This article is a part of the The FTC's New Normal symposium.
Emergence of the ‘Neo-Brandeisians’
Thus, matters unfolded until the curtain began to descend on the second Obama term in 2016. In the midst of presidential primary season, a targeted political challenge to the prevailing economic approach to antitrust first came to light. No one has yet clearly identified who was doing the targeting, but the March 26, 2016 edition of The Economist magazine included an article that suggested U.S. firms were earning excessive profits because new entry was blocked by monopoly abuses and by “lobbying” to obstruct competition. The Economist suggested scrutiny of U.S. antitrust policy as one item on a broad list of suggested remedies.
By itself, a single magazine article would be nothing of special note. Another straw appeared in the wind on April 6 of that year, when then-Attorney General Loretta Lynch[1] gave a strong and unusually strident speech before the spring meeting of the American Bar Association Antitrust Law Section, singling out anticompetitive mergers for especially pointed criticism, and dismissing some recent proposed transactions as unworthy even of contemplation by the firms involved—a theme laced with scorn for antitrust counselors, their business clients, and the First Amendment rights of both, and later repeated a number of times by Assistant U.S. Attorney General William Baer.
Then, on April 15, 2016, President Barack Obama issued an executive order titled “Steps to Increase Competition and Better Inform Consumers and Workers to Support Continued Growth of the American Economy.” By itself, the order was not especially concerning; it urged agencies to preserve competition while exercising their authority and to stay in touch with the White House. Simultaneous with the executive order, however, the White House released an extensive report written from the President’s Council of Economic Advisers (CEA) asserting that it had found the same glitches in U.S. economic performance as The Economist—an alleged increase in both industrial concentration and corporate profits, with reduced U.S. innovation. Like The Economist article, the CEA report also hinted that lax antitrust enforcement was responsible. The plot was fully revealed, however, when The New York Times published columns by Paul Krugman and Chris Sagers on April 18 and April 29, now more boldly asserting that “growing monopoly power is a big problem” and that “profits are at near-record highs” due to declining competition. It is a challenge to believe that these key pieces of advocacy—focused on promoting a hitherto unknown version of reality and all occurring within a single month’s time—were not “collective conduct.” The political left had galvanized around a new antitrust narrative.
Characteristic of the breed, the new theme was soon echoed in other mainstream media outlets. A number of think tanks and freelance scholars and commentators were echoing the Economist/CEA/NYT narrative, and the “neo-Brandeisian” or “hipster” antitrust movement stepped into the light. Exemplified by then-student (and now Federal Trade Commission Chair) Lina Khan’s 2017 Yale Law Journal article “Amazon’s Antitrust Paradox,” the details of an entire worldview that blamed lax antitrust enforcement for a variety of economic ills emerged. Aside from the “macro” allegations of rising concentration and profits and declining innovation, a number of more specific complaints included allegations based especially on the conduct of Amazon. Similar analyses soon included other large technology companies.
The list of the new “malefactors of great wealth” usually includes Apple (still primarily a hardware producer—computers, smartphones, tablets, etc.—but with a pathbreaking and formidable applications offering); Amazon (a pioneer and still-leading firm in both e-commerce and cloud services, as well as a revolutionary and expanding distribution model focused on quick delivery, among other efforts like space travel); Facebook (now Meta; a successful social-media platform expanding into virtual reality); and Google (now Alphabet; originator of the most successful internet search engine, also competing head-to-head with Apple and others in smartphones, tablets, and their applications). Microsoft (personal computer and server software; tablets and other hardware; games and gaming devices; cloud services) was frequently mentioned, as well.
The complaints against the digital leaders include allegations of (1) undermining traditional media; (2) violating user privacy and data security; (3) pirating third-party data from e-commerce suppliers to imitate, front-run, or otherwise undermine and displace such suppliers from their own product markets; (4) manipulating their platforms to favor their own products and services (“self-preferencing”); (5) expanding monopoly power by buying up “nascent competitors” (e.g., Google’s purchase of YouTube, Facebook’s purchases of Instagram and WhatsApp); (6) infusing their services with “dark patterns” to influence users in various ways; (7) product bundling and improperly encouraging customers to purchase multiple products; (8) censoring users—with the political left holding that the platforms tolerate “disinformation” (speech that is legal but considered offensive or otherwise objectionable by someone’s definition), and the political right holding that censorship is disproportionately applied to conservative speakers and viewpoints.
