to be something akin to the EU, where the Commission has substantial flexibility to go after companies on the basis of a hodgepodge of factors, most of which would not pass muster under U.S. antitrust law.

Since the statement is devoid of any attempt at defining the above-mentioned terms, no one, perhaps with the exception of Chair Khan and Commissioners Bedoya and Slaughter, knows what this would mean in practice. Nor is it clear if meeting the first part of the test would render the second part of the inquiry moot. What is clear is that the statement abandons the consumer welfare standard, which has been the lodestar of antitrust enforcement for the past four-plus decades. It also does away with the rule of reason standard, thereby eliminating the need for the agency to balance an agreement or conduct’s pro- and anti-competitive effects before rendering a decision.

The statement, by itself, is not legally binding since none of the procedural requirements that agencies must satisfy to establish “rules” were followed. That said, the guidance might still be used to extract concessions that the agency ordinarily would not be able to obtain, or get parties to abandon mergers that otherwise would have been approved. So, whether binding or not, the statement would clearly have a chilling effect, which is likely part of what is intended. A related question is whether the FTC possesses any substantive antitrust rulemaking authority at all.

It seems clear that FTC Chair Lina Khan intends for her statement to be more than a mere stunt that her supporters can hype on social media. Why else would she expend valuable political capital to publish something that has resulted in criticism from both the antitrust bar, where many have been left less than impressed? The most plausible explanation is that Chair Khan hopes to use the guidance to inform the FTC’s deliberations regarding future enforcement decisions and to engage in substantive UMC rulemaking. As a practical matter, however, that approach is unlikely to work.

Antitrust litigation is highly fact-specific, and any individual enforcement decision will therefore stand or fall on its own merits. In that sense, well-thought-out agency guidance can be helpful to those whose behavior it seeks to regulate. But the courts have been clear that the relevant test is whether the guidance provides at least “an inkling as to what they can lawfully do [and not leave them] in a state of complete unpredictability.” Given how vague the policy statement is about what section 5 actually means, it plainly fails to clear that bar.

A separate but related question is whether sections 5 and 6(g) of the FTC Act authorize the FTC to issue substantive antitrust “rules” or regulations. Based on its policy statement and the recent notice of proposed rulemaking on the use of non-compete clauses in employment contracts, the FTC’s current majority clearly thinks that it does. For at least three reasons, they are almost certainly wrong.

First, the FTC has only used its supposed antitrust rulemaking authority once. This happened in 1967, more than fifty years after the agency was established, when it promulgated the so-called “Tailored Clothing Rule,” a rule that was never enforced and later repealed. While not conclusive proof, the fact that no commissioner in the first half century of the FTC’s existence seems to have thought it could issue substantive antitrust rules, and no rulemaking has been tried since, creates a strong presumption that this claimed authority does, in fact, not exist.

Second, even assuming that Chair Khan’s mastery of the canons of statutory interpretation is such that she can discern authorities in the FTC Act and from the Congressional Record that virtually no past FTC commissioner, the courts, or others who have grappled with this issue have found, any substantive UMC rulemaking is likely to run headlong into what is known as the non-delegation doctrine. At its core, this doctrine holds that Congress cannot delegate its own legislative powers to a government agency, like the FTC, without providing some guidance (an “intelligible principle”) as to what a future rule must look like. Admittedly, the non-delegation doctrine has been sparsely used, but with the current makeup of the Supreme Court a revival is likely on the cards. And given the dearth of guidance on UMC rulemaking provided in the FTC Act, any action by the Commission in this area would be a ripe target.

Finally, if the FTC somehow found a way to overcome the first two objections to its substantive UMC rulemaking authority, the final, and likely insurmountable, challenge would be the Supreme Court’s newly robust application of the major questions doctrine. Like the non-delegation doctrine, major questions is a Court-developed doctrine that aims to protect the separation of powers. The Court recently defined the applicable standard as an expectation that “Congress … speak clearly when authorizing an agency to exercise powers of vast economic and political significance.”

Among the factors that a court must look at when deciding whether the doctrine applies are the scope of asserted rulemaking authority, whether the authorizing language is clear or ambiguous, and whether the agency has a history of using the claimed authority. In this instance, the policy statement claims sweeping powers that have only been asserted once in more than a century, based on, at best, ambiguous language. While a desire for wide latitude is understandable, it is both unwise and unlawful for an agency to try to stretch its mandate far beyond what Congress intended. Because of this, any attempt at substantive UMC rulemaking seems overwhelmingly likely to fail.

The FTC under Chair Khan is on a mission to fundamentally alter the focus of antitrust law from protecting the competitive process and the interests of consumers to include myriad competing, and at times inconsistent, priorities. Protecting workers, less efficient companies, and other equitable interests may be laudable and serve legitimate societal ends, but those are not factors that are relevant to a determination of whether the antitrust laws, including section 5 of the FTC Act, have been violated. Moreover, opining on these issues falls well outside the scope of the FTC’s experience and expertise. For all of these reasons, the FTC should rescind the policy statement and focus on its proper antitrust role, which is to enforce the law as it is.