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The FTC’s Noncompete Rule: Shouldn’t Doesn’t Mean Can’t, but Maybe It Should

Gus Hurwitz —  13 January 2023

Former U.S. Labor Secretary Gene Scalia games out the future of the Federal Trade Commission’s (FTC) recently proposed rule that would ban the use of most noncompete clauses in today’s Wall Street Journal. He writes that: 

The Federal Trade Commission’s ban on noncompete agreements may be the most audacious federal rule ever proposed. If finalized, it would outlaw terms in 30 million contracts and pre-empt laws in virtually every state. It would also, by the FTC’s own account, reduce capital investment, worker training and possibly job growth, while increasing the wage gap. The commission says the rule would deliver a meager 2.3% wage increase for hourly workers, versus a 9.4% increase for CEOs.

Three phases lie ahead for the proposal: rule-making, litigation and compliance. … The FTC is likely to finalize the rule within a year, to ensure the Biden administration can begin the task of defending it in the litigation phase. The proposal’s legal vulnerabilities are legion. …

Sketching the likely future of the proposed rule in this way is helpful. Most of those affected by this rule are unlikely to be familiar with the rulemaking process or the judicial process for reviewing agency rules; indeed, many are likely to hear coverage of the proposed rule and mistake it for a regulation that’s already in effect. The cost of that confusion is made clear by Scalia’s ultimate takeaway: that the courts are very likely to reject the rule (and perhaps the FTC’s authority to adopt these types of competition rules), but only after a protracted and lengthy judicial review process (including, quite possibly, a trip to the U.S. Supreme Court).

As Scalia explains, many employers will act upon this likely ill-fated rule out of fear or confusion, altering their employment contacts in ways that will be hard to later amend: 

Unfortunately, some employers may now reduce the benefits they offer in exchange for noncompetes, for fear the rule may eventually render the agreement unenforceable. But because the FTC may change aspects of the rule—and because the courts are likely to invalidate it—American businesses don’t need to invest now in complying with this deeply flawed proposal.

This should raise serious concern about the FTC’s approach to this issue. It is very likely that the Commission is aware of the rocky shoals that lie ahead. But it is also likely that the Commission knows that its posturing will affect the conduct of the business community. It’s not much of a leap to conclude that the Commission—that is, its three-member majority—is using its rulemaking process, not its substantive legal authority, as a norm entrepreneur, to jawbone the business community and move the Overton window that frames discussion of noncompete clauses. I feel dirty writing a sentence as jargon-filled as that one, but no dirtier than the Commission should feel for abusing rulemaking procedures to achieve substantive ends beyond its legal authority.

This concern resembles an issue currently before the Supreme Court: Axon Enterprises v. FTC, another case that involves the FTC. Generally, agency actions cannot be challenged in federal court until the agency has finalized its action and affected parties have exhausted their appeals before the agency. Indeed, the statutes that govern some agencies (including the FTC) have provisions that have been interpreted as preventing challenges to the agency’s authority from being brought before a federal district court.

In Axon, the Supreme Court is considering whether a company subject to administrative proceedings before the Commission can challenge the constitutionality of those proceedings in district court prior to their completion. Oral arguments were heard this past November and, while reading tea leaves based upon oral arguments is a fraught endeavor, those arguments did not seem to go well for the FTC. It seems likely that the Court will allow firms to raise such challenges prior to final agency action in adjudication, precisely because not allowing them allows the Commission to cause non-redressable harms to the firms it investigates; several years of unconstitutional litigation can be devastating to a business.

The Axon case involves adjudication against a single firm, which raises some different issues from those raised when an agency is developing rules that will affect an entire industry. Most notably, constitutional Due Process protections are implicated when the government takes action against a single firm. It is unlikely that the outcome in Axon—even if as adverse to the FTC as foreseeably possible—would extend to allow firms to challenge an agency rulemaking process on the ground that it exceeds the agency’s statutory (not even constitutional) authority.

But the Commission should nonetheless take the concerns at issue in Axon to heart. If the Supreme Court rules against the Commission in Axon, it will be a strong signal that the Court has concerns about how the Commission is using the authority that Congress has given it. One could even say that it will be the latest in a series of such signals, given that the Court recently struck down the Commission’s Section 13(b) civil-penalty authority. As Scalia notes, the Commission is already pushing the outermost limits of its statutory authority with the rule that it has proposed. The extent of the coming judicial (or congressional) rebuke will be greatly expanded if the courts feel that the agency has abused the rulemaking process to achieve substantive goals that exceed that outermost limit.

In Antitrust & Competition, Federal Trade Commission, Section 5, Truth on the Market , , , , , ,
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A Policy Statement Is Still Only Worth the Electrons Upon Which It Is Written

Gus Hurwitz —  11 November 2022

[This post is a contribution to Truth on the Market‘s continuing digital symposium “FTC Rulemaking on Unfair Methods of Competition.” 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.]

Just over a decade ago, in a speech at the spring meeting of the American Bar Association’s Antitrust Law Section, then-recently appointed Commissioner Joshua Wright of the Federal Trade Commission (FTC) announced his hope that the FTC would adopt a policy statement on the use of its unfair methods of competition (UMC) authority:

[The Commission] can and should issue a policy statement clearly setting forth its views on what constitutes an unfair method of competition as we have done with respect to our consumer protection mission … I will soon informally and publicly distribute a proposed Section 5 Unfair Methods Policy Statement more fully articulating my views and perhaps even providing a useful starting point for a fruitful discussion among the enforcement agencies, the antitrust bar, consumer groups, and the business community.

Just over a decade ago, in a speech at the spring meeting of the American Bar Association’s Antitrust Law Section, then-recently appointed Commissioner Joshua Wright of the Federal Trade Commission (FTC) announced his hope that the FTC would adopt a policy statement on the use of its unfair methods of competition (UMC) authority:

[The Commission] can and should issue a policy statement clearly setting forth its views on what constitutes an unfair method of competition as we have done with respect to our consumer protection mission…. I will soon informally and publicly distribute a proposed Section 5 Unfair Methods Policy Statement more fully articulating my views and perhaps even providing a useful starting point for a fruitful discussion among the enforcement agencies, the antitrust bar, consumer groups, and the business community.

Responding to this, I wrote a post here on Truth on the Market explaining that “a policy statement is not enough.” That post is copied in its entirety below. In it, I explained that: “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.”

Needless to say, that characterization proved apt when Lina Khan took the helm of the current FTC and promptly, unceremoniously, dispatched with the UMC policy statement that Commissioner Wright successfully championed prior to his departure from the FTC in 2015.

Today’s news that the FTC has adopted a new UMC Policy Statement is just that: mere news. It doesn’t change the law. It is non-precedential and lacks the force of law. It receives the benefit of no deference. It is, to use a term from the consumer-protection lexicon, mere puffery.

The greatest difference between this policy statement and the 2015 policy statement will likely not be in how the FTC’s authority is interpreted, but how its interpretations are credited by the courts. The 2015 policy statement encapsulated long-established law and precedent as understood and practiced by the FTC, U.S. Justice Department (DOJ), courts, and enforcers around the world. It was a credibility-enhancing commitment to consistency and stability in the law, along with providing credible, if non-binding, guidance for industry.

Today’s policy statement is the opposite, marking a clear rejection of and departure from decades of established precedent and relying on long-fallow caselaw to do so. When it comes time for this policy to be judicially tested, it will carry no weight. More importantly, it will give the courts pause in crediting the FTC’s interpretations of the law; any benefit of the doubt or inclination toward deference will likely be found in default.

And it seems likely that that judicial fate will, in fact, be met. This FTC adopted the statement not to bind itself to the mast of precedent against the tempting shoals of indiscretion, but rather to chart a course toward the jagged barrier rocks lining the shores of unbounded authority.