Neo-Brandeisians Challenge Economic Rationality in Antitrust
Agitation for major antitrust changes intensified following the 2018 midterms, which resulted in a Democratic majority in the U.S. House. The House Judiciary Committee set to work to amplify the narrative with respect to the leading internet companies and various allegations that the complaints listed above were attributable to lax or misguided antitrust enforcement. Led by then-Rep. David Cicilline (D-R.I.), with Khan now placed at a senior staff position of the Antitrust Subcommittee that Cicilline chaired, a broad investigation of competition, anticompetitive conduct, and antitrust enforcement involving leading digital firms was launched. Lasting about 15 months and encompassing a number of hearings, the subcommittee collected numerous documents and elicited live testimony from chief executives of the major technology companies, antitrust scholars and practitioners, and technology-industry experts.
In October 2020, a 450-page report emerged, “Investigation of Competition in Digital Markets,” issued by the majority staff with separate and largely dissenting reports from the Republican minority. The report elaborated at great length on the theories advanced by Khan and on the complaints raised by others—that the leading technology firms had engaged in a wide variety of anticompetitive conduct, unabated by an antitrust-enforcement establishment that had allegedly been asleep at the switch for the preceding half-century. It did not consider or endorse any specific legislation, but the pathway suggested was reasonably clear from the relentless criticism of economic writings, judicial opinions (including most Supreme Court antitrust opinions dating from General Dynamics), and other landmark scholarship of antitrust law and economics of the past half-century.
The report was quickly followed by a series of proposals for radical change in the antitrust laws, aligning with the themes sounded during the House hearings and set forth in the majority-staff report. As of this writing, none has been enacted, and none deserve to be. In general, the main proposals are based on long-discredited approaches to public control of competitive markets—micromanagement of specific practices such as “self-preferencing,” product “bundling,” or competing with customers. The report compared the competitive developments in the technology sector to the 19th century problems of the railroad industry, failing to note that the model of ex ante regulation of railroads was given a century-long trial and judged a serious failure. The railroad regulatory agency—the Interstate Commerce Commission, established in 1887—was abolished in 1985. No matter how much authority over all the parameters of railroad competition the ICC was granted—and such authority was considerable[2]—the system of railroad regulation proved susceptible to industry capture and political influence. It stifled innovation in the transportation sector (most of which was also federally regulated by the ICC and the Civil Aeronautics Board, created in 1938) and even allowed rates to be set by cartels (“rate bureaus”) immunized from antitrust law.
The neo-Brandeisian agenda represented in the report also drew precedential support from the competition rules that have evolved in the European Union. Such rules are notorious for their persistent inclination toward intervention with respect to many forms of competitive conduct, as well as their heavy reliance on the discretion of the EU enforcement agency—the Directorate-General for Competition (DG Comp). EU competition policy consciously pursues non-economic objectives, such as “market integration,” giving rise to a more ambiguous and malleable standard for liability—characteristics intensified by the bureaucratic structure of the EU enforcement system. It also embodies a so-called “precautionary principle”—allowing conduct posing a relatively remote anticompetitive risk to be prohibited due to any long-run tendency to produce some form of restraint. This principle also lends ambiguity and large discretion to the setting and application of substantive standards, inviting speculative narratives to govern analyses of market behavior. Finally, it is evident—e.g., from the recent revisions in the European Commission’s Guidance Paper on Exclusionary Abuse of Dominance under Article 102 TFEU, for example—that EU competition policy is not entirely comfortable with the “greatest material progress” approach to antitrust. Its discussions of abuse of dominance, for example, contain the notion that multiple competitors should be preserved, even when doing so risks chilling procompetitive conduct.
