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I have a new post up at TechPolicyDaily.com, excerpted below, in which I discuss the growing body of (surprising uncontroversial) work showing that broadband in the US compares favorably to that in the rest of the world. My conclusion, which is frankly more cynical than I like, is that concern about the US “falling behind” is manufactured debate. It’s a compelling story that the media likes and that plays well for (some) academics.

Before the excerpt, I’d also like to quote one of today’s headlines from Slashdot:

“Google launched the citywide Wi-Fi network with much fanfare in 2006 as a way for Mountain View residents and businesses to connect to the Internet at no cost. It covers most of the Silicon Valley city and worked well until last year, as Slashdot readers may recall, when connectivity got rapidly worse. As a result, Mountain View is installing new Wi-Fi hotspots in parts of the city to supplement the poorly performing network operated by Google. Both the city and Google have blamed the problems on the design of the network. Google, which is involved in several projects to provide Internet access in various parts of the world, said in a statement that it is ‘actively in discussions with the Mountain View city staff to review several options for the future of the network.’”

The added emphasis is mine. It is added to draw attention to the simple point that designing and building networks is hard. Like, really really hard. Folks think that it’s easy, because they have small networks in their homes or offices — so surely they can scale to a nationwide network without much trouble. But all sorts of crazy stuff starts to happen when we substantially increase the scale of IP networks. This is just one of the very many things that should give us pause about calls for the buildout of a government run or sponsored Internet infrastructure.

Another of those things is whether there’s any need for that. Which brings us to my TechPolicyDaily.com post:

In the week or so since TPRC, I’ve found myself dwelling on an observation I made during the conference: how much agreement there was, especially on issues usually thought of as controversial. I want to take a few paragraphs to consider what was probably the most surprisingly non-controversial panel of the conference, the final Internet Policy panel, in which two papers - one by ITIF’s Rob Atkinson and the other by James McConnaughey from NTIA – were presented that showed that broadband Internet service in US (and Canada, though I will focus on the US) compares quite well to that offered in the rest of the world. [...]

But the real question that this panel raised for me was: given how well the US actually compares to other countries, why does concern about the US falling behind dominate so much discourse in this area? When you get technical, economic, legal, and policy experts together in a room – which is what TPRC does – the near consensus seems to be that the “kids are all right”; but when you read the press, or much of the high-profile academic literature, “the sky is falling.”

The gap between these assessments could not be larger. I think that we need to think about why this is. I hate to be cynical or disparaging – especially since I know strong advocates on both sides and believe that their concerns are sincere and efforts earnest. But after this year’s conference, I’m having trouble shaking the feeling that ongoing concern about how US broadband stacks up to the rest of the world is a manufactured debate. It’s a compelling, media- and public-friendly, narrative that supports a powerful political agenda. And the clear incentives, for academics and media alike, are to find problems and raise concerns. [...]

Compare this to the Chicken Little narrative. As I was writing this, I received a message from a friend asking my views on an Economist blog post that shares data from the ITU’s just-released Measuring the Information Society 2013 report. This data shows that the US has some of the highest prices for pre-paid handset-based mobile data around the world. That is, it reports the standard narrative – and it does so without looking at the report’s methodology. [...]

Even more problematic than what the Economist blog reports, however, is what it doesn’t report. [The report contains data showing the US has some of the lowest cost fixed broadband and mobile broadband prices in the world. See the full post at TechPolicyDaily.com for the numbers.]

Now, there are possible methodological problems with these rankings, too. My point here isn’t to debate over the relative position of the United States. It’s to ask why the “story” about this report cherry-picks the alarming data, doesn’t consider its methodology, and ignores the data that contradicts its story.

Of course, I answered that question above: It’s a compelling, media- and public-friendly, narrative that supports a powerful political agenda. And the clear incentives, for academics and media alike, are to find problems and raise concerns. Manufacturing debate sells copy and ads, and advances careers.

I have a new post up at TechPolicyDaily that takes a historical perspective on Network Neutrality. The abstract is below. I had to cut a bunch out of the piece — I hope to add a bunch of the cut parts back in and post an extended version here later this week. But for now:

Network Neutrality debates are fundamentally about switching – whether network switches can treat some packets differently from others. In this piece, I look back 100 years to the telephone interconnection debates of the early 20th century – and, in particular, to AT&T’s preference for (non-neutral) manual switchboards over (neutral) automatic switches. This history reminds us that design decisions in complex networks are rarely as simple as network neutrality proponents suggest they are – and that market forces, if given time to operate, can secure the consumer benefits that regulators aspire to promote without the appurtenant risk that regulatory intervention may stunt the market.

