The Federal Trade Commission (FTC) announced in a notice of proposed rulemaking (NPRM) last month that it intends to ban most noncompete agreements. Is that a good idea? As a matter of policy, the question is debatable. So far as the NPRM is concerned, however, that debate is largely hypothetical. It is unlikely that any rule the FTC issues will ever take effect.
Several formidable legal obstacles stand in the way. The FTC seeks to stand its rule on the authority of Section 5 of the FTC Act, which bars “unfair methods of competition” in commerce. But Section 5 says nothing about rulemaking, as opposed to case-by-case prosecution.
There is a rulemaking provision in Section 6, but for reasons explained elsewhere, it only empowers the FTC to set out its own internal procedures. And if the FTC could craft binding substantive rules—such as a ban on noncompete agreements—that would violate the U.S. Constitution. It would transfer lawmaking power from Congress to an administrative agency, in violation of Article I.
What’s more, the U.S. Supreme Court recently confirmed the existence of a “major questions doctrine,” under which an agency attempting to “make major policy decisions itself” must “point to clear congressional authorization for the power it claims.” The FTC’s proposed rule would sweep aside tens of millions of noncompete clauses; it would very likely alter salaries to the tune of hundreds of billions of dollars a year; and it would preempt dozens of state laws. That’s some “major” policymaking. Nothing in the FTC Act “clear[ly]” authorizes the FTC to undertake it.
But suppose that none of these hurdles existed. Surely, then the FTC would get somewhere—right? In seeking to convince a court to read the statute its way, after all, it could make a bid for Chevron deference. Named for Chevron v. NRDC (1984), that rule (of course) requires a court to defer to an agency’s reasonable construction of a law the agency administers. With the benefit of such judicial obeisance, the FTC would not have to show that noncompete clauses are unlawful under the best reading of Section 5. It could get away with showing merely that they’re unlawful under a plausible reading of Section 5.
But Chevron won’t do the trick.
The Chevron test can be broken down into three phases. A court begins by determining whether the test even applies (often called Chevron “step zero”). If it does, the court next decides whether the statute in question has a clear meaning (Chevron step one). And if it turns out that the statute is unclear—is ambiguous—the court proceeds to ask whether the agency’s interpretation of the statute is reasonable, and if it is, to yield to it (Chevron step two).
Each of these stages poses a problem for the FTC. Not long ago, the Supreme Court showed why this is so. True, Kisor v. Wilkie (2019) is not about Chevron deference. Not directly. But the decision upholds a cognate doctrine, Auer deference (named for Auer v. Robbins(1997)), under which a court typically defers to an agency’s understanding of its own regulations. Kisor leans heavily, in its analysis, both on Chevron itself and on later opinions about the Chevron test, such as United States v. MeadCorp. (2001) and City of Arlington v. FCC (2013). So it is hardly surprising that Kisor makes several points that are salient here.
Start with what Kisor says about when Chevron comes into play at all. Chevron and Auer stand, Kisor reminds us, on a presumption that Congress generally wants expert agencies, not generalist courts, to make the policy judgments needed to fill in the details of a statutory scheme. It follows, Kisor remarks, that if an “agency’s interpretation” does not “in some way implicate its substantive expertise,” there’s no reason to defer to it.
When is an agency not wielding its “substantive expertise”? One example Kisor offers is when the disputed statutory language is derived from the common law. Parsing common-law terms, Kisor notes, “fall[s] more naturally into a judge’s bailiwick.”
This is bad news for the FTC. Think about it. When it put the words “unfair methods of competition” in Section 5, could Congress have meant “unfair” in the cosmic sense? Could it have intended to grant a bunch of unelected administrators a roving power to “do justice”? Of course not. No, the phrase “unfair methods of competition” descends from the narrow, technical, humdrum common-law concept of “unfair competition.”
The FTC has no special insight into what the term “unfair competition” meant at common law. Figuring that out is judges’ work. That Congress fiddled with things a little does not change this conclusion. Adding the words “methods of” does not rip the words “unfair competition” from their common-law roots and launch them into a semantic void.
It remains the case—as Justice Felix Frankfurter put it—that when “a word is obviously transplanted” from the common law, it “brings the old soil with it.” And an agency, Kisor confirms, “has no comparative expertise” at digging around in that particular dirt.
The FTC lacks expertise not only in understanding the common law, but even in understanding noncompete agreements. Dissenting from the issuance of the NPRM, (soon to be former) Commissioner Christine S. Wilson observed that the agency has no experience prosecuting employee noncompete clauses under Section 5.
So the FTC cannot get past Chevron step zero. Nor, if it somehow crawled its way there, could the agency satisfy Chevron step one. Chevron directs a court examining a text for a clear meaning to employ the “traditional tools” of construction. Kisor stresses that a court must exhaust those tools. It must “carefully consider the text, structure, history, and purpose” of the regulation (under Auer) or statute (under Chevron). “Doing so,” Kisor assures us, “will resolve many seeming ambiguities.”
The text, structure, history, and purpose of Section 5 make clear that noncompete agreements are not an unfair method of competition. Certainly not as a species. “‘Unfair competition,’ as known to the common law,” the Supreme Court explained in Schechter Poultry v. United States(1935), was “a limited concept.” It was “predicated of acts which lie outside the ordinary course of business and are tainted by fraud, or coercion, or conduct otherwise prohibited by law.” Under the common law, noncompete agreements were generally legal—so we know that they did not constitute “unfair competition.”
And although Section 5 bars “unfair methods of competition,” the altered wording still doesn’t capture conduct that isn’t unfair. The Court has said that the meaning of the phrase is properly “left to judicial determination as controversies arise.” It is to be fleshed out “in particular instances, upon evidence, in the light of particular competitive conditions.” The clear import of these statements is that the FTC may not impose broad prohibitions that sweep in legitimate business conduct.
Yet a blanket ban on noncompete clauses would inevitably erase at least some agreements that are not only not wrongful, but beneficial. “There is evidence,” the FTC itself concedes, “that non-compete clauses increase employee training and other forms of investment.” Under the plain meaning of Section 5, the FTC can’t condemn a practice altogether just because it is sometimes, or even often, unfair. It must, at the very least, do the work of sorting out, “in particular instances,” when the costs outweigh the benefits.
By definition, failure at Chevron step one entails failure at Chevron step two. It is worth noting, though, that even if the FTC reached the final stage, and even if, once there, it convinced a court to disregard the common law and read the word “unfair” in a colloquial sense, it would still not be home free. “Under Chevron,” Kisor states, “the agency’s reading must fall within the bounds of reasonable interpretation.” This requirement is important in light of the “far-reaching influence of agencies and the opportunities such power carries for abuse.”
Even if one assumes (in the teeth of Article I) that Congress could hand an independent agency unfettered authority to stamp out “unfairness” in the economy, that does not mean that Congress, in fact, did so in Section 5. Why did Congress write Section 5 as it did? Largely because it wanted to give the FTC the flexibility to deal with new and unexpected forms of wrongdoing as they arise. As one congressional report concluded, “it is impossible to frame definitions which embrace all unfair practices” in advance. “The purpose of Congress,” wrote Justice Louis Brandeis (who had a hand in drafting the law), was to ensure that the FTC can “prevent” an emergent “unfair method” from taking hold as a “general practice.”
Noncompete agreements are not some startling innovation. They’ve been around—and allowed—for hundreds of years. If Congress simply wanted to ensure that the FTC can nip new threats to competition in the bud, the NPRM is not a proper use of the FTC’s power under Section 5.
In any event, what Congress almost certainly did not intend was to hand the FTC the capacity (as Chair Lina Khan would have it) to “shape[] the distribution of power and opportunity across our economy.” The FTC’s commissioners are not elected, and they cannot be removed (absent misconduct) by the president. They lack the democratic legitimacy or political accountability to restructure the economy.
All the same, nothing about Section 5 suggests that Congress gave the agency such awesome power. What leeway Chevron might give here, common sense takes away. The more the FTC “seeks to break new ground by enjoining otherwise legitimate practices,” a federal court of appeals once declared, “the closer must be our scrutiny upon judicial review.” It falls to the judiciary to ensure that the agency does not “undu[ly] … interfere[]” with “our country’s competitive system.”
We have come full circle. Article I and the “major questions” principle tell us that the FTC cannot use four words in Section 5 of the FTC Act to issue a rule that disrupts contractual relations, tramples federalism, and shifts around many billions of dollars in wealth. And if we march through the Chevron analysis anyway, we find that, even at Chevron step two, the statute still can’t bear the weight. Chevron deference is not a license for the FTC to ignore the separation of powers and micromanage the economy.
[This post is a contribution to Truth on the Market‘s continuing digital symposium “FTC Rulemaking on Unfair Methods of Competition.” You can find other posts at thesymposium 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.]
And what is the statement’s aim? As Commissioner Wilson aptly puts it, the statement “announces that the Commission has the authority summarily to condemn essentially any business conduct it finds distasteful.” This sweeping claim, which extends far beyond the scope of prior Commission pronouncements, might be viewed as mere puffery with no real substantive effect: “a tale told by an idiot, full of sound and fury, signifying nothing.”
Various scholarly commentators have already explored the legal and policy shortcomings of this misbegotten statement (see, for example, here, here, here, here, here, and here). Suffice it to say there is general agreement that, as Gus Hurwitz explains, the statement “is non-precedential and lacks the force of law.”
The statement’s almost certain lack of legal effect, however, does not mean it is of no consequence. Businesses are harmed by legal risk, even if they are eventually likely to prevail in court. Markets react negatively to antitrust lawsuits, and thus firms may be expected to shy away from efficient profitable behavior that may draw the FTC’s ire. The resources firms redirect to less-efficient conduct impose costs on businesses and ultimately consumers. (And when meritless FTC lawsuits still come, wasteful litigation-related costs will be coupled with unwarranted reputational harm to businesses.)
Moreover, as Wilson points out, uncertainty about what the Commission may characterize as unfair “does not allow businesses to structure their conduct to avoid possible liability. . . . [T]he Policy Statement . . . significantly increases uncertainty for businesses[,] which . . . . are left with no navigational tools to map the boundaries of lawful and unlawful conduct.” This will further disincentivize new and innovative (and easily misunderstood) business initiatives. In the perhaps-vain hope that a Commission majority will take note of these harms and have second thoughts about retention of the statement, I will briefly summarize the legal case against the statement’s effectiveness. The FTC actually would be better able to “push the Section 5 envelope” a bit through some carefully tailored innovative enforcement actions if it could jettison the legal baggage that the statement represents. To understand why, a brief review of FTC competition rulemaking and competition enforcement authority is warranted
FTC Competition Rulemaking
As I and others have written at great length (see, for examples, this compilation of essays on FTC rulemaking published by Concurrences), the case for substantive FTC competition rulemaking under Section 6(g) of the FTC Act is exceedingly weak. In particular (see my July 2022Truth on the Market commentary):
First, the “nondelegation doctrine” suggests that, under section 6(g), Congress did not confer on the FTC the specific statutory authority required to issue rules that address particular competitive practices.
Second, principles of statutory construction strongly indicate that the FTC’s general statutory provision dealing with rulemaking refers to procedural rules of organization, not substantive rules bearing on competition.
Third, even assuming that proposed competition rules survived these initial hurdles, principles of administrative law would raise the risk that competition rules would be struck down as “arbitrary and capricious.”
Fourth, there is a substantial possibility that courts would not defer to the FTC’s construction through rulemaking of its “unfair methods of competition” as authorizing the condemnation of specific competitive practices.
The 2022 statement raises these four problems in spades.