Like the neo-Brandeisian proposal for reversion to close ex-ante regulation of competition (at least for the digital-sector leaders), the real-world evidence regarding the EU’s antitrust approach counsels powerfully against the idea. In the 40 years starting with the election of Ronald Reagan, which began the period of consistent application of sound economics to U.S. antitrust analysis, and ending with the COVID-19 Shutdown of 2020, U.S. gross domestic product grew at a substantially greater rate than that of the EU. U.S. and EU GDP each stood at around $3 trillion at the start of that period,[3] with the United States finishing at $21 trillion and the EU nations at $15 trillion in 2020 (all inflation-adjusted figures). Moreover, the United States far outperforms the EU in developing and introducing successful new technologies. On any recent list of leading technology companies (by market value, for example), the majority (36 of the top 50, including all of the top seven) are U.S.-based, with a fair showing in Asia, but few European entries. Of course, economic performance is attributable to a large, complex, and shifting constellation of public policies and other circumstances, but on the basis of the actual economic performance of the United States and the European Union, there is no reason to suggest that a European-style system of competition policy would enhance U.S. competitiveness. The EU has been trying for years, without significant success, to make itself “fit for the digital age,” although the Commission’s only verifiable progress in this direction has involved ever-stricter regulation of its main private-sector agents.
In short, the proposal for a radical revision in U.S. antitrust policy relies heavily on two main approaches, both of which fail obvious sanity checks. Virtually everything the Federal Trade Commission (FTC) has attempted in the Biden/Khan era falls into the trap of relying on highly interventionist conceptions of antitrust, despite the clear failure of the per se era in U.S. antitrust (1937-1974); the proven defects of sectoral economic regulation (ICC, CAB); and the poor showing of the EU’s interventionist approach to business conduct, as manifested by comparative economic performance, especially in the technology sector.
The Biden/Khan Antitrust Mutiny at the FTC
The list of FTC initiatives (many of them undertaken jointly with the DOJ’s Antitrust Division) is staggering in its extent, scope, and near-uniform disdain for empirically based economic analysis. That list would include, at a minimum:
- Withdrawal of guidance on “unfair methods of competition” (UMC) and substitution of a policy statement that does little more than assert the broadest imaginable range of potential concerns, thus depriving businesses subject to the FTC’s UMC jurisdiction of any meaningful understanding of how to comply;
- Withdrawal of the Vertical Merger Guidelines and the associated commentary (notably, the Antitrust Division did not follow suit, although presumably intramural peace has been reestablished, as evidenced by FTC and Antitrust Division issuance of joint draft merger guidelines, which include provisions on vertical mergers);
- Assertion of broad rulemaking authority under its UMC mandate, and use of such assertions of authority to propose a per se ban on most noncompete clauses in employment contracts (still pending adoption), despite grave doubts about its legal authority, and despite centuries of legal and business acceptance of reasonable noncompete provisions, thereby invading a field long occupied by state legislation and state common law, all without evident empirical support for such a per se rule;
- Assertion of past failures of doctrine or analysis, and proposals to cure them through what can only be described as intrusive and overdone efforts;
- Claims that prior doctrine missed the problem of monopsony, when it is incontestable that the law has always allowed challenges to monopsony. The U.S. Supreme Court specifically recognized the antitrust dangers of monopsony as early as 1948 (American Crystal Sugar v. Mandeville Island Farms) and addressed them again in 2007 (Weyerhaeuser v. Ross-Simmons Hardwood Lumber) and just recently, in NCAA v. Alston (2021);
- Claims that prior doctrine missed problems involving labor markets, when in fact important cases have focused precisely on labor issues (Todd v. Exxon (2001)); government cases and private treble-damage suits challenging no-poach agreements among leading technology companies, In Re: High-Tech Employee Antitrust Litigation (2015) and, again, a pure labor-monopsony case, NCAA v. Alston (2021));
- Eviscerated key procedural provisions of the Hart-Scott-Rodino (HSR) Act and its rules;
- Eliminated early termination based on the COVID-19 “emergency” but with no apparent intention to reinstate the practice now that the emergency has officially ended;
- Proposed extensive new HSR rules (still pending adoption) that would require parties to make initial production of detailed information focused on rare issues such as labor monopsony, among many other unwarranted and unjustifiably intrusive requirements;
- Continues to challenge a number of transactions on the basis of speculative and doubtful theories, despite losing every such litigated case. (In one of the clearest examples, Illumina/Grail—still pending on appellate review of a commission decision blocking an acquisition, although its own administrative law judge (ALJ) had declined to do so—the FTC is pursuing a theory indistinguishable from a per se prohibition on vertical integration by a firm with a superior technology or other competitive advantage.); and
- Demoted the FTC ALJs by eliminating initial decisions, which took effect unless selected for de novo review by the FTC, and treating them as mere recommended decisions, which must be reviewed by the commission.
