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[Today’s second guest post, the sixth in our FTC UMC Rulemaking symposium, comes from Andrew K. Magloughlin and Randolph J. May of the Free State Foundation. See also the related post we published today from Richard J. Pierce Jr. of the George Washington University Law School. You can find other posts at the symposium page here. Truth on the Market also invites academics, practitioners, and other antitrust/regulation commentators to send us 1,500-4,000 word responses for potential inclusion in the symposium.]

The Federal Trade Commission’s (FTC) current leadership appears likely to issue substantive rules concerning “unfair methods of competition” (UMC) at some point. FTC Chair Lina Khan, in an article with former FTC Commissioner Rohit Chopra, argued that the commission has the authority to issue UMC rules pursuant to the Federal Trade Commission Act based on Petroleum Refiners Association v. FTC and a subsequently enacted provision in 1975. But Petroleum Refiners is a nearly 50-year-old, untested, and heavily criticized opinion that predates the major questions doctrine and widespread adoption of textualism in the courts. Application of the major questions doctrine and modern, textualist methods of statutory interpretation almost certainly would lead to a determination that the commission lacks UMC rulemaking authority.

Our submission to this Truth on the Market symposium argues that today’s Supreme Court would find that the FTC lacks authority to issue UMC rules under the major questions doctrine.[1] Part I reviews the provisions of the FTC Act relevant to UMC rulemaking and scholarly commentary on the issue. Part II argues that, applying the major questions doctrine as the Court has done in recent opinions such as NFIB v. OSHA, the Supreme Court would find that the FTC lacks UMC rulemaking authority because Congress could not have intended such a cryptic delegation to authorize sweeping rules of such economic significance.

Text, Structure, and Interpretation of the FTC Act

The FTC Act establishes the FTC and its authority. Section 5 of the FTC Act declares unlawful “unfair methods of competition in or affecting commerce” and empowers the commission to stop them. The law provides specific procedures for an administrative adjudicatory process that the commission “shall” use to stop unfair methods of competition when it identifies them and believes stopping them is in the public interest. The remainder of Section 5 involves provisions related to available remedies and jurisdiction for appeal of final decisions from FTC adjudications. This is the extent of explicit authority the FTC Act contains related to UMC.

In the next portion of the same subchapter, Section 6(g) states: “The Commission shall also have power . . . to make rules and regulations for the purpose of carrying out the provisions of this subchapter.” In 1973’s Petroleum Refiners Association v. FTC, the U.S. Court of Appeals for the D.C. Circuit interpreted this provision to grant the commission substantive rulemaking authority to implement Section 5. While Petroleum Refiners involved rules regarding “unfair or deceptive acts or practices” under Section 5, rather than UMC rules, its reasoning, if still valid today, seemingly could authorize the commission to issue UMC rules. But the FTC has never issued UMC rules to date.

Congress responded to Petroleum Refiners by enacting laws in 1975 and 1980 that imposed significant procedural burdens on the FTC’s rulemaking process for unfair or deceptive acts. These burdens, known as the “Magnuson-Moss procedures,” are far more exacting than the Administrative Procedure Act’s notice-and-comment rulemaking process and, since adopted, they have had the effect of stopping the FTC from issuing rules for governing unfair or deceptive acts.

FTC Chair Khan believes that, in adopting the Magnuson-Moss procedures, Congress has implicitly codified Petroleum Refiners‘ holding that the FTC has authority to issue UMC rules. She argues that legislative history for the 1975 amendments show that Congress rejected a version of the bill that applied Magnuson-Moss procedures to all FTC rulemaking, rather than just unfair or deceptive acts rulemaking. And the enacted statute, as well as the conference report for the adopted law, stated that Magnuson-Moss procedures “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.” Khan believes that this provision implicitly recognized that, in accord with the holding of Petroleum Refiners, that Section 6(g) grants the commission authority to issue substantive UMC rules. Moreover, in her view, if the FTC adopted her position as its official interpretation of the statute, it would be entitled to Chevron deference.