Read the full thing here.

On Debating Imaginary Felds

Gus Hurwitz —  18 September 2013

Harold Feld, in response to a recent Washington Post interview with AEI’s Jeff Eisenach about AEI’s new Center for Internet, Communications, and Technology Policy, accused “neo-conservative economists (or, as [Feld] might generalize, the ‘Right’)” of having “stopped listening to people who disagree with them. As a result, they keep saying the same thing over and over again.”

(Full disclosure: The Center for Internet, Communications, and Technology Policy includes TechPolicyDaily.com, to which I am a contributor.)

Perhaps to the surprise of many, I’m going to agree with Feld. But in so doing, I’m going to expand upon his point: The problem with anti-economics social activists (or, as we might generalize, the ‘Left’)[*] is that they have stopped listening to people who disagree with them. As a result, they keep saying the same thing over and over again.

I don’t mean this to be snarky. Rather, it is a very real problem throughout modern political discourse, and one that we participants in telecom and media debates frequently contribute to. One of the reasons that I love – and sometimes hate – researching and teaching in this area is that fundamental tensions between government and market regulation lie at its core. These tensions present challenging and engaging questions, making work in this field exciting, but are sometimes intractable and often evoke passion instead of analysis, making work in this field seem Sisyphean.

One of these tensions is how to secure for consumers those things which the market does not (appear to) do a good job of providing. For instance, those of us on both the left and right are almost universally agreed that universal service is a desirable goal. The question – for both sides – is how to provide it. Feld reminds us that “real world economics is painfully complicated.” I would respond to him that “real world regulation is painfully complicated.”

I would point at Feld, while jumping up and down shouting “J’accuse! Nirvana Fallacy!” – but I’m certain that Feld is aware of this fallacy, just as I hope he’s aware that those of us who have spent much of our lives studying economics are bitterly aware that economics and markets are complicated things. Indeed, I think those of us who study economics are even more aware of this than is Feld – it is, after all, one of our mantras that “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” This mantra is particularly apt in telecommunications, where one of the most consistent and important lessons of the past century has been that the market tends to outperform regulation.

This isn’t because the market is perfect; it’s because regulation is less perfect. Geoff recently posted a salient excerpt from Tom Hazlett’s 1997 Reason interview of Ronald Coase, in which Coase recounted that “When I was editor of The Journal of Law and Economics, we published a whole series of studies of regulation and its effects. Almost all the studies – perhaps all the studies – suggested that the results of regulation had been bad, that the prices were higher, that the product was worse adapted to the needs of consumers, than it otherwise would have been.”

I don’t want to get into a tit-for-tat over individual points that Feld makes. But I will look at one as an example: his citation to The Market for Lemons. This is a classic paper, in which Akerlof shows that information asymmetries can cause rational markets to unravel. But does it, as Feld says, show “market failure in the presence of robust competition?” That is a hotly debated point in the economics literature. One view – the dominant view, I believe – is that it does not. See, e.g., the EconLib discussion (“Akerlof did not conclude that the lemon problem necessarily implies a role for government”). Rather, the market has responded through the formation of firms that service and certify used cars, document car maintenance, repairs and accidents, warranty cars, and suffer reputational harms for selling lemons. Of course, folks argue, and have long argued, both sides. As Feld says, economics is painfully complicated – it’s a shame he draws a simple and reductionist conclusion from one of the seminal articles is modern economics, and a further shame he uses that conclusion to buttress his policy position. J’accuse!

I hope that this is in no way taken as an attack on Feld – and I wish his piece was less of an attack on Jeff. Fundamentally, he raises a very important point, that there is a real disconnect between the arguments used by the “left” and “right” and how those arguments are understood by the other. Indeed, some of my current work is exploring this very disconnect and how it affects telecom debates. I’m really quite thankful to Feld for highlighting his concern that at least one side is blind to the views of the other – I hope that he’ll be receptive to the idea that his side is subject to the same criticism.