The commission scarcely tries to conceal its hostility to business initiative and especially to any type of corporate-control transactions. It has consistently ignored the facts that the market for corporate control—trillions of dollars annually—is highly effective in moving assets to their most productive use, and that the market for corporate control is one of the few effective methods of disciplining underperforming corporate management. The FTC concedes that the overwhelming majority of transactions require no intensive investigation, but doggedly refuses to acknowledge—despite overwhelming evidence—that many corporate transactions (especially non-horizontal transactions) are competitively beneficial or no worse than neutral.
The recent publication of the draft merger guidelines and the proposed revisions to the HSR rules are especially telling. The draft merger guidelines provide no real guidance, but only an exhaustive list of every possible concept that the agencies might choose as the basis for a legal challenge (including Guideline 13, a “not elsewhere classified” category that would make the guidelines infinitely elastic). They fail to acknowledge that the market for corporate control has any utility; they say little about how firms can comply with the agencies’ view of the law; and they spin their description of the law in ways that are more likely to alienate courts than to convince them. Specifically, they present the commission’s favorite cases as gospel, even if superseded or otherwise doubtful, and they ignore a significant body of other cases that persuasively criticize or reject some of the guidelines’ central assertions.
In sum, there is no remaining doubt that the commission’s actions are based not on economically sound and persuasive analysis of competition and the circumstances of particular industries, but on a dogmatic program of constraining large firms and attacking structural transactions on almost any available pretext, no matter how questionable. In the few decided cases to date, the courts are properly and routinely weeding out the commission’s tendentious allegations but not, apparently, with any evident success in changing the commission’s enforcement direction. There is a single exception to this generalization: having loudly proclaimed their strong preference for divestiture remedies or none at all in merger matters, reality appears to have set in, as both agencies have accepted lesser remedies in compromise of cases where it seemed clear they would otherwise have failed to win a divestiture remedy.
But Wait, There’s More: FTC Radicalism Inflames Concern Regarding Abuse of Agency Authority
The FTC’s opportunity to launch antitrust policy in a radical new direction was enabled, in a sense, by landmark administrative-law decisions that accompanied or later blessed the implementation of FDR’s New Deal policies. Such cases continued until at least the 1980s, and leave a broad range of discretion to administrative agencies that are structured like the FTC. Now, these landmarks are being revisited in a series of Supreme Court decisions. The commission is doing nothing to reassure the judiciary, the antitrust community, or the public of the wisdom of relying on its broad discretion under federal administrative law. The commission is now pushing the boundaries within which agencies write their own rules, structure their internal proceedings to their own advantage, and intermingle executive, legislative, and judicial functions. The FTC is spending the considerable capital it inherited from almost a century of lax judicial control of administrative discretion that has been a hallmark of federal government structure since at least the 1930s.
The FTC is a prime example of this overarching tendency of judicial deference to agencies. The commission was heavily insulated from judicial review from the beginning. It was authorized to proceed via administrative hearing, rather than required to prove cases in court (like the Antitrust Division and other components of the executive branch). Administrative review of commission decisions is subject to the rule requiring acceptance of agency fact findings that are supported by “substantial evidence,” and at least since Chevron v. NRDC (1984), it has received deference in interpreting its organic statutes. Until recently, the commission also had benefited from rulings that prevent parties subject to its investigations and complaints from challenging the FTC’s organic structure and methods of proceeding, except as part of an appeal from a final order. This meant that parties aggrieved even by clear constitutional violations were forced to litigate until the very end of a commission proceeding before they could raise such challenges, and even then they were forced into the administrative-review mode favorable to the commission. Such proceedings can last many years, and thus such court challenges have been exceedingly rare and almost never successful. And, of course, no confirmed FTC commissioner need fear presidential rebuke, absent serious improper conduct, given the insultation provided by Humphrey’s Executor. (The president may, of course, freely designate the chair, providing a very limited degree of leverage over FTC policy.)