Other commentators disagree persuasively. Richard Pierce notes that the provision Khan points to as implicitly adopting Petroleum Refiners just as easily could be interpreted to clarify that Magnuson-Moss procedures do not apply to interpretative rules and policy statements for UMC adjudications. This argument, though, does not completely eliminate ambiguity, because the statute used the non-exclusive word including in the phrase “rules (including interpretative rules) and general statements of policy” rather than expressly limiting the exemption to those two types of rules.

But Pierce, more forcefully, argues that Khan’s interpretation depends on the Petroleum Refiners interpretation of the FTC Act remaining good law, and this is doubtful. Petroleum Refiners employed a non-textualist method of statutory interpretation that courts do not apply today. That case held that an ambiguous grant “to make rules and regulations for the purpose of carrying out the provisions of this subchapter” should be construed to favor the agency’s interpretation of its authority under that provision. This holding appears to conflict with the Supreme Court’s more searching review for identifying congressional delegations to agencies to issue substantive rules in Untied States v. Mead Corp., a case decided more than two decades after Petroleum Refiners. Mead Corp. explained that agencies are entitled to Chevron deference for their application of their authorizing statutes when “Congress delegated authority to the agency generally to make rules carrying the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority.”

The D.C. Circuit itself may have already implicitly overruled Petroleum Refiners while applying Mead Corp. in more recent cases. In American Library Association v. FCC, the D.C. Circuit adopted a far more skeptical reading of a similar general grant of authority—the Federal Communications Commission’s (FCC) general grant in Title I of the Communications Act, which reads: “The Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions.” The FCC had issued its Broadcast Flag Order relying solely on its general grant of authority in Title I.

But the D.C. Circuit, applying Mead Corp., held that the FCC could only issue substantive rules pursuant to its general grant of authority when: “(1) the Commission’s general jurisdictional grant under Title I covers the subject of the regulations and (2) the regulations are reasonably ancillary to the Commission’s effective performance of its statutorily mandated responsibilities.” In other words, only when the substantive rules reasonably relate to explicit authority contained in the Communications Act. Petroleum Refiners is inconsistent with this subsequent holding of the D.C. Circuit.

Further, William Kovacic—a former FTC chair, commissioner, and general counsel—explains that the unanimous Supreme Court opinion in AMG Capital Management LLC v. FTC implicitly refutes Petroleum Refiners. In AMG, the Court rejected the FTC’s interpretation of Section 13(b) of the FTC Act, which states that the commission “may bring suit in a district court of the United States to enjoin” violations of the law that the FTC enforces. The FTC argued that Section 13(b) empowered it to seek equitable monetary relief, despite the provision’s circumscribed focus on injunctions. But the court explained that this focus on injunctions, as well as the structure of the act as a whole, counseled otherwise. And unlike Section 13(b), other FTC Act provisions expressly empower the commission to seek “other forms of relief” in addition to injunctions, demonstrating that Congress would have explicitly authorized equitable monetary relief if it intended Section 13(b) to provide it.

As Kovacic explains, the AMG opinion was “not so generous” to the FTC’s interpretation of the FTC Act, refuting the deferential approach of Petroleum Refiners. It seems unlikely, given the above criticisms of Petroleum Refiners, that the Court would be any more deferential to an attempt by Khan or a future FTC chair to issue substantive UMC rules. This is especially true because, as explained below, the major questions doctrine likely would resolve the question of the FTC’s UMC authority against the commission.

Today’s Major Questions Doctrine Most Likely Would Slam the Door Shut on FTC UMC Rulemaking

Under current jurisprudence, the Supreme Court’s application of the major questions doctrine most likely would slam the door shut on the FTC’s supposed authority to issue UMC rules. The major questions doctrine is a canon of statutory interpretation that the Court developed as an exception or limitation to application of Chevron deference, even if the Court appears to now apply it independently of Chevron. It applies to judicial review of agency interpretations of statutory authority to issue substantive rules. Put simply, the major questions doctrine is a linguistic canon that requires “Congress to speak clearly when authorizing an agency to exercise powers of vast economic and political significance,” or put more colloquially, that prevents Congress from “hiding elephants in mouseholes.”

