Biden administration enforcers at the U.S. Justice Department (DOJ) and the Federal Trade Commission (FTC) have prioritized labor-market monopsony issues for antitrust scrutiny (see, for example, here and here). This heightened interest comes in light of claims that labor markets are highly concentrated and are rife with largely neglected competitive problems that depress workers’ income. Such concerns are reflected in a March 2022 U.S. Treasury Department report on “The State of Labor Market Competition.”

Monopsony is the “flip side” of monopoly and U.S. antitrust law clearly condemns agreements designed to undermine the “buyer side” competitive process (see, for example, this U.S. government submission to the OECD). But is a special new emphasis on labor markets warranted, given that antitrust enforcers ideally should seek to allocate their scarce resources to the most pressing (highest valued) areas of competitive concern?

A May 2022 Information Technology & Innovation (ITIF) study from ITIF Associate Director (and former FTC economist) Julie Carlson indicates that the degree of emphasis the administration’s antitrust enforcers are placing on labor issues may be misplaced. In particular, the ITIF study debunks the Treasury report’s findings of high levels of labor-market concentration and the claim that workers face a “decrease in wages [due to labor market power] at roughly 20 percent relative to the level in a fully competitive market.” Furthermore, while noting the importance of DOJ antitrust prosecutions of hard-core anticompetitive agreements among employers (wage-fixing and no-poach agreements), the ITIF report emphasizes policy reforms unrelated to antitrust as key to improving workers’ lot.

Key takeaways from the ITIF report include:

  • Labor markets are not highly concentrated. Local labor-market concentration has been declining for decades, with the most concentrated markets seeing the largest declines.
  • Labor-market power is largely due to labor-market frictions, such as worker preferences, search costs, bargaining, and occupational licensing, rather than concentration.
  • As a case study, changes in concentration in the labor market for nurses have little to no effect on wages, whereas nurses’ preferences over job location are estimated to lead to wage markdowns of 50%.
  • Firms are not profiting at the expense of workers. The decline in the labor share of national income is primarily due to rising home values, not increased labor-market concentration.
  • Policy reform should focus on reducing labor-market frictions and strengthening workers’ ability to collectively bargain. Policies targeting concentration are misguided and will be ineffective at improving outcomes for workers.

The ITIF report also throws cold water on the notion of emphasizing labor-market issues in merger reviews, which was teed up in the January 2022 joint DOJ/FTC request for information (RFI) on merger enforcement. The ITIF report explains:

Introducing the evaluation of labor market effects unnecessarily complicates merger review and needlessly ties up agency resources at a time when the agencies are facing severe resource constraints.48 As discussed previously, labor markets are not highly concentrated, nor is labor market concentration a key factor driving down wages.

A proposed merger that is reportable to the agencies under the Hart-Scott-Rodino Act and likely to have an anticompetitive effect in a relevant labor market is also likely to have an anticompetitive effect in a relevant product market. … Evaluating mergers for labor market effects is unnecessary and costly for both firms and the agencies. The current merger guidelines adequately address competition concerns in input markets, so any contemplated revision to the guidelines should not incorporate a “framework to analyze mergers that may lessen competition in labor markets.” [Citation to Request for Information on Merger Enforcement omitted.]

In sum, the administration’s recent pronouncements about highly anticompetitive labor markets that have resulted in severely underpaid workers—used as the basis to justify heightened antitrust emphasis on labor issues—appear to be based on false premises. As such, they are a species of government misinformation, which, if acted upon, threatens to misallocate scarce enforcement resources and thereby undermine efficient government antitrust enforcement. What’s more, an unnecessary overemphasis on labor-market antitrust questions could impose unwarranted investigative costs on companies and chill potentially efficient business transactions. (Think of a proposed merger that would reduce production costs and benefit consumers but result in a workforce reduction by the merged firm.)

Perhaps the administration will take heed of the ITIF report and rethink its plans to ramp up labor-market antitrust-enforcement initiatives. Promoting pro-market regulatory reforms that benefit both labor and consumers (for instance, excessive occupational-licensing restrictions) would be a welfare-superior and cheaper alternative to misbegotten antitrust actions.

[The 12th entry in our FTC UMC Rulemaking symposium is from guest contributor Steven J. Cernak, a partner in the antitrust and competition practice of BonaLaw in Detroit, Michigan. 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 (FTC) has been in the antitrust-enforcement business for more than 100 years. Its new leadership is considering some of the biggest changes ever in its enforcement methods. Instead of a detailed analysis of each case on its own merits, some FTC leaders now want its unelected bureaucrats to write competition rules for the entire economy under its power to stop unfair methods of competition. Such a move would be bad for competition and the economy—and for the FTC itself.

The FTC enforces the antitrust laws through its statutory authority to police unfair methods of competition (UMC). Like all antitrust challengers, the FTC now must conduct a detailed analysis of the specific actions of particular competitors. Whether the FTC decides to challenge actions initially in its own administrative courts or in federal courts, eventually it must convince independent judges that the challenged conduct really does harm competition. When finalized, those decisions set precedent. Future parties can argue their particular details are different or otherwise require a different outcome. As a result, the antitrust laws slowly evolve in ways understandable to all.

Some members of FTC’s new leadership have argued that the agency should skip the hard work of individual cases and instead issue blanket rules to cover competitive situations across the economy. Since taking over in the new administration, they have taken steps that seem to make it easier for the FTC to issue such broad competition rules. Doing so would be a mistake for several reasons.

First, it is far from clear that Congress gave the FTC the authority to issue such rules. Also, any such grant of quasi-legislative power to this independent agency might be unconstitutional. The FTC already gets to play prosecutor and judge in many cases. Becoming a legislature might be going too far. Other commentators, both in this symposium and elsewhere, have detailed those arguments. But however those arguments shake out, the FTC will need to take the time and resources to fight off the inevitable challenges.

But even if it can, the FTC should not. The case-by-case approach allows for detailed analysis, making it more likely to be correct. If there are any mistakes, they only affect those parties.

If it turns to competition rulemaking, how will the FTC gain the knowledge and develop the wisdom to develop rules that apply across large swaths of the economy for an unlimited time? Will it apply the same rules to companies with 8% and 80% market share? And to companies making software or automobiles or flying passengers across the country? And will it apply those rules today and next year, no matter the innovations that occur in between? The hubris to think that some all-knowing Washington wizards can get all that right, all the time, is staggering.

Yes, there are some general antitrust rules, like price-fixing agreements being illegal because they harm consumers. But those rules were developed by many lawyers, economists, judges, and witnesses through decades of case-by-case analyses and, even today, parties can argue to a court that they don’t apply to their particular facts. A one-size-fits-all rule won’t have even that flexibility.

For example, what if the FTC develops a rule based on, say, an investigation of toilet-bowl manufacturers that all price-fixing, even if the fixed price is reasonable, is automatically illegal. How would such a rigid rule handle, say, a joint license with a single price issued by competing music composers? Or could a single rule that anticipates the very different facts of Trenton Potteriesand Broadcast Musicbe written in a way that is both short enough to be understood but broad enough to anticipate all potential future facts? Perhaps the rule inspired by Trenton Potteries could be adjusted when the Broadcast Music facts become known. But then, that is just back to the detailed, case-by-case, analysis that we have now, except with the FTC rule-makers changing the rules rather than an independent judge.

Any new FTC rules could conflict with the court opinions generated by antitrust cases brought by the U.S. Justice Department’s (DOJ) Antitrust Division, state attorneys general, or private parties. For instance, the FTC and the Division generally divide up the industries that make up the economy based on expertise and experience. Should the competitive rules differ by enforcer? By industry?

As an example, consider, say, a hypothetical automatic-transmission company whose smallest products can be used in light-duty pickup trucks while the bulk of its product line is used in the largest heavy-duty trucks and equipment. Traditionally, the FTC has reviewed antitrust issues in the light-duty industry while the Division has taken heavy-duty. Should the antitrust rules affecting this hypothetical company’s light-duty sales be different than those affecting the heavy-duty sales based solely on the enforcer and not the applicable competitive facts?

Antitrust is a law-enforcement regime with rules that have changed slowly over decades through individual cases, as economic understandings have evolved. It could have been a regulatory regime, but elected officials did not make that choice. Antitrust could be changed now to a regulatory regime. Individual rules could be changed. Such monumental changes, however, should only be made by Congress, as is being debated now, not by three unelected FTC officials.

In the 1970s, the FTC overreached on rules about deceptive marketing and was slapped down by Congress, the courts, and the public. The Washington Post criticized it as “the national nanny.” Its reputation and authority suffered. We did not need a national nanny then. We don’t need one today, hectoring us to follow overbroad, ill-fitting rules designed by insulated “experts” and not subject to review.

The FTC has very important roles to play regarding understanding and protecting competition in the U.S. economy (before even getting to its crucial consumer-protection mission.) Even with potential increases in its budget, the FTC, like all of us, will have limited resources, time, expertise, and reputation. It should not squander any of that on an ill-fated, quixotic, and hubristic effort to tell everyone how to compete. Instead, the FTC should focus on what it does best: challenging the bad actions of bad actors and convincing a court that it got it right. That is how the FTC can best protect America’s consumers, as its (nicely redesigned) website proclaims.

The tentatively pending sale of Twitter to Elon Musk has been greeted with celebration by many on the right, along with lamentation by some on the left, regarding what it portends for the platform’s moderation policies. Musk, for his part, has announced that he believes Twitter should be a free-speech haven and that it needs to dial back the (allegedly politically biased) moderation in which it has engaged.

The good news for everyone is that a differentiated product at Twitter could be exactly what the market―and the debate over Big Tech―needs.

The Market for Speech Governance

As I’ve written previously, the First Amendment (bolstered by Section 230 of the Communications Decency Act) protects not only speech itself, but also the private ordering of speech. “Congress shall make no law… abridging the freedom of speech” means that state actors can’t infringe speech, but it also (in most cases) protects private actors’ ability to make such rules free from government regulation. As the Supreme Court has repeatedly held, private actors can make their own rules about speech on their own property.

As Justice Brett Kavanaugh put it on behalf of the Court in Manhattan Community Access Corp. v. Halleck:

[W]hen a private entity provides a forum for speech, the private entity is not ordinarily constrained by the First Amendment because the private entity is not a state actor. The private entity may thus exercise editorial discretion over the speech and speakers in the forum…

In short, merely hosting speech by others is not a traditional, exclusive public function and does not alone transform private entities into state actors subject to First Amendment constraints.

If the rule were otherwise, all private property owners and private lessees who open their property for speech would be subject to First Amendment constraints and would lose the ability to exercise what they deem to be appropriate editorial discretion within that open forum. Private property owners and private lessees would face the unappetizing choice of allowing all comers or closing the platform altogether.

In other words, as much as it protects “the marketplace of ideas,” the First Amendment also protects “the market for speech governance.” Musk’s idea that Twitter should be subject to the First Amendment is simply incoherent, but his vision for Twitter to have less politically biased content moderation could work.

Musk’s Plan for Twitter

There has been much commentary on what Musk intends to do, and whether it is a realistic way to maximize the platform’s value. As a multi-sided platform, Twitter’s revenue is driven by advertisers, who want to reach a mass audience. This means Twitter, much like other social-media platforms, must consider the costs and benefits of speech to its users, and strike a balance that maximizes the value of the platform. The history of social-media content moderation suggests that these platforms have found that rules against harassment, abuse, spam, bots, pornography, and certain hate speech and misinformation are necessary.

For rules pertaining to harassment and abuse, in particular, it is easy to understand how they are necessary to prevent losing users. There seems to be a wide societal consensus that such speech is intolerable. Similarly, spam, bots, and pornographic content, even if legal speech, are largely not what social media users want to see.

But for hate speech and misinformation, however much one agrees in the abstract about their undesirableness, there is significant debate on the margins about what is acceptable or unacceptable discourse, just as there is over what is true or false when it comes to touchpoint social and political issues. It is one thing to ban Nazis due to hate speech; it is arguably quite another to remove a prominent feminist author due to “misgendering” people. It is also one thing to say crazy conspiracy theories like QAnon should be moderated, but quite another to fact-check good-faith questioning of the efficacy of masks or vaccines. It is likely in these areas that Musk will offer an alternative to what is largely seen as biased content moderation from Big Tech companies.

Musk appears to be making a bet that the market for speech governance is currently not well-served by the major competitors in the social-media space. If Twitter could thread the needle by offering a more politically neutral moderation policy that still manages to keep off the site enough of the types of content that repel users, then it could conceivably succeed and even influence the moderation policies of other social-media companies.