[*] I do want to respond specifically to what I think is an important confusion in Feld piece, which motivated my admittedly snarky labelling of the “left.” I think that he means “neoclassical economics,” not “neo-conservative economics” (which he goes on to dub “Neocon economics”). Neoconservativism is a political and intellectual movement, focused primarily on US foreign policy – it is rarely thought of as a particular branch of economics. To the extent that it does hold to a view of economics, it is actually somewhat skeptical of free markets, especially of lack of moral grounding and propensity to forgo traditional values in favor of short-run, hedonistic, gains.

Of Cake and Netflix

Gus Hurwitz —  6 September 2013

My new FSF Perspectives piece, Let Them Eat Cake and Watch Netflix, was published today. This piece explores a tension in Susan Crawford’s recent Wired commentary on Pew’s 2013 Broadband Report.

I excerpt from the piece below. You can (and, I daresay, should!) read the whole thing here.

In her piece, after noting the persistence of the digital divide, Crawford turns to her critique of both Pew’s and the FCC’s definition of “high-speed internet” – 4 Mbps down/1 Mbps up – and the inclusion of mobile Internet access in these measurements. She argues that this definition … is too slow. What if you wanted to watch two HD quality videos at once over a single connection? [...]

But the digital divide isn’t about people today not being able to watch movies on Netflix. And it’s definitely not about people today not being able to use future service that may or may not require the sort of infrastructure Crawford wants the government to build. [...] It’s about the (very real) concern that, as civic and democratic institutions increasingly migrate online, those without basic Internet access or knowledge will be locked out of a vital civic and democratic forum. [...]

None of [applications central to concerns about the digital divide] require bandwidth sufficient to stream high-quality video. Indeed, none of them should require such capacity. Another very real concern related to the digital divide is that various groups with disabilities – the deaf and blind, for instance – are already unable to avail themselves of these online forums because they rely too much on sophisticated multimedia formats to provide basic information. [...]

I would suggest that a better target for Crawford’s efforts – if she is really concerned about lessening the digital divide (and I do fully believe that her convictions are well meaning and sincere) – would be to advocate for government institutions and other civic and democratic forums to develop online applications that do not require high-speed broadband connections. [...]

In a world where consumers perceive a non-zero marginal cost for incremental bandwidth consumption – perhaps, as an example, a world with consumer bandwidth caps – there would be consumer demand for lower-bandwidth versions of websites and other Internet services. Rather than ratcheting bandwidth requirements consistently up – increasing the size of the digital divide – the self-interested decisions of consumers on the fortunate side of that divide could actually help shrink that divide. [...]

The tragic thing (though, to economists, not surprising) about demands that the Internet economy disobey laws of supply and demand, that Internet providers offer consumers a service unconstrained by scarcity, is that such demands create the Internet-equivalent of bread lines. They are, in fact, the wedge that widens the digital divide.

Ronald Coase, 1910-2013

Gus Hurwitz —  2 September 2013

Many more, who will do far more justice than I can, will have much more to say on this, so I will only note it here. Ronald Coase has passed away. He was 102. The University of Chicago Law School has a notice here.

The first thing I wrote on the board for my students this semester was simply his name, “Coase.” I told them only on Friday that he was still an active scholar at 102.

With thanks to Geoff and everyone else, it’s great to join the cast here at TOTM. Geoff gave a nice introduction, so I won’t use this first post to further that purpose – especially when I have substance to discuss. The only prefatory words I’ll offer are that my work lies at the intersection of law and technology, with a focus on telecommunications and the regulation of technology. Most of my posts here will likely relate to those subjects. But I may occasionally use this forum to write briefly on topics further afield of my research agenda (and to which I therefore cannot dedicate more than blog-post-length musings to develop).

But one paragraph of navel-grazing is enough; on to substance:

The WSJ had a nice piece the other day about the Consumer Product Safety Commission’s (CPSC) ongoing persecution of Craig Zucker. Several years ago, Zucker founded a company that sold small, strong, rare-earth magnets that are a ton of fun to play with. He called them BuckyBalls. In 2011, the CPSC determined that BuckBalls are inherently unsafe because children may swallow them, which can result in serious injury. The CPSC effectively forced the company to shut down in 2012. Unsatisfied with forcing a profitable small firm out of the market, the CPSC is now going after Zucker individually to, at his own expense, recall and refund the purchase price of all BuckyBalls the company sold.