Of course, the purpose of this statement—as with so much of Chair Khan’s agenda—is not to use the law effectively. It is quite plainly to make a statement—a political and hortatory one about what she wishes the law to be. With this statement, that statement has been made. It has been made again. And again. It has been heard loudly and clearly. In her treatment of antitrust law, “the lady doth protest too much, methinks.”

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 in 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.”).

In Administrative Law, Antitrust & Competition, Federal Trade Commission, FTC UMC Rulemaking, Regulation, Section 5, Symposia, Truth on the Market , , , , , , ,
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FTC Biweekly UMC Roundup – 88 mph Edition

Gus Hurwitz —  23 September 2022

We’re back for another biweekly roundup – and what a biweekly it’s been! The JCPA rode, died, and rides again. Yet AICOA is AWOL. FTC Chair Lina Khan went to Congress and back to (Fordham) law school, making waves wherever she went. DOJ added to the agencies’ roster of recently lost cases. And the FTC is here to help gig workers get real jobs. All that and more, in this edition of the FTC UMC Roundup.

This week’s headline is, without a doubt, FTC’s Chair Lina Khan’s remarks at Fordham Law School’s Conference on International Antitrust Law & Policy, where she announced that the Commission is currently considering a new policy statement on use of the Commission’s Unfair Methods of Competition authority.

It comes as no surprise that the Commission will be issuing this statement, though the details and exact timing have yet to be disclosed. Khan’s remarks do shed some light on what can be expected – though again there are no surprises. She “believe[s] it is clear that respect for the rule of law requires [the Commission] to reactivate [its] standalone Section 5 enforcement program,” and that the statement must “reflect[] the statutory text, our institutional structure, the history of the statute, and the case law.” 

Earlier in her remarks, Khan points to standalone UMC claims the Commission litigated in the 1940s through 1970s – “invitations to collude; price discrimination claims against buyers not covered by the Clayton Act; de facto bundling, tying, and exclusive dealing; and a host of other practices.” This reads like a menu of claims that will be embraced by the new statement, for which she has found support in the history of the statute and case law.

In addition to her trip to New York, back home Khan also visited the Senate for an antitrust oversight hearing. Khan’s statement champions the Commission’s departure from longstanding antitrust principles and celebrates its more active enforcement efforts. Very unusually, her statement prompted a dissenting statement from Commissioners Phillips and Wilson. Phillips and Wilson note that under Khan the Commission has actually seen less enforcement activity, call out the myriad inaccurate factual assertions in Khan’s statement, and raise concern about too-aggressive efforts to push the Commission beyond its statutory authority.

Cristiano Lima has more coverage of the oversight hearing. After a bit over a year at the helm of the agency this was Khan’s first oversight hearing. From the tone of the questioning, she may wish that it was her last. But in the likely event that Republicans take the House in the midterms, it will likely just be the first, and the easiest, of many future trips to Congress.

In other news, Senators Amy Klobuchar (D-MN) and Ted Cruz (R-TX) show us that strange bedfellows do weird things in bed. That’s right, I’m talking about the Journalism Competition and Preservation Act (JCPA), sponsored by Klobuchar. The JCPA is an attempt to preserve competition in media markets by allowing cartelization in media markets. A couple of weeks ago, Sen. Klobuchar abruptly withdrew the JCPA (her own bill) from committee consideration after a surprise amendment from Sen. Cruz that was intended to limit platforms content moderation practices. In a legitimately surprising turn of events, Senators Klobuchar and Cruz agreed to compromise language that allows news outlets to collectively bargain with platforms and will “bar the tech firms from throttling, filtering, suppressing or curating content.”

Back on the FTC front, the Commission released a new Policy Statement on Enforcement Related to Gig Work. The statement explains that “Protecting these workers from unfair, deceptive, and anticompetitive practices is a priority, and the Federal Trade Commission will use its full authority to do so.” It is a curious policy statement for a number of reasons, not least of which is the purported use of the Commission’s consumer protection authority for employee protection – we have a National Labor Relations Board for that. More subtle, the statement refers throughout to “unfair, deceptive, and anticompetitive practices,” suggesting a hybrid approach to these issues that draws separately from the Commission’s consumer protection and antitrust authorities. This move is increasingly common in the Commission’s recent regulatory efforts.

Time for some quick hits. This week’s puzzler has got to be Commissioner Bedoya calling for a revitalization of the Robinson-Patman Act. But as with all things FTC, these days the new ideas seem to be the ones found in the back seat of a Delorean.

Alden Abbott draws our attention to the upcoming Axon case. To be argued in the Supreme Court on November 7th, this case raises both procedural and substantive challenges to the Commission’s constitutional structure. Abbott notes in passing the Commission’s recent losses before its ALJ in the Altria-JUUL  and Illumina-Grail mergers – and we can add the DOJ’s recent loss in its effort to block UnitedHealth’s acquisition of Change Healthcare to the agencies’ growing list of recent losses.

Charles Sauer takes a look at ongoing discussion of potential Republican nominees to fill Commissioner Phillip’s seat when he steps down from the FTC, asking Why Are Conservatives Intent On Cloning Lina Khan? He rightly argues that Republicans should not consider nominating someone who shares Khan’s disregard for the rule of law and sound economics, or who would embrace unchecked administrative power. Even if used to pursue valid goals, such abuses of regulatory authority are anathema to good government and basic conservative principles. Any Commissioner should put faithful execution of the Commission’s statutory mandate above their own policy preferences, including a commitment to acting pursuant to clearly expressed Congressional intent instead of through constitutionally-dubious administrative fiat.

What’s on tap for next week? The White House is convening its Competition Council on Monday. And for those wondering whether I forgot to discuss AICOA after mentioning it in the opening graf, no need to worry. It got just as much attention as needed.

In Antitrust at the Agencies Roundup, Truth on the Market
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FTC Biweekly UMC Roundup – Reform Dies in Committee Edition

Gus Hurwitz —  9 September 2022

Welcome back to the FTC UMC Roundup! The Senate is back in session and bills are dying. FTC is holding hearings and faith in the agency is dying. The more things change the more they stay the same. Which is a fancy way of saying that despite all the talk of change, little change seems likely. This is never more true than when midterm elections are on the horizon – this is high season for talk of change that will not happen.

This week’s headline is the unexpected death of the Journalism Competition and Preservation Act (JCPA), which seems to have met its fate in committee on Thursday. The JCPA sought to save “local journalism” by allowing select legacy media entities to form cartels to monopolistically negotiate with tech platforms. The expectation yesterday morning was that the bill would sail through committee. Enter Sen. Ted Cruz (R-TX), with an amendment to further help local journalism by limiting platforms’ use of content moderation – leading one of the bill’s chief sponsors, Sen. Amy Klobuchar (D-MN) to withdraw the bill from consideration.

The story here is partly about a bad bill meeting its timely demise – one does not bring “more cartels” as a solution to a competition fight. But the bigger story is about Senator Klobuchar’s ill-fated competition policy efforts and her failure to appreciate the anti-tech dynamic that she has relied on to bring Republican co-sponsors on board. My colleague Ian Adams captured the essential challenge in memetic form:

We’re a week into September, about 60 days from the midterms and three weeks from the end of the fiscal year. Senate Leader Schumer (D.NY) has bigger fish to fry than pushing legislation that will risk costing any Democrats seats. The demise of the JCPA is an object lesson in the politics of Senator Klobuchar’s American Innovation and Choice Online Act (AICOA) – and a preview of its likely fate.

A close contender for this week’s headline could have been the Commercial Surveillance and Data Security Public Forum hosted by the FTC on Thursday. But this charade doesn’t deserve headline status. The online forum, which was billed as a hearing relating to the FTC’s recently-announced a was plagued by technical difficulties from the start – slides not working, speakers on unstable Internet connections, and consistent “am I muted” problems – that are simply amateurish difficulties two years into the COVID-19 pandemic. 