Let the Market Decide

The crux of the issue is this: Conservatives who have backed antitrust and regulatory action against Big Tech because of political bias concerns should be willing to back off and allow the market to work. And liberals who have defended the right of private companies to make rules for their platforms should continue to defend that principle. Let the market decide.

[Today’s guest post—the 11th entry in our FTC UMC Rulemaking symposium—comes from Ramsi A. Woodcock of the University of Kentucky’s Rosenberg College of Law. 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 an effort to fight inflation, the Federal Open Market Committee raised interest rates to 20% over the course of 1980 and 1981, triggering a recession that threw more than 4 million Americans, many in well-paying manufacturing jobs, out of work.

As it continues to do today, the committee met in secret and explained its rate decisions in a handful of paragraphs.

None of the millions of Americans thrown out of work—or the many businesses driven to bankruptcy—sued the FOMC. No one argued that the FOMC’s power to disrupt the American economy was an unconstitutional delegation of legislative authority. No one argued that, in adopting its rate decisions, the FOMC had failed to comply with any of the notice-and-comment procedures required by the Administrative Procedure Act (APA).

They were wise not to sue, because they would have lost.

There have been only five lawsuits against the FOMC since it was created in 1933. All have failed; none has challenged a FOMC rate decision.

As Judge Augustus Hand put it in a related case: “it would be an unthinkable burden upon any banking system if its open market sales and discount rates were to be subject to judicial review.”

Even if everything Frank Easterbrook has had to say about antitrust is correct, it is unlikely that the Federal Trade Commission (FTC) could ever trigger a recession, much less one as severe as the one the FOMC created 40 years ago. And yet, no FTC commissioner can dream of the agency enjoying anything like the level of deference from the courts enjoyed by the FOMC.

The reality of FTC practice is just too depressing.

The FTC Act of 1914 is an expression of profound ambivalence about the administrative project, denying to the FTC even the authority to carry out internal deliberations other than through an adjudicative process. The FTC must bring an administrative complaint; firms have the right to a hearing; and so on. A Congress that would do that to an agency would certainly subject the agency’s final decisions to review by the federal courts—which, of course, Congress did.

Unlike their francophone peers on the European Court of Justice (ECJ), who have leveraged a culture of judicial deference to administrative action—as well as the fact that the ECJ’s language of business is their native tongue—to give the European Union’s antitrust agency something like carte blanche, American judges have delighted at using their powers to humiliate the FTC.

Take pay-for-delay. The FTC—informed by a staff of 80 PhD economists, not all Democrats—declared the practice to be bad for consumers in the late 1990s. But several courts actually decided that the practice was so good for consumers that it should be per se legal instead. It took more than a decade of litigation before the FTC was able to make a dent in the rate of accumulation of these agreements.

So whipped is the FTC by the courts that even when it dreams of a better life, the commission seems unable to imagine one without judicial review. During a period when bipartisan groups of legislators are seeking to reform the antitrust laws, one might have hoped that the FTC would ask for some of the discretion enjoyed by the FOMC.

Instead, the FTC’s current leadership appears intent to strap the FTC into the straightjacket of notice-and-comment rulemaking under the APA, which will only extend the FTC’s subjugation to the courts.

Indeed, progressives understood the passage of the APA in 1946 to be a signal defeat, clawing back power for the courts that progressives had fought for two generations to lodge in administrative agencies. The act was literally adopted over FDR’s dead body—he vetoed its forerunner in 1940 and died in 1945. It is consistent with contemporary progressives’ habit of mistaking counterproductive, middle-of-the-road policies for radical interventions (the original progressives of a century ago didn’t think much of the entire antitrust enterprise, either), that they should mistake the APA’s notice-and-comment rulemaking for a recipe for FTC invigoration.

To be sure, the issuance of competition regulations would be a new thing for the FTC. Rather than just enforce existing antitrust rules (and fantasizing that, one day, a court might read the FTC’s power to condemn “unfair methods of competition” more broadly), the FTC would be able actually to make new antitrust law.

But law is a double-edged sword for an administrative agency. It binds the public, but it also binds the agency. Any rule the FTC seeks to adopt, the FTC itself must follow; if a defendant can show that the firm complied, the FTC loses its case.

And that’s after the FTC has made it through the hell of the rulemaking process itself—the notice-and-comment periods, the court challenges to the agency’s interpretation of every point of process, along with the substantive basis for the rule—for every single rule the agency wishes to adopt. Or  to repeal.

The FOMC suffers no such indignities.

Although Congress calls the FOMC’s decisions “regulations,” they are not subject to the APA. The FOMC can make a rate decision and then change its mind whenever and however it wishes. The FOMC does not need to provide the public with notice and an opportunity to comment—indeed, the FOMC waits five years to release transcripts of its deliberations—and its decisions are never reviewed, even for caprice.

If the FTC wanted real power—if it wanted to get something done—it would want discretion. Discretion has made the FOMC nimble and being nimble has made the FOMC effective. Economists agree that the FOMC’s rate decisions slew inflation in the early 1980s; it could not have done that if, like the FTC and pay-for-delay, it had had to wait a decade for the courts’ approval.

As Judge Hand put it, “the correction of discount rates by judicial decree seems almost grotesque, when we remember that conditions in the money market often change from hour to hour, and the disease would ordinarily be over long before a judicial diagnosis could be made.”

How strange it is to read this as an antitrust scholar and reflect that the single most important attack on antitrust enforcement has always been, in Judge Hand’s words, that “the disease [is] ordinarily … over long before a judicial diagnosis [is] made.”

Is that not the lesson drawn by antitrust’s critics from the Microsoft litigation? Microsoft may well have monopolized operating systems in 1992 or 1994. But by the time the case settled in 2001, Windows’ dominance could not be rolled back. America was already used to a single operating system, a single Office suite, and so on. And mobile, which Microsoft did not dominate, was on the horizon. If there had been a time when antitrust enforcers could have done something to promote competition, it had passed.

Or AT&T. Antitrust managed to break the company up just in time for the cell-phone revolution to render its decades-old landline monopoly irrelevant.

If, as Judge Hand observed, “conditions in the money market change from hour to hour,” so too do conditions in virtually every market—including the markets that the FTC regulates. If that is the argument for FOMC discretion, it is an equally potent argument for FTC discretion.

But to get power, you have to want it, and the current leadership cries out instead only for a more varied servitude.

The case for instead making the FTC more like the FOMC is strong. (Even the name fits.)

Both institutions are charged with using indirect methods to get prices right in fluid market environments—the FOMC by using the purchase and sale of securities to get interest rates right; the FTC by tweaking market structure to get market prices to competitive levels. As has already been observed, this can be done effectively only through the unfettered exercise of administrative discretion.

Independence from all three branches of government (including the courts) is essential to both. Just as an accountable FOMC would probably not have had the will to throw millions out of work and drive many businesses into bankruptcy in order to fight inflation—even though that was ultimately best for the economy—an accountable FTC cannot embark on a campaign of economy-wide deconcentration when that is the right thing for the economy (which is not to say that it always is).

The sort of systemic regulation of the preconditions for a successful capitalism in which both the FOMC and the FTC are engaged creates too many powerful winners and losers for either institution to be able to do its job without complete and utter discretion to act as it sees fit—something the FTC lacks.

Indeed, the last time the FTC tried to flex its muscles, it was smacked down by all three branches of government—attacked by both Jimmy Carter and Ronald Reagan from the campaign trail, threatened with defunding by Congress, and rejected by the courts.

One can distinguish the FOMC from the FTC on the grounds that the FOMC paints with a broader brush than does the FTC. To get interest rates right, the FOMC directs the purchase and sale of securities, often in great volumes, whereas the FTC may need to tell a single, identifiable company how to do a particular, identifiable thing, such as to distribute a particular input on reasonable terms or to excise a particular provision from its contracts. Because of the potential for abuse of the individual that might result from such individualized action, the argument goes, the courts must keep the FTC on a tighter leash.

There is a fictional premise here. The FTC rarely deals with individuals—flesh-and-blood humans—but instead with corporations, often so large that they have thousands of workers and managers, and still more shareholders. The potential for abuse of actual individuals, as opposed to the fictive corporate individual, is low.

But even if we accept this fiction—as, alas, the courts have done—the FTC differs from the FOMC here only because it has so far adhered to an adjudicatory model of decisionmaking. The FTC could, for example, decide instead to target competitive prices by ordering every firm in the economy having an accounting profit in excess of 15% to be broken up, along the lines of the Industrial Reorganization Act considered by Congress in the 1970s.

That would paint with a brush of FOMCian breadth. Indeed, by varying the triggering profit percentage, the FTC would be able to vary, in a rough way, the level of competition and hence the level of prices in the economy, just as, by varying its target interest rate, the FOMC varies, in a rough way, the level of inflation in the economy.

(I do not mean to suggest an equivalence between monopoly pricing and inflation; monopoly pricing is a problem of levels whereas inflation is a problem of rates of change; they are two different problems with two different causes, two different institutions to mind them, and two different fixes.)

And although such a broad approach would surely send copious “good” firms that have engaged in no monopolizing activities to their fates, the FOMC’s rate increases doubtless also send to their fates plenty of “good” firms that have not inflated their prices but cannot survive at a 20% cost of capital. The FOMC does that because it is more expedient to discipline every firm than to identify the inflators and coax them into altering their behavior on a case-by-case basis.

We tolerate this sacrifice of innocents because we believe that low inflation confers long-term gains on everyone. If we believe that competitive pricing confers long-term gains on everyone—and that is the premise of competition policy—surely we must tolerate the same from the FTC.

If anything, the case for a broad-brush FTC is stronger than that for the FOMC, because, as already noted, no matter how overzealous the deconcentration program, it is hard to imagine deconcentration plunging the economy into recession and throwing millions of Americans out of work, at least in the short run.

If anything, deconcentration should raise employment, because competition is wasteful and duplicative; all those shards of big firms need their own independent support staffs. And, of course, it is a staple of antitrust theory that when competition increases, output goes up, not down.

One might also seek to distinguish between the FOMC and the FTC on the grounds that what the FTC must do is more complicated, and hence more prone to error, than what the FOMC must do, making oversight more appropriate for the FTC. Both inflation and monopoly power are bad for growth, the argument might go, but the connection between inflation and growth is clear whereas that between monopoly power and growth—not so much.

Indeed, too much inflation prevents firms from planning and, so, from innovating. But while the adversity associated with competition is the mother of invention, many innovations—such as social networks—can be delivered only at scale, suggesting that too much competition can be as bad for growth as too little. It would seem to follow that getting monetary policy right is easy, whereas getting competition policy right is hard.

Except that the FOMC must strike a balance between too much inflation and too little, just as the FTC must strike a balance between too much competition and too little.

Deflation can be just as bad for growth—just as hard on business planning—as inflation, as any Japanese central banker of the previous generation can tell you. The FOMC must, therefore, find the interest rates that produce neither too much nor too little inflation, just as the FTC must find the level of concentration that produces neither too much nor too little competition.

Both the FOMC and the FTC have hard jobs. Why do we trust one to handle its job better than the other?

One reason might be that the FOMC is a friend to big business whereas the FTC is a natural enemy thereof. Inflation, when unexpected, levels, because it reduces the real value of debts. If firms tend to be creditors and consumers debtors, and firms’ shareholders tend to be richer than consumers, the wealth gap narrows.

It follows that, in preventing inflation, the FOMC tilts, and so big business wants the FOMC healthy and free. The FTC, by contrast, levels, because it eliminates monopoly profits, benefiting consumers at the expense of shareholders. So, big business prefers the FTC shackled.

If that is right, then the FOMC enjoys a level of discretion that the FTC never can, because the power behind government never will give the FTC so loose a leash. Congress has authorized both the FOMC and the FTC to create regulations. But the courts would never interpret this language consistently; for the FOMC, to “adopt” a “regulation” means to do whatever you like whereas for the FTC to “make” a “regulation” means either nothing at all or, at best, notice-and-comment rulemaking under the APA.

But I rather think there is a better explanation for the divergent experiences of the FOMC and the FTC, one that does not turn on class conflict and which has been staring us in the face all along.

Just as competition policy probably cannot cause a recession or throw millions of Americans out of work, it probably cannot much increase growth or employ many more Americans either. The future of an economy may be decided by the variance of an interest rate between 0% and 20%; this is not so for the variance of a market price between the competitive level and the monopoly level. The FOMC is simply more important to the success of the capitalist system than is the FTC.