BuckyBalls(Full disclosure: I own a bunch of BuckyBalls. In fact, they’re all over my office. To date, they have not harmed anyone. The photo to the left is of the “BuckyBall decapode” that I have behind my chair. Note: the CPSC is not concerned about BuckyBall decapodes, which could pose a legitimate danger if they became sentient, but about the individual magnets.)

The CPSC’s action is a case study in bad judgment, arguably abusive and vindictive government conduct, and a basic lack of common sense. But I don’t want to focus on common sense here – I want to focus on the common law. My question is why in the world do we need the CPSC protecting consumers from these magnets when the common law clearly offers sufficient protection?

These cases almost always follow a similar pattern. Adults buy BuckyBalls. Adults either give children BuckyBalls or leave BuckyBalls where children can get them. Children, acting as children are wont to act, somehow swallow BuckyBalls.

The CPSC’s complaint identifies 5 specific cases of children ingesting BuckyBalls and notes that “over one dozen” reports have been received. The complaint doesn’t discuss in detail any injuries that resulted, beyond noting that in some cases surgery was required (and in one case, treatment included “monitoring for infection and internal damage”). It doesn’t say whether any of these cases resulted in permanent injury or disability (presumably not, or that would surely be mentioned). There have been no reported deaths or, that I have seen reported, debilitating injuries.

On the flipside, over the few years that Zucker was in business (roughly 2009, when the product became popular, through 2012, when the company closed down), he sold about $75 million worth of BuckyBalls (per the WSJ piece, “’Two and a half million adults spent $30’”). This product wasn’t a mere novelty, but something created substantial economic value for consumers.

So, what do we have? A relatively small number of injuries, with very few disputable facts, and readily identifiable harm. These would be some of the easiest possible cases to bring to court, and would occur in small enough numbers that they wouldn’t burden the court system. After the first of these cases was decided, most of the others – given the similarity of facts – would likely settle. If the harms caused by BuckyBalls were sufficient to outweigh the economic value created by this product, Zucker could have responded by altering the product, seeking insurance, or shutting down. This is exactly the sort of case we have the courts for!

That penultimate sentence should be dwelt upon: the incremental approach of the common law would allow the firm to alter and improve its product, to avoid or reduce future harm. In this way, the law develops along with new products and technologies, supporting a dynamic market. Compare this to the CPSC approach, which was to demand that Zucker comply with the agency’s demands in a short period of time (which he did), and then, the very next day, to bring the administrative suit that forced Zucker to shut the company down. The CPSC could not have reviewed his response to its demands in that timeframe; even if it did and found the response lacking, its next step should have been to engage him to address any problems, with the twain objectives of both remedying any problems but also preserving the business. Rather, the CPSC’s purpose seems to have been from the outset to shut Zucker down. It seems that in its fervor to protect the children from negligent adults, it is willing to harm the consumers who enjoy these products — perhaps we should rechristen it the Children’s Product Safety Commission.

Others have written about the CPSC’s lack of common sense in this matter. My contribution to that discussion would be to say that the CPSC has become the FTC’s successor as the “National Nanny” (not to say the FTC does not deserve the title, as demonstrated by the POM Wonderful case – but today CPSC may be even more deserving of the title).

But the BuckyBalls case raises a more fundamental concern. The CPSC surely should be lambasted for its decision to pursue this matter at all; and even more for persecuting Mr. Zucker. But beyond that, this case raises fundamental questions about the need for, and the basic legitimacy of, the CPSC.

Gus Hurwitz is Assistant Professor of Law at University of Nebraska College of Law

Administrative law really is a strange beast. My last post explained this a bit, in the context of Chevron. In this post, I want to make this point in another context, explaining how utterly useless a policy statement can be. Our discussion today has focused on what should go into a policy statement – there seems to be general consensus that one is a good idea. But I’m not sure that we have a good understanding of how little certainty a policy statement offers.

Administrative Stare Decisis?

I alluded in my previous post to the absence of stare decisis in the administrative context. This is one of the greatest differences between judicial and administrative rulemaking: agencies are not bound by either prior judicial interpretations of their statutes, or even by their own prior interpretations. These conclusions follow from relatively recent opinions – Brand-X in 2005 and Fox I in 2007 – and have broad implications for the relationship between courts and agencies.