First, the Supreme Court has stated that the non-delegation doctrine requires that a statutory delegation must be supported by an “intelligible principle” guiding its application. There is no such principle that may be drawn from the statement, which emphasizes that unfair business conduct “may be coercive, exploitative, collusive, abusive, deceptive, predatory, or involve the use of economic power of a similar nature.” The conduct also must tend “to negatively affect competitive conditions – whether by affecting consumers, workers, or other market participants.” Those descriptions are so broad and all-encompassing that they are the antithesis of an “intelligible principle.”
Second, the passing nod to rulemaking referenced in Section 6(g) is best understood as an aid to FTC processes and investigations, not a source of substantive policymaking. The Supreme Court’s unanimous April 2021 decision in AMG Capital Management v. FTC (holding that the FTC could not obtain equitable monetary relief under its authority to seek injunctions) embodies a reluctance to read general non-specific language as conferring broad substantive powers on the FTC. This interpretive approach is in line with other Supreme Court case law that rejects finding “elephants in mouseholes.” While multiple federal courts had upheld the FTC’s authority to obtain injunctive monetary relief prior to its loss in the AMG case, only one nearly 50-year-old decision, National Petroleum Refiners, supports substantive competition-rulemaking authority, and its reasoning is badly dated. Nothing in the 2022 statement makes a convincing case for giving substantive import to Section 6(g).
Third, given the extremely vague terms used to describe unfair method of competition in the 2022 statement (see first point, above), any effort to invoke them to find a source of authority to define new categories of competition-related violations would be sure to raise claims of agency arbitrariness and capriciousness under the Administrative Procedure Act (APA). Admittedly, the “arbitrary and capricious review” standard “has gone through numerous cycles since the enactment of the APA” and currently is subject to some uncertainty. Nevertheless, the statement’s untrammeled breadth and lack of clear definitions for unfair competitive conduct suggests that courts would likely employ a “hard look review,” which would make it relatively easy for novel Section 6(g) rules to be deemed arbitrary (especially in light of the skepticism of broad FTC claims of authority that is implicit in the Supreme Court’s unanimous AMG holding).
Fourth, given the economywide breadth of the phrase “unfair methods of competition,” it is quite possible (in fact, probably quite likely) that the Supreme Court would invoke the “major questions doctrine” and hold that unfair methods of competition rulemaking is “too important” to be left to the FTC. Under this increasingly invoked doctrine, “the Supreme Court has rejected agency claims of regulatory authority when (1) the underlying claim of authority concerns an issue of vast ‘economic and political significance,’ and (2) Congress has not clearly empowered the agency with authority over the issue.”
The fact that the 2022 statement plainly asserts vast authority to condemn a wide range of economically significant practices strengthens the already-strong case for condemning Section 5 competition rulemaking under this doctrine. Application of the doctrine would render moot the question of whether Section 6(g) rules would receive any Chevron deference. In any event, based on the 2022 Statement’s flouting of modern antitrust principles, including such core principles as consumer harm, efficiencies, and economic analysis, it appears unlikely that courts would accord such deference subsequent Section 6(g) rules. As Gus Hurwitz recently explained:
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.
FTC Competition-Enforcement Authority
In addition to Section 6(g) competition-rulemaking initiatives, the 2022 statement, of course, aims to inform FTC Act Section 5(a) “unfair methods of competition” (UMC) enforcement actions. The FTC could bring a UMC suit before its own administrative tribunal or, in the alternative, seek to enjoin an alleged unfair method of competition in federal district court, pursuant to its authority under Section 13(b) of the FTC Act. The tenor of the 2022 statement undermines, rather than enhances, the likelihood that the FTC will succeed in “standalone Section 5(a)” lawsuits that challenge conduct falling beyond the boundaries of the Sherman and Clayton Antitrust Acts.
[C]ourts have confirmed that the unilateral exercise of lawfully acquired market power does not violate the antitrust laws. Therefore, the attempted use of standalone Section 5 to address high prices, untethered from accepted theories of antitrust liability under the Sherman Act, is unlikely to find success in the courts.
There have been no jurisprudential changes since 2019 to suggest that a UMC suit challenging the exploitation of lawfully obtained market power by raising prices is likely to find judicial favor. It follows, a fortiori (legalese that I seldom have the opportunity to trot out), that the more “far out” standalone suits implied by the statement’s analysis would likely generate embarrassing FTC judicial losses.
Applying three of the four principles assessed in the analysis of FTC competition rulemaking (the second principle, referring to statutory authority for rulemaking, is inapplicable), the negative influence of the statement on FTC litigation outcomes is laid bare.
First, as is the case with rules, the unconstrained laundry list of “unfair” business practices fails to produce an “intelligible principle” guiding the FTC’s exercise of enforcement discretion. As such, courts could well conclude that, if the statement is to be taken seriously, the non-delegation doctrine applies, and the FTC does not possess delegated UMC authority. Even if such authority were found to have been properly delegated, some courts might separately conclude, on due process grounds, that the UMC prohibition is “void for vagueness” and therefore cannot support an enforcement action. (While the “void for vagueness” doctrine is controversial, related attacks on statutes based on “impossibility of compliance” may have a more solid jurisprudential footing, particularly in the case of civil statutes (see here). The breadth and uncertainty of the statement’s references to disfavored conduct suggests “impossibility of compliance” as a possible alternative critique of novel Section 5 competition cases.) These concerns also apply equally to possible FTC Section 13(b) injunctive actions filed in federal district court.
Second, there is a not insubstantial risk that an appeals court would hold that a final Section 5 competition-enforcement decision by the Commission would be “arbitrary and capricious” if it dealt with behavior far outside the scope of the Sherman or Clayton Acts, based on vague policy pronouncements found in the 2022 statement.
Third, and of greatest risk to FTC litigation prospects, it is likely that appeals courts (and federal district courts in Section 13(b) injunction cases) would give no deference to new far-reaching non-antitrust-based theories alluded to in the statement. As discussed above, this could be based on invocation of the major questions doctrine or, separately, on the (likely) failure to accord Chevron deference to theories that are far removed from recognized antitrust causes of action under modern jurisprudence.
What Should the FTC Do About the Statement?
In sum, the startling breadth and absence of well-defined boundaries that plagues the statement’s discussion of potential Section 5 UMC violations means that the statement’s issuance materially worsens the FTC’s future litigation prospects—both in defending UMC rulemakings and in seeking to affirm case-specific Commission findings of UMC violations.
What, then, should the FTC do?
It should, put simply, withdraw the 2022 statement and craft a new UMC policy statement (NPS) that avoids the major pitfalls inherent in the statement. The NPS should carefully delineate the boundaries of standalone UMC rulemakings and cases, so as (1) to minimize uncertainty in application; and (2) to harmonize UMC actions with the pro-consumer welfare goal (as enunciated by the Supreme Court) of the antitrust laws. In drafting the NPS, the FTC would do well to be mindful of the part of Commissioner Wilson’s dissenting statement that highlights the deficiencies in the 2022 statement that detract from its persuasiveness to courts:
First, . . . the Policy Statement does not provide clear guidance to businesses seeking to comply with the law.
Second, the Policy Statement does not establish an approach for the term “unfair” in the competition context that matches the economic and analytical rigor that Commission policy offers for the same term, “unfair,” in the consumer protection context.
Third, the Policy Statement does not provide a framework that will result in credible enforcement. Instead, Commission actions will be subject to the vicissitudes of prevailing political winds.
Fourth, the Policy Statement does not address the legislative history that both demands economic content for the term “unfair” and cautions against an expansive approach to enforcing Section 5.
Consistent with avoiding these deficiencies, a new PS could carefully identify activities that are beyond the reach of the antitrust laws yet advance the procompetitive consumer-welfare-oriented goal that is the lodestar of antitrust policy. The NPS should also be issued for public comment (as recommended by Commissioner Wilson), an action that could give it additional “due process luster” in the eyes of federal judges.
More specifically, the NPS could state that standalone UMC actions should be directed at private conduct that undermines the competitive process, but is not subject to the reach of the antitrust laws (say, because of the absence of contracts). Such actions might include, for example: (1) invitations to collude; (2) facilitating practices (“activities that tend to promote interdependence by reducing rivals’ uncertainty or diminishing incentives to deviate from a coordinated strategy”—see here); (3) exchanges of competitively sensitive information among competitors that do not qualify as Sherman Act “agreements” (see here); and (4) materially deceptive conduct (lacking efficiency justifications) that likely contributes to obtaining or increasing market power, as in the standard-setting context (see here); and (5) non-compete clauses in labor employment agreements that lack plausible efficiency justifications (say, clauses in contracts made with low-skill, low-salary workers) or otherwise plainly undermine labor-market competition (say, clauses presented to workers only after they have signed an initial contract, creating a “take-it-or-leave-it scenario” based on asymmetric information).
After promulgating a list of examples, the NPS could explain that additional possible standalone UMC actions would be subject to the same philosophical guardrails: They would involve conduct inconsistent with competition on the merits that is likely to harm consumers and that lacks strong efficiency justifications.
A revised NPS along the lines suggested would raise the probability of successful UMC judicial outcomes for the Commission. It would do this by strengthening the FTC’s arguments that there is an intelligible principle underlying congressional delegation; that specificity of notice is sufficient to satisfy due process (arbitrariness and capriciousness) concerns; that the Section 5 delegation is insufficiently broad to trigger the major questions doctrine; and that Chevron deference may be accorded determinations stemming from precise NPS guidance.
In the case of rules, of course, the FTC would still face the substantial risk that a court would deem that Section 6(g) does not apply to substantive rulemakings. And it is far from clear to what extent an NPS along the lines suggested would lead courts to render more FTC-favorable rulings on non-delegation, due process, the major questions doctrine, and Chevron deference. Moreover, even if they entertained UMC suits, the courts could, of course, determine in individual cases that, on the facts, the Commission had failed to show a legal violation. (The FTC has never litigated invitation-to-collude cases, and it lost a variety of facilitating practices cases during the 1980s and 1990s; see here).
Nonetheless, if I were advising the FTC as general counsel, I would tell the commissioners that the choice is between having close to a zero chance of litigation or rulemaking success under the 2022 statement, and some chance of success (greater in the case of litigation than in rulemaking) under the NPS.
Conclusion
The FTC faces a future of total UMC litigation futility if it plows ahead under the 2022 statement. Promulgating an NPS as described would give the FTC at least some chance of success in litigating cases beyond the legal limits of the antitrust laws, assuming suggested principles and guardrails were honored. The outlook for UMC rulemaking (which turns primarily on how the courts view the structure of the FTC Act) remains rather dim, even under a carefully crafted NPS.
If the FTC decides against withdrawing the 2022 statement, it could still show some wisdom by directing more resources to competition advocacy and challenging clearly anticompetitive conduct that falls within the accepted boundaries of the antitrust laws. (Indeed, to my mind, error-cost considerations suggest that the Commission should eschew UMC causes of action that do not also constitute clear antitrust offenses.) It need not undertake almost sure-to-fail UMC initiatives just because it has published the 2022 statement.
In short, treating the 2022 statement as a purely symbolic vehicle to showcase the FTC’s fondest desires—like a new, never-to-be-driven Lamborghini that merely sits in the driveway to win the admiring glances of neighbors—could well be the optimal Commission strategy, given the zeitgeist. That assumes, of course, that the FTC cares about protecting its institutional future and (we also hope) promoting economic well-being.
[This post is a contribution to Truth on the Market‘s continuing digital symposium “FTC Rulemaking on Unfair Methods of Competition.”You can find other posts at thesymposium page here. Truth on the Market also invites academics, practitioners, and other antitrust/regulation commentators to send us 1,500-4,000 word responses for potential inclusion in the symposium.]