And both are probably not that important for economic inequality. While unexpected inflation does tend to make debts go away, firms rewrite contracts to account for expected inflation, so inflation’s contribution to equality is blip-like.

The contribution of monopoly profits to inequality is also likely to be small; scarcity profits, which firms generate even in competitive markets, are likely to play a more important role. At least, that’s what Thomas Piketty, the dean of inequality studies, happens to think.

And maybe also what the rich think: there is conservative support for more competition policy, but none for more tax policy, which tells us something about which is likely to have a more radical impact on the distribution of wealth.

So, it is because the FTC is not dangerous, rather than because it is dangerous, that we feel free to hobble it with process. And because the FOMC is dangerous that we want it free and maximally effective.

Just so, there is no due process in wartime because there is so much at stake, whereas in peacetime you can’t kill a statue without multiple appeals.

Which takes us back to the real deficit in progressive radicalism. Yes, rulemaking for the FTC is a cop out.

But so is the entire antitrust project.

[The tenth entry in our FTC UMC Rulemaking symposium comes from guest contributor Kacyn H. Fujii, a 2022 J.D. Candidate at the University of Michigan Law School. Kacyn’s entry comes via Truth on the Market‘s “New Voices” competition, open to untenured or aspiring academics (including students and fellows). 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.]

On July 9, 2021, President Joe Biden issued an executive order asking the Federal Trade Commission (FTC) to “curtail the unfair use of noncompete clauses and other clauses or agreements that may unfairly limit worker mobility.” This executive order raises two questions. First, does the FTC have the authority to issue such a rule? And second, is FTC rulemaking a better solution than adjudication to solve the widespread use of noncompetes? This post contends that the FTC possesses rulemaking authority and that FTC rulemaking is a better solution than adjudication for the problem of noncompete use, especially for low-wage workers.

FTC’s Rulemaking Authority

In 1973, the U.S. Court of Appeals for the D.C. Circuit in National Petroleum Refiners Association v. FTC held that the Federal Trade Commission Act permitted the FTC to promulgate rules under its unfair methods of competition (UMC) authority. Specifically, it interpreted Section 6(g), which gives the FTC the authority “to make rules and regulations for the purpose of carrying out the provisions in this subchapter,” to allow rulemaking to carry out the FTC’s Section 5 authority. In his remarks at the 2020 FTC workshop on noncompetes, Richard Pierce of George Washington University School of Law argued that no court today would follow National Petroleum’s reasoning, even going so far as to call its logic “preposterous.” BYU Law’s Aaron Nielson agreed that some of National Petroleum’s reasoning was outdated but conceded that its judgment might have been correct. Meanwhile, FTC Chair Lina Khan and former FTC Commissioner Rohit Chopra have spoken in favor of the FTC’s competition-rulemaking authority, both from a legal and policy perspective.

National Petroleum’s focus on text is consistent with the approaches that courts today take. The court first addressed appellees’ argument that the FTC may carry out Section 5 only through adjudication, because adjudication was the only form of implementation explicitly mentioned in Section 5. The D.C. Circuit noted that, although Section 5(b) granted the FTC adjudicative authority, nothing in the text limited the FTC only to adjudication as a means to implement Section 5’s substantive protections. It dismissed the appellee’s argument that expressio unius meant that adjudication was the only mechanism the agency had available to implement Section 5. The D.C. Circuit also rejected the district court’s interpretation of the legislative history, because it was too ambiguous to find Congress’s “specific intent.” Similar to the approach courts take today, National Petroleum gave the text primacy over legislative history, putting significant weight on the fact that the language of Sections 5 and 6(g) is broad.

It is true that, as Nielson notes, courts today would not so readily dismiss employing canons like expressio unius. But courts today would not necessarily employ expressio unius either. The language of Section 6(g) authorizing FTC use of rulemaking is clear and broad, expressly including Section 5 among the sections the FTC may implement through rulemaking, so Congress may have not thought it necessary to explicitly mention rulemaking in Section 5. Given how clear the language is, it also does not seem so farfetched that a court today would decide to not apply the expressio unius canon to imply an exception to the language. As the Court has commented in rejecting the expressio unius canon’s implications, “the force of any negative implication [from this canon] depends on context,” and can be negated by indications that an enactment was “not meant to signal any exclusion.”

Others argue that National Petroleum’s interpretation of Sections 5 and 6(g) would not hold up in light of newer interpretive moves deployed by courts. For example, former FTC Commissioner Maureen Ohlhausen and former Assistant Attorney General James Rill contend that the FTC should not have broad competition-rulemaking authority because of the “elephants-in-mouseholes” doctrine articulated in Whitman v. American Trucking. They invoke AMG Capital Management v. FTC as evidence that the Court is wary about “allow[ing] a small statutory tail to wag a very large dog.” The Court in AMG considered whether Section 13(b) of the FTC Act, which expressly authorized the FTC to seek injunctive relief from the federal courts, also permitted the agency to seek monetary damages. The Court concluded that the FTC could not seek monetary damages from courts. Permitting this would allow the FTC to bypass its administrative process altogether, thus contravening Congress’ goals by failing to “produce[] a coherent enforcement scheme.” However, Sections 5 and 6(g) are distinguishable from the statutory provision at issue in AMG. Unlike Section 13(b), which did not explicitly grant the FTC authority to seek monetary damages, Section 6(g) does explicitly give the FTC rulemaking authority to carry out the other provisions of the Act with no limitations on this broad language.  Meanwhile, there is no “coherent enforcement scheme” that would be served by limiting Section 6 only to methods to carry out Section 5’s adjudicative authority. Rulemaking authority does not detract from the FTC’s ability to adjudicate.

One could also argue that, according to the “specific over the general” canon, adjudication should be the FTC’s primary implementation method: Section 5(b), which is very specific in its description of the FTC’s adjudicative authority, should govern over Section 6(g), which discusses rulemaking only in general language. But there is no inherent conflict between the general and specific provisions here. Even if adjudication was intended as the primary implementation method, Section 5 does not explicitly preclude rulemaking as an option in its text. There may be valid functional reasons that Congress would want an agency that acts primarily through adjudication to also have substantive rulemaking authority. National Petroleum itself observed that “the evolution of bright-line rules [through adjudication] is often a slow process” and that “legislative-type” rulemaking procedures allow the agency to consider “broad range of data and argument from all those potentially affected.” In addition, as Emily Bremer of Notre Dame Law School observes, Congress consistently sets more specific guidelines for adjudication to meet individual agency and program needs, resulting in “extraordinary procedural diversity” across adjudication regimes. The greater level of specificity with respect to adjudication in Section 5(b) of the FTC Act may simply reflect Congress’ perceived need to delineate adjudication regimes in further detail than it does for rulemaking.

In addition, some who are doubtful about the FTC’s rulemaking authority have cited legislative context. Specifically, Ohlhausen and Rill argue that the Magnuson-Moss Warranty Act demonstrates Congress’ concern with the FTC having expansive rulemaking power. Thus, broad competition-rulemaking authority would be inconsistent with the approach Congress took in Magnuson-Moss. However, the passage of Magnuson-Moss also implies that Congress thought the FTC had existing rulemaking power that Congress could limit—thus validating National Petroleum’s overall holding that the FTC did have rulemaking authority. In addition, Congress could have also extended Magnuson-Moss’s limits on rulemakings to competition-rulemaking authority but decided to apply it only to the FTC’s consumer-protection authority. This interpretation is supported by the text as well. The Magnuson-Moss provision expressly states that its changes “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.” Congress specifically exempted competition rulemaking from Magnuson-Moss’s additional procedural requirements. If anything, this demonstrates that Congress did not want to interfere with the FTC’s competition authority.

The history of the FTC Act also supports that Congress would not have wanted to create an expert agency limited only to adjudicative authority. The FTC Act was passed during a time of unprecedented business growth, in spite of the passage of the Sherman Act in 1890. More specifically, Congress enacted the FTC Act in response to Standard Oil. Standard Oil established rule-of-reason analysis that some decried as a judicial “power grab.” Even though members of Congress disagreed about the proper scope of the FTC’s authority, all of the proposed plans for the FTC reflected Congress’ deep objections to the existing common law approach to antitrust enforcement. Congress was concerned that the existing approach was “yielding a body of law that was inconsistent, unpredictable, and unmoored from congressional intent.” Its solution was to create the FTC. The legislative context supports interpreting the statute to give the FTC all of the tools—including rulemaking—to respond effectively to nascent antitrust threats.

Finally, the FTC’s historical reliance on adjudication does not mean that it lacks the authority to promulgate rules. Assuming the relevance of historical practice—an assumption AMG cast doubt upon when it spurned the FTC’s longstanding interpretation of the FTC Act—there are reasons that an agency may choose adjudication over rulemaking that have nothing to do with its views of its statutory authority. The FTC’s preference for adjudication may simply have reflected the policy-focused views of its leadership. For example, James Miller, who chaired the FTC from 1981 to 1985, had “fundamental objections to marketplace regulation through rulemaking” because he thought Congress would exert too much pressure on rulemaking efforts. He attempted to thwart ongoing rulemaking efforts and instead vowed to take an “aggressive” approach to enforcement through adjudication. But this does not mean he thought the FTC lacked the authority to promulgate rules at all. Over the past several decades, the courts and federal antitrust enforcers have taken a non-interventionist or laissez-faire approach to enforcement. The FTC’s history of not relying on rulemaking may simply be indicators of the agency’s policy preferences and not its views of its authority.

In short, National Petroleum’s interpretive moves are sound and its conclusion that the FTC possesses UMC-rulemaking authority should stand the test of time. 

Benefits of FTC Rulemaking for Curbing Non-Compete Use

President Biden’s executive order also raised the question of whether FTC rulemaking is the right tool to address the problem of liberal noncompete use. This post argues that FTC rulemaking would have tangible benefits over adjudication, especially for noncompetes that bind low-wage workers.

The Problem with Noncompetes

Noncompete clauses, which restrict where an employee may work after they leave their employer, have been used widely even in contexts divorced from the justifications for noncompetes. Typical justifications for noncompetes include protecting trade secrets and goodwill, increasing employers’ incentives to invest in training, and improving employers’ leverage in negotiations with employees. Despite these justifications, noncompetes are used for workers who have no access to trade secrets or customer lists. According to a survey conducted in 2014, 13.3% of workers that made $40,000 per-year or less were subject to a noncompete, and 33% of those workers reported being subject to a noncompete at some point in the past. Noncompete use reduces worker mobility, even for those workers not themselves bound by noncompetes. It also results in lower wages for those bound by noncompetes. Interestingly, these effects on worker mobility and wages are present even in states where noncompetes are unenforceable.

Although noncompetes are typically governed on the state level, the magnitude of noncompete use could pose an antitrust problem. Noncompetes help employers maintain “high levels of market concentration,” which “reduce[s] competition rather than spur[ring] innovation.” However, it can be very difficult for private parties and state enforcers to challenge noncompete use under antitrust law. One employer’s use of noncompetes is unlikely to have an appreciable difference on the labor market. The harm to labor markets is only detectable in aggregate, making it virtually impossible to succeed on an antitrust challenge against an employer’s use of noncompetes. Indeed, University of Chicago Law’s Eric Posner has observed that, as of 2020, there were “a grand total of zero cases in which an employee noncompete was successfully challenged under the antitrust laws.” According to Posner, courts either claim that noncompetes involve “de minimis” effects on competition or do not create “public” injuries for antitrust law to address.

And while there have been a handful of settlements between state attorneys general and companies that use noncompetes—like the settlement between then-New York Attorney General Barbara D. Underwood and WeWork in 2018—these settlements capture only the most egregious uses of noncompetes. There are likely many other companies who use noncompetes in anticompetitive ways, but they do not operate at such scale as to warrant an investigation. State attorneys general have resource constraints that limit them to challenge only the most harmful restraints on workers. Even if these cases went to trial, instead of settling, their precedential effect would thus set only the upper bound for what is an anticompetitive use of noncompete agreements.

Further, the FTC’s current approach of relying on adjudication is unlikely to be effective in curbing widespread noncompete use. Scholars have critiqued the FTC’s historical reliance on adjudication, saying that it has failed to generate “any meaningful guidance as to what constitutes an unfair method of competition.” Part of this is because antitrust law largely relies on rule-of-reason analysis, which involves a “broad and open-ended inquiry” into the competitive effects of particular conduct. Given the highly fact-specific nature of rule-of-reason analysis, the holding of one case can be difficult to extend to another and thus leads to problems in administrability and efficiency. Even judges “have criticized antitrust standards for being highly difficult to administer.” Reliance on the rule of reason also leads to a lack of predictability, which means that market participants and the public have less notice about what the law is.