In Brand-X, the Court explained that a “court’s prior judicial construction of a statute trumps an agency construction otherwise entitled to Chevron deference only if the prior court decision holds that its construction follows from the unambiguous terms of the statute and thus leaves no room for agency discretion.” This conclusion follows from a direct application of Chevron: courts are responsible for determining whether a statute is ambiguous; agencies are responsible for determining the (reasonable) meaning of a statute that is ambiguous.

Not only are agencies not bound by a court’s prior interpretations of an ambiguous statute – they’re not even bound by their own prior interpretations!

In Fox I, the Court held that an agency’s own interpretation of an ambiguous statute impose no special obligations should the agency subsequently change its interpretation.[1] It may be necessary to acknowledge the prior policy; and factual findings upon which the new policy is based that contradict findings upon which the prior policy was based may need to be explained.[2] But where a statute may be interpreted in multiple ways – that is, in any case where the statute is ambiguous – Congress, and by extension its agencies, is free to choose between those alternative interpretations. The fact that an agency previously adopted one interpretation does not necessarily render other possible interpretations any less reasonable; the mere fact that one was previously adopted therefore, on its own, cannot act as a bar to subsequent adoption of a competing interpretation.

What Does This Mean for Policy Statements?

In a contentious policy environment – that is, one where the prevailing understanding of an ambiguous law changes with the consensus of a three-Commissioner majority – policy statements are worth next to nothing. Generally, the value of a policy statement is explaining to a court the agency’s rationale for its preferred construction of an ambiguous statute. Absent such an explanation, a court is likely to find that the construction was not sufficiently reasoned to merit deference. That is: a policy statement makes it easier for an agency to assert a given construction of a statute in litigation.

But a policy statement isn’t necessary to make that assertion, or for an agency to receive deference. Absent a policy statement, the agency needs to demonstrate to the court that its interpretation of the statute is sufficiently reasoned (and not merely a strategic interpretation adopted for the purposes of the present litigation).

And, more important, a policy statement in no way prevents an agency from changing its interpretation. Fox I makes clear that an agency is free to change its interpretations of a given statute. Prior interpretations – including prior policy statements – are not a bar to such changes. Prior interpretations also, therefore, offer little assurance to parties subject to any given interpretation.

Are Policy Statements entirely Useless?

Policy statements may not be entirely useless. The likely front on which to challenge an unexpected change agency interpretation of its statute is on Due Process or Notice grounds. The existence of a policy statement may make it easier for a party to argue that a changed interpretation runs afoul of Due Process or Notice requirements. See, e.g., Fox II.

So there is some hope that a policy statement would be useful. But, in the context of Section 5 UMC claims, I’m not sure how much comfort this really affords. Regulatory takings jurisprudence gives agencies broad power to seemingly-contravene Due Process and Notice expectations. This is largely because of the nature of relief available to the FTC: injunctive relief, such as barring certain business practices, even if it results in real economic losses, is likely to survive a regulatory takings challenge, and therefore also a Due Process challenge.  Generally, the Due Process and Notice lines of argument are best suited against fines and similar retrospective remedies; they offer little comfort against prospective remedies like injunctions.

Conclusion

I’ll conclude the same way that I did my previous post, with what I believe is the most important takeaway from this post: however we proceed, we must do so with an understanding of both antitrust and administrative law. Administrative law is the unique, beautiful, and scary beast that governs the FTC – those who fail to respect its nuances do so at their own peril.


[1] Fox v. FCC, 556 U.S. 502, 514–516 (2007) (“The statute makes no distinction [] between initial agency action and subsequent agency action undoing or revising that action. … And of course the agency must show that there are good reasons for the new policy. But it need not demonstrate to a court’s satisfaction that the reasons for the new policy are better than the reasons for the old one; it suffices that the new policy is permissible under the statute, that there are good reasons for it, and that the agency believes it to be better, which the conscious change of course adequately indicates.”).