Just over a decade ago, in a speech at the spring meeting of the American Bar Association’s Antitrust Law Section, then-recently appointed Commissioner Joshua Wright of the Federal Trade Commission (FTC) announced his hope that the FTC would adopt a policy statement on the use of its unfair methods of competition (UMC) authority:
[The Commission] can and should issue a policy statement clearly setting forth its views on what constitutes an unfair method of competition as we have done with respect to our consumer protection mission … I will soon informally and publicly distribute a proposed Section 5 Unfair Methods Policy Statement more fully articulating my views and perhaps even providing a useful starting point for a fruitful discussion among the enforcement agencies, the antitrust bar, consumer groups, and the business community.
Just over a decade ago, in a speech at the spring meeting of the American Bar Association’s Antitrust Law Section, then-recently appointed Commissioner Joshua Wright of the Federal Trade Commission (FTC) announced his hope that the FTC would adopt a policy statement on the use of its unfair methods of competition (UMC) authority:
[The Commission] can and should issue a policy statement clearly setting forth its views on what constitutes an unfair method of competition as we have done with respect to our consumer protection mission…. I will soon informally and publicly distribute a proposed Section 5 Unfair Methods Policy Statement more fully articulating my views and perhaps even providing a useful starting point for a fruitful discussion among the enforcement agencies, the antitrust bar, consumer groups, and the business community.
Responding to this, I wrote a post here on Truth on the Market explaining that “a policy statement is not enough.” That post is copied in its entirety below. In it, I explained that: “In a contentious policy environment—that is, one where the prevailing understanding of an ambiguous law changes with the consensus of a three-commissioner majority—policy statements are worth next to nothing.”
Needless to say, that characterization proved apt when Lina Khan took the helm of the current FTC and promptly, unceremoniously, dispatched with the UMC policy statement that Commissioner Wright successfully championed prior to his departure from the FTC in 2015.
Today’s news that the FTC has adopted a new UMC Policy Statement is just that: mere news. It doesn’t change the law. It is non-precedential and lacks the force of law. It receives the benefit of no deference. It is, to use a term from the consumer-protection lexicon, mere puffery.
The greatest difference between this policy statement and the 2015 policy statement will likely not be in how the FTC’s authority is interpreted, but how its interpretations are credited by the courts. The 2015 policy statement encapsulated long-established law and precedent as understood and practiced by the FTC, U.S. Justice Department (DOJ), courts, and enforcers around the world. It was a credibility-enhancing commitment to consistency and stability in the law, along with providing credible, if non-binding, guidance for industry.
Today’s policy statement is the opposite, marking a clear rejection of and departure from decades of established precedent and relying on long-fallow caselaw to do so. When it comes time for this policy to be judicially tested, it will carry no weight. More importantly, it will give the courts pause in crediting the FTC’s interpretations of the law; any benefit of the doubt or inclination toward deference will likely be found in default.
And it seems likely that that judicial fate will, in fact, be met. This FTC adopted the statement not to bind itself to the mast of precedent against the tempting shoals of indiscretion, but rather to chart a course toward the jagged barrier rocks lining the shores of unbounded authority.
Of course, the purpose of this statement—as with so much of Chair Khan’s agenda—is not to use the law effectively. It is quite plainly to make a statement—a political and hortatory one about what she wishes the law to be. With this statement, that statement has been made. It has been made again. And again. It has been heard loudly and clearly. In her treatment of antitrust law, “the lady doth protest too much, methinks.”
Administrative law really is a strange beast. My last post explained this a bit, in the context of Chevron. In this post, I want to make this point in another context, explaining how utterly useless a policy statement can be. Our discussion today has focused on what should go into a policy statement – there seems to be general consensus that one is a good idea. But I’m not sure that we have a good understanding of how little certainty a policy statement offers.
Administrative Stare Decisis?
I alluded in my previous post to the absence of stare decisis in the administrative context. This is one of the greatest differences between judicial and administrative rulemaking: agencies are not bound by either prior judicial interpretations of their statutes, or even by their own prior interpretations. These conclusions follow from relatively recent opinions – Brand-X in 2005 and Fox I in 2007 – and have broad implications for the relationship between courts and agencies.
In Brand-X, the Court explained that a “court’s prior judicial construction of a statute trumps an agency construction otherwise entitled to Chevron deference only if the prior court decision holds that its construction follows from the unambiguous terms of the statute and thus leaves no room for agency discretion.” This conclusion follows from a direct application of Chevron: courts are responsible for determining whether a statute is ambiguous; agencies are responsible for determining the (reasonable) meaning of a statute that is ambiguous.
Not only are agencies not bound by a court’s prior interpretations of an ambiguous statute – they’re not even bound by their own prior interpretations!
In Fox I, the Court held that an agency’s own interpretation of an ambiguous statute impose no special obligations should the agency subsequently change its interpretation.[1] It may be necessary to acknowledge the prior policy; and factual findings upon which the new policy is based that contradict findings upon which the prior policy was based may need to be explained.[2] But where a statute may be interpreted in multiple ways – that is, in any case where the statute is ambiguous – Congress, and by extension its agencies, is free to choose between those alternative interpretations. The fact that an agency previously adopted one interpretation does not necessarily render other possible interpretations any less reasonable; the mere fact that one was previously adopted therefore, on its own, cannot act as a bar to subsequent adoption of a competing interpretation.
What Does This Mean for Policy Statements?
In a contentious policy environment – that is, one where the prevailing understanding of an ambiguous law changes with the consensus of a three-Commissioner majority – policy statements are worth next to nothing. Generally, the value of a policy statement is explaining to a court the agency’s rationale for its preferred construction of an ambiguous statute. Absent such an explanation, a court is likely to find that the construction was not sufficiently reasoned to merit deference. That is: a policy statement makes it easier for an agency to assert a given construction of a statute in litigation.
But a policy statement isn’t necessary to make that assertion, or for an agency to receive deference. Absent a policy statement, the agency needs to demonstrate to the court that its interpretation of the statute is sufficiently reasoned (and not merely a strategic interpretation adopted for the purposes of the present litigation).
And, more important, a policy statement in no way prevents an agency from changing its interpretation. Fox I makes clear that an agency is free to change its interpretations of a given statute. Prior interpretations – including prior policy statements – are not a bar to such changes. Prior interpretations also, therefore, offer little assurance to parties subject to any given interpretation.
Are Policy Statements Entirely Useless?
Policy statements may not be entirely useless. The likely front on which to challenge an unexpected change in agency interpretation of its statute is on Due Process or Notice grounds. The existence of a policy statement may make it easier for a party to argue that a changed interpretation runs afoul of Due Process or Notice requirements. See, e.g., Fox II.
So there is some hope that a policy statement would be useful. But, in the context of Section 5 UMC claims, I’m not sure how much comfort this really affords. Regulatory takings jurisprudence gives agencies broad power to seemingly contravene Due Process and Notice expectations. This is largely because of the nature of relief available to the FTC: injunctive relief, such as barring certain business practices, even if it results in real economic losses, is likely to survive a regulatory takings challenge, and therefore also a Due Process challenge. Generally, the Due Process and Notice lines of argument are best suited against fines and similar retrospective remedies; they offer little comfort against prospective remedies like injunctions.
Conclusion
I’ll conclude the same way that I did my previous post, with what I believe is the most important takeaway from this post: however we proceed, we must do so with an understanding of both antitrust and administrative law. Administrative law is the unique, beautiful, and scary beast that governs the FTC – those who fail to respect its nuances do so at their own peril.
[1] Fox v. FCC, 556 U.S. 502, 514–516 (2007) (“The statute makes no distinction [] between initial agency action and subsequent agency action undoing or revising that action. … And of course the agency must show that there are good reasons for the new policy. But it need not demonstrate to a court’s satisfaction that the reasons for the new policy are better than the reasons for the old one; it suffices that the new policy is permissible under the statute, that there are good reasons for it, and that the agency believes it to be better, which the conscious change of course adequately indicates.”).
[2] Id. (“To be sure, the requirement that an agency provide reasoned explanation for its action would ordinarily demand that it display awareness that it is changing position. … This means that the agency need not always provide a more detailed justification than what would suffice for a new policy created on a blank slate. Sometimes it must—when, for example, its new policy rests upon factual findings that contradict those which underlay its prior policy; or when its prior policy has engendered serious reliance interests that must be taken into account. It would be arbitrary or capricious to ignore such matters. In such cases it is not that further justification is demanded by the mere fact of policy change; but that a reasoned explanation is needed for disregarding facts and circumstances that underlay or were engendered by the prior policy.”).
[On Monday, June 27, Concurrenceshosted a conference on the Rulemaking Authority of the Federal Trade Commission.This conference featured the work of contributors to a new book on the subject edited by Professor Dan Crane. Several of these authors have previously contributed to the Truth on the Market FTC UMC Symposium. We are pleased to be able to share with you excerpts or condensed versions of chapters from this book prepared by authors of of those chapters. Our thanks and compliments to Dan and Concurrences for bringing together an outstanding event and set of contributors and for supporting our sharing them with you here.]
[The post below was authored by former Federal Trade Commission Acting Chair Maureen K. Ohlhausen and former FTC Senior Attorney Ben Rossen.]
Introduction
The Federal Trade Commission (FTC) has long steered the direction of competition law by engaging in case-by-case enforcement of the FTC Act’s prohibition on unfair methods of competition (UMC). Recently, some have argued that the FTC’s exclusive reliance on case-by-case adjudication is too long and arduous a route and have urged the commission to take a shortcut by invoking its purported authority to promulgate UMC rules under Section 6(g) of the Federal Trade Commission Act.
Proponents of UMC rulemaking rely on National Petroleum Refiners Association v. FTC, a 1973 decision by the U.S. Court of Appeals for the D.C. Circuit that upheld the commission’s authority to issue broad legislative rules under the FTC Act. They argue that the case provides a clear path to UMC rules and that Congress effectively ratified the D.C. Circuit’s decision when it enacted detailed rulemaking procedures governing unfair or deceptive acts or practices (UDAP) in the Magnuson Moss Warranty-Federal Trade Commission Improvement Act of 1975 (Magnuson-Moss).
The premise of this argument is fundamentally incorrect, because modern courts reject the type of permissive statutory analysis applied in National Petroleum Refiners. Moreover, contemporaneous congressional reaction to National Petroleum Refiners was not to embrace broad FTC rulemaking, but rather to put in strong guardrails on FTC UDAP rulemaking. Further, the congressional history of the particular FTC rule at issue—the Octane Ratings Rule—also points in the direction of a lack of broad UMC rulemaking, as Congress eventually adopted the rule solely as a UDAP provision, with heightened restrictions on FTC rulemaking.
Thus, the road to UMC rulemaking, which the agency wisely never tried to travel down in the almost 50 years since National Petroleum Refiners, is essentially a dead end. If the agency tries to go that route, it will be an unfortunate detour from its clear statutory direction to engage in case-by-case enforcement of Section 5.
Broad UMC-Rulemaking Authority Contradicts the History and Evolution of the FTC’s Authority
The FTC Act grants the commission broad authority to investigate unfair methods of competition and unfair and deceptive acts or practices across much of the American economy. The FTC’s administrative adjudicative authority under “Part 3” is central to the FTC’s mission of preserving fair competition and protecting consumers, as reflected by the comprehensive adjudicative framework established in Section 5 of the FTC Act. Section 6, meanwhile, details the commission’s investigative powers to collect confidential business information and conduct industry studies.