The present, however, may be the worst moment in U.S. legal history for the FTC to be stretching the limits of administrative discretion. Just recently, in a case involving a remarkable chain of events (Axon v. FTC), the Supreme Court in effect became much more receptive to allowing parties in FTC proceedings to bring federal court challenges against organic constitutional defects and similar problems, without having to wait for review of an FTC “final order.” Now, the commission may need to defend any abuse of its numerous procedural advantages from the outset of a proceeding.
Similarly, the Supreme Court’s recent reliance on the “major questions” doctrine—the idea that agency action with major economic or social consequences must be based on clear congressional authorization—suggests increasing Supreme Court skepticism regarding agency discretion. In AMG Capital v. FTC, the Supreme Court rejected the FTC’s claims of authority to obtain equitable monetary remedies via its injunction authority under Section 13(b). Additionally, a pending Supreme Court case (Loper Bright Enterprises v. Raimondo) will directly reconsider Chevron deference. There are other cases working their way through the appellate process that may lead to reconsideration of Humphrey’s Executor, invalidate the FTC’s administrative-litigation structure based on lack of an “intelligible standard” for the selection of judicial versus administrative proceedings, or even strike down the combination of quasi-legislative, quasi-judicial, and prosecutorial functions simultaneously exercised by the FTC.
Historically, the FTC has shown little willingness to consider challenges of this character. Over the last decade, it reacted defiantly to proposals (the “SMARTER Act”) to align its Section 7 procedures with those of the Antitrust Division by (1) clarifying that the each antitrust agency is required to meet the same traditional standard for injunctive relief when challenging mergers in court, and (2) limiting the FTC’s authority to challenge HSR-notified mergers through its administrative proceedings (requiring the FTC to challenge mergers in federal court, just as the Antitrust Division must do). Then-Chair Elizabeth Ramirez sent a letter to Congress sharply opposing the idea of placing the FTC on the same plane as the Antitrust Division. The letter argued vaguely that Congress in 1914 wanted to create a special institution with the particular powers and procedures given to the commission, but never pointed to any direct basis for such a privileged position. Nor did the letter consider whether such a privileged position might be unwise in light of the enormous strengthening of the commission’s prosecutorial authority that has occurred since 1914.
Perhaps more remarkably, in response to the Supreme Court ruling in AMG Capital (rejecting the commission’s argument that it has authority to seek equitable monetary relief under Section 13(b)), the commission’s then-acting chair issued a press statement beginning: “In AMG Capital, the Supreme Court ruled in favor of scam artists and dishonest corporations, leaving average Americans to pay for illegal behavior[.]” Given that this decision was unanimous, based strictly on statutory analysis, and widely anticipated, adopting this tone in addressing the Court seems unlikely to win friends or encourage judicial deference to the commission.
The Damage Done Via Reflections of FTC Policy from Antitrust Agencies Abroad
And finally—no, not done yet!—FTC enforcement action and policy statements are materially damaging the U.S. economy by encouraging foreign antitrust agencies to engage in the same kind of hypertrophic and unjustified competitive interventions against U.S. companies that the commission is pursuing. The United States has, by far, the longest, strongest, and most effective record in antitrust enforcement of any country in the world. The comprehensive scope of U.S. antitrust statutes; the multiple governmental (two federal agencies, 50 states, and several more D.C. and territorial authorities) and private sources empowered to enforce our laws; the formidable procedures and remedies available to pursue, punish, and redress antitrust violations have all given rise to a large and sophisticated bar and a sprawling supporting infrastructure of experienced economic and industry experts, academics and others.