But the bigger issue with the forum was that nearly three of its five scheduled hours were dedicated to one-sided panels stacked with panelists favoring FTC regulation. Assuming that the APRM ultimately results in the FTC adopting rules, the Commission is assembling a remarkably strong record to support claims of procedural bias. As I have previously discussed, the APRM itself does not meet the requirements of the Magnusson-Moss Act. Now, anyone challenging whatever rules the FTC may ultimately adopt (about which the ANPR has offered no basis for discussion) will readily be able to point to this hearing to demonstrate the the Commission’s rulemaking process is biased in favor of adopting specific regulations, not neutrally obtaining information to inform its rulemaking process.

There has been plenty of other FTC-related news over the past two weeks.

First, congratulations to Svetlana Gans! In addition to being a recent contributor to this ongoing symposium, Svetlana is the subject of a recent article identifying her as a “leading candidate” to take current commissioner Noah Phillips’s seat after he steps down. Of course, the article is critical of her – but that’s the nature of the appointments game. There are few individuals as qualified for this position as Svetlana. And I’m not just saying that because she has contributed to this symposium – she is a longtime FTC practitioner with deep institutional knowledge of the agency and an impeccable record of experience on antitrust and consumer protection matters. 

Second, not many people seem to have noticed this, but: the FTC released its latest five-year plan. The changes between this plan and the previous iteration are subtle but substantial. Most notably, the Commission has replaced its previous focus on protecting “consumers” with a focus on protecting “the public,” and is now focused on “fair competition,” instead of “vibrant competition”. Some agencies, like the Federal Communications Commission, have authority based around a public interest standard. It sounds like FTC Chair Lina Khan is trying to rewrite its UDAP and UMC authority – which Congress and the Courts have long focused on consumer concerns – to focus instead on broader “public interest” standards. One need not invoke major questions to question the propriety of one agency refocusing its strategic priorities around the statutory mandate of its agencies.

Third, Fourth, and Fifth: Walmart is going to war with the FTC; the Senate is going to war with the FTC; and the FTC’s ALJ is going to war with the FTC. Walmart is challenging the FTC’s absurd claim that the company is doing too little to protect consumers from scammers despite the company’s substantial efforts to protect consumers from scammers. With its equal split between Republicans and Democrats and in a preview of what may be to come in a new Congress, the Senate Judiciary Committee is planning to hold a DOJ and FTC oversight hearing. And in a loss for the Commission, the FTC’s ALJ has rejected the FTC’s contention that the Illumina/Grail merger would harm competition – a decision that will likely be appealed to and overturned by the FTC Commissioners, in a nice rebuke the the legitimacy of the agency’s decision-making process (see, inter alia, the pending Axon litigation before the Supreme Court). 

It is not wholly bad news for the FTC over the past two weeks. The Commission has only just started scrutinizing Amazon’s proposed acquisition of iRobot, so that case isn’t faltering yet. On the other hand, Kovacha, a firm that the FTC has accused of providing “precise geolocation data associated with unique persistent identifiers” in a way that establishes a unfair or deceptive acts or practices violation, preemptively brought suit against the FTC arguing that the FTC’s claims were unconstitutional. Kovacha smartly positioned its claims alongside the pending Axon litigation – which will be hear by the Supreme Court on November 7 – positioning its claims alongside the most potent recent challenges to the FTC’s Constitutional structure or authority.

This week’s closing note is that Queen Elizabeth II has passed away. As she moves on to the unknown country, it seems that we have lost one of the last figures of the twentieth century’s global order. To our British friends, God save your King – and may we all take a moment to reflect on the value of stability in our economic and political order tempered by the importance and inevitability of the sea of change.

In Antitrust at the Agencies Roundup , , , , ,
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FTC Biweekly Roundup – A Change in Title Edition

Gus Hurwitz —  26 August 2022

You’d think things would be calm during these last weeks of August – the Senate in recess, folks wrapping up summer vacations or seeing their kids back off to school, and the big news being that coming out of the White House instead of Congress or the agencies. You’d think. We don’t have a single big headline to lead off with this week, but we’ve got some fights to talk about instead.

This week’s mini-headline is Bloomberg’s report that Meta learned of the FTC’s suit to block its acquisition of Within the same way we all did: on Twitter. How rude! Seriously this is a breach of basic norms of civility and professionalism and speaks poorly of the FTC lawyers involved in making this decision. I would emphasize in saying this that it is my understanding that the Chair’s office took control of the complaint process from agency staff – so any criticism should roll uphill. In the Metaverse gravity need not apply. But, perhaps in the realm of greater civility, Mark Zuckerberg has been removed from the complaint in his personal capacity.

The FTC’s ANPR on Commercial Surveillance and Data Security of course deserves its own mini-headline, even though there’s no new news. The FTC will host its public forum on September 8th; you can register to offer comments through August 31 – though last I heard there is a waitlist. In addition, comments responding to the ANPR are open through October 21st. And, as announced last week, we have an open call for contributions relating to the ANPR to this symposium on FTC UMC Rulemaking.

Offering some ANPR-related commentary, Cameron Kerry discusses the ANPR and its relationship to federal legislation on Lawfare. He argues that privacy legislation is preferable to rulemaking noting, among other things, that the FTC hasn’t completed a Mag-Moss rulemaking since the 80s and that the average timeline for completing Mag-Moss rules has been 5.57 years. Also noteworthy, since the ANPR offers to make rules relating to data security: the FTC doesn’t have a great track record when it comes to data security advice.

Next topic? In a preview of what’s to come for the FTC in the likely event that Republicans retake the House, the House Republicans are coming for the FTC.  In this case, they have questions stemming from the recent FTC OIG report that raised concerns about the recent FTCs’ use of unpaid outside consultants. We discussed that report previously. Watch this space for more!

In AICOA news, the only news is no news. There continue to be dueling perspectives, one calling for Senator Amy Klobuchar’s (D-MN) AICOA to get its day in Congress, the other making the now-obvious point that AICOA won’t pass if it does because Democratic support is contingent on changes to address the content-moderation loopholes on which Republican support depends.

Bloomberg has had its own dueling reports on the state of AICOA, as well. In a piece published last week, Bloomberg reporters looked at donations to Sentate Majority Leader Chuck Schumer (D-NY) from big tech. The article clearly means to argue that Sen. Schumer is holding up AICOA (which the article incorrectly calls the American Choice and Innovation Online Act) because big tech is giving him big money. Never mind all those other tech related things going on in Congress right now. Or that their data shows Amazon has decreased its donations over the past year. Or that a lot of folks in big tech are concerned about a lot of things other than straight-up tech policy issues (Inflation, anyone? Dobbs, anyone?). In any event, Brad Stone offered his own report in Bloomberg this week on the political gridlock holding up AICOA. In a polite rebuke aimed at “[his] colleagues in Washington,” he notes that “while it’s tempting to blame surreptitious corporate influence for stymieing attempts to limit tech power, it’s largely questions around content moderation … that have stalled its progress.”

Next topic? Mergers! The Wall Street Journal ran an article discussing the effects that the Khan FTC is having on deals. Protocol discusses potential FTC scrutiny that could be coming for Amazon. The key bit? The authors note that the deals Amazon is considering don’t raise many competition issues but that that may not matter because of “the reality that the FTC seems to be spoiling for a fight.” 

And Fortune decides to run with the Worst. Take. Ever., asking “Corporate breakups are a routine part of capitalism. So why is it deemed an irreparable interference in markets when regulators break up companies”? I actually love the question and think it worth pursuing further. Corporate mergers are also routine parts of capitalism. So why not have more regulatory support for them? The answer to both is damningly simple: because both mergers and breakups can be either good or bad for consumers, so should be evaluated through some standard that considers their effects on consumer welfare.