The original FTC Act contained only one sentence describing the agency’s ability to make rules, buried inconspicuously among various other provisions. Section 6(g) provided that the FTC would have authority “[f]rom time to time [to] classify corporations and . . . to make rules and regulations for the purpose of carrying out the provisions of this [Act].”[1]Unlike the detailed administrative scheme in Section 5, the FTC Act fails to provide for any sanctions for violations of rules promulgated under Section 6 or to otherwise specify that such rules would carry the force of law. This minimal delegation of power arguably conferred the right to issue procedural but not substantive rules.
Consistent with the understanding that Congress did not authorize substantive rulemaking, the FTC made no attempt to promulgate rules with the force of law for nearly 50 years after it was created, and at various times indicated that it lacked the authority to do so.
In 1962, the agency for the first time began to promulgate consumer-protection trade-regulation rules (TRRs), citing its authority under Section 6(g). Although these early TRRs plainly addressed consumer-protection matters, the agency frequently described violations of the rule as both an unfair method of competition and an unfair or deceptive trade practice. As the commission itself has observed, “[n]early all of the rules that the Commission actually promulgated under Section 6(g) were consumer protection rules.”
In fact, in the more than 100 years of the FTC Act, the agency has only once issued a solely competition rule. In 1967, the commission promulgated the Men and Boys’ Tailored Clothing Rule pursuant to authority under the Clayton Act, which prohibited apparel suppliers from granting discriminatory-advertising allowances that limited small retailers’ ability to compete. However, the rule was never enforced or subject to challenge and was subsequently repealed.
Soon after, the FTC promulgated the octane-ratings rule at issue in National Petroleum Refiners. Proponents of UMC rulemaking, such as former FTC Commissioner Rohit Chopra and current Chair Lina Khan, point to the case as evidence that the commission retains the power to promulgate substantive competition rules, governed only by the Administrative Procedure Act (APA) and, with respect to interpretations of UMC, entitled to Chevron deference. They argue that UMC rulemaking would provide significant benefits by providing clear notice to market participants about what the law requires, relieving the steep expert costs and prolonged trials common to antitrust adjudications, and fostering a “transparent and participatory process” that would provide meaningful public participation.
With Khan at the helm of the FTC, the agency has already begun to pave the way for new UMC rulemakings. For example, President Joe Biden’s Executive Order on promoting competition called on the commission to promulgate UMC rules to address noncompete clauses and pay-for-delay settlements, among other issues. Further, as one of Khan’s first actions as chair, the commission rescinded—without replacing—its bipartisan Statement of Enforcement Principles Regarding “Unfair Methods of Competition” Under Section 5 of the FTC Act. More recently, the commission’s Statement of Regulatory Priorities stated that the FTC “will consider developing both unfair-methods-of-competition rulemakings as well as rulemakings to define with specificity unfair or deceptive acts or practices.” This foray into UMC rulemaking is likely to take the FTC down a dead-end road.
The Signs Are Clear: National Petroleum Refiners Does Not Comport with Modern Principles of Statutory Interpretation
The FTC’s authority to conduct rulemaking under Section 6(g) has been tested in court only once, in National Petroleum Refiners, where the D.C. Circuit upheld the commission’s authority to promulgate a UDAP and UMC rule requiring the disclosure of octane ratings on gasoline pumps. The court found that Section 6(g) “clearly states that the Commission ‘may’ make rules and regulations for the purpose of carrying out the provisions of Section 5” and liberally construed the term ‘rules and regulations’ based on the background and purpose of the FTC Act.” The court’s opinion rested, in part, on pragmatic concerns about the benefits that rulemaking provides to fulfilling the agency’s mission, emphasizing the “invaluable resource-saving flexibility” it provides and extolling the benefits of rulemaking over case-by-case adjudication when developing agency policy.
National Petroleum Refiners reads today like an anachronism. Few modern courts would agree that an ambiguous grant of rulemaking authority should be construed to give agencies the broadest possible powers so that they will have flexibility in determining how to effectuate their statutory mandates. The Supreme Court has never adopted this approach and recent decisions strongly suggest it would decline to do so if presented the opportunity.
The D.C. Circuit’s opinion is in clear tension with the “elephants-in-mouseholes” doctrine first described by the U.S. Supreme Court in Whitman v. Am. Trucking Ass’n, because it largely ignored the significance of the FTC Act’s detailed adjudicative framework. The D.C. Circuit’s reasoning—that Congress buried sweeping legislative-rulemaking authority in a vague, ancillary provision, alongside the ability to “classify corporations”—stands in direct conflict with the Supreme Court’s admonition in Whitman.
Modern courts would also look to interpret the structure of the FTC Act to produce a coherent enforcement scheme. For instance, in AMG Capital Management v. FTC, the Supreme Court struck down the FTC’s use of Section 13(b) to obtain equitable monetary relief, in part, because the FTC Act elsewhere imposes specific limitations on the commission’s authority to obtain monetary relief. Unlike National Petroleum Refiners, which lauded the benefits and efficiencies of rulemaking for the agency’s mission, the AMG court reasoned: “Our task here is not to decide whether [the FTC’s] substitution of § 13(b) for the administrative procedure contained in § 5 and the consumer redress available under § 19 is desirable. Rather, it is to answer a more purely legal question” of whether Congress granted authority or not. The same rationale applies to UMC rulemaking.
The unanimous AMG decision was no judicial detour, and the Supreme Court has routinelyposted clear road signs that Congress is expected “to speak clearly when authorizing an agency to exercise powers of vast economic and political significance,” as UMC rulemaking would do. Since 2000, the Court has increasingly applied the “major questions doctrine” to limit the scope of congressional delegation to the administrative state in areas of major political or economic importance. For example, in FDA v. Brown & Williamson, the Supreme Court declined to grant Chevron deference to an FDA rule permitting the agency to regulate nicotine and cigarettes. Crucial to the Court’s analysis was that the FDA’s rule contradicted the agency’s own view of its authority dating back to 1914, while asserting jurisdiction over a significant portion of the American economy. In Utility Air Regulatory Group v. EPA, the Court invoked the major questions doctrine to strike down the Environmental Protection Agency’s greenhouse-gas emissions standards as an impermissible interpretation of the Clean Air Act, finding that “EPA’s interpretation is [] unreasonable because it would bring about an enormous and transformative expansion in [the] EPA’s regulatory authority without clear congressional authorization.”
Most recently, in West Virginia v. EPAthe Court relied on the major questions doctrine to strike down EPA emissions rules that would have imposed billions of dollars in compliance costs on power plants, concluding that Congress had not provided “clear congressional authorization” for the rules despite explicitly authorizing the agency to set emissions levels for existing plants. Because broad UMC-rulemaking authority under Section 6(g) is similarly a question of potentially “vast economic and political significance,” and would also represent a significant departure from past agency precedent, the FTC’s efforts to promulgate such rules would likely be met by a flashing red light.
Finally, while National Petroleum Refiners lauded the benefits of rulemaking authority and emphasized its usefulness for carrying out the FTC’s mission, the Supreme Court has since clarified that “[h]owever sensible (or not)” an interpretation may be, “a reviewing court’s task is to apply the text of the statute, not to improve upon it.” Whatever benefits rulemaking authority may confer on the FTC, they cannot justify departure from the text of the FTC Act.
The Road Not Taken: Congress Did Not Ratify UMC-Rulemaking Authority and the FTC Did Not Assert It
Two years after National Petroleum Refiners, Congress enacted the Magnuson-Moss Warranty-Federal Trade Commission Improvement Act of 1975 (Magnuson-Moss). Section 202(a) of Magnuson-Moss amended the FTC Act to add a new Section 18 that, for the first time, gave the FTC express authority to issue UDAP rules, while imposing heightened procedural requirements for such rulemaking. Magnuson-Moss does not expressly address UMC rulemaking. Instead, it says only that Section 18 “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.” Section 6(g) currently authorizes the FTC “(except as provided in [section 18] of this title) to make rules and regulations for the purpose of carrying out the provisions of this subchapter.”
UMC-rulemaking proponents argue Magnuson-Moss effectively ratified National Petroleum Refiners and affirmed the commission’s authority with respect to substantive UMC rules. This revisionist interpretation is incorrect. The savings provision in Section 18(a)(2) that preserves “any authority” (as opposed to “the” authority) of the commission to prescribe UMC rules reflects, at most, an agnostic view on whether the FTC, in fact, possesses such authority. Rather, it suggests that whatever authority may exist for UMC rulemaking was unchanged by Section 18 and that Congress left the question open for the courts to resolve. The FTC itself appears to have recognized this uncertainty, as evidenced by the fact that it has never even attempted to promulgate a UMC rule in the nearly 50 years following the enactment of Magnuson-Moss.
Congressional silence on UMC hardly endorses the commission’s authority and is not likely to persuade an appellate court today. To rely on congressional acquiescence to a judicial interpretation, there must be “overwhelming evidence” that Congress considered and rejected the “precise issue” before the court. Although Congress considered adopting National Petroleum Refiners, it ultimately took no action on the FTC’s UMC-rulemaking authority. Hardly the “overwhelming evidence” required to read National Petroleum Refiners into the law.
The Forgotten Journey: The History of the Octane-Ratings Rule Reinforces the FTC’s Lack of UMC Rulemaking Authority
Those who argue that National Petroleum Refiners is still good law and that Congress silently endorsed UMC rulemaking have shown no interest in how the journey of the octane-ratings rule eventually ended. The FTC’s 1971 octane-ratings rule declared the failure to post octane disclosures on gasoline pumps both an unfair method of competition and an unfair or deceptive practice. But what has remained unexplored in the debate over FTC UMC rulemaking is what happened to the rule after the D.C. Circuit’s decision upheld rulemaking under Section 6(g), and what that tells us about congressional and agency views on UMC authority.
The octane-ratings rule upheld by the D.C. Circuit never took effect and was ultimately replaced when Congress enacted the Petroleum Marketing Practices Act (PMPA), Title II of which addressed octane-disclosure requirements and directed the FTC to issue new rules under the PMPA. But despite previous claims by the FTC that the rule drew on both UDAP and UMC authority, Congress declined to provide any authority beyond UDAP. While it is impossible to say whether Congress concluded that UMC rulemaking was unwise, illegal, or simply unnecessary, the PMPA—passed just two years after Magnuson-Moss—suggests that UMC rulemaking did not survive the enactment of Section 18. A brief summary of the rule’s meandering journey follows.
After the D.C. Circuit remanded National Petroleum Refiners, the district court ordered the FTC to complete an environmental-impact statement. While that analysis was pending, Congress began consideration of the PMPA. After its enactment, the commission understood Congress to have intended the requirements of Title II of the PMPA to replace those of the original octane-ratings rule. The FTC treated the enactment of the PMPA as effectively repealing the rule.
Section 203(a) of the PMPA gave the FTC rulemaking power to enforce compliance with Title II of the PMPA. Testimony in House subcommittee hearings centered on whether the legislation should direct the FTC to enact a TRR on octane ratings under expedited procedures that would be authorized by the legislation, or whether Congress should enact its own statutory requirements. Ultimately, Congress adopted a statutory definition of octane ratings (identical to the method adopted by the FTC in its 1971 rule) and granted the FTC rulemaking authority under the APA to update definitions and prescribe different procedures for determining fuel-octane ratings. Congress also specified that certain rules—such as those requiring manufacturers to display octane requirements on motor vehicles—would have heightened rulemaking procedures, such as rulemaking on the record after a hearing.
Notably, the PMPA specifically provides that violations of the statute, or any rule promulgated under the statute, “shall be an unfair or deceptive act or practice in or affecting commerce.” Although Section 203(d)(3) of the PMPA specifically exempts the FTC from the procedural requirements under Section 18, it does not simply revert to Section 6(g) or otherwise leave open a path for UMC rulemaking.