The underlying purpose of the major questions doctrine is the protection of separation of powers. However, the context in which it protects separation of powers is not entirely clear because the Court’s views appear to be, at present, unsettled.[2] The “clear statement” version of the major questions doctrine protects separation of powers by preventing the executive branch from relying on strained interpretations of delegated statutory authority. But multiple Supreme Court justices have at times argued for a substantive major questions doctrine—one that would bar certain “major” delegations altogether, regardless of the clarity of the congressional delegation.[3] For our purposes, in this piece, we apply the major questions doctrine as a clear-statement rule, which at present is the controlling law.

There are several factors that the Court has identified as warranting application of the major questions doctrine. The two most common factors can be thought of as (1) claims of sweeping authority, or massive elephants, enabled through (2) cryptic statutory texts, or tiny mouseholes. For example, in Alabama Association of Realtors v. HHS, the Supreme Court applied the major questions doctrine, in part, because the “sheer scope” of the rule in that case was dramatic—affecting 80% of the country’s population and superseding a traditional area of state regulation. In other words, a massive elephant. An example of a tiny mousehole is, in NFIB v. OSHA, the Occupational Safety and Health Administration’s (OSHA) reliance on statutory authority for “workplace safety” regulations to require broad public-health mandates like compulsory vaccination, which affects people far beyond the confines of the workplace.

Other relevant factors include assertions of authority despite long-held contrary indications from Congress and the agency itself, or a history of failure to assert similar authority. For example, in Brown & Williamson Tobacco Corp. v. FDA, the Court found it relevant that the Food and Drug Administration (FDA) asserted regulatory authority over tobacco products, despite Congress’ creation of a distinct regulatory structure for tobacco outside the purview of the FDA and decades of assertions by Congress and FDA leadership that the FDA lacked authority to regulate tobacco. In NFIB, the Court noted that OSHA’s vaccine mandate was its first sweeping public-health measure under the Occupational Health and Safety Act in its more than 50 years of existence.

Applying the major questions doctrine to the FTC’s supposed UMC rulemaking authority would mean that the commission almost certainly lacks such authority. First, many of the relevant factors for the major questions doctrine are present. The scope of potential UMC rulemaking is sweeping, covering most of our nation’s economy—a big elephant. And the provision supposedly enabling the commission’s rulemaking authority—Section 6(g), which contains general language, rather than an explicit delegation of authority to the commission—amounts to a tiny mousehole. The FTC Act provision Khan points to as implicitly codifying Petroleum Refiners is even less specific; it simply asserts that Section 18a of the FTC Act will have no effect on the FTC’s UMC rulemaking authority. But if the commission never had such rulemaking authority in the first place under Section 6(g), then this provision is irrelevant and provides no implicit codification, let alone the clear statement required by the major questions doctrine. Thus, an even tinier mousehole.

Analysis of the statutory text and legislative history Khan identifies shows precisely how tiny that mousehole is. As mentioned above, Khan believes that Congress’ rejection of a draft bill that applied Magnuson-Moss procedures to UMC rulemaking proves that Congress implicitly endorsed Petroleum Refiners. Not so. Instead, by clarifying that Section 18a “shall not affect any authority of the Commission to prescribe rules … with respect to unfair methods of competition in or affecting commerce,” Congress likely was rejecting Petroleum Refiners as applied to UMC rulemaking. Congress did indeed codify the Petroleum Refiners holding that the FTC has authority to issue rules for unfair or deceptive acts or practices by subjecting them to the rigorous Magnuson-Moss procedures. But by stating that those procedures did not affect the FTC’s authority for UMC rules, any authority for the commission to issue such rules depends solely on interpretation of Section 6(g)—or the continued vitality of Petroleum Refiners. A provision that says nothing about the issue at hand is among the tiniest imaginable mouseholes.