Wrapping up: here’s a bit of humor as you head off to the last weekend of August. And here’s an interesting read for your commute home. We’ll see everyone in two weeks for the next Biweekly UMC Roundup.

The FTC UMC Roundup, part of the Truth on the Market FTC UMC Symposium, is a weekly roundup of news relating to the Federal Trade Commission’s antitrust and Unfair Methods of Competition authority. If you would like to receive this and other posts relating to these topics, subscribe to the RSS feed here. If you have news items you would like to suggest for inclusion, please mail them to us at ghurwitz@laweconcenter.org and/or kfierro@laweconcenter.org.

In Antitrust at the Agencies Roundup
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FTC UMC Roundup – Call for Submissions Edition

Gus Hurwitz —  19 August 2022

It’s been a busy summer, and promises to be a busier fall. So the UMC Roundup is on hiatus this week.

But because the news doesn’t stop even when we do, we’re using this week’s Roundup to announce a call for submissions relating to the FTC’s ANPR on Commercial Surveillance and Data Security. Submissions relating to various aspects of the ANPR will be considered for publication as part of our ongoing FTC UMC Symposium. We have already previously offered some discussion of the ANPR on Truth on the Market, here and here.

Posts should substantively engage with the ANPR and will generally be between 1,800-4,000 words. We are interested in all topics and perspectives. Given that this is the UMC symposium, we are particularly interested in submissions that explore the competition aspects of the ANPR, including the mysterious Footnote 47 and the procedural and substantive overlaps between the FTC’s UDAP and UMC authorities that run throughout the ANPR.

Submissions should be sent to Keith Fierro (kfierro@laweconcenter.org). To maximize the likelihood that we will publish your submission, we encourage potential authors to submit a brief explanation of the proposed topic prior to writing. Because selected submissions will be published as part of the ongoing UMC Symposium, we anticipate beginning to publish selected submissions immediately and on a rolling basis. For full consideration, contributions should be submitted prior to Sept. 8, 2022.

The FTC UMC Roundup, part of the Truth on the Market FTC UMC Symposium, is a weekly roundup of news relating to the Federal Trade Commission’s antitrust and Unfair Methods of Competition authority. If you would like to receive this and other posts relating to these topics, subscribe to the RSS feed here. If you have news items you would like to suggest for inclusion, please mail them to us at ghurwitz@laweconcenter.org and/or kfierro@laweconcenter.org.

In Antitrust at the Agencies Roundup, Data Privacy & Security, Federal Trade Commission, Truth on the Market , , , ,
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FTC UMC Roundup – Well That Happened Edition

Gus Hurwitz —  12 August 2022

I thought this was going to be a slow week. The Senate is in recess and, with so much recent attention focused on the Senate and AICOA – and the FTC’s had only just started things with the Meta/Within suit – it seemed this would be a slow week. We actually considered taking a recess of our own this week. But then Monday happened, and then Tuesday, and then Wednesday, and it was clear a roundup was justified. And then today happened and suddenly we have a privacy rulemaking underway. Or do we? Well, we have a roundup, that’s for sure!

This week’s headline is not, however, the FTC’s Advance Notice of Proposed Rulemaking (ANPR). Rather, it is that Commissioner Noah Phillips has announced that he will be leaving the Commission, just four years into his seven year term. One could speculate that the timing of this announcement is related to the ANPR – but I’ll leave that to others. Commissioner Phillips has been a model of principled antitrust and consumer protection enforcement. He has not shied away from enforcement actions, but has reserved them for cases where agency action is warranted. And his approach has been vindicated by the courts in cases like 1-800 Contacts and Impax, where his views – both as a dissenting Commissioner and as a member of a unanimous Commission – have been embraced by reviewing courts.

He has also expressed caution about FTC Chair Lina Khan’s approach to the power of the agency – an approach that stands in contrast to his efforts to faithfully operate within bounds of the agency’s statutory authority. He discussed his concerns about Khan’s potential broad UMC rulemaking efforts in a recent interview. Invoking concerns about the likelihood today that the courts will find the FTC has substantive rulemaking authority (as the DC Circuit did in Petroleum Refiners (1973)), as well as about what the scope of that authority would enable the Commission to do, he explained:

You can only regulate or ban that which is an unfair method of competition if we have that authority, just like you can only regulate or ban what is an unfair and deceptive act or practice. And as broad as the words may sound, and however much we may have repealed our policy on what the limits of Section 5 are, I don’t think it’s true that courts will just say, whatever you want is what the law means. And so, we have to color within the lines.

Which brings us to what will certainly be the headline for weeks to come: The FTC today issued an ANPR for a rule on “Commercial Surveillance and Data Security.” This sprawling document poses 95 questions relating to a wide range of ways that companies make use of consumer data. Actually, while there are 95 numbered questions, the document contains 233 question marks – so quite a few more questions.

We will have more analysis of this potential rulemaking in coming days, so won’t endeavor to summarize the rule here. But some initial observations are due.

Since this is the “FTC UMC Roundup,” we should start with the statutory basis for the rules. It sounds primarily in the FTC’s consumer protection authority (to prescribe unfair or deceptive acts or practices, or “UDAP”). Under Section 18 of the FTC Act, the FTC is required to use a unique-to-the-FTC rulemaking process when making these rules. This process was put in place in Congress as a check on potential abuses by the Commission of its authority stemming from … well, abuses of that authority by the agency in the 1970s. More on this in a moment.

The ANPR also invokes the Commission’s antitrust, or Unfair Methods of Competition (UMC) authority as a potential avenue for rulemaking. In the grammatically curious footnote 47, the ANPR explains that some of the conduct the Commission is considering under the ANPR might also be relevant in the UMC setting. As such, the ANPR “invites comment on the ways in which existing and emergent commercial surveillance practices harm competition and on any new trade regulation rules that would address such practices. Such rules could arise from the Commission’s authority to protect against unfair methods of competition, so they may be proposed directly without first being subject of an advance notice of proposed rulemaking.” For those reading tea leaves, in other words, the Commission has arranged them to spell out UMC in this ANPR.

The key difference between UDAP and UMC rulemaking goes back to the amendments Congress made in the Magnuson–Moss Warranty Act (often referred to as Mag-Moss). Adopted in response to concern about aggressive agency regulations in the 1970s, Mag-Moss requires the FTC to issue ANPRs for UDAP rules. Importantly, under Mag-Moss this notice doesn’t only get published in the Federal Register, but also gets sent to the House and Senate oversight committees with jurisdiction over the FTC. This is so they can oversee what the FTC is doing.

Section 18 requires that “the Commission shall publish an advance notice of proposed rulemaking,” and specifies that it shall include “a brief description of the area of inquiry under consideration, the objectives which the Commission seeks to achieve, and possible regulatory alternatives under consideration by the Commission.” It also should provide opportunity for public comment, by “invit[ing] the response of interested parties with respect to such proposed rulemaking, including any suggestions or alternative methods for achieving such objectives.”

Note the clear expectation that the ANPR outline the regulatory alternatives that the Commission is considering, and that the public be able to engage with those alternatives. The purpose of the ANPR is not to inform Congress that the Commission might be making rules or to collect information to assist in a rulemaking process. It is precisely to inform Congress and the public about what those rules may be. 

(As a brief historical aside, Mag-Moss was inspired by a concept known as hybrid rulemaking under which ANPRs would be used primarily to provide greater opportunity for public engagement early in the rulemaking process – perhaps even without the benefit of specific proposed rules. But when Congress drafted Mag-Moss, it was more specific in what it expected to be included in the ANPR – again, precisely because of its experiences with FTC overreach in the 1970s. In this sense, the FTC’s ANPR process is notably different than that governing other agencies’ use of ANPRs.)