The record makes clear, however, that Congress was aware of FTC’s desire to claim UMC authority in connection with the octane-ratings rule, as FTC officials testified in legislative hearings that UMC authority was necessary to regulate octane ratings. After Magnuson-Moss was enacted, however, neither Congress nor the FTC tried to include UMC rulemaking in the PMPA. In a written statement reflecting the FTC’s views on the PMPA incorporated in the House report, the FTC described its original octane-ratings rule as UDAP only.[2] While not dispositive, the FTC’s apparent abandonment of its request for UMC authority after Magnuson-Moss, and Congress’ decision to limit the PMPA exclusively to UDAP, certainly suggests that UMC did not survive National Petroleum Refiners and that Congress did not endorse FTC UMC rulemaking.
Conclusion
The FTC appears poised to embark on a journey of broad, legislative-style competition rulemaking under Section 6(g) of the FTC Act. This would be a dead end. UMC rulemaking, rather than advancing clarity and certainty about what types of conduct constitute unfair methods of competition, would very likely be viewed by the courts as an illegal left turn. It would also be a detour for the agency from its core mission of case-by-case expert adjudication of the FTC Act—which, given limited agency resources, could result in a years-long escapade that significantly detracts from overall enforcement. The FTC should instead seek to build on the considerable success it has seen in recent years with administrative adjudications, both in terms of winning on appeal and in shaping the development of antitrust law overall by creating citable precedent in key areas.
[1] H. Rep. No. 95-161, at 45, Appendix II, Federal Trade Commission—Agency Views, Statement of Federal Trade Commission by Christian S. White, Asst. Director for Special Statutes (Feb. 23, 1977).
[2] 38 Stat. 722 § 6(g), codified as amended at 15 U.S.C. § 46(g).
[Wrapping up the first week of our FTC UMC Rulemaking symposiumis 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 rejectingPetroleum 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.
[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.
[This guest post from Lawrence J. Spiwak of the Phoenix Center for Advanced Legal & Economic Public Policy Studiesis the second in our FTC UMC Rulemaking symposium. 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.]
While antitrust and regulation are supposed to be different sides of the same coin, there has always been a healthy debate over which enforcement paradigm is the most efficient. For those who have long suffered under the zealous hand of ex ante regulation, they would gladly prefer to be overseen by the more dispassionate and case-specific oversight of antitrust. Conversely, those dissatisfied with the current state of antitrust enforcement have increased calls to abandon the ex post approach of antitrust and return to some form of active, “always on” regulation.
While the “antitrust versus regulation” debate has raged for some time, the election of President Joe Biden has brought a new wrinkle: Lina Khan, the controversial chair of the Federal Trade Commission (FTC), has made it very clear that she would like to expand the commission’s role from that of a mere enforcer of the nation’s antitrust laws to that of an agency that also promulgates ex ante “bright line” rules. Thus, the “antitrust versus regulation” debate is no longer academic.
Khan’s efforts to convert the FTC into a de facto regulator should surprise no one, however. Even before she was nominated, Khan was quite vocal about her policy vision for the FTC. For example, in 2020, she co-authored an essay with her former boss (and later briefly her FTC colleague) Rohit Chopra in the University of Chicago Law Review titled “The Case for ‘Unfair Methods of Competition’ Rulemaking.” In it, Khan and Chopra lay out both legal and policy arguments to support “unfair methods of competition” (UMC) rulemaking. But as I explain in a law review published last year in the Federalist Society Review titled “A Change in Direction for the Federal Trade Commission?”, Khan and Chopra’s arguments simply do not hold up to scrutiny. While I encourage those interested in the bounds of the FTC’s UMC rulemaking authority to read my paper in full, for purposes of this symposium, I include a brief summary of my analysis below.
Khan’s Legal Arguments for a UMC Rulemaking
At the outset of their essay, Chopra and Khan lay out what they believe to be the shortcomings of modern antitrust enforcement. As they correctly note, “[a]ntitrust law today is developed exclusively through adjudication,” which is designed to “facilitate[] nuanced and fact-specific analysis of liability and well-tailored remedies.” However, the authors contend that, while a case-by-case approach may sound great in theory, “in practice, the reliance on case-by-case adjudication yields a system of enforcement that generates ambiguity, unduly drains resources from enforcers, and deprives individuals and firms of any real opportunity to democratically participate in the process.” Chopra and Khan blame this alleged policy failure on the abandonment of per se rules in favor of the use of the “rule-of-reason” approach in antitrust jurisprudence. In their view, a rule-of-reason approach is nothing more than “a broad and open-ended inquiry into the overall competitive effects of particular conduct [which] asks judges to weigh the circumstances to decide whether the practice at issue violates the antitrust laws.” To remedy this perceived analytical shortcoming, they argue that the commission should step into the breach and promulgate ex ante bright-line rules to better enforce the prohibition against “unfair methods of competition” (UMC) outlined in Section 5 of the Federal Trade Commission Act.
As a threshold matter, while courts have traditionally provided guidance as to what exactly constitutes “unfair methods of competition,” Chopra and Khan argue that it should be the FTC that has that responsibility in the first instance. According to Chopra and Khan, because Congress set up the FTC as the independent expert agency to implement the FTC Act and because the phrase “unfair methods of competition” is ambiguous, courts must accord great deference to “FTC interpretations of ‘unfair methods of competition’” under the Supreme Court’s Chevron doctrine.
The authors then argue that the FTC has statutory authority to promulgate substantive rules to enforce the FTC’s interpretation of UMC. In particular, they point to the broad catch-all provision in Section 6(g) of the FTC Act. Section 6(g) provides, in relevant part, that the FTC may “[f]rom time to time . . . make rules and regulations for the purpose of carrying out the provisions of this subchapter.” Although this catch-all rulemaking provision is far from the detailed statutory scheme Congress set forth in the Magnuson-Moss Act to govern rulemaking to deal with Section 5’s other prohibition against “unfair or deceptive acts and practices” (UDAP), Chopra and Khan argue that the D.C. Circuit’s 1973 ruling in National Petroleum Refiners Association v. FTC—a case that predates the Magnuson-Moss Act—provides judicial affirmation that the FTC has the authority to “promulgate substantive rules, not just procedural rules” under Section 6(g). Stating Khan’s argument differently: although there may be no affirmative specific grant of authority for the FTC to engage in UMC rulemaking, in the absence of any limit on such authority, the FTC may engage in UMC rulemaking subject to the constraints of the Administrative Procedure Act.
As I point out in my paper, while there are certainly strong arguments that the FTC lacks UMC rulemaking authority (see, e.g., Ohlhausen & Rill, “Pushing the Limits? A Primer on FTC Competition Rulemaking”), it is my opinion that, given the current state of administrative law—in particular, the high level of judicial deference accorded to agencies under both Chevron and the “arbitrary and capricious standard”—whether the FTC can engage in UMC rulemaking remains a very open question.
That said, even if we assume arguendo that the FTC does, in fact, have UMC rulemaking authority, the case law nonetheless reveals that, despite Khan’s hopes and desires, the FTC cannot unilaterally abandon the consumer welfare standard. As I explain in detail in my paper, even with great judicial deference, it is well-established that independent agencies simply cannot ignore antitrust terms of art (especially when that agency is specifically charged with enforcing the antitrust laws). Thus, Khan may get away with initiating UMC rulemaking, but, for example, attempting to impose a mandatory common carrier-style non-discrimination rule may be a bridge too far.
Khan’s Policy Arguments in Favor of UMC Rulemaking
Separate from the legal debate over whether the FTC can engage in UMC rulemaking, it is also important to ask whether the FTC should engage in UMC rulemaking. Khan essentially posits that the American economy needs a generic business regulator possessed with plenary power and expansive jurisdiction. Given the United States’ well-documented (and sordid) experience with public-utility regulation, that’s probably not a good idea.
Indeed, to Khan and Chopra, ex ante regulation is superior to ex post antitrust enforcement. For example, they submit that UMC “rulemaking would enable the Commission to issue clear rules to give market participants sufficient notice about what the law is, helping ensure that enforcement is predictable.” Moreover, they argue that “establishing rules could help relieve antitrust enforcement of steep costs and prolonged trials.” In particular, “[t]argeting conduct through rulemaking, rather than adjudication, would likely lessen the burden of expert fees or protracted litigation, potentially saving significant resources on a present-value basis.” And third, they contend that rulemaking “would enable the Commission to establish rules through a transparent and participatory process, ensuring that everyone who may be affected by a new rule has the opportunity to weigh in on it, granting the rule greater legitimacy.”
Khan’s published writings argue forcefully for greater regulatory power, but they suffer from analytical omissions that render her judgment questionable. For example, it is axiomatic that, while it is easy to imagine or theorize about the many benefits of regulation, regulation imposes significant costs of both the intended and unintended sorts. These costs can include compliance costs, reductions of innovation and investment, and outright entry deterrence that protects incumbents. Yet nowhere in her co-authored essay does Khan contemplate a cost-benefit analysis before promulgating a new regulation; she appears to assume that regulation is always costless, easy, and beneficial, on net. Unfortunately, history shows that we cannot always count on FTC commissioners to engage in wise policymaking.
Khan also fails to contemplate the possibility that changing market circumstances or inartful drafting might call for the removal of regulations previously imposed. Among other things, this failure calls into question her rationale that “clear rules” would make “enforcement … predictable.” Why, then, does the government not always use clear rules, instead of the ham-handed approach typical of regulatory interventions? More importantly, enforcement of rules requires adjudication on a case-by-case basis that is governed by precedent from prior applications of the rule and due process.
Taken together, Khan’s analytical omissions reveal a lack of historical awareness about (and apparently any personal experience with) the realities of modern public-utility regulation. Indeed, Khan offers up as an example of purported rulemaking success the Federal Communications Commission’s 2015 Open Internet Order, which imposed legacy common-carrier regulations designed for the old Ma Bell monopoly on the internet. But as I detail extensively in my paper, the history of net-neutrality regulation bears witness that Khan’s assertions that this process provided “clear rules,” was faster and cheaper, and allowed for meaningful public participation simply are not true.
A recent exchange between Chris Walker and Philip Hamburger about Walker’s ongoing empirical work on the Chevron doctrine (the idea that judges must defer to reasonable agency interpretations of ambiguous statutes) gives me a long-sought opportunity to discuss what I view as the greatest practical problem with the Chevron doctrine: it increases both politicization and polarization of law and policy. In the interest of being provocative, I will frame the discussion below by saying that both Walker & Hamburger are wrong (though actually I believe both are quite correct in their respective critiques). In particular, I argue that Walker is wrong that Chevron decreases politicization (it actually increases it, vice his empirics); and I argue Hamburger is wrong that judicial independence is, on its own, a virtue that demands preservation. Rather, I argue, Chevron increases overall politicization across the government; and judicial independence can and should play an important role in checking legislative abdication of its role as a politically-accountable legislature in a way that would moderate that overall politicization.
Walker, along with co-authors Kent Barnett and Christina Boyd, has done some of the most important and interesting work on Chevron in recent years, empirically studying how the Chevron doctrine has affected judicial behavior (see here and here) as well as that of agencies (and, I would argue, through them the Executive) (see here). But the more important question, in my mind, is how it affects the behavior of Congress. (Walker has explored this somewhat in his own work, albeit focusing less on Chevron than on how the role agencies play in the legislative process implicitly transfers Congress’s legislative functions to the Executive).
My intuition is that Chevron dramatically exacerbates Congress’s worst tendencies, encouraging Congress to push its legislative functions to the executive and to do so in a way that increases the politicization and polarization of American law and policy. I fear that Chevron effectively allows, and indeed encourages, Congress to abdicate its role as the most politically-accountable branch by deferring politically difficult questions to agencies in ambiguous terms.