In addition, private parties cannot litigate UMC claims under Section 5 of the FTC Act; the agency itself must determine what counts as an unfair method of competition. Perhaps because of resource constraints, the FTC has only brought a “modest number” of cases that “provide an insufficient basis from which to attempt to generate substantive rules defining the Commission’s Section 5 authority.”

Benefits of Rulemaking

FTC rulemaking under its UMC authority would avoid many of the problems of a case-by-case approach. First, rulemaking would provide clarity and efficiency. For example, a rule could declare it illegal for employers to use noncompetes for employees making under the median national income. Such a rule clearly articulates the FTC’s policy and is easy to apply. This demonstrates how rulemaking can be more efficient than adjudication. In order to implement a similar policy through adjudication, the FTC may have to bring many cases covering various industries and defendants that employ low-wage workers, given the nature of rule-of-reason analysis.

Rulemaking is also more participatory than adjudication. Interested parties and the general public can weigh in on proposed rules through the notice-and-comment process. Adjudication involves only those who are party to the suit, leaving “broad swaths of market participants watching from the sidelines, lacking an opportunity to contribute their perspective, their analysis, or their expertise, except through one-off amicus briefs.” However, low-wage workers are unlikely to have the resources required to prepare and submit an amicus brief and may not even be aware of the litigation in the first place. In contrast, it is much easier for low-wage workers or their future employers to participate in the notice-and-comment process, which only requires submitting a comment through an online form. Unions or employee-rights organizations can help to facilitate worker participating in rulemaking as well.

A uniform approach through rulemaking means that more workers will be on notice of the FTC’s policy. Worker education is an important factor in solving the problem. Even in states where noncompetes are not enforceable, employers still use and threaten to enforce noncompetes, which reduces worker mobility. A clear policy articulated by the FTC may help workers to understand their rights, perhaps because a national rule will get more media attention than individual adjudications.

Although it may be true that rulemaking is, in general, less adaptable than adjudication, there may be a category of cases where our understanding is unlikely to change over time. For example, agreements to fix prices are so clearly anticompetitive that they are per se illegal under the antitrust laws. Our understanding of the anticompetitive nature of price fixing is highly unlikely to change over time. 

Noncompetes for low-wage workers should be in this category of cases. This use of noncompetes is divorced from traditional justifications for noncompetes. The nature of the work for low-wage workers—say, for janitors or cashiers—is unlikely to ever require significant employer resources for training or disclosure of customer lists or trade secrets. Given the negative effects that noncompetes can have on mobility and wages, even in states where they are not enforceable, they clearly do more harm than good to the labor market. It is difficult to imagine that market conditions or economic understanding would change this.

Further, even though rulemaking can take time, the FTC’s adjudicative process is not necessarily much better. In 2015, adjudications through the FTC’s administrative process typically took two years. Former FTC Commissioner Philip Elman once observed that case-by-case adjudication “may simply be too slow and cumbersome to produce specific and clear standards adequate to the needs of businessmen, the private bar, and the government agencies.” Even if rulemaking takes longer, it may still be more efficient because of a rule’s ability to apply across the board to different industries and types of workers. It may also be more efficient because it is better able to capture all of the relevant considerations through the notice-and-comment process.

It is true that some states already have a bright-line rule against noncompetes by making noncompetes unenforceable. Even so, there is value in establishing a bright-line rule through rulemaking at a federal level: this provides greater uniformity across states. In addition, rulemaking could have some value if it is used to establish notice requirements—for example, the FTC could promulgate a rule requiring employers to notify employees of the relevant noncompete laws. Notice requirements are one example where case-by-case adjudication would be especially ineffective.

Conclusion

In certain contexts, rulemaking is a better alternative to adjudication. Noncompete use for low-wage workers is one such example. Rulemaking provides more uniformity, notice, and opportunity to participate for low-wage workers than adjudication does. And given that both state noncompete law and federal antitrust law require such fact-specific inquiries, rulemaking is also more efficient than adjudication. Thus, the FTC should use its competition-rulemaking authority to ban noncompete use for low-wage workers instead of relying only on adjudication.

A new scholarly study of economic concentration sheds further light on the flawed nature of the Neo-Brandeisian claim that the United States has a serious “competition problem” due to decades of increasing concentration and ineffective antitrust enforcement (see here and here, for example). In a recent article, economist Yueran Ma—assistant professor at the University of Chicago’s Booth School of Business—found that economies of scale (an efficiency) were associated with a U.S. economy-wide rise in concentration in economic activities (not antitrust markets) and a growth in output over the last century. In particular, Ma explained (emphasis added):

New research observing 100 years of concentration in economic activities and investment in research and development shows that the dominance of large businesses has been increasing for at least a century and, as Marx conjectured, may be a feature of the increasingly stronger economies of scale that accompany industrial development. . . .

To understand the broad historical currents of concentration, we collected financial information of all US corporations by size groups for the past 100 years. . . .

To be clear, our focus is not market concentration for a particular product, which would require defining markets based on consumption activities. Instead, our focus is the business size distribution in the US, namely the extent to which larger businesses dominate in the total volume of production activities across the economy. . . .

The data reveals a persistent rise in the dominance of the top 1 percent and top 0.1 percent of businesses in the US. From 1918 to 1975, the SOI provided size groups sorted by net income (green line with circles). Starting in 1959, the SOI also provided size groups sorted by sales (red line with diamonds). The longest and most comprehensive size groups are sorted by assets, available since 1931 (blue line with triangles). No matter the measure you choose, the long-run increase in corporate concentration is clear. . . .

Just as Stigler, Marx and Lenin had predicted, the reason for increased concentration appears to be economies of scale. Among different industries, we find that the timing and the degree of rising concentration align closely with rising investment in research and development (R&D) and information technology (IT), measured using additional data from the Bureau of Economic Analysis (BEA). These types of investments usually require a certain degree of scale due to upfront spending, while also producing technological changes that enhance economies of scale. Accordingly, we use investment intensity in R&D and IT as a general indicator of firms exploiting economies of scale. . . .

We also find that increases in concentration are positively associated with industry growth. In particular, over the medium term (e.g., twenty years), industries that experience higher increases in concentration are also the ones that experience higher growth in real gross output. Correspondingly, their shares of economic output expand as well. . . .

A[ ] natural question is whether regulatory policies and antitrust enforcement drive the main trends we find. For instance, regulatory restrictions on interstate banking could have a direct impact on the size of banks (and we indeed observe rising concentration in banking when these restrictions were lifted). In most other sectors, we are not aware of policies that align with the patterns of rising concentration in our data. The past century witnessed several regimes of antitrust enforcement—however, rising corporate concentration has been a secular trend throughout these different antitrust regimes. We do not observe a significant relationship between corporate concentration in our data and standard aggregate antitrust enforcement measures, such as the number of antitrust cases filed by the Department of Justice (DOJ) or the budget of the DOJ’s antitrust division. Overall, we do not find evidence that antitrust shapes the economy-wide business size distribution, although it could have a more visible impact on the market for a particular product (which is closer to the domain of antitrust analyses).

Even if higher concentration in production activities comes from economies of scale, some contemporary observers fear that economies of scale will ultimately weaken competition and cultivate monopoly power (Lenin highlighted such concerns as well). Analyzing this question requires reliable measurement of market power. So far, most studies do not find rising markups (the standard measure of market power) before the 1980s, and some argue that markups have increased since the 1980s. Combined with our findings, the evidence suggests that stronger economies of scale does not always lead to stronger market power. It is possible that such a link may exist under certain conditions, and future research could shed more light on this topic.

In broad terms, Ma’s study describes a long-term rise in economic concentration (again, something entirely different from antitrust-relevant market concentration) in tandem with substantial increases in economies of scale and output expansion—overall, a story of long-term welfare enhancement. Antitrust-enforcement levels are not portrayed as significantly related to this trend, and there is no showing that rising economies of scale inevitably enhance market power. (Even possible increases in markups, whose existence has been contested, do not necessarily reflect an increase in market power, see here and here.)

Admittedly, Ma was engaged in a positive analysis of concentration, not a normative assessment. But her research certainly lends no support to the normative neo-Brandeisian notion that a drastic interventionist-minded overhaul of antitrust is required to address major competitive ills. To the contrary, one could logically infer that a dramatic rise in antitrust interventionism is not only uncalled for, but it could threaten the beneficial nature of rising economies of scale and output that have been shown to characterize the U.S. economy. One would hope that this inference would give Congress and U.S. antitrust enforcers pause before they embark on a novel interventionist path.

[The ninth entry in our FTC UMC Rulemaking symposium comes from guest contributor Aaron Nielsen of BYU Law. It is the second post we are publishing today; see also this related post from Jonathan M. Barnett of USC Gould School of Law. Like that post, it adapts a paper that will appear as a chapter in the forthcoming book FTC’s Rulemaking Authority, which will be published by Concurrences later this year. 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.]

For obvious reasons, many scholars, lawyers, and policymakers are thinking hard about whether the Federal Trade Commission (FTC) has authority to promulgate substantive “unfair methods of competition” (UMC) regulations. I first approached this issue a couple of years ago when the FTC asked me to present on the agency’s rulemaking powers. For my presentation, I focused on 1973’s National Petroleum Refiners Association v. FTC and, in particular, whether the U.S. Court of Appeals for the D.C. Circuit correctly held that the FTC has authority to promulgate such rules. I ventured that relying on National Petroleum Refiners would present “litigation risk” for the FTC because the method of statutory interpretation used by the D.C. Circuit is out of step with how courts read statutes today. Richard Pierce, who presented at the same event, was even more blunt:

Let me just express my complete agreement with Aaron’s analysis of the extraordinary fragility of the FTC position that National Petroleum Refiners is going to protect them. I teach National Petroleum Refiners every year. And I teach it as an object lesson in what no court, modern court, would ever do today. The reasoning is, by today’s standards, preposterous.  … [T]he interpretive method that was used in that case was fairly commonly used on the DC Circuit at that time. There is no justice today—not just Gorsuch, but Kagan, Breyer—there is no justice today that would [use that method]. 

That was a fun academic discussion—with emphasis on the word academic. After all, for decades, this issue has only been an academic question because the FTC has not attempted to use such authority. That academic question, however, may soon become a concrete dispute. 

Pierce and others have advanced the anti-National Petroleum Refiners position. Recently, Kacyn H. Fujii has advanced the pro-National Petroleum Refiners position. Should the FTC promulgate a substantive UMC rule, the federal courts will decide which position is right. As that day approaches, many more experts will offer thoughts on this important question. 

Here, however, I want to focus on a different question. What would happen if the FTC can promulgate broad high-profile UMC rules, including new antitrust tests? 

I’ve just posted to SSRN a new essay that addresses that question: “What Happens If the FTC Becomes a Serious Rulemaker?” This essay will be published in the forthcoming book FTC’s Rulemaking Authority. Here is the abstract:

The Federal Trade Commission (FTC) is no one’s idea of a serious rulemaker. To the contrary, the FTC is in many respects a law enforcement agency that operates through litigation and consent decrees. There are understandable reasons for this absence of FTC rulemaking. Not only has Congress imposed heightened procedural obligations on the FTC’s ability to promulgate consumer protection rules, but also it is far from clear that the FTC even has statutory authority to promulgate substantive rules relating to unfair methods of competition (UMC). Yet things may be changing. It appears that the FTC is preparing to begin using rulemaking more aggressively, including for substantive UMC regulations. The FTC’s ability to use rulemaking this way will undoubtedly prompt sharp and important legal challenges.

This short essay, however, considers the question of FTC rulemaking from a different angle: What if the FTC has broad rulemaking authority?  And what if the FTC begins to use that authority for controversial policies? Traditionally, the FTC operates in a case-by-case fashion that attempts to apply familiar principles to the facts of individual matters. Should the FTC begin making broader policy choices through rulemaking, however, it should be prepared for at least three unintended consequences: (i) more ossification, including more judicial challenges and perhaps White House oversight; (ii) more zigzagging policy as new FTC leadership, in response to changes in presidential control, moves to undo what the agency has just done; and (iii) to more often be the target of what has been called “administrative law as blood sport,” by which political actors make it more difficult for the agency to function, for example by delaying the confirmation process.  The upshot would be an agency that could in theory (and sometimes no doubt in fact) regulate more broadly than the FTC does now, but also one with a different character.  In short, the more the FTC becomes a serious rulemaker, the more the FTC will change as an institution.