Further, the FTC, since its creation in 1914, has failed to issue any UMC rulemakings over the past 108 years. As Richard Pierce explains, between 1914 and 1962, when the unfair or deceptive practice rules under review in Petroleum Refiners were first introduced, “the FTC, Congress, courts, and scholars were unanimous in their belief that the FTC did not have the power to issue legislative rules.” An assertion claiming such authority to issue rules now would be a bureaucratic power-grabbing bridge too far, if not to nowhere.

Should the occasion arise, for all the reasons discussed, we predict the Supreme Court will slam the door shut on FTC UMC rulemaking authority.


[1] It is also possible that any UMC rules issued would be determined to violate the nondelegation doctrine, aside from whether reviewing courts considered the major questions doctrine part and parcel of the nondelegation doctrine. In this essay, we are focusing on current major questions doctrine jurisprudence that often is not tied, at least explicitly, to traditional nondelegation doctrine analysis.

[2] We authored a law review article dedicated to this subject.

[3] See, for example, Justice Neil Gorsuch’s dissent in Gundy v. United States, joined by Chief Justice John Roberts and Justice Clarence Thomas, which argued that the major questions doctrine should step in to replace the Court’s failure to enforce the nondelegation doctrine.

[Continuing our FTC UMC Rulemaking symposium, today’s first guest post is from Richard J. Pierce Jr., the Lyle T. Alverson Professor of Law at George Washington University Law School. We are also publishing a related post today from Andrew K. Magloughlin and Randolph J. May of the Free State Foundation. You can find other posts at the symposium page here. Truth on the Market also invites academics, practitioners, and other antitrust/regulation commentators to send us 1,500-4,000 word responses for potential inclusion in the symposium.]

FTC Rulemaking Power

In 2021, President Joe Biden appointed a prolific young scholar, Lina Khan, to chair the Federal Trade Commission (FTC). Khan strongly dislikes almost every element of antitrust law. She has stated her intention to use notice and comment rulemaking to change antitrust law in many ways. She was unable to begin this process for almost a year because the FTC was evenly divided between Democratic and Republican appointees, and she has not been able to elicit any support for her agenda from the Republican members. She will finally get the majority she needs to act in the next few days, as the U.S. Senate appears set to confirm Alvaro Bedoya to the fifth spot on the commission.   

Chair Khan has argued that the FTC has the power to use notice-and-comment rulemaking to define the term “unfair methods of competition” as that term is used in Section 5 of the Federal Trade Commission Act. Section 5 authorizes the FTC to define and to prohibit both “unfair acts” and “unfair methods of competition.” For more than 50 years after the 1914 enactment of the statute, the FTC, Congress, courts, and scholars interpreted it to empower the FTC to use adjudication to implement Section 5, but not to use rulemaking for that purpose.

In 1973, the U.S. Court of Appeals for the D.C. Circuit held that the FTC has the power to use notice-and-comment rulemaking to implement Section 5. Congress responded by amending the statute in 1975 and 1980 to add many time-consuming and burdensome procedures to the notice-and-comment process. Those added procedures had the effect of making the rulemaking process so long that the FTC gave up on its attempts to use rulemaking to implement Section 5.

Khan claims that the FTC has the power to use notice-and-comment rulemaking to define “unfair methods of competition,” even though it must use the extremely burdensome procedures that Congress added in 1975 and 1980 to define “unfair acts.” Her claim is based on a combination of her belief that the current U.S. Supreme Court would uphold the 1973 D.C. Circuit decision that held that the FTC has the power to use notice-and-comment rulemaking to implement Section 5 and her belief that a peculiarly worded provision of the 1975 amendment to the FTC Act allows the FTC to use notice-and-comment rulemaking to define “unfair methods of competition,” even though it requires the FTC to use the extremely burdensome procedure to issue rules that define “unfair acts.” The FTC has not attempted to use notice-and-comment rulemaking to define “unfair methods of competition” since Congress amended the statute in 1975. 

I am skeptical of Khan’s argument. I doubt that the Supreme Court would uphold the 1973 D.C. Circuit opinion, because the D.C. Circuit used a method of statutory interpretation that no modern court uses and that is inconsistent with the methods of statutory interpretation that the Supreme Court uses today. I also doubt that the Supreme Court would interpret the 1975 statutory amendment to distinguish between “unfair acts” and “unfair methods of competition” for purposes of the procedures that the FTC is required to use to issue rules to implement Section 5.