One of, and possibly the, best ways to remedy this situation is to reestablish the role of judge as independent decisionmaker, as Hamburger argues. But the virtue of judicial independence is not endogenous to the judiciary. Rather, judicial independence has an instrumental virtue, at least in the context of Chevron. Where Congress has problematically abdicated its role as a politically-accountable decisionmaker by deferring important political decisions to the executive, judicial refusal to defer to executive and agency interpretations of ambiguous statutes can force Congress to remedy problematic ambiguities. This, in turn, can return the responsibility for making politically-important decisions to the most politically-accountable branch, as envisioned by the Constitution’s framers.
A refresher on the Chevron debate
Chevron is one of the defining doctrines of administrative law, both as a central concept and focal debate. It stands generally for the proposition that when Congress gives agencies ambiguous statutory instructions, it falls to the agencies, not the courts, to resolve those ambiguities. Thus, if a statute is ambiguous (the question at “step one” of the standard Chevron analysis) and the agency offers a reasonable interpretation of that ambiguity (“step two”), courts are to defer to the agency’s interpretation of the statute instead of supplying their own.
This judicially-crafted doctrine of deference is typically justified on several grounds. For instance, agencies generally have greater subject-matter expertise than courts so are more likely to offer substantively better constructions of ambiguous statutes. They have more resources that they can dedicate to evaluating alternative constructions. They generally have a longer history of implementing relevant Congressional instructions so are more likely attuned to Congressional intent – both of the statute’s enacting and present Congresses. And they are subject to more direct Congressional oversight in their day-to-day operations and exercise of statutory authority than the courts so are more likely concerned with and responsive to Congressional direction.
Chief among the justifications for Chevron deference is, as Walker says, “the need to reserve political (or policy) judgments for the more politically accountable agencies.” This is at core a separation-of-powers justification: the legislative process is fundamentally a political process, so the Constitution assigns responsibility for it to the most politically-accountable branch (the legislature) instead of the least politically-accountable branch (the judiciary). In turn, the act of interpreting statutory ambiguity is an inherently legislative process – the underlying theory being that Congress intended to leave such ambiguity in the statute in order to empower the agency to interpret it in a quasi-legislative manner. Thus, under this view, courts should defer both to this Congressional intent that the agency be empowered to interpret its statute (and, should this prove problematic, it is up to Congress to change the statute or to face political ramifications), and the courts should defer to the agency interpretation of that statute because agencies, like Congress, are more politically accountable than the courts.
Chevron has always been an intensively studied and debated doctrine. This debate has grown more heated in recent years, to the point that there is regularly scholarly discussion about whether Chevron should be repealed or narrowed and what would replace it if it were somehow curtailed – and discussion of the ongoing vitality of Chevron has entered into Supreme Court opinions and the appointments process with increasing frequency. These debates generally focus on a few issues. A first issue is that Chevron amounts to a transfer of the legislature’s Constitutional powers and responsibilities over creating the law to the executive, where the law ordinarily is only meant to be carried out. This has, the underlying concern is, contributed to the increase in the power of the executive compared to the legislature. A second, related, issue is that Chevron contributes to the (over)empowerment of independent agencies – agencies that are already out of favor with many of Chevron’s critics as Constitutionally-infirm entities whose already-specious power is dramatically increased when Chevron limits the judiciary’s ability to check their use of already-broad Congressionally-delegated authority.
A third concern about Chevron, following on these first two, is that it strips the judiciary of its role as independent arbiter of judicial questions. That is, it has historically been the purview of judges to answer statutory ambiguities and fill in legislative interstices.
Chevron is also a focal point for more generalized concerns about the power of the modern administrative state. In this context, Chevron stands as a representative of a broader class of cases – State Farm, Auer, Seminole Rock, Fox v. FCC, and the like – that have been criticized as centralizing legislative, executive, and judicial powers in agencies, allowing Congress to abdicate its role as politically-accountable legislator, abdicating the judiciary’s role in interpreting the law, as well as raising due process concerns for those subject to rules promulgated by federal agencies..
Walker and his co-authors have empirically explored the effects of Chevron in recent years, using robust surveys of federal agencies and judicial decisions to understand how the doctrine has affected the work of agencies and the courts. His most recent work (with Kent Barnett and Christina Boyd) has explored how Chevron affects judicial decisionmaking. Framing the question by explaining that “Chevron deference strives to remove politics from judicial decisionmaking,” they ask whether “Chevron deference achieve[s] this goal of removing politics from judicial decisionmaking?” They find that, empirically speaking, “the Chevron Court’s objective to reduce partisan judicial decision-making has been quite effective.” By instructing judges to defer to the political judgments (or just statutory interpretations) of agencies, judges are less political in their own decisionmaking.
Hamburger responds to this finding somewhat dismissively – and, indeed, the finding is almost tautological: “of course, judges disagree less when the Supreme Court bars them from exercising their independent judgment about what the law is.” (While a fair critique, I would temper it by arguing that it is nonetheless an important empirical finding – empirics that confirm important theory are as important as empirics that refute it, and are too often dismissed.)
Rather than focus on concerns about politicized decisionmaking by judges, Hamburger focuses instead on the importance of judicial independence – on it being “emphatically the duty of the Judicial Department to say what the law is” (quoting Marbury v. Madison). He reframes Walker’s results, arguing that “deference” to agencies is really “bias” in favor of the executive. “Rather than reveal diminished politicization, Walker’s numbers provide strong evidence of diminished judicial independence and even of institutionalized judicial bias.”
So which is it? Does Chevron reduce bias by de-politicizing judicial decisionmaking? Or does it introduce new bias in favor of the (inherently political) executive? The answer is probably that it does both. The more important answer, however, is that neither is the right question to ask.
What’s the correct measure of politicization? (or, You get what you measure)
Walker frames his study of the effects of Chevron on judicial decisionmaking by explaining that “Chevron deference strives to remove politics from judicial decisionmaking. Such deference to the political branches has long been a bedrock principle for at least some judicial conservatives.” Based on this understanding, his project is to ask whether “Chevron deference achieve[s] this goal of removing politics from judicial decisionmaking?”
This framing, that one of Chevron’s goals is to remove politics from judicial decisionmaking, is not wrong. But this goal may be more accurately stated as being to prevent the judiciary from encroaching upon the political purposes assigned to the executive and legislative branches. This restatement offers an important change in focus. It emphasizes the concern about politicizing judicial decisionmaking as a separation of powers issue. This is in apposition to concern that, on consequentialist grounds, judges should not make politicized decisions – that is, judges should avoid political decisions because it leads to substantively worse outcomes.
It is of course true that, as unelected officials with lifetime appointments, judges are the least politically accountable to the polity of any government officials. Judges’ decisions, therefore, can reasonably be expected to be less representative of, or responsive to, the concerns of the voting public than decisions of other government officials. But not all political decisions need to be directly politically accountable in order to be effectively politically accountable. A judicial interpretation of an ambiguous law, for instance, can be interpreted as a request, or even a demand, that Congress be held to political account. And where Congress is failing to perform its constitutionally-defined role as a politically-accountable decisionmaker, it may do less harm to the separation of powers for the judiciary to make political decisions that force politically-accountable responses by Congress than for the judiciary to respect its constitutional role while the Congress ignores its role.
Before going too far down this road, I should pause to label the reframing of the debate that I have impliedly proposed. To my mind, the question isn’t whether Chevron reduces political decisionmaking by judges; the question is how Chevron affects the politicization of, and ultimately accountability to the people for, the law. Critically, there is no “conservation of politicization” principle. Institutional design matters. One could imagine a model of government where Congress exercises very direct oversight over what the law is and how it is implemented, with frequent elections and a Constitutional prohibition on all but the most express and limited forms of delegation. One can also imagine a more complicated form of government in which responsibilities for making law, executing law, and interpreting law, are spread across multiple branches (possibly including myriad agencies governed by rules that even many members of those agencies do not understand). And one can reasonably expect greater politicization of decisions in the latter compared to the former – because there are more opportunities for saying that the responsibility for any decision lies with someone else (and therefore for politicization) in the latter than in the “the buck stops here” model of the former.
In the common-law tradition, judges exercised an important degree of independence because their job was, necessarily and largely, to “say what the law is.” For better or worse, we no longer live in a world where judges are expected to routinely exercise that level of discretion, and therefore to have that level of independence. Nor do I believe that “independence” is necessarily or inherently a criteria for the judiciary, at least in principle. I therefore somewhat disagree with Hamburger’s assertion that Chevron necessarily amounts to a problematic diminution in judicial independence.
Again, I return to a consequentialist understanding of the purposes of judicial independence. In my mind, we should consider the need for judicial independence in terms of whether “independent” judicial decisionmaking tends to lead to better or worse social outcomes. And here I do find myself sympathetic to Hamburger’s concerns about judicial independence. The judiciary is intended to serve as a check on the other branches. Hamburger’s concern about judicial independence is, in my mind, driven by an overwhelmingly correct intuition that the structure envisioned by the Constitution is one in which the independence of judges is an important check on the other branches. With respect to the Congress, this means, in part, ensuring that Congress is held to political account when it does legislative tasks poorly or fails to do them at all.
The courts abdicate this role when they allow agencies to save poorly drafted statutes through interpretation of ambiguity.
Judicial independence moderates politicization
Hamburger tells us that “Judges (and academics) need to wrestle with the realities of how Chevron bias and other administrative power is rapidly delegitimizing our government and creating a profound alienation.” Huzzah. Amen. I couldn’t agree more. Preach! Hear-hear!
Allow me to present my personal theory of how Chevron affects our political discourse. In the vernacular, I call this Chevron Step Three. At Step Three, Congress corrects any mistakes made by the executive or independent agencies in implementing the law or made by the courts in interpreting it. The subtle thing about Step Three is that it doesn’t exist – and, knowing this, Congress never bothers with the politically costly and practically difficult process of clarifying legislation.
To the contrary, Chevron encourages the legislature expressly not to legislate. The more expedient approach for a legislator who disagrees with a Chevron-backed agency action is to campaign on the disagreement – that is, to politicize it. If the EPA interprets the Clean Air Act too broadly, we need to retake the White House to get a new administrator in there to straighten out the EPA’s interpretation of the law. If the FCC interprets the Communications Act too narrowly, we need to retake the White House to change the chair so that we can straighten out that mess! And on the other side, we need to keep the White House so that we can protect these right-thinking agency interpretations from reversal by the loons on the other side that want to throw out all of our accomplishments. The campaign slogans write themselves.
So long as most agencies’ governing statutes are broad enough that those agencies can keep the ship of state afloat, even if drifting rudderless, legislators have little incentive to turn inward to engage in the business of government with their legislative peers. Rather, they are freed to turn outward towards their next campaign, vilifying or deifying the administrative decisions of the current government as best suits their electoral prospects.
The sharp-eyed observer will note that I’ve added a piece to the Chevron puzzle: the process described above assumes that a new administration can come in after an election and simply rewrite all of the rules adopted by the previous administration. Not to put too fine a point on the matter, but this is exactly what administrative law allows (see Fox v. FCC and State Farm). The underlying logic, which is really nothing more than an expansion of Chevron, is that statutory ambiguity delegates to agencies a “policy space” within which they are free to operate. So long as agency action stays within that space – which often allows for diametrically-opposed substantive interpretations – the courts say that it is up to Congress, not the Judiciary, to provide course corrections. Anything else would amount to politically unaccountable judges substituting their policy judgments (this is, acting independently) for those of politically-accountable legislators and administrators.