[2] Id. (“To be sure, the requirement that an agency provide reasoned explanation for its action would ordinarily demand that it display awareness that it is changing position. … This means that the agency need not always provide a more detailed justification than what would suffice for a new policy created on a blank slate. Sometimes it must—when, for example, its new policy rests upon factual findings that contradict those which underlay its prior policy; or when its prior policy has engendered serious reliance interests that must be taken into account. It would be arbitrary or capricious to ignore such matters. In such cases it is not that further justification is demanded by the mere fact of policy change; but that a reasoned explanation is needed for disregarding facts and circumstances that underlay or were engendered by the prior policy.”).

Gus Hurwitz is Assistant Professor of Law at University of Nebraska College of Law

Introduction

This post is based upon an in-progress article that explores the applicability of Chevron deference to FTC interpretations of Section 5’s proscription of unfair methods of competition. ( I am happy to circulate a draft of this article to anyone who would like to offer substantive feedback.) The article is prompted by the near-universal belief in the antitrust bar – held by both academics and practitioners – that the FTC is not entitled to Chevron deference.

In my limited space here, I hope to do three things. First, since many readers may not be familiar with Chevron deference, I explain very briefly what it is. Second, I explain why Chevron deference is relevant to Section 5 and to UMC in particular. And third, I debunk three of the most pervasive myths about why the FTC would not receive Chevron deference.

Regardless one’s priors, understanding the relationship between Section 5 and Chevron is essential to understanding the future of FTC-based competition policy. The past 30 years of competition policy debates have addressed the courts as its main audience. The new front – which neither the antitrust hawks or doves has significant experience with – is administrative. Administrative law is very different from the judicially-defined, stare decisis–restrained, common-law venue in which we are all used to playing.

Chevron

Chevron deference is used where a statute enforced by an administrative agency involves an ambiguous legal standard. In such cases, it is unclear whether such ambiguity should be resolved by the courts or by the agency. In its 1984 Chevron opinion, the Court made clear – for various reasons that are hotly debated to this day – that courts should defer to agency interpretations of such ambiguous statutes, provided that the interpretation is permissible within the language of the statute.

It is requisite that any discussion of Chevron cite to the opinion’s famous language:

First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute. Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 842-43 (1984)

This standard is important to the FTC because Section 5 was deliberately designed to be an ambiguous statute (this is made clear in the legislative history, and has been affirmed consistently by the Court). In the context of UMC, each of “unfair,” “method,” and “competition” bears some modicum of ambiguity – “unfair,” in particular drips with it.

Chevron’s relevance to Section 5

This ambiguity has not been an issue for the past 30 years or so, because the FTC has restrained itself to an interpretation of UMC that is concurrent with the judicially-defined antitrust laws (viz., the Sherman and Clayton Acts). But as the fact of this symposium reflects, recent years have seen increasing pressure for the FTC to embrace a more expansive understanding of its UMC authority under Section 5.

What happens when it does this? What happens, for example, when the FTC asserts that “unfair” embraces more than mere aggregate consumer welfare, but extends to distributional effects as well. There is a not-insane argument that some decreases in total welfare is an acceptable cost to secure greater distributional “fairness.” If the courts afford the Commission Chevron deference, the answer is simple: the Commission wins.

Debunking the myth that Chevron does not apply to Section 5

There is a pervasive belief that Chevron does not apply to Section 5. As a result, antitrust scholarship has largely addressed the courts as its audience, framing debates about Section 5 in the same language and theory as has been embraced by the courts in the context of the Sherman Act. That is, discussions have largely been framed in post-Antitrust Paradox consumer welfare understandings of antitrust law.

This view was clear in the FTC’s 2008 workshop on Section 5 of the FTC Act as a Competition Statute. It has also been captured extensively in Dan Crane’s wonderful work on the FTC as an institution. Anecdotally, as I have wondered about this issue over the past several years, I have encountered many antitrust scholars and practitioners who have assured me that Chevron does not apply to Section 5; and I have encountered none who have believed that it does.

A number of reasons have been offered to explain why Chevron does not apply to Section 5. In the remained of this post, I will debunk the three most pervasive explanations offered for this: that the FTC doesn’t have substantive rulemaking authority, that deference doesn’t apply to statutes that are enforced by multiple agencies (e.g., the FTC and DOJ both enforcing the antitrust laws), and that Indiana Federation of Dentists, 476 U.S. 447 (1986) (the Court’s most recent Section 5 UMC case), provides that Section 5 UMC cases are reviewed de novo by the courts.