I would posit that the document circulated by the FTC on Thursday is not, in fact, an ANPR. It provides no indication of the possible rules that the Commission may adopt. Indeed, the document itself makes no claims to articulating proposed rules or possible regulatory alternatives under consideration by the Commission. It explains that

Through this ANPR, the Commission is beginning to consider the potential need for rules and requirements regarding commercial surveillance and lax data security practices. Through this ANPR, the Commission aims to generate a public record about prevalent commercial surveillance practices or lax data security practices that are unfair or deceptive, as well as about efficient, effective, and adaptive regulatory responses. These comments will help to sharpen the Commission’s enforcement work and may inform reform by Congress or other policymakers, even if the Commission does not ultimately promulgate new trade regulation rules.

These concerns echo those raised by Commissioner Phillips in his dissent: “The ANPR provides no clue what rules the FTC might ultimately adopt. In fact, the Commission expressly states that the ANPR does not identify the full scope of approaches it could undertake, does not delineate a boundary on issues on which the public can comment, and in no way constrains the actions it might take in an NPRM or final rule.”

Here it is worth noting that the Commission has myriad other ways of collecting this information. It can study industries and gather information about its own prior activities, issuing its findings in reports. It has the power to conduct studies that can require firms to produce information. It regularly hosts hearings and other workshops. Indeed, as a colleague commented to me, this “ANPR” feels very much like the documents the Commission circulate when it is announcing a workshop – announcing the wide range of questions that it is interested in third parties bringing to the table for discussion and ultimate inclusion in a report (one that the Commission may or may not ultimately issue). 

The language and tone of these questions also bear note. As Commissioner Wilson notes in her dissent from today’s notice, “Many practices discussed in this ANPRM are presented as clearly deceptive or unfair despite the fact that they stretch far beyond practices with which we are familiar.” Despite being presented as several score questions, the notice often seems to assume the answers it expects to find to those questions.

To not beat around the bush, this ANPR seems more like an effort to circumvent the statutory ANPR process, so that the Commission can avoid the required advance notice to Congress of the rules it intends to propose and the concomitant waiting period that that notice triggers. 

I would expect plenty of admin law scholars (hey, that’s me!) gnashing their teeth about this in the coming weeks and months. Is this a satisfactory ANPR? Does the “logical outgrowth test” apply to ANPR? If it does, does this notice satisfy that test? Perhaps these are easily answered by caselaw – I will concede to not yet having spent those hours in Westlaw.

There is also the question of why the Commission has taken this approach. It can only invite scrutiny. One senior agency official suggested to me that I not be too hasty to discount “incompetence” as an explanation. Though I wonder if the agency might not be racing against potential Congressional Review Act review by the next Congress. Again, I concede I have not done the math to see whether it is even viable that rules could be issued soon enough to avoid that window. But it would at least explain the Commission’s apparent haste. 

But that’s enough rampant, wanton, reckless speculation for one day. What else is going on in the UMC and UMC-adjacent world? Commissioner Alvaro Bedoya has come out in support of AICOA. No surprises there. (On a side note, I commend the Commissioner’s comments at today’s press conference announcing the ANPR. He had thoughtful comments throughout and, notably, I believe he was the only of the Democratic commissioners to directly acknowledge the concerns or work of the majority’s Republican colleagues.)

Svetlana Gans and Gene Scalia had an important op-ed about potential pitfalls the FTC may face with its UMC rulemaking efforts in Monday’s Wall Street Journal. I discussed it here. Jonathan Barnett looks at the recent treatment of big tech by the markets, arguing that “If antitrust law is to be based on fact and evidence, rather than rhetoric and narrative, legislators and regulators who are keen to intervene may be wise to hit the pause button. The equity markets have already done so, which reflects new information showing that once-indomitable platforms face new or overlooked competitive threats.”

And, lest we forget, the FTC is suing Meta. Perhaps recognizing that its acquisition of Within will be litigated on the merits no matter the outcome of the FTC’s push to enjoin the deal, Meta has voluntarily agreed to pause that acquisition pending trial. And perhaps feeling excluded by the FTC’s avalanche of recent activity, the Department of Justice is preparing to file suit against Google over its ad business. 

This week was supposed to be a lazy one. But after all its news we deserve a day off. There’s no suggested reading for your commute home. Check out early and go spend the afternoon with someone you love. Now is the time to rest up for the coming storm.

The FTC UMC Roundup, part of the Truth on the Market FTC UMC Symposium, is a weekly roundup of news relating to the Federal Trade Commission’s antitrust and Unfair Methods of Competition authority. If you would like to receive this and other posts relating to these topics, subscribe to the RSS feed here. If you have news items you would like to suggest for inclusion, please mail them to us at ghurwitz@laweconcenter.org and/or kfierro@laweconcenter.org.

In Antitrust at the Agencies Roundup, Truth on the Market
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Three Big Pitfalls in the Way of Lina Khan’s Agenda

Gus Hurwitz —  11 August 2022

[This post is a contribution to Truth on the Market‘s continuing digital symposium “FTC Rulemaking on Unfair Methods of Competition.” 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.]

In a recent op-ed for the Wall Street Journal, Svetlana Gans and Eugene Scalia look at three potential traps the Federal Trade Commission (FTC) could trigger if it pursues the aggressive rulemaking agenda many have long been expecting. From their opening:

FTC Chairman Lina Khan has Rooseveltian ambitions for the agency. … Within weeks the FTC is expected to begin a blizzard of rule-makings that will include restrictions on employment noncompete agreements and the practices of technology companies.

If Ms. Khan succeeds, she will transform the FTC’s regulation of American business. But there’s a strong chance this regulatory blitz will fail. The FTC is a textbook case for how federal agencies could be affected by the re-examination of administrative law under way at the Supreme Court.

The first pitfall into which the FTC might fall, Gans and Scalia argue, is the “major questions” doctrine. Recently illuminated in the Supreme Court’s opinion in West Virginia v. EPA decision, the doctrine holds that federal agencies cannot enact regulations of vast economic and political significance without clear congressional authorization. The sorts of rules the FTC appears to be contemplating “would run headlong into” major questions, Gans and Scalia write, a position shared by several contributors to Truth on the Market‘s recent symposium on the potential for FTC rulemakings on unfair methods of competition (UMC).

The second trap the authors expect might trip up an ambitious FTC is the major questions doctrine’s close cousin: the nondelegation doctrine. The nondelegation doctrine holds that there are limits to how much authority Congress can delegate to a federal agency, even if it does so clearly.

Curiously, as Gans and Scalia note, the last time the Supreme Court invoked the nondelegation doctrine involved regulations to implement “codes of fair competition”—nearly identical, on their face, to the commission’s current interest in rules to prohibit unfair methods of competition. That last case, Schechter Poultry Corp. v. United States, is more than 80 years old. The doctrine has since lain dormant for multiple generations. But in recent years, several justice have signaled their openness to reinvigorating the doctrine. As Gans and Scalia note, “[a]n aggressive FTC competition rule could be a tempting target” for them.

Finally, the authors anticipate an overly aggressive FTC may find itself entangled in yet a thorny web wrapped around the very heart of the administrative state: the constitutionality of so-called independent agencies. Again, the relevant constitutional doctrine giving rise to these agencies results from another 1935 case involving the FTC itself: Humphrey’s Executor v. United States. While the Court in that opinion upheld the notion that Congress can create agencies led by officials who operate independently of direct presidential control, conservative justices have long questioned the doctrine’s legitimacy and the Roberts court, in particularly, has trimmed its outer limits. An overly aggressive FTC might present an opportunity to further check the independence of these agencies.