Here, I will summarize some of the thoughts from my essay. Please read the full essay, however, if you’re looking for citations and a more complete explanation. 

At the outset, my essay is not an attack on rulemaking. There are good reasons to prefer agencies to make policy through rulemaking rather than, say, case-by-case adjudication or threats. In fact, Kristin Hickman and I have written an entire article explaining why rulemaking (generally) should be favored over adjudication. That said, I am concerned about the idea that the FTC has substantive rulemaking authority to promulgate broad UMC rules under Section 5 of the FTC Act. Rulemaking has many advantages, but it does not follow that rulemaking under this very open-ended statute makes sense, especially if the goal is broad policy change. Indeed, if the FTC were to use rulemaking authority for small issues, presumably some of the concerns I sketch out would not apply (though the legal question, of course, still would). 

As I explain in my essay, when agencies attempt to use rulemaking for significant policies—which, not by coincidence, disproportionately tend to be controversial policies—at least three unintended consequences may result: ossification, zigzagging policy, and blood-sport tactics.   

First, ossification. For decades, many administrative law scholars have lamented how ossified the rulemaking process has become. Notice-and-comment rulemaking may not look all that difficult. The process has become challenging, at least for the most significant rules. (There is an empirical dispute about how ossified the process is, but part of that debate may be explained by the nature of the rules at issue; agencies perhaps can promulgate lower-profile rules without much trouble, while struggling with the more significant ones.) Agencies looking to make important policy changes through notice-and-comment rulemaking, for example, often receive mountains of comments from the public. Indeed, agencies may receive millions of comments.  Because agencies have to respond to material comments, rules that prompt that volume of commentary aren’t so easy to do. Likewise, the most consequential rules almost invariably prompt litigation, and as part of so-called “hard look” review, the agency will have to persuade a court that it has considered the important aspects of the problem. Preparing for that sort of review can require a great deal of upfront work. And although its domain does not extend to independent agencies, the Office of Information and Regulatory Affairs (OIRA) also requires agencies to do a great deal of analysis before promulgating the most significant rules. 

If the FTC begins promulgating significant rules, it should be prepared for an ossified process that requires reallocating resources within the agency and engaging in more “admin law” litigation. Because rulemaking can be labor intensive, moreover, the FTC may not be able to pursue as many policies as some no doubt wish. Furthermore, the U.S. Justice Department has concluded that the White House has the authority to subject independent agencies to the OIRA process. If the FTC begins promulgating significant rules—especially regulations of the sort that may be improved by inter-agency coordination and external evaluation, two hallmarks of the OIRA process—the White House may decide that the time has come to put the FTC within OIRA’s tent. Such developments would change how the FTC functions. 

Second, zigzagging policy. It turns out that when agencies use regulatory power for significant policies, agencies sometimes find themselves using that same power to undo those policies when control of the White House shifts. Elsewhere, I’ve written about the Federal Communications Commission and so-called “net neutrality” rules. For decades, the FCC has flip-flopped on this significant issue; when Republicans control the White House, the FCC does one thing, but when Democrats take over, it does something else. Flip-flopping, however, is not limited to the FCC.  As Pierce has put it, “[t]he same analysis applies in each of the hundreds of contexts in which Democrats and Republicans have opposing and uncompromising preferences with respect to policy issues. …” Zigzagging policy is bad for business because it makes it harder to invest, and for that same reason, is bad for consumers who do not gain the benefits of foregone investment. It is also bad for regulators, who must spend time and effort to undo the agency’s own prior actions. To be sure, agencies don’t always flip-flop; indeed, the ossification of the rulemaking process may limit it, at the margins. But especially for the most consequential policies, zigzagging sometimes happens.

Accordingly, if the FTC begins promulgating significant policies through rulemaking, it should expect some zigzagging policy when the White House changes hands. As my essay explains:

In this current age of polarization, regulatory efforts to address divisive issues may not work well because what an agency does under one administration can be undone in the next administration. Thus, the end result may be policy that exists under some administrations but not others. Indeed, the FTC’s recent slew of party-line votes suggests that if the FTC begins using rulemaking for controversial policies, the FTC will look to undo those rules when the political balance flips.  Of course, not all FTC rules will vacillate—there are not enough resources to undo everything, especially as agencies confront new issues. But if the FTC becomes a serious rulemaker, some zigzagging should occur.

Finally, consider “administrative law as blood sport”—an evocative phrase that comes from Thomas McGarity. The idea is that agencies engaged in rulemaking are increasingly subject to political opposition across several dimensions, including “strategies aimed at indirectly disrupting the implementation of regulatory programs by blocking Senate confirmation of new agency leaders, cutting off promised funding for agencies, introducing rifle-shot riders aimed at undoing ongoing agency action, and subjecting agency heads to contentious oversight hearings.” In other words, an opponent of a proposed regulation may try to stop it through the rulemaking process (for example, by filing comment and then going to court), but may also try to stop it outside of the rulemaking process through political means. 

As my essay explains, if the FTC begins using rulemaking for controversial policies, blood-sport tactics presumably will follow. Similarly, the FTC should also expect litigation of a more fundamental character. The U.S. Supreme Court is increasingly wary of independent agencies; to the extent that the FTC begins making significant policy choices without presidential control, the likelihood that the Supreme Court will say “enough” increases. 

In short, if the FTC engages in significant rulemaking, its character will change. No doubt, some proponents of FTC rulemaking would accept that cost, but in assessing FTC rulemaking, it is important to remember unintended consequences, too.

[The ideas in this post from Truth on the Market regular Jonathan M. Barnett of USC Gould School of Law—the eighth entry in our FTC UMC Rulemaking symposiumare developed in greater detail in “Regulatory Rents: An Agency-Cost Analysis of the FTC Rulemaking Initiative,” a chapter in the forthcoming book FTC’s Rulemaking Authority, which will be published by Concurrences later this year. This is the first of two posts we are publishing today; see also this related post from Aaron Nielsen of BYU Law. 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 December 2021, the Federal Trade Commission (FTC) released its statement of regulatory priorities for 2022, which describes its intention to expand the agency’s rulemaking activities to target “unfair methods of competition” (UMC) under Section 5 of the Federal Trade Commission Act (FTC Act), in addition to (and in some cases, presumably in place of) the conventional mechanism of case-by-case adjudication. Agency leadership (meaning, the FTC chair and the majority commissioners) largely characterizes the rulemaking initiative as a logistical improvement to enable the agency to more efficiently execute its statutory commitment to preserve competitive markets. Unburdened by the costs and delays inherent to the adjudicative process (which, in the antitrust context, typically requires evidence of actual or likely competitive harm), the agency will be able to take expedited action against UMCs based on rules preemptively set forth by the agency. 

This shift from enforcement by adjudication to enforcement by rulemaking is far from a mechanical adjustment. Rather, it is best understood as part of an initiative to make fundamental changes to the substance and methodology of antitrust enforcement.  Substantively, the initiative appears to be part of a broader effort to alter the goals of antitrust enforcement so that it promotes what are deemed to be “equitable” market outcomes, rather than preserving the competitive process through which outcomes are determined by market forces. Methodologically, the initiative appears to be part of a broader effort to displace rule-of-reason treatment with the practical equivalent of per se prohibitions in a wide range of putatively “unfair” practices. Both steps would be inconsistent with the agency’s statutory mission to safeguard the competitive process or a meaningful commitment to a market-driven economy and the rule of law.

Abandoning Competitive Markets

Little steps sometimes portend bigger changes. 

In July 2021, FTC leadership removed the following words from the mission description of the agency’s Bureau of Competition: “The Bureau’s work aims to preserve the free market system and assure the unfettered operation of the forces of supply and demand.” This omitted statement had tracked what remains the standard characterization by federal courts and agency guidelines of the core objective of the antitrust laws. Following this characterization, the antitrust laws seek to preserve the “rules of the game” for market competition, while remaining indifferent to the outcomes of such competition in any particular market. It is the competitive process, not the fortunes of particular competitors, that matters.

Other statements by FTC leadership suggest that they seek to abandon this outcome-agnostic perspective. A memo from the FTC chair to staff, distributed in September 2021, states that the agency’s actions “shape the distribution of power and opportunity” and encourages staff “to take a holistic approach to identifying harms, recognizing that antitrust and consumer protection violations harm workers and independent businesses as well as consumers.” In a draft strategic plan distributed by FTC leadership in October 2021, the agency described its mission as promoting “fair competition” for the “benefit of the public.”  In contrast, the agency’s previously released strategic plan had described the agency’s mission as promoting “competition” for the benefit of consumers, consistent with the case law’s commitment to protecting consumer welfare, dating at least to the Supreme Court’s 1979 decision in Reiter v. Sonotone Corp. et al. The change in language suggests that the agency’s objectives encompass a broad range of stakeholders and policies (including distributive objectives) that extends beyond, and could conflict with, its commitment to preserve the integrity of the competitive process.

These little steps are part of a broader package of “big steps” undertaken during 2021 by FTC leadership. 

In July 2021, the agency abandoned decades of federal case law and agency guidelines by rejecting the consumer-welfare standard for purposes of enforcement of Section 5 of the FTC Act against UMCs. Relatedly, FTC leadership asserted in the same statement that Congress had delegated to the agency authority under Section 5 “to determine which practices fell into the category of ‘unfair methods of competition’”. Remarkably, the agency’s claimed ambit of prosecutorial discretion to identify “unfair” practices is apparently only limited by a commitment to exercise such power “responsibly.”

This largely unbounded redefinition of the scope of Section 5 divorces the FTC’s enforcement authority from the concepts and methods as embodied in decades of federal case law and agency guidelines interpreting the Sherman and Clayton Acts. Those concepts and methods are in turn anchored in the consumer-welfare principle, which ensures that regulatory and judicial actions promote the public interest in the competitive process, rather than the private interests of any particular competitor or other policy goals not contemplated by the antitrust laws. Effectively, agency leadership has unilaterally converted Section 5 into an empty vessel into which enforcers may insert a fluid range of business practices that are deemed by fiat to pose a risk to “fair” competition. 

Abandoning the Rule of Reason

In the same statement in which FTC leadership rejected the consumer-welfare principle for purposes of Section 5 enforcement, it rejected the relevance of the rule of reason for these same purposes. In that statement, agency leadership castigated the rule of reason as a standard that “leads to soaring enforcement costs” and asserted that it is incompatible with Section 5 of the FTC Act. In March 2021 remarks delivered to the House Judiciary Committee’s Antitrust Subcommittee, Commissioner Rebecca Kelly Slaughter similarly lamented “[t]he effect of cramped case law,” specifically viewing as problematic the fact that “[u]nder current Section 5 jurisprudence, courts have to consider conduct under the ‘rule of reason,’ a fact-intensive investigation into whether the anticompetitive effects of the conduct outweigh the procompetitive justifications.” Hence, it appears that the FTC, in exercising its purported rulemaking powers against UMCs under Section 5, does not intend to undertake the balancing of competitive harms and gains that is the signature element of rule-of-reason analysis. Tellingly, the agency’s draft strategic plan, released in October 2021, omits language that it would execute its enforcement mission “without unduly burdening legitimate business activity” (language that had appeared in the previously released strategic plan)—again, suggesting that it plans to take littleaccount of the offsetting competitive gains attributable to a particular business practice.

This change in methodology has two profound and concerning implications. 

First, it means that any “unfair” practice targeted by the agency under Section 5 is effectively subject to a per se prohibition—that is, the agency can prevail merely by identifying that the defendant engaged in a particular practice, rather than having to show competitive harm. Note that this would represent a significant step beyond the per se rule that Sherman Act case law applies to certain cases of horizontal collusion. In those cases, a per se rule has been adopted because economic analysis indicates that these types of practices in general pose such a high risk of net anticompetitive harm that a rule-of-reason inquiry is likely to fail a cost-benefit test almost all of the time. By contrast, there is no indication that FTC leadership plans to confine its rulemaking activities to practices that systematically pose an especially high risk of anticompetitive harm, in part because it is not clear that agency leadership still views harm to the competitive process as being the determinative criterion in antitrust analysis.  