Even if the FTC has the power to use notice-and-comment rulemaking to define “unfair methods of competition,” I am confident that the Supreme Court would not uphold an exercise of that power that has the effect of making a significant change in antitrust law. That would be a perfect candidate for application of the major questions doctrine. The court will not uphold an “unprecedented” action of “vast economic or political significance” unless it has “unmistakable legislative support.” I will now describe four hypothetical exercises of the rulemaking power that Khan believes that the FTC possesses to illustrate my point.

Hypothetical Exercises of FTC Rulemaking Power

Creation of a Right to Repair

President Biden has urged the FTC to create a right for an owner of any product to repair the product or to have it repaired by an independent service organization (ISO). The Supreme Court’s 1992 opinion in Eastman Kodak v. Image Technical Services tells us all we need to know about the likelihood that it would uphold a rule that confers a right to repair. When Kodak took actions that made it impossible for ISOs to repair Kodak photocopiers, the ISOs argued that Kodak’s action violated both Section 1 and Section 2 of the Sherman Act. The Court held that Kodak could prevail only if it could persuade a jury that its view of the facts was accurate. The Court remanded the case for a jury trial to address three contested issues of fact.

The Court’s reasoning in Kodak is inconsistent with any version of a right to repair that the FTC might attempt to create through rulemaking. The Court expressed its view that allowing an ISO to repair a product sometimes has good effects and sometimes has bad effects. It concluded that it could not decide whether Kodak’s new policy was good or bad without first resolving the three issues of fact on which the parties disagreed. In a 2021 report to Congress, the FTC agreed with the Supreme Court. It identified seven factual contingencies that can cause a prohibition on repair of a product by an ISO to have good effects or bad effects. It is naïve to expect the Supreme Court to change its approach to repair rights in response to a rule in which the FTC attempts to create a right to repair, particularly when the FTC told Congress that it agrees with the Court’s approach immediately prior to Khan’s arrival at the agency.

Prohibition of Reverse-Payment Settlements of Patent Disputes Involving Prescription Drugs

Some people believe that settlements of patent-infringement disputes in which the manufacturer of a generic drug agrees not to market the drug in return for a cash payment from the manufacturer of the brand-name drug are thinly disguised agreements to create a monopoly and to share the monopoly rents. Khan has argued that the FTC could issue a rule that prohibits such reverse-payment settlements. Her belief that a court would uphold such a rule is contradicted by the Supreme Court’s 2013 opinion in FTC v. Actavis. The Court unanimously rejected the FTC’s argument in support of a rebuttable presumption that reverse payments are illegal. Four justices argued that reverse-payment settlements can never be illegal if they are within the scope of the patent. The five-justice majority held that a court can determine that a reverse-payment settlement is illegal only after a hearing in which it applies the rule of reason to determine whether the payment was reasonable.

A Prohibition on Below-Cost Pricing When the Firm Cannot Recoup Its Losses

Khan believes that illegal predatory pricing by dominant firms is widespread and extremely harmful to competition. She particularly dislikes the Supreme Court’s test for identifying predatory pricing. That test requires proof that a firm that engages in below-cost pricing has a reasonable prospect of recouping its losses. She wants the FTC to issue a rule in which it defines predatory pricing as below-cost pricing without any prospect that the firm will be able to recoup its losses.

The history of the Court’s predatory-pricing test shows how unrealistic it is to expect the Court to uphold such a rule. The Court first announced the test in a Sherman Act case in 1986. Plaintiffs attempted to avoid the precedential effect of that decision by filing complaints based on predatory pricing under the Robinson-Patman Act. The Court rejected that attempt in a 1993 opinion. The Court made it clear that the test for determining whether a firm is engaged in illegal predatory pricing is the same no matter whether the case arises under the Sherman Act or the Robinson-Patman Act. The Court undoubtedly would reject the FTC’s effort to change the definition of predatory pricing by relying on the FTC Act instead of the Sherman Act or the Robinson-Patman Act.