While it remains unclear the precise rules the FTC seek try to develop using its UMC authority, the clearest signs are that it will focus first on labor issues, such as emerging research around labor monopsony and firms’ use of noncompete clauses. Indeed, Eric Posner, who joined the U.S. Justice Department Antitrust Division earlier this year as counsel on these issues, recently acknowledged that: “There is this very close and complicated relationship between labor law and antitrust law that has to be maintained.”

If the FTC were to upset this relationship, such as by using its UMC authority either to circumvent the National Labor Relations Board in addressing competition concerns or to assist the NLRB in exceeding its own statutory authority, it would be unsurprising for the courts to exercise their constitutional role as a check on a rogue agency.

In Antitrust & Competition, Antitrust Division, Federal Trade Commission, FTC UMC Rulemaking, Platforms, Truth on the Market , , , , , , , , ,
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FTC UMC Roundup – A Quantum of Wonder Edition

Gus Hurwitz —  5 August 2022

Early August is an unpredictable time in the policy world. With Congress about to go on recess, one never knows if there will be a mad rush to get something done, or what that something may be. And it is, for many, a month of vacations and light schedules. Short staffing may delay work or allow mistakes to be made. And then there’s Alex Jones’s lawyer – for whom the best that can be said is that he will forever be known as “Alex Jones’s lawyer” than by his given name. The Roundup this week is brought to you by the letter unpredictability.

This week’s headline is antitrust labor issues. The week started off with news that a senior Republican staffer is leaving the Senate Judiciary Committee – a staffer who has reportedly been instrumental in drafting the American Innovation and Choice Online Act (AICOA) – to join Amazon as a lobbyist. As Politico suggests, this “move is particularly notable because the legislation he was working on – [AICOA] – is losing steam.” More on that in a moment. 

The next bit of antitrust labor news is word of an FTC Inspector General report stemming from an audit of the FTC’s use of unpaid consultants and experts. As reported by Leah Nylen, the OIG report found that this practice, used in prior administrations by expanded substantially under current FTC Chair Lina Khan, “creat[es] potential legal and compliance risks, including conflicts of interest.” The report expressly notes that the “audit was not designed to determine whether unpaid consultant or experts were involved in activities prohibited by the federal policies … and [makes] no assertions on their involvement in those activities.” It then goes on to lay out various activities they were involved in that clearly violate federal policies. Oh my.

The big antitrust labor news of the week is, of course, that of Tim Wu’s quantum departure from his role as White House central competition czar. The story of his pending return to the ivory tower broke on Tuesday and spread fast to all corners. The next morning, the man himself reported that those reports were “greatly exaggerated.” He has not, however, said whether this means he’s sticking around in his current role for days, weeks, or months – though it bears note that the original report was merely that he would be returning to his teaching position “in the coming months.” One wonders whether his suggestion that he is not leaving is itself a great exaggeration.

Uncertainty over the fate of Wu evokes uncertainty over the state of AICOA – indeed, their fates could be intimately linked. Last week, around the time Wu might have made the decision to leave, it would have seemed AICOA was losing steam. With the Inflation Reduction Act taking all the Big Bill energy during the mad-dash to the August recess, even Senator Klobuchar (D-MN) was forced to admit that AICOA would not get a vote before the recess. Then came the report that Klobuchar has offered to amend the bill to address the concerns that Senator Brian Schatz (D-HI) and other democratic senators have that AICOA could limit platforms’ content moderation practices. (Side note: Ashley Gold is simply killing this beat this week.) This is a remarkable change in stance for Klobuchar, who has steadfastly refused to consider such an amendment – almost certainly because she knows it will cost needed Republican support for the bill. One wonders how many Republicans will be one board after such an amendment is made.

Turning the page, the next day Politico reported that Senate Majority Leader Schumer (D-NY) plans, but also may not plan, to bring AICOA to the floor after the recess. His plans are either more or less clear than Tim Wu’s plans to leave his position. It seems likely that Schumer is supporting Klobuchar’s efforts to get votes for the bill, but his support for bringing it to the floor may yet be contingent. The Politico report suggests that Schumer’s office may have backed off from saying he plans to bring it to the floor – and may even pressured prior reports to remove a statement that he would bring it to the floor.

So what’s going on with AICOA? I stand by my prior assessment that it’s dead. Actually, I think that it’s now worse than dead – it’s now a mere political football. Senator Manchin’s flip on Build Back Better has soured the likelihood of any bipartisan bills moving forward. The fact that Klobuchar is buckling to Schatz’s demand to address the bill’s threat to content moderation – the only thing that really excited Republicans about the bill – suggests that the current maneuver is to put forth a partisan Big Tech bill that will not pass but that may win some voters’ hearts in November. 

This week’s FTC UMC Roundup ends with an FTC UMC question: Where’s the UMC in the Meta-Within challenge? Last week’s complaint alleges vanilla violations of Section 7 of the Clayton Act. While it mentions the FTC’s Section 5 authority, it does so in boilerplate language. The substantive bases alleged to satisfy the agency’s Section 13(b) burden to get an preliminary injunction against the merger all sound in the traditional language of mergers and Section 7 – that the effect of the merger “may be substantially to lessen competition, or tend to create a monopoly.”

This is interesting for a few reasons. Most notably, as many have noted (Ashley Gold again), the case is a real dog under traditional antitrust law. It’s hard to imagine the FTC not losing – likely at the PI stage and even moreso at trial. If the case is so weak under traditional antitrust law, why not argue this case under non-traditional antitrust law? FTC’s UMC authority is recognized to be broader than traditional antitrust law, precisely to enable the Commission to take action against anticompetitive conduct that falls outside the scope of traditional antitrust law.

Indeed, one of Chair Khan’s stated goals has been to explore the boundaries of the Commission’s UMC authority and to use it to reinvigorate antitrust enforcement. The expectation has been that this would come through the agency’s rulemaking authority – but the agency can develop new law through litigation just as much as through rulemaking. There is even a case, post-West Virginia v. EPA, that the case-by-case approach to expanding its UMC authority is a more viable path forward than to risk raising major questions through a rulemaking.

One wonders what the FTC’s calculation here is. It could simply be a case of boilerplate drafting. Perhaps there was some greater fight within the agency over how to draft the complaint. We know there was dissent from the staff over whether to bring the complaint at all – perhaps this left little time or energy to draft anything more than a standard complaint. Or, perhaps more cynically, the winning move is to lose on traditional antitrust grounds – and to use that as an example to demonstrate the FTC’s need to use its UMC authority in cases such as these.

The FTC UMC Roundup, part of the Truth on the Market FTC UMC Symposium, is a weekly roundup of news relating to the Federal Trade Commission’s antitrust and Unfair Methods of Competition authority. If you would like to receive this and other posts relating to these topics, subscribe to the RSS feed here. If you have news items you would like to suggest for inclusion, please mail them to us at ghurwitz@laweconcenter.org and/or kfierro@laweconcenter.org.

In Antitrust at the Agencies Roundup, Mergers & Acquisitions, Truth on the Market
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FTC UMC Roundup – Can’t a Man Eat in Peace Edition

Gus Hurwitz —  29 July 2022

This week’s news can be divided into PM and AM editions – pre-Manchin and after-Manchin. Anything that seemed possible in Congress before Senators Manchin (D-WV) and Schumer (D-NY) announced their agreement on a reconciliation bill that addresses climate, energy, and tax issues now seems far less likely. Congress hath no fury like a McConnell scorned.