Second, without further clarification from agency leadership, this means that the agency appears to place substantially reduced weight on the possibility of “false positive” error costs. This would be a dramatic departure from the conventional approach to error costs as reflected in federal antitrust case law. Antitrust scholars have long argued, and many courts have adopted the view, that “false positive” costs should be weighted more heavily relative to “false negative” error costs, principally on the ground that, as Judge Richard Posner once put it, “a cartel . . . carries within it the seeds of its own destruction.” To be clear, this weighted approach should still meaningfully assess the false-negative error costs that arise from mistaken failures to intervene. By contrast, the agency’s blanket rejection of the rule of reason in all circumstances for Section 5 purposes raises doubt as to whether it would assign any material weight to false-positive error costs in exercising its purported rulemaking power under Section 5 against UMCs. Consistent with this possibility, the agency’s July 2021 statement—which rejected the rule of reason specifically—adopted the view that Section 5 enforcement should target business practices in their “incipiency,” even absent evidence of a “likely” anticompetitive effect.

While there may be reasonable arguments in favor of an equal weighting of false-positive and false-negative error costs (on the grounds that markets are sometimes slow to correct anticompetitive conduct, as compared to the speed with which courts correct false-positive interventions), it is hard to fathom a reasonable policy argument in favor of placing no material weight on the former cost category. Under conditions of uncertainty, the net economic effect of any particular enforcement action, or failure to take such action, gives rise to a mix of probability-adjusted false-positive and false-negative error costs. Hence, any sound policy framework seeks to minimize the sum of those costs. Moreover, the wholesale rejection of a balancing analysis overlooks extensive scholarship identifying cases in which federal courts, especially during the period prior to the Supreme Court’s landmark 1977 decision in Continental TV Inc. v. GTE Sylvania Inc., applied per se rules that erroneously targeted business practices that were almost certainly generating net-positive competitive gains. Any such mistaken intervention counterproductively penalizes the efforts and ingenuity of the most efficient firms, which then harms consumers, who are compelled to suffer higher prices, lower quality, or fewer innovations than would otherwise have been the case.

The dismissal of efficiency considerations and false-positive error costs is difficult to reconcile with an economically informed approach that seeks to take enforcement actions only where there is a high likelihood of improving economic welfare based on available evidence. On this point, it is worth quoting Oliver Williamson’s well-known critique of 1960s-era antitrust: “[I]f neither the courts nor the enforcement agencies are sensitive to these [efficiency] considerations, the system fails to meet a basic test of economic rationality. And without this the whole enforcement system lacks defensible standards and becomes suspect.”

Abandoning the Rule of Law

In a liberal democratic system of government, the market relies on the state’s commitment to set forth governing laws with adequate notice and specificity, and then to enforce those laws in a manner that is reasonably amenable to judicial challenge in case of prosecutorial error or malfeasance. Without that commitment, investors are exposed to arbitrary enforcement and would be reluctant to place capital at stake. In light of the agency’s concurrent rejection of the consumer-welfare and rule-of-reason principles, any future attempt by the FTC to exercise its purported Section 5 rulemaking powers against UMCs under what currently appears to be a regime of largely unbounded regulatory discretion is likely to violate these elementary conditions for a rule-of-law jurisdiction. 

Having dismissed decades of learning and precedent embodied in federal case law and agency guidelines, FTC leadership has declined to adopt any substitute guidelines to govern its actions under Section 5 and, instead, has stated (in its July 2021 statement rejecting the consumer-welfare principle) that there are few bounds on its authority to specify and target practices that it deems to be “unfair.” This blunt approach contrasts sharply with the measured approach reflected in existing agency guidelines and federal case law, which seek to delineate reasonably objective standards to govern enforcers’ and courts’ decision making when evaluating the competitive merits of a particular business practice.  

This approach can be observed, even if imperfectly, in the application of the Herfindahl-Hirschman Index (HHI) metric in the merger-review process and the use of “safety zones” (defined principally by reference to market-share thresholds) in the agencies’ Antitrust Guidelines for the Licensing of Intellectual Property, Horizontal Merger Guidelines, and Antitrust Guidelines for Collaborations Among Competitors. This nuanced and evidence-based approach can also be observed in a decision such as California Dental Association v. FTC (1999), which provides a framework for calibrating the intensity of a rule-of-reason inquiry based on a preliminary assessment of the likely net competitive effect of a particular practice. In making these efforts to develop reasonably objective thresholds for triggering closer scrutiny, regulators and courts have sought to reconcile the open-ended language of the offenses described in the antitrust statutes—“restraint of trade” (Sherman Act Section 1) or “monopolization” (Sherman Act Section 2)—with a meaningful commitment to providing the market with adequate notice of the inherently fuzzy boundary between competitive and anti-competitive practices in most cases (and especially, in cases involving single-firm conduct that is most likely to be targeted by the agency under its Section 5 authority). 

It does not appear that agency leadership intends to adopt this calibrated approach in implementing its rulemaking initiative, in light of its largely unbounded understanding of its Section 5 enforcement authority and wholesale rejection of the rule-of-reason methodology. If Section 5 is understood to encompass a broad and fluid set of social goals, including distributive objectives that can conflict with a commitment to the competitive process, then there is no analytical reference point by which markets can reliably assess the likelihood of antitrust liability and plan transactions accordingly. If enforcement under Section 5, including exercise of any purported rulemaking powers, does not require the agency to consider offsetting efficiencies attributable to any particular practice, then a chilling effect on everyday business activity and, more broadly, economic growth can easily ensue. In particular, firms may abstain from practices that may have mostly or even entirely procompetitive effects simply because there is some material likelihood that any such practice will be subject to investigation and enforcement under the agency’s understanding of its Section 5 authority and its adoption of a per se approach for which even strong evidence of predominantly procompetitive effects would be moot.

From Free Markets to Administered Markets

The FTC’s proposed rulemaking initiative, when placed within the context of other fundamental changes in substance and methodology adopted by agency leadership, is not easily reconciled with a market-driven economy in which resources are principally directed by the competitive forces of supply and demand. FTC leadership has reserved for the agency discretion to deem a business practice as “unfair,” while defining fairness by reference to an agglomeration of loosely described policy goals that include—but go beyond, and in some cases may conflict with—the agency’s commitment to preserve market competition. Concurrently, FTC leadership has rejected the rule-of-reason balancing approach and, by implication, may place no material weight on (or even fail to consider entirely) the efficiencies attributable to a particular business practice. 

In the aggregate, any rulemaking activity undertaken within this unstructured framework would make it challenging for firms and investors to assess whether any particular action is likely to trigger agency scrutiny. Faced with this predicament, firms could only substantially reduce exposure to antitrust liability by seeking various forms of preclearance with FTC staff, who would in turn be led to issue supplemental guidance, rules, and regulations to handle the high volume of firm inquiries. Contrary to the advertised advantages of enforcement by rulemaking, this unavoidable cycle of rule interpretation and adjustment would likely increase substantially aggregate transaction and compliance costs as compared to enforcement by adjudication. While enforcement by adjudication occurs only periodically and impacts a limited number of firms, enforcement by rulemaking is a continuous activity that impacts all firms. The ultimate result: the free play of the forces of supply and demand would be replaced by a continuously regulated environment where market outcomes are constantly being reviewed through the administrative process, rather than being worked out through the competitive process.  

This is a state of affairs substantially removed from the “free market system” to which the FTC’s Bureau of Competition had once been committed. Of course, that may be exactly what current agency leadership has in mind.

[Wrapping up the first week of our FTC UMC Rulemaking symposium is a post from Truth on the Market’s own Justin (Gus) Hurwitz, director of law & economics programs at the International Center for Law & Economics and an assistant professor of law and co-director of the Space, Cyber, and Telecom Law program at the University of Nebraska College of Law. 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.]

Introduction

In 2014, I published a pair of articles—”Administrative Antitrust” and “Chevron and the Limits of Administrative Antitrust”—that argued that the U.S. Supreme Court’s recent antitrust and administrative-law jurisprudence was pushing antitrust law out of the judicial domain and into the domain of regulatory agencies. The first article focused on the Court’s then-recent antitrust cases, arguing that the Court, which had long since moved away from federal common law, had shown a clear preference that common-law-like antitrust law be handled on a statutory or regulatory basis where possible. The second article evaluated and rejected the FTC’s long-held belief that the Federal Trade Commission’s (FTC) interpretations of the FTC Act do not receive Chevron deference.

Together, these articles made the case (as a descriptive, not normative, matter) that we were moving towards a period of what I called “administrative antitrust.” From today’s perspective, it surely seems that I was right, with the FTC set to embrace Section 5’s broad ambiguities to redefine modern understandings of antitrust law. Indeed, those articles have been cited by both former FTC Commissioner Rohit Chopra and current FTC Chair Lina Khan in speeches and other materials that have led up to our current moment.

This essay revisits those articles, in light of the past decade of Supreme Court precedent. It comes as no surprise to anyone familiar with recent cases that the Court is increasingly viewing the broad deference characteristic of administrative law with what, charitably, can be called skepticism. While I stand by the analysis offered in my previous articles—and, indeed, believe that the Court maintains a preference for administratively defined antitrust law over judicially defined antitrust law—I find it less likely today that the Court would defer to any agency interpretation of antitrust law that represents more than an incremental move away from extant law.

I will approach this discussion in four parts. First, I will offer some reflections on the setting of my prior articles. The piece on Chevron and the FTC, in particular, argued that the FTC had misunderstood how Chevron would apply to its interpretations of the FTC Act because it was beholden to out-of-date understandings of administrative law. I will make the point below that the same thing can be said today. I will then briefly recap the essential elements of the arguments made in both of those prior articles, to the extent needed to evaluate how administrative approaches to antitrust will be viewed by the Court today. The third part of the discussion will then summarize some key elements of administrative law that have changed over roughly the past decade. And, finally, I will bring these elements together to look at the viability of administrative antitrust today, arguing that the FTC’s broad embrace of power anticipated by many is likely to meet an ill fate at the hands of the courts on both antitrust and administrative law grounds.

In reviewing these past articles in light of the past decade’s case law, this essay reaches an important conclusion: for the same reasons that the Court seemed likely in 2013 to embrace an administrative approach to antitrust, today it is likely to view such approaches with great skepticism unless they are undertaken on an incrementalist basis. Others are currently developing arguments that sound primarily in current administrative law: the major questions doctrine and the potential turn away from National Petroleum Refiners. My conclusion is based primarily in the Court’s view that administrative antitrust would prove less indeterminate than judicially defined antitrust law. If the FTC shows that not to be the case, the Court seems likely to close the door on administrative antitrust for reasons sounding in both administrative and antitrust law.

Setting the Stage, Circa 2013

It is useful to start by visiting the stage as it was set when I wrote “Administrative Antitrust” and “Limits of Administrative Antitrust” in 2013. I wrote these articles while doing a fellowship at the University of Pennsylvania Law School, prior to which I had spent several years working at the U.S. Justice Department Antitrust Division’s Telecommunications Section. This was a great time to be involved on the telecom side of antitrust, especially for someone with an interest in administrative law, as well. Recent important antitrust cases included Pacific Bell v. linkLine and Verizon v. Trinko and recent important administrative-law cases included Brand-X, Fox v. FCC, and City of Arlington v. FCC. Telecommunications law was defining the center of both fields.

I started working on “Administrative Antitrust” first, prompted by what I admit today was an overreading of the Court’s 2011 American Electric Power Co. Inc. v. Connecticut opinion, in which the Court held broadly that a decision by Congress to regulate broadly displaces judicial common law. In Trinko and Credit Suisse, the Court had held something similar: roughly, that regulation displaces antitrust law. Indeed, in linkLine,the Court had stated that regulation is preferable to antitrust, known for its vicissitudes and adherence to the extra-judicial development of economic theory. “Administrative Antitrust” tied these strands together, arguing that antitrust law, long-discussed as one of the few remaining bastions of federal common law, would—and in the Court’s eyes, should—be displaced by regulation.

Antitrust and administrative law also came together, and remain together, in the debates over net neutrality. It was this nexus that gave rise to “Limits of Administrative Antitrust,” which I started in 2013 while working on “Administrative Antitrust”and waiting for the U.S. Court of Appeals for the D.C. Circuit’s opinion in Verizon v. FCC.

Some background on the net-neutrality debate is useful. In 2007, the Federal Communications Commission (FCC) attempted to put in place net-neutrality rules by adopting a policy statement on the subject. This approach was rejected by the D.C. Circuit in 2010, on grounds that a mere policy statement lacked the force of law. The FCC then adopted similar rules through a rulemaking process, finding authority to issue those rules in its interpretation of the ambiguous language of Section 706 of the Telecommunications Act. In January 2014, the D.C. Circuit again rejected the specific rules adopted by the FCC, on grounds that those rules violated the Communications Act’s prohibition on treating internet service providers (ISPs) as common carriers. But critically, the court affirmed the FCC’s interpretation of Section 706 as allowing it, in principle, to adopt rules regulating ISPs.