In other words, the politicization of law seen in our current political moment is largely a function of deference and a lack of stare decisis combined. A virtue of stare decisis is that it forces Congress to act to directly address politically undesirable opinions. Because agencies are not bound by stare decisis, an alternative, and politically preferable, way for Congress to remedy problematic agency decisions is to politicize the issue – instead of addressing the substantive policy issue through legislation, individual members of Congress can campaign on it. (Regular readers of this blog will be familiar with one contemporary example of this: the recent net neutrality CRA vote, which is widely recognized as having very little chance of ultimate success but is being championed by its proponents as a way to influence the 2018 elections.) This is more directly aligned with the individual member of Congress’s own incentives, because, by keeping and placing more members of her party in Congress, her party will be able to control the leadership of the agency which will thus control the shape of that agency’s policy. In other words, instead of channeling the attention of individual Congressional actors inwards to work together to develop law and policy, it channels it outwards towards campaigning on the ills and evils of the opposing administration and party vice the virtues of their own party.
The virtue of judicial independence, of judges saying what they think the law is – or even what they think the law should be – is that it forces a politically-accountable decision. Congress can either agree, or disagree; but Congress must do something. Merely waiting for the next administration to come along will not be sufficient to alter the course set by the judicial interpretation of the law. Where Congress has abdicated its responsibility to make politically-accountable decisions by deferring those decisions to the executive or agencies, the political-accountability justification for Chevron deference fails. In such cases, the better course for the courts may well be to enforce Congress’s role under the separation of powers by refusing deference and returning the question to Congress.
Today the International Center for Law & Economics (ICLE) submitted an amicus brief urging the Supreme Court to review the DC Circuit’s 2016 decision upholding the FCC’s 2015 Open Internet Order. The brief was authored by Geoffrey A. Manne, Executive Director of ICLE, and Justin (Gus) Hurwitz, Assistant Professor of Law at the University of Nebraska College of Law and ICLE affiliate, with able assistance from Kristian Stout and Allen Gibby of ICLE. Jeffrey A. Mandell of the Wisconsin law firm of Stafford Rosenbaum collaborated in drafting the brief and provided invaluable pro bono legal assistance, for which we are enormously grateful. Laura Lamansky of Stafford Rosenbaum also assisted.
The following post discussing the brief was written by Jeff Mandell (originally posted here).
Courts generally defer to agency expertise when reviewing administrative rules that regulate conduct in areas where Congress has delegated authority to specialized executive-branch actors. An entire body of law—administrative law—governs agency actions and judicial review of those actions. And at the federal level, courts grant agencies varying degrees of deference, depending on what kind of function the agency is performing, how much authority Congress delegated, and the process by which the agency adopts or enforces policies.
Should courts be more skeptical when an agency changes a policy position, especially if the agency is reversing prior policy without a corresponding change to the governing statute? Daniel Berninger v. Federal Communications Commission, No. 17-498 (U.S.), raises these questions. And this week Stafford Rosenbaum was honored to serve as counsel of record for the International Center for Law & Economics (“ICLE”) in filing an amicus curiae brief urging the U.S. Supreme Court to hear the case and to answer these questions.
ICLE’s amicus brief highlights new academicresearch suggesting that systematic problems undermine judicial review of agency changes in policy. The brief also points out that judicial review is complicated by conflicting signals from the Supreme Court about the degree of deference that courts should accord agencies in reviewing reversals of prior policy. And the brief argues that the specific policy change at issue in this case lacks a sufficient basis but was affirmed by the court below as the result of a review that was, but should not have been, “particularly deferential.”
In 2015, the Federal Communications Commission (“FCC”) issued the Open Internet Order (“OIO”), which required Internet Service Providers to abide by a series of regulations popularly referred to as net neutrality. To support these regulations, the FCC interpreted the Communications Act of 1934 to grant it authority to heavily regulate broadband internet service. This interpretation reversed a long-standing agency understanding of the statute as permitting only limited regulation of broadband service.
The FCC ostensibly based the OIO on factual and legal analysis. However, ICLE argues, the OIO is actually based on questionable factual reinterpretations and misunderstanding of statutory interpretation adopted more in order to support radical changes in FCC policy than for their descriptive accuracy. When a variety of interested parties challenged the OIO, the U.S. Court of Appeals for the D.C. Circuit affirmed the regulations. In doing so, the court afforded substantial deference to the FCC—so much that the D.C. Circuit never addressed the reasonableness of the FCC’s decisionmaking process in reversing prior policy.
ICLE’s amicus brief argues that the D.C. Circuit’s decision “is both in tension with [the Supreme] Court’s precedents and, more, raises exceptionally important and previously unaddressed questions about th[e] Court’s precedents on judicial review of agency changes of policy.” Without further guidance from the Supreme Court, the brief argues, “there is every reason to believe” the FCC will again reverse its position on broadband regulation, such that “the process will become an endless feedback loop—in the case of this regulation and others—at great cost not only to regulated entities and their consumers, but also to the integrity of the regulatory process.”
The ramifications of the Supreme Court accepting this case would be twofold. First, administrative agencies would gain guidance for their decisionmaking processes in considering changes to existing policies. Second, lower courts would gain clarity on agency deference issues, making judicial review more uniform and appropriate where agencies reverse prior policy positions.
In the wake of the recent OIO decision, separation of powers issues should be at the forefront of everyone’s mind. In reaching its decision, the DC Circuit relied upon Chevron to justify its extreme deference to the FCC. The court held, for instance, that
Our job is to ensure that an agency has acted “within the limits of [Congress’s] delegation” of authority… and that its action is not “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”… Critically, we do not “inquire as to whether the agency’s decision is wise as a policy matter; indeed, we are forbidden from substituting our judgment for that of the agency.”… Nor do we inquire whether “some or many economists would disapprove of the [agency’s] approach” because “we do not sit as a panel of referees on a professional economics journal, but as a panel of generalist judges obliged to defer to a reasonable judgment by an agency acting pursuant to congressionally delegated authority.
The DC Circuit’s decision takes a broad view of Chevron deference and, in so doing, ignores or dismisses some of the limits placed upon the doctrine by cases like Michigan v. EPA and UARG v. EPA (though Judge Williams does bring up UARG in dissent).
Whatever one thinks of the validity of the FCC’s approach to regulating the Internet, there is no question that it has, at best, a weak statutory foothold. Without prejudging the merits of the OIO, or the question of deference to agencies that find “[regulatory] elephants in [statutory] mouseholes,” such broad claims of authority, based on such limited statutory language, should give one pause. That the court upheld the FCC’s interpretation of the Act without expressing reservations, suggesting any limits, or admitting of any concrete basis for challenging the agency’s authority beyond circular references to “abuse of discretion” is deeply troubling.
Separation of powers is a fundamental feature of our democracy, and one that has undoubtedly contributed to the longevity of our system of self-governance. Not least among the important features of separation of powers is the ability of courts to review the lawfulness of legislation and executive action.
The founders presciently realized the dangers of allowing one part of the government to centralize power in itself. In Federalist 47, James Madison observed that
The accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, selfappointed, or elective, may justly be pronounced the very definition of tyranny. Were the federal Constitution, therefore, really chargeable with the accumulation of power, or with a mixture of powers, having a dangerous tendency to such an accumulation, no further arguments would be necessary to inspire a universal reprobation of the system. (emphasis added)
The modern administrative apparatus has become the sort of governmental body that the founders feared and that we have somehow grown to accept. The FCC is not alone in this: any member of the alphabet soup that constitutes our administrative state, whether “independent” or otherwise, is typically vested with great, essentially unreviewable authority over the economy and our daily lives.
As Justice Thomas so aptly put it in his must-read concurrence in Michigan v. EPA:
Perhaps there is some unique historical justification for deferring to federal agencies, but these cases reveal how paltry an effort we have made to understand it or to confine ourselves to its boundaries. Although we hold today that EPA exceeded even the extremely permissive limits on agency power set by our precedents, we should be alarmed that it felt sufficiently emboldened by those precedents to make the bid for deference that it did here. As in other areas of our jurisprudence concerning administrative agencies, we seem to be straying further and further from the Constitution without so much as pausing to ask why. We should stop to consider that document before blithely giving the force of law to any other agency “interpretations” of federal statutes.
Administrative discretion is fantastic — until it isn’t. If your party is the one in power, unlimited discretion gives your side the ability to run down a wish list, checking off controversial items that could never make it past a deliberative body like Congress. That same discretion, however, becomes a nightmare under extreme deference as political opponents, newly in power, roll back preferred policies. In the end, regulation tends toward the extremes, on both sides, and ultimately consumers and companies pay the price in the form of excessive regulatory burdens and extreme uncertainty.
In theory, it is (or should be) left to the courts to rein in agency overreach. Unfortunately, courts have been relatively unwilling to push back on the administrative state, leaving the task up to Congress. And Congress, too, has, over the years, found too much it likes in agency power to seriously take on the structural problems that give agencies effectively free reign. At least, until recently.
In March of this year, Representative Ratcliffe (R-TX) proposed HR 4768: the Separation of Powers Restoration Act (“SOPRA”). Arguably this is first real effort to fix the underlying problem since the 1995 “Comprehensive Regulatory Reform Act” (although, it should be noted, SOPRA is far more targeted than was the CRRA). Under SOPRA, 5 U.S.C. § 706 — the enacted portion of the APA that deals with judicial review of agency actions — would be amended to read as follows (with the new language highlighted):
(a) To the extent necessary to decision and when presented, the reviewing court shall determine the meaning or applicability of the terms of an agency action and decide de novo all relevant questions of law, including the interpretation of constitutional and statutory provisions, and rules made by agencies. Notwithstanding any other provision of law, this subsection shall apply in any action for judicial review of agency action authorized under any provision of law. No law may exempt any such civil action from the application of this section except by specific reference to this section.
These changes to the scope of review would operate as a much-needed check on the unlimited discretion that agencies currently enjoy. They give courts the ability to review “de novo all relevant questions of law,” which includes agencies’ interpretations of their own rules.
The status quo has created a negative feedback cycle. The Chevron doctrine, as it has played out, gives outsized incentives to both the federal agencies, as well as courts, to essentially disregard Congress’s intended meaning for particular statutes. Today an agency can write rules and make decisions safe in the knowledge that Chevron will likely insulate it from any truly serious probing by a district court with regards to how well the agency’s action actually matches up with congressional intent or with even rudimentary cost-benefit analysis.
Defenders of the administrative state may balk at changing this state of affairs, of course. But defending an institution that is almost entirely immune from judicial and legal review seems to be a particularly hard row to hoe.
Judicial deference to agency decision-making is critical in instances where Congress’ intent is unclear because it balances each branch of government’s appropriate role and acknowledges the realities of the modern regulatory state.
To quote Justice Scalia, an unfortunate champion of the Chevron doctrine, this is “pure applesauce.”
The very core of the problem that SOPRA addresses is that the administrative state is not a proper branch of government — it’s a shadow system of quasi-legislation and quasi-legal review. Congress can be chastened by popular vote. Judges who abuse discretion can be overturned (or impeached). The administrative agencies, on the other hand, are insulated through doctrines like Chevron and Auer, and their personnel subject more or less to the political whims of the executive branch.
Even agencies directly under the control of the executive branch — let alone independent agencies — become petrified caricatures of their original design as layers of bureaucratic rule and custom accrue over years, eventually turning the organization into an entity that serves, more or less, to perpetuate its own existence.