Yet for every Manchin in the news there is an equal and opposite Khan. This week’s headline is the FTC’s suit to block Meta from acquiring Within, a virtual-reality (ahem, metaverse) fitness startup – a suit that pushes the bounds of antitrust law so far that even the New York Times sounds skeptical. The FTC is making two core allegations. They are difficult to summarize in a few words, but that’s what I have: First, that by buying an existing company instead of developing its own competing product, Meta is lessening competition. In other words, by not affirmatively increasing competition Meta is lessening competition. And, second, that Meta’s stated intent to enter this market would have already discouraged new entry, so allowing this acquisition would further lessen competition. In other words, potential entry lessens competition.

It is hard to overstate how incoherent these theories are. At most pithy, they fail to recognize that barriers to exit are barriers to entry. If the FTC is successful in this case, it would kneecap American innovation and reduce choice online in a single act. And winning this case would require breaking basic, longstanding, antitrust doctrines. Just imagine the market definition exercise! As Mark Meador notes, it’s a strange strategy to bring an antitrust case when you “describe the industry as “characterized by a high degree of growth and innovation” in your press release.”

[Updated Friday morning to add:] Leah Nylen reports that FTC staff recommended against challenging this acquisition but were overruled by Khan. This unfortunately offers further support for Khan’s assertion that M&A “can really degrade working conditions.“

Chair Khan’s FTC has been a cypher when it comes to Big Tech. Since being appointed, she has consistently talked a big game. But as Commissioner Wilson notes, the FTC has let four similar deals go through with Meta alone. And now Chair Khan is going all-in with the first hand she plays, bringing a case that will drain the Commission’s resources and distract it from other matters for a significant portion of what remains of President Biden’s first term.

Looking back to the pre-Manchin news, Senator Schumer spent the early part of the week being harassed by protesters and colleagues from the left and the right, all demanding that he bring the American Innovation and Choice Online Act (AICOA) to the floor for a vote. But Senator Schumer seems to have said the quiet part out loud: he doesn’t believe that the bill has the votes to pass. And with the August recess looming and the midterms not waiting far behind, he doesn’t have the floor time to waste on bills that won’t pass. 

Well, that and he might understand something that Senator Klobuchar (D-MN), AICOA’s champion, doesn’t seem to have figured out: As Neil Chilson notes, Americans aren’t all that worried about big tech and, especially in an period of high inflation, actually like the business practices AICOA would make illegal. (One wonders if that’s how he persuaded Manchin to support the reconciliation bill, showing him the polls showing support for climate legislation – that and offering cookies.) He’s not alone in understanding that the bill faces faltering support.

Finding stories about AICOA this week – none of them positive – is like shooting fish in a barrel. See here, here, here, here, here, and everything cited above. We’ve been calling AICOA dead bill walking for weeks. But that now seems to be the safe take.

None of this seems likely to stop Senator Klobuchar from trying to make fetch happen. Politico reported this morning that she plans to hold an antitrust hearing next week but yet doesn’t have any witnesses lined up to provide a backdrop for opening statements.

What else is in the news? The previously-reported MOU between the FTC and NLRB apparently has a third counterparty: the Department of Justice is also in on the action. Steve Salop and Jennifer Sturiale have an interesting piece arguing, in light of West Virginia v. EPA and the stalled state of AICOA, that the FTC should adopt new … wait for it … UMC enforcement guidelines. The piece is thoughtful and worth reading. It is curious to note, however, that while they aspire to put forth a viable “middle-of-the-road” approach, they recognize that this is not that. Not too long ago there actually was a bipartisan UMC policy statement. If Salop and Sturiale want to propose “middle of the road” UMC guidelines that might have bipartisan support they should probably start with the 2015 UMC guidelines that actually were adopted with bipartisan support.

Looking for something to read? I turn to some self-preferencing for this week’s recommended lunchtime or community reading. Truth on the Market, the very same blog that hosts the FTC UMC Roundup, is currently running a symposium on Antitrust’s Uncertain Future: Visions of Competition in the New Regulatory Landscape. While some of the pieces are traditional, scholarly blog posts, others have chosen different literary genres to explore this imagined future, such as short stories, parables, sci-fi inspired pieces – even poems or song lyrics. Not only is it entertaining and insightful: it’s the week’s must-read.

The FTC UMC Roundup, part of the Truth on the Market FTC UMC Symposium, is a weekly roundup of news relating to the Federal Trade Commission’s antitrust and Unfair Methods of Competition authority. If you would like to receive this and other posts relating to these topics, subscribe to the RSS feed here. If you have news items you would like to suggest for inclusion, please mail them to us at ghurwitz@laweconcenter.org and/or kfierro@laweconcenter.org.

In Antitrust at the Agencies Roundup , , , ,
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FTC UMC Roundup – It’s Getting Hot in Here

Gus Hurwitz —  22 July 2022

Someone has turned up the heat on Congress. I’m not saying Congress is responsible for the extreme heat being felt in much of the world this week – but I wouldn’t be surprised. With forward movement this week on both the CHIPS Act (with the Senate version partially resuscitating UCITA as well) and ADPPA. It seems possible (if still not yet likely) this Congress will pass some tech-related legislation. Will all this heat provide some lift below the wings of Senator Klobuchar’s (D-MN) stalled American Innovation and Choice Online Act (AICOA)? Read on … 

But first: this week’s headline looks at some recent talks by FTC Chair Lina Khan. Videos were posted this week of two recent talks the FTC Chair gave at the UNCTAD Intergovernmental Group of Experts on Competition Law and Policy and to Yale’s Law and Political Economy Project. Both are worth watching. Speaking with NYU professor Eleanor Fox at UNCTAD, Khan discussed the FTC’s “ongoing project to reinvigorate the FTC’s standalone Section 5 authority,” explaining her view that Section 5 “is intended to go beyond the four corners of the Sherman Act and the Clayton Act,” and her efforts “to make sure that [the FTC is] resuscitating this tool and making the best use of it.”

Notably, if subtly, she also discussed the need to “make sure that the reforms we’re implementing will be durable. How do we ensure that we’re really pursuing these with an eye to longevity over the long term.” It is worth recalling here that one of Khan’s first acts was to rescind the FTC’s still-new Statement of Enforcement Principles Regarding “Unfair Methods of Competition.” As I wrote here back in 2013, “a policy statement isn’t enough” – subsequent commissions can wipe away a policy statement by administrative fiat. Rather, durable policies (to the extent agencies can render them) require rulemaking – Khan’s statement about durability seems to telegraph that long-anticipated UMC rulemaking is coming soon.

In her comments to the Yale LPE group, she reflected more on the FTC’s UMC authority. She pointed to Sandeep Vaheesan’s work on UMC as influential to her thinking. Here it is worth quoting at length, as she pondered aloud

“what do we really mean by Unfair Methods of Competition? This is in some ways a question that goes to the heart of the FTC’s existence and reason for being. I take very seriously that the text of the FTC statute uses this term Unfair Methods of Competition, but I think there are really still basic questions to be engaged in regarding how we distinguish fair from unfair methods of competition, questions that are rarely frontally engaged among antitrust practitioners but that are really critical for us as we chart a path forward.”

This takes us back to the UNCTAD discussion, where Khan noted that the FTC is “in a moment in our legal environment where there are a whole set of legal challenges to the FTC’s authority,” explaining that this “complicates how we’re approaching what level of risk we’re comfortable with and that sort of thing.” It is curious that she didn’t seem to discuss these risks or challenges in her discussion at Yale, especially given her own expressed uncertainty about the meaning of Unfair Methods of Competition. But surely she is correct: in a post-West Virginia v. EPA environment, any FTC action that “reinvigorate[s] the FTC’s standalone Section 5 authority … beyond the four corners of the Sherman Act and the Clayton Act” very likely poses some major questions.