Unsurprisingly, whether the language of Section 706 was either ambiguous or subject to the FCC’s interpretation was a central debate within the regulatory community during 2012 and 2013. The broadest consensus, at least among my peers, was strongly of the view that it was neither: the FCC and industry had long read Section 706 as not giving the FCC authority to regulate ISP conduct and, to the extent that it did confer legislative authority, that authority was expressly deregulatory. I was the lone voice arguing that the D.C. Circuit was likely to find that Chevron applied to Section 706 and that the FCC’s reading was permissible on its own (that is, not taking into account such restrictions as the prohibition on treating non-common carriers as common carriers).

I actually had thought this conclusion quite obvious. The past decade of the Court’s Chevron case law followed a trend of increasing deference. Starting with Mead, then Brand-X, Fox v. FCC, and City of Arlington, the safe money was consistently placed on deference to the agency.

This was the setting in which I started thinking about what became “Chevron and the Limits of Administrative Antitrust.” If my argument in “Administrative Antitrust”was right—that the courts would push development of antitrust law from the courts to regulatory agencies—this would most clearly happen through the FTC’s Section 5 authority over unfair methods of competition (UMC). But there was longstanding debate about the limits of the FTC’s UMC authority. These debates included whether it was necessarily coterminous with the Sherman Act (so limited by the judicially defined federal common law of antitrust).

And there was discussion about whether the FTC would receive Chevron deference to its interpretations of its UMC authority. As with the question of the FCC receiving deference to its interpretation of Section 706, there was widespread understanding that the FTC would not receive Chevron deference to its interpretations of its Section 5 UMC authority. “Chevron and the Limits of Administrative Antitrust” explored that issue, ultimately concluding that the FTC likely would indeed be given the benefit of Chevron deference, tracing the commission’s belief to the contrary back to longstanding institutional memory of pre-Chevron judicial losses.

The Administrative Antitrust Argument

The discussion above is more than mere historical navel-gazing. The context and setting in which those prior articles were written is important to understanding both their arguments and the continual currents that propel us across antitrust’s sea of doubt. But we should also look at the specific arguments from each paper in some detail, as well.

Administrative Antitrust

The opening lines of this paper capture the curious judicial statute of antitrust law:

Antitrust is a peculiar area of law, one that has long been treated as exceptional by the courts. Antitrust cases are uniquely long, complicated, and expensive; individual cases turn on case-specific facts, giving them limited precedential value; and what precedent there is changes on a sea of economic—rather than legal—theory. The principal antitrust statutes are minimalist and have left the courts to develop their meaning. As Professor Thomas Arthur has noted, “in ‘the anti-trust field the courts have been accorded, by common consent, an authority they have in no other branch of enacted law.’” …


This Article argues that the Supreme Court is moving away from this exceptionalist treatment of antitrust law and is working to bring antitrust within a normalized administrative law jurisprudence.

Much of this argument is based in the arguments framed above: Trinko and Credit Suisse prioritize regulation over the federal common law of antitrust, and American Electric Power emphasizes the general displacement of common law by regulation. The article adds, as well, the Court’s focus, at the time, against domain-specific “exceptionalism.” Its opinion in Mayo had rejected the longstanding view that tax law was “exceptional” in some way that excluded it from the Administrative Procedure Act (APA) and other standard administrative law doctrine. And thus, so too must the Court’s longstanding treatment of antitrust as exceptional also fall.

Those arguments can all be characterized as pulling antitrust law toward an administrative approach. But there was a push as well. In his majority opinion, Chief Justice John Roberts expressed substantial concern about the difficulties that antitrust law poses for courts and litigants alike. His opinion for the majority notes that “it is difficult enough for courts to identify and remedy an alleged anticompetitive practice” and laments “[h]ow is a judge or jury to determine a ‘fair price?’” And Justice Stephen Breyer writes in concurrence, that “[w]hen a regulatory structure exists [as it does in this case] to deter and remedy anticompetitive harm, the costs of antitrust enforcement are likely to be greater than the benefits.”

In other words, the argument in “Administrative Antitrust” goes, the Court is motivated both to bring antitrust law into a normalized administrative-law framework and also to remove responsibility for the messiness inherent in antitrust law from the courts’ dockets. This latter point will be of particular importance as we turn to how the Court is likely to think about the FTC’s potential use of its UMC authority to develop new antitrust rules.

Chevron and the Limits of Administrative Antitrust

The core argument in “Limits of Administrative Antitrust” is more doctrinal and institutionally focused. In its simplest statement, I merely applied Chevron as it was understood circa 2013 to the FTC’s UMC authority. There is little argument that “unfair methods of competition” is inherently ambiguous—indeed, the term was used, and the power granted to the FTC, expressly to give the agency flexibility and to avoid the limits the Court was placing on antitrust law in the early 20th century.

There are various arguments against application of Chevron to Section 5; the article goes through and rejects them all. Section 5 has long been recognized as including, but being broader than, the Sherman Act. National Petroleum Refiners has long held that the FTC has substantive-rulemaking authority—a conclusion made even more forceful by the Supreme Court’s more recent opinion in Iowa Utilities Board. Other arguments are (or were) unavailing.

The real puzzle the paper unpacks is why the FTC ever believed it wouldn’t receive the benefit of Chevron deference. The article traces it back to a series of cases the FTC lost in the 1980s, contemporaneous with the development of the Chevron doctrine. The commission had big losses in cases like E.I. Du Pont and Ethyl Corp. Perhaps most important, in its 1986 Indiana Federation of Dentists opinion (two years after Chevron was decided), the Court seemed to adopt a de novo standard for review of Section 5 cases. But, “Limits of Administrative Antitrust” argues, this is a misreading and overreading of Indiana Federation of Dentists (a close reading of which actually suggests that it is entirely in line with Chevron), and it misunderstands the case’s relationship with Chevron (the importance of which did not start to come into focus for another several years).

The curious conclusion of the argument is, in effect, that a generation of FTC lawyers, “shell-shocked by its treatment in the courts,” internalized the lesson that they would not receive the benefits of Chevron deference and that Section 5 was subject to de novo review, but also that this would start to change as a new generation of lawyers, trained in the modern Chevron era, came to practice within the halls of the FTC. Today, that prediction appears to have borne out.

Things Change

The conclusion from “Limits of Administrative Antitrust” that FTC lawyers failed to recognize that the agency would receive Chevron deference because they were half a generation behind the development of administrative-law doctrine is an important one. As much as antitrust law may be adrift in a sea of change, administrative law is even more so. From today’s perspective, it feels as though I wrote those articles at Chevron’s zenith—and watching the FTC consider aggressive use of its UMC authority feels like watching a commission that, once again, is half a generation behind the development of administrative law.

The tide against Chevron’sexpansive deference was already beginning to grow at the time I was writing. City of Arlington, though affirming application of Chevron to agencies’ interpretations of their own jurisdictional statutes in a 6-3 opinion, generated substantial controversy at the time. And a short while later, the Court decided a case that many in the telecom space view as a sea change: Utility Air Regulatory Group (UARG). In UARG, Justice Antonin Scalia, writing for a 9-0 majority, struck down an Environmental Protection Agency (EPA) regulation related to greenhouse gasses. In doing so, he invoked language evocative of what today is being debated as the major questions doctrine—that the Court “expect[s] Congress to speak clearly if it wishes to assign to an agency decisions of vast economic and political significance.” Two years after that, the Court decided Encino Motorcars, in which the Court acted upon a limit expressed in Fox v. FCC that agencies face heightened procedural requirements when changing regulations that “may have engendered serious reliance interests.”

And just like that, the dams holding back concern over the scope of Chevron have burst. Justices Clarence Thomas and Neil Gorsuch have openly expressed their views that Chevron needs to be curtailed or eliminated. Justice Brett Kavanaugh has written extensively in favor of the major questions doctrine. Chief Justice Roberts invoked the major questions doctrine in King v. Burwell. Each term, litigants are more aggressively bringing more aggressive cases to probe and tighten the limits of the Chevron doctrine. As I write this, we await the Court’s opinion in American Hospital Association v. Becerra—which, it is widely believed could dramatically curtail the scope of the Chevron doctrine.

Administrative Antitrust, Redux

The prospects for administrative antitrust look very different today than they did a decade ago. While the basic argument continues to hold—the Court will likely encourage and welcome a transition of antitrust law to a normalized administrative jurisprudence—the Court seems likely to afford administrative agencies (viz., the FTC) much less flexibility in how they administer antitrust law than they would have a decade ago. This includes through both the administrative-law vector, with the Court reconsidering how it views delegation of congressional authority to agencies such as through the major questions doctrine and agency rulemaking authority, as well as through the Court’s thinking about how agencies develop and enforce antitrust law.

Major Questions and Major Rules

Two hotly debated areas where we see this trend: the major questions doctrine and the ongoing vitality of National Petroleum Refiners. These are only briefly recapitulated here. The major questions doctrine is an evolving doctrine, seemingly of great interest to many current justices on the Court, that requires Congress to speak clearly when delegating authority to agencies to address major questions—that is, questions of vast economic and political significance. So, while the Court may allow an agency to develop rules governing mergers when tasked by Congress to prohibit acquisitions likely to substantially lessen competition, it is unlikely to allow that agency to categorically prohibit mergers based upon a general congressional command to prevent unfair methods of competition. The first of those is a narrow rule based upon a specific grant of authority; the other is a very broad rule based upon a very general grant of authority.

The major questions doctrine has been a major topic of discussion in administrative-law circles for the past several years. Interest in the National Petroleum Refiners question has been more muted, mostly confined to those focused on the FTC and FCC. National Petroleum Refiners is a 1973 D.C. Circuit case that found that the FTC Act’s grant of power to make rules to implement the act confers broad rulemaking power relating to the act’s substantive provisions. In 1999, the Supreme Court reached a similar conclusion in Iowa Utilities Board, finding that a provision in Section 202 of the Communications Act allowing the FCC to create rules seemingly for the implementation of that section conferred substantive rulemaking power running throughout the Communications Act.

Both National Petroleum Refiners and Iowa Utilities Board reflect previous generations’ understanding of administrative law—and, in particular, the relationship between the courts and Congress in empowering and policing agency conduct. That understanding is best captured in the evolution of the non-delegation doctrine, and the courts’ broad acceptance of broad delegations of congressional power to agencies in the latter half of the 20th century. National Petroleum Refiners and Iowa Utilities Board are not non-delegation cases-—but, similar to the major questions doctrine, they go to similar issues of how specific Congress must be when delegating broad authority to an agency.

In theory, there is little difference between an agency that can develop legal norms through case-by-case adjudications that are backstopped by substantive and procedural judicial review, on the one hand, and authority to develop substantive rules backstopped by procedural judicial review and by Congress as a check on substantive errors. In practice, there is a world of difference between these approaches. As with the Court’s concerns about the major questions doctrine, were the Court to review National Petroleum Refiners Association or Iowa Utilities Board today, it seems at least possible, if not simply unlikely, that most of the Justices would not so readily find agencies to have such broad rulemaking authority without clear congressional intent supporting such a finding.

Both of these ideas—the major question doctrine and limits on broad rules made using thin grants of rulemaking authority—present potential limits on the potential scope of rules the FTC might make using its UMC authority.

Limits on the Antitrust Side of Administrative Antitrust

The potential limits on FTC UMC rulemaking discussed above sound in administrative-law concerns. But administrative antitrust may also find a tepid judicial reception on antitrust concerns, as well.

Many of the arguments advanced in “Administrative Antitrust” and the Court’s opinions on the antitrust-regulation interface echo traditional administrative-law ideas. For instance, much of the Court’s preference that agencies granted authority to engage in antitrust or antitrust-adjacent regulation take precedence over the application of judicially defined antitrust law track the same separation of powers and expertise concerns that are central to the Chevron doctrine itself.

But the antitrust-focused cases—linkLine, Trinko, Credit Suisse—also express concerns specific to antitrust law. Chief Justice Roberts notes that the justices “have repeatedly emphasized the importance of clear rules in antitrust law,” and the need for antitrust rules to “be clear enough for lawyers to explain them to clients.” And the Court and antitrust scholars have long noted the curiosity that antitrust law has evolved over time following developments in economic theory. This extra-judicial development of the law runs contrary to basic principles of due process and the stability of the law.