Myth #1: FTC doesn’t have rulemaking authority

It is widely believed that the FTC doesn’t have substantive UMC rulemaking authority; and folks seem to think that such authority is required for an agency to get Chevron deference. Both of these are beliefs are wrong.

The confusion over the extent of the FTC’s rulemaking authority is somewhat understandable – it has been the subject of much controversy and judicial and Congressional debate for much of the Commission’s existence. This debate has been especially muddled by Congress’s disparate treatment of UMC and UDAP (unfair or deceptive act or practices – a separate offence proscribed by Section 5).

But there really is no question that the FTC has substantive UMC rulemaking authority under Section 6(g). The Supreme Court held so much in National Petroleum Refiners, 482 F.2d 672 (1973) – one of the seminal cases in the administrative law canon. While the FTC Act has been amended several times since National Petroleum Refiners (most notably in 1975, 1980, and 1994), and the Commissions UDAP rulemaking power has been an explicit focus of several of these amendments, none of them has affected the Commission’s UMC rulemaking authority. To the contrary, the amendments and related legislative history expressly preserve the Commission’s UMC rulemaking authority as it existed in 1973.

(The 1975 amendments notes that “The preceding sentence shall not affect any authority of the commission to prescribe rules (including interpretive rules), and general statements of policy, with respect to unfair methods of competition in or affecting commerce.” The 1980 Conference report notes that the 1975 amendments “specifically addressed the Commission’s rulemaking authority over ‘unfair or deceptive acts or practices,” and that they expressly declaimed any effect on the Commission’s authority with respect to unfair methods of competition. And the 1994 amendments focused exclusively on unfair acts or practices – omitting both deceptive acts or practices and unfair methods of competition.)

What’s more, substantive rulemaking authority is not the necessary condition for Chevron deference to apply. The necessary condition is that the agency be able to make rules or establish legal norms carrying the force of law. Such rules can be made either through rulemaking or adjudication (and possibly even through other Congressionally-intended mechanisms). See Mead, 533 U.S. 218, 234-35 (2001). There is little, if any, serious question that the FTC was created precisely for this purpose and, to this day, has such power.

Myth #2: Concurrent antitrust jurisdiction means no deference

A second common explanation for why the FTC does not receive the benefit of Chevron deference is that such deference does not extend to statutes enforced by multiple agencies, and that the antitrust laws are enforced by both the DOJ and FTC. Again, this is a misunderstanding of both FTC and administrative law.

On the administrative law front, the question of how concurrent jurisdiction affects deference is handled as a threshold question to be answered by Congressional intent. (For the admin-law geeks among us, this is a step-zero question.) It is possible that Congress intended either, neither, or both agencies with concurrent jurisdiction to be given deference. Whatever Congress intended, is what controls – not a mythical rule that concurrent jurisdiction negates deference.

But this explanation suffers a more basic flaw: the only reason that the FTC and DOJ have concurrent jurisdiction over the antitrust laws is because the FTC has interpreted Section 5 to be concurrent with the antitrust laws enforced by the DOJ. Section 5 (and the FTC itself) was created precisely to be broader than the antitrust laws – and nothing in Section 5 even references the “antitrust laws.” Section 5 may be coextensive with the DOJ-enforced antitrust laws – but only because it encompasses and is broader than them. The FTC does not share jurisdiction over that part of Section 5 that is broader than those laws that the DOJ enforces.

Myth #3: Indiana Federation of Dentists holds Section 5 UMC cases are reviewed de novo

The final myth that I will consider is that Indiana Federation of Dentists requires courts to conduct de novo review of FTC legal determinations under Section 5. This explanation really is quite fascinating as a demonstration of how myths can propagate through the bar – and the importance of interfacing with experts from other specialty areas of the law.

The typically-cited passage from Indiana Federation of Dentists explains that:

The legal issues presented — that is, the identification of governing legal standards and their application to the facts found — are, by contrast, for the courts to resolve, although even in considering such issues the courts are to give some deference to the Commission’s informed judgment that a particular commercial practice is to be condemned as “unfair.”

This language has been cited as requiring do novo review of all legal questions, including the legal meaning of Section 5. Dan Crane has called this an “odd standard,” noting that ordinarily “this is technically a question of Chevron deference, although the courts have not articulated it that way in the antitrust space.” Indeed, it seems remarkable that Indiana Federation of Dentists (decided in 1986) does not even mention Chevron (decided in 1984) – a fact that has led antitrust commentators to believe “One cannot explain judicial posture in the antitrust arena in Chevron terms.”