Enough about Khan’s recent speeches. What else is going on at the FTC? Well, the FTC and NLRB have announced a Memorandum of Understanding around labor issues. At least one commentator has already suggested that this is the FTC “thumbing its nose” at the Supreme Court’s West Virginia v. EPA ruling. I’m less sure – a lot will depend on what the FTC substantively does. There is a good argument that the FTC turning to work with the NLRB is a positive turn, recognizing that the NLRB is the nation’s labor regulator, such that attempting to turn antitrust law into a tool for labor regulation would present some risky major questions. On the other hand, action under the MOU could flow the other direction – the FTC and NLRB might collude to address labor issues outside of the NLRB’s authority using the FTC’s UMC or UDAP tools. Major questions abound!

Is AICOA dead? Not yet, but its closest known relative is a doornail. This week saw meta-activity on the hill. Both the Wall Street Journal and CPI report that Senator Klobuchar is pushing Senate Leader Chuck Schumer (D-NY)  to bring the bill to the floor for a vote. 

Whether Klobuchar has the needed 60 votes remains unclear. In an effort to gin up support for the bill, the House Judiciary Committee “formally published” the Committee’s report on competition in the digital marketplace. That’s the report that the Committee marked up in 2021, and released in 2020. In other words, this week the Committee did a thing to get an already twice-released report back in the news in order to help push AICOA in the Senate. This included releasing many of the documents supporting the report – though as one would expect, these documents have already been quoted and discussed extensively over the past two years.

Outside support for AICOA continues to trickle in. Mozilla has opened a new tab in the Washington Post, taking out a full page ad “open letter to Congress.” And Yelp’s General Counsel Aaron Schur published a defense of the bill, attempting to respond to criticisms such as those raised by Georgetown professor Anupam Chander and University of Arizona professor Jane Bambauer. Adam Kovacevich isn’t impressed. Neither is Mark Jamison. The basic disagreement is over what words mean. Schur assures us they mean one thing; Kovacevich and Jamison argue they could mean other things – or at least, that their meaning is unclear enough that they would allow competition-damaging litigation. ICLE’s Brian Albrecht cuts to the quick, reminding us that “the bill’s ambiguity will scare companies” and that the cost of that ambiguity “will ultimately fall on consumers in the form of higher prices, lower quality or fewer innovative products.”

Wherever you are, it’s likely going to be hot. If you’re looking for something to do while you stay cool inside, you could do worse that catching up on the Shane Tews’s conversation with FTC Commissioner Noah Phillips. And CEI has published a comprehensive discussion of “terrible tech bills from the 117th Congress” – a great one-stop-shop summarizing, and offering one informed perspective on, the very many bills that have been on the table over the past two years. 

In Antitrust at the Agencies Roundup, Truth on the Market
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FTC UMC Roundup – Happy EOnniversary Edition

Gus Hurwitz —  15 July 2022

Welcome to the FTC UMC Roundup for the middle of July. As we sit between the Fourth of July and August recess, the  first images from the James Webb space telescope are a nice way to put the day-to-day grind of antitrust law into perspective. In part, that’s my way of saying that as Congress rushes towards recess, POTUS is out of the country, and several Senators are fighting Covid (we hope all get well soon), it hasn’t been the busiest week in antitrust law. But it’s also a useful framing for this week’s headline.

This week’s headline: Just as the Webb telescope peers back into the history of the universe, this is a week to look back into recent competition history: the one year anniversary of the President’s Executive Order on competition policy. Aspen Digital hosted a discussion about the Order with National Economic Council director Brian Deese. As one would expect, the discussion started with brief remarks in which Deese was able to very briefly outline the Order’s very several impacts over the past year. 

Deese’s remarks were followed by a Q&A hosted by NYT reporter Cecilia Kang. Kang pressed Deese on a few topics. She asked how the recent Major Questions Doctrine ruling in West Virginia v. EPA affects the administration’s thinking about competition policy. Deese’s response – undoubtedly the correct one – is that the administration is looking for areas where there is bipartisan legislative interest in Congress. She asked whether the administration would ask Senate leader Chuck Schumer (D-NY) to move on pending antitrust legislation (that is, AICOA); when Deese dodged the question about Schumer, she asked again. Curiously, Deese refused to mention Senator Schumer, instead saying that the administration has been working with the bill’s sponsors, Senator Klobuchar (D-MN) and Chuck Grassley (R-IA). (Ben Brody has a piece on the pressures being brought to bear upon Schumer to act on AICOA.)

Deese’s National Economic Council colleague Tim Wu offered some comments on Deese’s speech on Twitter, explaining that the Executive Order has “become a means of trying ensure that competition policy is in line with our macro-economic policy goals.” “In a sense, the agencies are doing microeconomic competition policy, while the Competition Council has an eye on macro effects, and is setting micro priorities from that perspective.”

Continuing with this week’s lede that there’s not much going on: AICOA continues to go nowhere, fast. Supporters of the bill are lobbying the intelligence community to assuage concerns that it could harm national security interests. A spokesperson for the Office of the Director of National Intelligence responded that “the [Intelligence Community] does not weigh in on the merits of policy options.” Conservative continue to support AICOA as a tool for cracking down on content moderation policies – contrary to Democratic assurances that it can’t be used in that way. And Access Now has sent a letter to Congress on behalf of various global NGOs arguing that AICOA is necessary to address Big Tech’s human rights violations facilitated by its “reign over the world.” Antitrust law truly is everything to everyone.

Advocacy aside, AICO continues to appear to be dead bill stalling. Cristiano Lima at the Washington Post did a whip call of its own, finding “the number of senators willing to publicly say at this point they back the bills is well short of 60.” Importantly, this includes several senators who had previously publicly supported the bill. Adam Kovacevich walks through the challenging calculus: Senator Klobuchar is focused on getting Republicans to support the bill, and is losing Democratic support along the way. He also screams the loud part out louder: “It’s awfully hard for AICOA backers to claim the bill doesn’t impact content moderation when MAGA conservatives … just come right out and say they’re backing the bill because it would stop Apple/Amazon from banning Parler.”

Lest we forget about small businesses, let’s not forget about small businesses: AICOA would be bad for them, too.

The irony of it all is mercatus uber alles. The Wall Street Journal is reporting that Amazon may be scaling back its private-label brands.

Is anything going on at the FTC? Surprisingly little. Perhaps everyone’s getting ready for the next open meeting. It’s not yet on the calendar, but rumors are flying that rulemakings could be on the agenda. 

A lack of activity, however, won’t keep bad news out of the FTC. In what is truly heartbreaking, if not unsurprising, news, under Chair Khan the FTC has fallen from one of the best to one of the worst federal agencies to work for in the latest “Best Places to Work in the Federal Government.” It’s not just FTC employees who have questions about Khan’s leadership. Leah Nylen reports that the US Chamber of Commerce has sued the FTC, asking for disclosure of information under FOIA that the Commission has refused to provide. The Chamber recently prevailed in its efforts to require the Commission to disclose its operations manual.

What should you be reading and watching during this lazy month of July? Well, you could start with contributions to the Truth on the Market FTC UMC Rulemaking Symposium. We have had recent contributions summarizing chapters from Dan Crane’s recent book on the topic. These chapters were presented at a recent CCIA/Concurrences conference, recordings of which are also now online. TechFreedom is hosting its 2022 Policy Summit on July 20 and on July 27 Punchbowl is hosting a conversation with Representative Eric Swalwell on “the importance of privacy and security in existing and new technologies.”

Signing off with a recommended deep read: Adam White helps to contextualize West Virginia v. EPA and the Major Questions Doctrine in the broader scheme of the Court’s recent jurisprudence. It’s easy for those in the trenches to focus on what individual opinions mean for specific agencies and issues. But these cases are dots in a much larger mosaic of shifting jurisprudential and political theory.

In Antitrust at the Agencies Roundup, Truth on the Market , , , ,
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