The Court’s cases in this area express hope that an administrative approach to antitrust could give a clarity and stability to the law that is currently lacking. These are rules of vast economic significance: they are “the Magna Carta of free enterprise”; our economy organizes itself around them; substantial changes to these rules could have a destabilizing effect that runs far deeper than Congress is likely to have anticipated when tasking an agency with enforcing antitrust law. Empowering agencies to develop these rules could, the Court’s opinions suggest, allow for a more thoughtful, expert, and deliberative approach to incorporating incremental developments in economic knowledge into the law.

If an agency’s administrative implementation of antitrust law does not follow this path—and especially if the agency takes a disruptive approach to antitrust law that deviates substantially from established antitrust norms—this defining rationale for an administrative approach to antitrust would not hold.

The courts could respond to such overreach in several ways. They could invoke the major questions or similar doctrines, as above. They could raise due-process concerns, tracking Fox v. FCC and Encino Motorcars, to argue that any change to antitrust law must not be unduly disruptive to engendered reliance interests. They could argue that the FTC’s UMC authority, while broader than the Sherman Act, must be compatible with the Sherman Act. That is, while the FTC has authority for the larger circle in the antitrust Venn diagram, the courts continue to define the inner core of conduct regulated by the Sherman Act.

A final aspect to the Court’s likely approach to administrative antitrust falls from the Roberts Court’s decision-theoretic approach to antitrust law. First articulated in Judge Frank Easterbrook’s “The Limits of Antitrust,” the decision-theoretic approach to antitrust law focuses on the error costs of incorrect judicial decisions and the likelihood that those decisions will be corrected. The Roberts Court has strongly adhered to this framework in its antitrust decisions. This can be seen, for instance, in Justice Breyer’s statement that: “When a regulatory structure exists to deter and remedy anticompetitive harm, the costs of antitrust enforcement are likely to be greater than the benefits.”

The error-costs framework described by Judge Easterbrook focuses on the relative costs of errors, and correcting those errors, between judicial and market mechanisms. In the administrative-antitrust setting, the relevant comparison is between judicial and administrative error costs. The question on this front is whether an administrative agency, should it get things wrong, is likely to correct. Here there are two models, both of concern. The first is that in which law is policy or political preference. Here, the FCC’s approach to net neutrality and the National Labor Relations Board’s (NLRB) approach to labor law loom large; there have been dramatic swing between binary policy preferences held by different political parties as control of agencies shifts between administrations. The second model is one in which Congress responds to agency rules by refining, rejecting, or replacing them through statute. Here, again, net neutrality and the FCC loom large, with nearly two decades of calls for Congress to clarify the FCC’s authority and statutory mandate, while the agency swings between policies with changing administrations.

Both of these models reflect poorly on the prospects for administrative antitrust and suggest a strong likelihood that the Court would reject any ambitious use of administrative authority to remake antitrust law. The stability of these rules is simply too important to leave to change with changing political wills. And, indeed, concern that Congress no longer does its job of providing agencies with clear direction—that Congress has abdicated its job of making important policy decisions and let them fall instead to agency heads—is one of the animating concerns behind the major questions doctrine.

Conclusion

Writing in 2013, it seemed clear that the Court was pushing antitrust law in an administrative direction, as well as that the FTC would likely receive broad Chevron deference in its interpretations of its UMC authority to shape and implement antitrust law. Roughly a decade later, the sands have shifted and continue to shift. Administrative law is in the midst of a retrenchment, with skepticism of broad deference and agency claims of authority.

Many of the underlying rationales behind the ideas of administrative antitrust remain sound. Indeed, I expect the FTC will play an increasingly large role in defining the contours of antitrust law and that the Court and courts will welcome this role. But that role will be limited. Administrative antitrust is a preferred vehicle for administering antitrust law, not for changing it. Should the FTC use its power aggressively, in ways that disrupt longstanding antitrust principles or seem more grounded in policy better created by Congress, it is likely to find itself on the losing side of the judicial opinion.

[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.     

[This guest post from Corbin K. Barthold of TechFreedomthe fourth post in our FTC UMC Rulemaking symposium—is adapted from his and Berin Szoka’s chapter “The Constitutional Revolution That Wasn’t: Why the FTC Isn’t a Second National Legislature,” in the forthcoming book FTC’s Rulemaking Authority, which will be published by Concurrences later this year. It is the second of two contributions to the symposium posted today, along with this related post from Yale Law School student Leah Samuel. 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 1972, a case came before the Hon. Aubrey E. Robinson, Jr., a federal trial judge in the District of Columbia, involving the scope of the Federal Trade Commission’s (FTC) regulatory authority. Section 5(a)(1) of the Federal Trade Commission Act outlaws “unfair methods of competition.” Section 6(g) says that the FTC may “make rules and regulations for the purposes of carrying out” the FTC Act.

What is a “rule or regulation” that helps “carry out” a statute? Does Section 6(g) simply permit the FTC to make “procedural” or “housekeeping” rules that set forth how the agency will conduct itself? Or does it instead empower the FTC to make “substantive” or “legislative” rules—precepts, binding on the public, that flesh out which methods of competition are “unfair”? This was the question before Judge Robinson.

If this question interests you, Robinson’s decision in National Petroleum Refiners v. FTC will repay close study.

Robinson kept his eye squarely on the FTC Act’s text and structure. What stood out to him, when he examined the statute, is the glaring structural distinction between Section 5 and Section 6. Section 5 enables the agency to file complaints, hold hearings, make findings of fact, and issue cease-and-desist orders. Section 6 permits the agency to gather and publish information about corporate practices. Each section is closely concerned with its assigned topic: Section 5 explains, in detail, how the FTC shall exercise quasi-judicial powers; Section 6 explains, in detail, how the FTC shall exercise investigative powers. The two sections have little to say to each other. This, concluded Robinson, was a strong signal that Section 6(g) does not leap its fence, progress to Section 5(a)(1), and enable the creation of rules that define “unfair methods of competition.”

That was just the beginning. Why would Congress pair a vague and open-ended rulemaking power with an elaborate and strictly circumscribed quasi-judicial power? If the FTC could make whole categories of conduct unlawful by diktat, why would it endure the rigmarole of Section 5 adjudication? More to the point, why would Congress bother to spell out that process, knowing that the FTC would go around it? In full, moreover, Section 6(g) gives the FTC the power “[f]rom time to time to classify corporations and to make rules and regulations for the purposes of carrying out the provisions of [the Act].” What is the part about “classify[ing]” companies doing there? Read as a whole, Section 6(g) seems merely to equip the FTC to conduct investigations, including, as Robinson put it, by ensuring that the agency has “the power to require reports from all corporations.”

Nor did the clues end there. Other statutes expressly grant the FTC the power to issue discrete consumer-protection rules, such as rules governing the labels of wool products. Congress knew how to grant legislative rulemaking power when it wanted to do so. And the limited grants of such power, in the other statutes, would be superfluous if the FTC already possessed a general “unfair methods” rulemaking authority in Section 6(g).

(Although Robinson did not mention it, a further sign of Section 6(g)’s narrow scope is the absence of statutory penalties for violating an FTC-issued rule. In the era when the FTC Act was passed, Congress never granted the power to make substantive rules without also specifying the price of noncompliance.)

In short, the FTC Act’s text and structure show that Section 6(g) has no intention of helping Section 5(a)(1). And when he checked his work against the FTC Act’s legislative history, Robinson found out why that is so. Section 6(g), he discovered, was originally in a House bill “that conferred only investigative powers on the Commission.” A competing bill in the Senate, meanwhile, contained quasi-judicial powers and the “unfair methods” standard but “made no provision whatever for the promulgation of rules and regulations in any context.” The investigations-only House bill and the no-rulemaking-power Senate bill were eventually stitched together. No wonder Section 6(g) does not seem to support the creation of legislative rules about the meaning of Section 5(a)(1); the two provisions were born into different bills.

If more support were needed, added Robinson, the FTC’s conduct would provide it. It had taken the FTC 50 years to “notice” a vast store of authority hiding in Section 6(g)—yet another revealing indication, Robinson wrote, “that the FTC knew it was not originally granted this rulemaking authority.” Over the years, the agency had even “repeatedly admitted that it has no power to promulgate substantive rules of law.”

Life is not fair. Judge Robinson’s well-crafted order is not good law. It was reversed. And in its place stands an appellate opinion that is longer, more repetitive, less rigorous, less disciplined, and altogether less convincing than the decision it overturns.

“Our duty,” U.S. Court of Appeals for the D.C. Circuit Judge J. Skelly Wright pronounced at the outset of his 1973 opinion in National Petroleum Refiners v. FTC, “is not simply to make a policy judgment.” The FTC, after all, “is a creation of Congress, not a creation of judges’ contemporary notions of what is wise policy.” He might then have said: We therefore adopt the careful opinion of Judge Robinson as our own—affirmed.

He did not say that. In opening with a pious renunciation of judicial policymaking, in fact, he protested too much.

Wright’s treatment of the FTC Act’s text is brusque and general. Construing Section 6(g) to allow substantive rulemaking, Wright submitted, would “not in any formal sense circumvent” the quasi-judicial enforcement mechanism of Section 5. Congress, he went on, had not explicitly told the FTC it could only proceed case-by-case. He then discussed a pair of Supreme Court cases that, though concededly not on point, suggest the FTC Act should be read “broad[ly]” and as a “whole.” And he recited Section 6(g) itself, as though its support for his position were self-evident.

This casual nod to text complete, Wright moved on to his true preoccupation—policy considerations. Over and over, he praised the “invaluable resource-saving flexibility” of rulemaking. According to Wright:

  • “[U]se of substantive rule-making is increasingly felt to yield significant benefits. … Increasingly, courts are recognizing that use of rule-making to make innovations in agency policy may actually be fairer to regulated parties than total reliance on case-by-case adjudication.”
  • “[C]ontemporary considerations of practicality and fairness … certainly support the Commission’s position here.”
  • “Such benefits are especially obvious in cases involving the initiation of rules of the sort the FTC has promulgated here.”
  • “[T]he policy innovation involved in this case underscores the need for increased reliance on rule-making rather than adjudication alone.”
  • “[The FTC] has remained hobbled in its task by the delay inherent in repetitious, lengthy litigation[.] … To the extent substantive rule-making … is likely to deal with these problems … [it] should be upheld as [allowed under the FTC Act].”
  • “[T]he Commission will be able to proceed more expeditiously, … and … more efficiently with a mixed system of rule-making and adjudication[.]”
  • “[C]ourts have stressed the advantages of efficiency and expedition which inhere in reliance on rule-making instead of adjudication alone.”

So much for eschewing “judges’ contemporary notions of what is wise policy”! Rulemaking was the wave of the future, as all fashionable and enlightened judges understood. Wright seemed to believe, therefore, that he should insert into the FTC Act the power to make substantive rules. Whether the helpless text could bear such a reading was a secondary concern at best.

When not providing his personal endorsement of the benefits of rulemaking, Wright repeatedly invoked the FTC Act’s “purpose”:

  • “[R]ejecting the claim of rule-making power would run counter to the broad policies … that clearly motivated Congress in 1914.”
  • “[T]he broad, undisputed policies which clearly motivated the framers of the [FTC] Act of 1914 would indeed be furthered by our view[.]”
  • “[R]ule-making is not only consistent with the original framers’ broad purposes, but appears to be a particularly apt means of carrying them out.”
  • The FTC needs rulemaking power “to do the job assigned by Congress.”

But a judge may not appeal to a statute’s “purpose” on the false cry that he is divining what the legislators “really” meant. The Supreme Court in more recent years has explained that “no legislation pursues its purposes at all costs,” and that “it frustrates rather than effectuates legislative intent simplistically to assume that whatever furthers the statute’s primary objective must be the law.”The missing ingredient in Wright’s long document—what should have been the main ingredient—is obedience to the statutory text and structure.

Wright’s opinion in National Petroleum Refiners is a museum piece. It is a fossilized remnant of an extinct species of statutory interpretation. For a court trying to understand the FTC Act today, it is next to useless. Judges may not let their rulings be driven by their sense of “policy,” by their intuitions about statutory “purpose,” or by their desire for a personally satisfying result. The Supreme Court has shut the door on these factors. The judiciary possesses “no roving license,” it has said, to rewrite a statute on the assumption that “Congress ‘must have intended’ something broader.” Judges are “expounders of what the law is,” not “policymakers choosing what the law should be.”