But this is a misreading of Indiana Federation of Dentists, which is in fact entirely in line with Chevron; and it is a misunderstanding of Chevron’s history. First, it is unsurprising that Indiana Federation of Dentists did not cite to Chevron. The Indiana Federation of Dentists petitioned for cert from a 7th Circuit that had been argued before Chevron was decided, and the Commission was arguing for an uncontroversial interpretation of Section 5 as applying Section 1 of the Sherman Act. The Commission had never structured its case to seek deference, and before the Supreme Court it had no need to argue for any deference.

Moreover, it took several years for the importance of Chevron to become understood, and to filter its way into judicial review of agency statutory interpretation. Over the next several years, the Circuit Courts regularly used Indiana Federation of Dentists to explain the standard of review for various agencies’ interpretations of their organic statutes (including, e.g., HHS, INS Labor, and OSHA). Importantly, these cases recognized that there was some confusion as to the changing standard of review; framed their analysis in terms of Skidmore (the precursor Chevron in this line of cases); and largely reached Chevron-like conclusions, despite Indiana Federation of Dentists’s suggestion of a lower level of deference. Today, Chevron, not Indiana Federation of Dentists, is the law of the land – at least, for every regulatory agency other than the FTC.

Indeed, a close reading of Indiana Federation of Dentists finds that it is in accord with Chevron. The continuation of the paragraph quoted above explains that:

The standard of “unfairness” under the FTC Act is, by necessity, an elusive one, encompassing not only practices that violate the Sherman Act and the other antitrust laws, but also practices that the Commission determines are against public policy for other reasons. Once the Commission has chosen a particular legal rationale for holding a practice to be unfair, however, familiar principles of administrative law dictate that its decision must stand or fall on that basis, and a reviewing court may not consider other reasons why the practice might be deemed unfair. In the case now before us, the sole basis of the FTC’s finding of an unfair method of competition was the Commission’s conclusion that the [alleged conduct] was an unreasonable and conspiratorial restraint of trade in violation of § 1 of the Sherman Act. Accordingly, the legal question before us is whether the Commission’s factual findings, if supported by evidence, make out a violation of Sherman Act § 1. (emphasis added)

This language critically alters the paragraph’s initial proposition that the legal issues are for determination by the courts. Rather, the Court recognizes that Section 5 is inherently ambiguous. It is therefore to the Commission to choose the legal standard under which that conduct will be reviewed – “a reviewing court may not consider other reasons why the practice might be deemed unfair.”

This is precisely the standard established by Chevron: first, the courts determine whether the statute is ambiguous and, if it is not, the court’s reading of the statute is binding; but if it is ambiguous, the court defers to the agency’s construction. Part of why Chevron is a difficult test is that both parts of this analysis do, in fact, present legal questions for the court. The first step is purely legal, with the court determining on its own whether the statute is ambiguous. Then, at step two, the legal question is whether the agency correctly applied the facts to its declared legal standard – as the Court recognizes in Indiana Federation of Dentists, “the legal question before us is whether the Commission’s factual findings make out a violation of Sherman Act § 1.” Thus, the opening, oft-quoted, first sentence of the paragraph is correct, and is in accord with Chevron: the legal issues presented are for the courts to resolve.

Conclusion

The long-standing belief that FTC interpretations of UMC under Section 5 are not entitled to Chevron deference are almost certainly wrong. I’ve addressed three of the most pervasive myths about this above – there are a couple more, but you’ll need to read the full paper to learn about them and why they are wrong.

Two important questions follow, which we will likely take up in this symposium, and I take up a bit in my article: normatively, should the FTC receive such deference, and, if not, what restraints exist on the scope of the Commission’s Section 5’s UMC power? I’ll conclude with what I believe is the most important takeaway from this post: however we proceed, we must do so with an understanding of both antitrust and administrative law. The relevant audiences for our discussions about these issues are the FTC and Congress – not the courts; and the relevant language is that of policy and statute, not judicial precedent and stare decisis. Administrative law is the unique, beautiful, and scary beast that governs the FTC – those who fail to respect its nuances do so at their own peril.