The United States until recently had served as the unquestioned leading model for the world, insofar as the creation and implementation of a system of antitrust enforcement was concerned. Based on the long experience described above, the U.S. government used to be a reasonably successful advocate for economic rationality to the scores of antitrust agencies that have proliferated worldwide since the 1980s, as well as to the leading multinational associations formed by the world’s antitrust-enforcement agencies (primarily the Competition Committee of the OECD and the International Competition Network). The FTC’s willingness to abandon economics-based antitrust and encourage reversion to other broken or defective models of enforcement removes any constraints that may have existed on enforcement agencies of other jurisdictions. Without persistent pressure from the U.S. perspective, antitrust outside the United States can only evolve in a destructive direction similar to that being pursued by the FTC. And, of course, the main targets of these agencies are all the leading U.S. technology firms. This constitutes a significant threat to economic growth and innovation.
Summary and Conclusion
In sum, these are not normal times, and this is not a normal commission. Since its creation in 1914, the FTC has been free to explore the field of antitrust (and, since 1938, consumer protection, not addressed in this piece), experimenting with various approaches, sometimes succeeding and other times not. But at the current moment, three essential elements are combining to create unique threats to the commission as an institution:
- From 1981 to 2020, the United States was by far the most productive and innovative economy in the world. This success is attributable, in part, to policy decisions made in the 1970s and 1980s to eschew command-and-control approaches to competitive conduct, both in key regulated sectors and in the broader private-sector economy. The decisive elements of this reorientation included the shift toward consistent reliance on sound economic analysis in antitrust and the corollary rejection of non-economic objectives as decisional criteria in antitrust cases.
- Under its current chair, the FTC has embarked upon a systematic, categorical, and flagrant rejection of the major premises of the antitrust-enforcement approach that earned a broad consensus lasting for the last half-century and that helped to make the U.S. economy the world’s outstanding performer in growth and innovation. In general, the FTC approach defies foundational tenets of present law and contravenes sound understandings of the competitive economy. The FTC’s undue reliance on structural criteria ignores the fact that concentration—despite superficial appeal as a key market variable—has been shown (repeatedly – in the 1970s, the 2000s and just recently) to have no significant or consistent negative causal influence on competitive performance. The FTC’s unwillingness to acknowledge meaningful distinctions in competition risks between horizontal and non-horizontal transactions ignores longstanding and consistent experience with the functioning of markets, as well as extensive scholarship. The FTC has failed to articulate a persuasive connection between perceived misconduct (by the leading technology firms, or by others) and theories of antitrust liability consistent with present law and with the longstanding central objective of antitrust, achieving the “greatest material progress.” These approaches are fatally flawed, whether viewed from legal, economic, or policy perspectives. They are dogmatic—part of a Lysenkoist industrial policy based on a mixture of demagoguery and dreamy ideals, impermeable to the clear lessons of a lengthy history and the results of extensive serious study.
- The FTC’s commitment to an antitrust approach already proven to be defective occurs at a unique moment in U.S. history. It is a time of serious doubt about the wisdom of reposing a vast degree of regulatory discretion within the “fourth branch” of government, isolated through various mechanisms from congressional, presidential, and judicial control. The aspirations of FDR and the New Deal thinkers have been fulfilled by the inexorable emergence of a vast, resource-intensive, and self-protective federal bureaucracy that resists public accountability and reform, and therefore continues to impose extraordinary and excessive demands on the private sector. As illustrated by several recent strands of judicial doctrine, however, that could change. As AMG Financial and Axon illustrate, it appears that such a change is already beginning for the commission. If it continues on its present course, the FTC could be a very different and much weaker institution before too long.
[1] The appearance of an attorney general or other cabinet official at an ABA Antitrust Section meeting is very rare. The last one in present recollection is that of Nixon’s recently retired Treasury Secretary John Connolly, who famously bored the audience to tears with a lengthy defense of U.S. international monetary policy, leading to an informal ABA policy that such speakers were to be limited henceforward to entertainers and comedians—e.g., Dave Barry or the perennial favorite singing group (focusing on political satire) the Capitol Steps. Gradually the policy softened to allow more serious speakers—for example, Doris Kearns Goodwin.
[2] Rates, terms of service, entry and exit, agreements and consolidations among carriers and between carriers and others, etc.
[3] “EU” defined for 1981 purposes as including all nations of the European Economic Community, plus those that eventually became member states of the EU, including the United Kingdom.