A Prohibition of Noncompete Clauses in Contracts to Employ Low-Wage Employees

President Biden has expressed concern about the increasing prevalence of noncompete clauses in employment contracts applicable to low wage employees. He wants the FTC to issue a rule that prohibits inclusion of noncompete clauses in contracts to employ low-wage employees. The Supreme Court would be likely to uphold such a rule.

A rule that prohibits inclusion of noncompete clauses in employment contracts applicable to low-wage employees would differ from the other three rules I discussed in many respects. First, it has long been the law that noncompete clauses can be included in employment contracts only in narrow circumstances, none of which have any conceivable application to low-wage contracts. The only reason that competition authorities did not bring actions against firms that include noncompete clauses in low-wage employment contracts was their belief that state labor law would be effective in deterring firms from engaging in that practice. Thus, the rule would be entirely consistent with existing antitrust law.

Second, there are many studies that have found that state labor law has not been effective in deterring firms from including noncompete clauses in low-wage employment contracts and many studies that have found that the increasing use of noncompete clauses in low-wage contracts is causing a lot of damage to the performance of labor markets. Thus, the FTC would be able to support its rule with high-quality evidence.

Third, the Supreme Court’s unanimous 2021 opinion in NCAA v. Alstom indicates that the Court is receptive to claims that a practice that harms the performance of labor markets is illegal. Thus, I predict that the Court would uphold a rule that prohibits noncompete clauses in employment contracts applicable to low-wage employees if it holds that the FTC can use notice-and-comment rulemaking to define “unfair methods of competition,” as that term is used in Section 5 of the FTC Act. That caveat is important, however. As I indicated at the beginning of this essay, I doubt that the FTC has that power.

I would urge the FTC not to use notice-and comment rulemaking to address the problems that are caused by the increasing use of noncompete clauses in low-wage contracts. There is no reason for the FTC to put a lot of time and effort into a notice-and-comment rulemaking in the hope that the Court will conclude that the FTC has the power to use notice-and-comment rulemaking to implement Section 5. The FTC can implement an effective prohibition on the inclusion of noncompete clauses in employment contracts applicable to low-wage employees by using a combination of legal tools that it has long used and that it clearly has the power to use—issuance of interpretive rules and policy statements coupled with a few well-chosen enforcement actions.

Alternative Ways to Improve Antitrust Law       

There are many other ways in which Khan can move antitrust law in the directions that she prefers. She can make common cause with the many mainstream antitrust scholars who have urged incremental changes in antitrust law and who have conducted the studies needed to support those proposed changes. Thus, for instance, she can move aggressively against other practices that harm the performance of labor markets, change the criteria that the FTC uses to decide whether to challenge proposed mergers and acquisitions, and initiate actions against large platform firms that favor their products over the products of third parties that they sell on their platforms.     

The American concept of “the rule of law” (see here) is embodied in the Due Process Clause of the Fifth Amendment to the U.S. Constitution, and in the constitutional principles of separation of powers, an independent judiciary, a government under law, and equality of all before the law (see here).  It holds that the executive must comply with the law because ours is “a government of laws, and not of men,” or, as Justice Anthony Kennedy put it in a 2006 address to the American Bar Association, “that the Law is superior to, and thus binds, the government and all its officials.”  (See here.)  More specifically, and consistent with these broader formulations, the late and great legal philosopher Friedrich Hayek wrote that the rule of law “means the government in all its actions is bound by rules fixed and announced beforehand – rules which make it possible to see with fair certainty how the authority will use its coercive powers in given circumstances and to plan one’s individual affairs on the basis of this knowledge.”  (See here.)  In other words, as former Boston University Law School Dean Ron Cass put it, the rule of law involves “a system of binding rules” adopted and applied by a valid government authority that embody “clarity, predictability, and equal applicability.”  (See here.)

Regrettably, by engaging in regulatory overreach and ignoring statutory limitations on the scope of their authority, federal administrative agencies have shown scant appreciation for rule of law restraints under the current administration (see here and here for commentaries on this problem by Heritage Foundation scholars).  Although many agencies could be singled out, the Federal Communications Commission’s (FCC) actions in recent years have been especially egregious (see here).

A prime example of regulatory overreach by the FCC that flouted the rule of law was its promulgation in 2015 of an order preempting state laws in Tennessee and North Carolina that prevented municipally-owned broadband providers from providing broadband service beyond their geographic boundaries (Municipal Broadband Order, see here).   As a matter of substance, this decision ignored powerful economic evidence that municipally-provided broadband services often involve wasteful subsidies for financially–troubled government-owned providers that interfere with effective private sector competition and are economically harmful (my analysis is here).   As a legal matter, the Municipal Broadband Order went beyond the FCC’s statutory authority and raises grave constitutional problems, thereby ignoring the constitutional limitations placed on the exercise of governmental powers that lie at the heart of the rule of law (see here).  The Order lacked a sound legal footing in basing its authority on Section 706 of the Telecommunications Act of 1996, which merely authorizes the FCC to promote local broadband competition and investment (a goal which the Order did not advance) and says nothing about preemption.   In addition, the FCC’s invocation of preemption authority trenched upon the power of the states to control their subordinate governmental entities, guaranteed to them by the Constitution as an essential element of their sovereignty in our federal system (see here).   What’s more, the Chattanooga, Tennessee and Wilson, North Carolina municipal broadband systems that had requested FCC preemption imposed content-based restrictions on users of their network that raised serious First Amendment issues (see here).   Specifically, those systems’ bans on the transmittal of various sorts of “abusive” language appeared to be too broad to withstand First Amendment “strict scrutiny.”  Moreover, by requiring prospective broadband enrollees to agree not to sue their provider as an initial condition of service, two of the municipal systems arguably unconstitutionally coerced users to forgo exercise of their First Amendment rights.

Fortunately, on August 10, 2016, in Tennessee v. FCC, the U.S. Court of Appeals for the Sixth Circuit struck down the Municipal Broadband Order, pithily stating:

The FCC order essentially serves to re-allocate decision-making power between the states and their municipalities. This is shown by the fact that no federal statute or FCC regulation requires the municipalities to expand or otherwise to act in contravention of the preempted state statutory provisions. This preemption by the FCC of the allocation of power between a state and its subdivisions requires at least a clear statement in the authorizing federal legislation. The FCC relies upon § 706 of the Telecommunications Act of 1996 for the authority to preempt in this case, but that statute falls far short of such a clear statement. The preemption order must accordingly be reversed.

The Sixth Circuit’s decision has important policy ramifications that extend beyond the immediate controversy, as Free State Foundation Scholars Randolph May and Seth Cooper explain:

The FCC’s Municipal Broadband Preemption Order would have turned constitutional federalism inside out by severing local political subdivisions’ accountability from the states governments that created them. Had the agency’s order been upheld, the FCC surely would have preempted several other state laws restricting municipalities’ ownership and operation of broadband networks. Several state governments would have been locked into an unwise policy of favoring municipal broadband business ventures with a track record of legal and proprietary conflicts of interest, expensive financial failures, and burdensome debts for local taxpayers.

The avoidance of a series of bad side effects in a corner of the regulatory world is not, however, sufficient grounds for breaking out the champagne.  From a global perspective, the Sixth Circuit’s Tennessee v. FCC decision, while helpful, does not address the broader problem of agency disregard for the limitations of constitutional federalism and the rule of law.  Administrative overreach, like a chronic debilitating virus, saps the initiative of the private sector (and, more generally, the body politic) and undermines its vitality.  In addition, not all federal judges can be counted on to rein in legally unjustified rules (which in any event impose costly delay and uncertainty, even if they are eventually overturned).  What is needed is an administration that emphasizes by word and deed that it is committed to constitutionalist rule of law principles – and insists that its appointees (including commissioners of independent agencies) share that philosophy.  Let us hope that we do not have to wait too long for such an administration.