Other supporters of the status quo actually identify the unreviewable see-saw of agency discretion as a feature, not a bug:
Even people who agree with the anti-government premises of the sponsors [of SOPRA] should recognize that a change in the APA standard of review is an inapt tool for advancing that agenda. It is shortsighted, because it ignores the fact that, over time, political administrations change. Sometimes the administration in office will generally be in favor of deregulation, and in these circumstances a more intrusive standard of judicial review would tend to undercut that administration’s policies just as surely as it may tend to undercut a more progressive administration’s policies when the latter holds power. The APA applies equally to affirmative regulation and to deregulation.
But presidential elections — far from justifying this extreme administrative deference — actually make the case for trimming the sails of the administrative state. Presidential elections have become an important part about how candidates will wield the immense regulatory power vested in the executive branch.
Thus, for example, as part of his presidential bid, Jeb Bush indicated he would use the EPA to roll back every policy that Obama had put into place. One of Donald Trump’s allies suggested that Trump “should turn off [CNN’s] FCC license” in order to punish the news agency. And VP hopeful Elizabeth Warren has suggested using the FDIC to limit the growth of financial institutions, and using the FCC and FTC to tilt the markets to make it easier for the small companies to get an advantage over the “big guys.”
Far from being neutral, technocratic administrators of complex social and economic matters, administrative agencies have become one more political weapon of majority parties as they make the case for how their candidates will use all the power at their disposal — and more — to work their will.
In reality…, agencies “interpreting” ambiguous statutes typically are not engaged in acts of interpretation at all. Instead, as Chevron itself acknowledged, they are engaged in the “formulation of policy.” Statutory ambiguity thus becomes an implicit delegation of rulemaking authority, and that authority is used not to find the best meaning of the text, but to formulate legally binding rules to fill in gaps based on policy judgments made by the agency rather than Congress.
And this is just the thing: SOPRA would bring far-more-valuable predictability and longevity to our legal system by imposing a system of accountability on the agencies. Currently, commissions often believe they can act with impunity (until the next election at least), and even the intended constraints of the APA frequently won’t do much to tether their whims to statute or law if they’re intent on deviating. Having a known constraint (or, at least, a reliable process by which judicial constraint may be imposed) on their behavior will make them think twice about exactly how legally and economically sound proposed rules and other actions are.
The administrative state isn’t going away, even if SOPRA were passed; it will continue to be the source of the majority of the rules under which our economy operates. We have long believed that a benefit of our judicial system is its consistency and relative lack of politicization. If this is a benefit for interpreting laws when agencies aren’t involved, it should also be a benefit when they are involved. Particularly as more and more law emanates from agencies rather than Congress, the oversight of largely neutral judicial arbiters is an essential check on the administrative apparatus’ “accumulation of all powers.”
The interest of judges tends to include a respect for the development of precedent that yields consistent and transparent rules for all future litigants and, more broadly, for economic actors and consumers making decisions in the shadow of the law. This is markedly distinct from agencies which, more often than not, promote the particular, shifting, and often-narrow political sentiments of the day.
Whether a Republican- or a Democrat— appointed district judge reviews an agency action, that judge will be bound (more or less) by the precedent that came before, regardless of the judge’s individual political preferences. Contrast this with the FCC’s decision to reclassify broadband as a Title II service, for example, where previously it had been committed to the idea that broadband was an information service, subject to an entirely different — and far less onerous — regulatory regime. Of course, the next FCC Chairman may feel differently, and nothing would stop another regulatory shift back to the pre-OIO status quo. Perhaps more troublingly, the enormous discretion afforded by courts under current standards of review would permit the agency to endlessly tweak its rules — forbearing from some regulations but not others, un-forbearing, re-interpreting, etc., with precious few judicial standards available to bring certainty to the rules or to ensure their fealty to the statute or the sound economics that is supposed to undergird administrative decisionmaking.
SOPRA, or a bill like it, would have required the Commission to actually be accountable for its historical regulations, and would force it to undergo at least rudimentary economic analysis to justify its actions. This form of accountability can only be to the good.
The genius of our system is its (potential) respect for the rule of law. This is an issue that both sides of the aisle should be able to get behind: minority status is always just one election cycle away. We should all hope to see SOPRA — or some bill like it — gain traction, rooted in long-overdue reflection on just how comfortable we are as a polity with a bureaucratic system increasingly driven by unaccountable discretion.
Recently, the en banc Federal Circuit decided in Suprema, Inc. v. ITC that the International Trade Commission could properly prevent the importation of articles that infringe under an indirect liability theory. The core of the dispute in Suprema was whether § 337 of the Tariff Act’s prohibition against “importing articles that . . . infringe a valid and enforceable United States patent” could be used to prevent the importation of articles that at the moment of importation were not (yet) directly infringing. In essence, is the ITC limited to acting only when there is a direct infringement, or can it also prohibit articles involved in an indirect infringement scheme — in this case under an inducement theory?
TOTM’s own Alden Abbott posted his view of the decision, and there are a couple of points we’d like to respond to, both embodied in this quote:
[The ITC’s Suprema decision] would likely be viewed unfavorably by the Supreme Court, which recently has shown reluctance about routinely invoking Chevron deference … Furthermore, the en banc majority’s willingness to find inducement liability at a time when direct patent infringement has not yet occurred (the point of importation) is very hard to square with the teachings of [Limelight v.] Akamai.
In truth, we are of two minds (four minds?) regarding this view. We’re deeply sympathetic with arguments that the Supreme Court has become — and should become — increasingly skeptical of blind Chevron deference. Recently, we filed a brief on the 2015 Open Internet Order that, in large part, argued that the FCC does not deserve Chevron deference under King v. Burwell, UARG v. EPAand Michigan v. EPA(among other important cases) along a very similar line of reasoning. However, much as we’d like to generally scale back Chevron deference, in this case we happen to think that the Federal Circuit got it right.
Put simply, “infringe” as used in § 337 plainly includes indirect infringement. Section 271 of the Patent Act makes it clear that indirect infringers are guilty of “infringement.” The legislative history of the section, as well as Supreme Court case law, makes it very clear that § 271 was a codification of both direct and indirect liability.
In taxonomic terms, § 271 codifies “infringement” as a top-level category, with “direct infringement” and “indirect infringement” as two distinct subcategories of infringement. The law further subdivides “indirect infringement” into sub-subcategories, “inducement” and “contributory infringement.” But all of these are “infringement.”
For instance, § 271(b) says that “[w]hoever actively induces infringement of a patent shall be liable as an infringer” (emphasis added). Thus, in terms of § 271, to induce infringement is to commit infringement within the meaning of the patent laws. And in § 337, assuming it follows § 271 (which seems appropriate given Congress’ stated purpose to “make it a more effective remedy for the protection of United States intellectual property rights” (emphasis added)), it must follow that when one imports “articles… that infringe” she can be liable for either (or both) § 271(a) direct infringement or § 271(b) inducement.
Frankly, we think this should end the analysis: There is no Chevron question here because the Tariff Act isn’t ambiguous.
But although it seems clear on the face of § 337 that “infringe” must include indirect infringement, at the very least § 337 is ambiguous and cannot clearly mean only “direct infringement.” Moreover, the history of patent law as well as the structure of the ITC’s powers both cut in favor of the ITC enforcing the Tariff Act against indirect infringers. The ITC’s interpretation of any ambiguity in the term “articles… that infringe” is surely reasonable.
The Ambiguity and History of § 337 Allows for Inducement Liability
Assuming for argument’s sake that § 337’s lack of specificity leaves room for debate as to what “infringe” means, there is nothing that militates definitively against indirect liability being included in § 337. The majority handles any ambiguity of this sort well:
[T]he shorthand phrase “articles that infringe” does not unambiguously exclude inducement of post-importation infringement… By using the word “infringe,” § 337 refers to 35 U.S.C. § 271, the statutory provision defining patent infringement. The word “infringe” does not narrow § 337’s scope to any particular subsections of § 271. As reflected in § 271 and the case law from before and after 1952, “infringement” is a term that encompasses both direct and indirect infringement, including infringement by importation that induces direct infringement of a method claim… Section 337 refers not just to infringement, but to “articles that infringe.” That phrase does not narrow the provision to exclude inducement of post-importation infringement. Rather, the phrase introduces textual uncertainty.
Further, the court notes that it has consistently held that inducement is a valid theory of liability on which to base § 337 cases.
And lest you think that this interpretation would give some new, expansive powers to the ITC (perhaps meriting something like a Brown & Williamson exception to Chevron deference), the ITC is still bound by all the defenses and limitations on indirect liability under § 271. Saying it has authority to police indirect infringement doesn’t give it carte blanche, nor any more power than US district courts currently have in adjudicating indirect infringement. In this case, the court went nowhere near the limits of Chevron in giving deference to the ITC’s decision that “articles… that infringe” emcompasses the well-established (and statutorily defined) law of indirect infringement.
Inducement Liability Isn’t Precluded by Limelight
Nor does the Supreme Court’s Limelight v. Akamai decision present any problem. Limelight is often quoted for the proposition that there can be no inducement liability without direct infringement. And it does stand for that, as do many other cases; that point is not really in any doubt. But what Alden and others (including the dissenters in Suprema) have cited it for is the proposition that inducement liability cannot attach unless all of the elements of inducement have already been practiced at the time of importation. Limelight does not support that contention, however.
Inducement liability contemplates direct infringement, but the direct infringement need not have been practiced by the same entity liable for inducement, nor at the same time as inducement (see, e.g., Standard Oil. v. Nippon). Instead, the direct infringement may come at a later time — and there is no dispute in Suprema regarding whether there was direct infringement (there was, as Suprema notes: “the Commission found that record evidence demonstrated that Mentalix had already directly infringed claim 19 within the United States prior to the initiation of the investigation.”).
Limelight, on the other hand,is about what constitutes the direct infringement element in an inducement case. The sole issue in Limelight was whether this “direct infringement element” required that all of the steps of a method patent be carried out by a single entity or entities acting in concert. In Limelight’s network there was a division of labor, so to speak, between the company and its customers, such that each carried out some of the steps of the method patent at issue. In effect, plaintiffs argued that Limelight should be liable for inducement because it practised some of the steps of the patented method, with the requisite intent that others would carry out the rest of the steps necessary for direct infringement. But neither Limelight nor its customers separately carried out all of the steps necessary for direct infringement.
The Court held (actually, it simply reiterated established law) that the method patent could never be violated unless a single party (or parties acting in concert) carried out all of the steps of the method necessary for direct infringement. Thus it also held that Limelight could not be liable for inducement because, on the facts of that case, none of its customers could ever be liable for the necessary, underlying direct infringement. Again — what was really at issue in Limelight were the requirements to establish the direct infringement necessary to prove inducement.
On remand, the Federal Circuit reinforced the point that Limelight was really about direct infringement and, by extension, who must be involved in the direct infringement element of an inducement claim. According to the court:
We conclude that the facts Akamai presented at trial constitute substantial evidence from which a jury could find that Limelight directed or controlled its customers’ performance of each remaining method step. As such, substantial evidence supports the jury’s verdict that all steps of the claimed methods were performed by or attributable to Limelight. Therefore, Limelight is liable for direct infringement.
The holding of Limelight is simply inapposite to the facts of Suprema. The crux of Suprema is whether the appropriate mens rea existed to support a claim of inducement — not whether the requisite direct infringement occurred or not.
The Structure of § 337 Supports The ITC’s Ability to Block Inducement
Further, as the majority in Suprema notes, the very idea of inducement liability necessarily contemplates that there will be a temporal separation between the event that gives rise to indirect liability and the future direct infringement (required to prove inducement). As the Suprema court briefly noted “Section 337(a)(1)(B)’s ‘sale . . . after importation’ language confirms that the Commission is permitted to focus on post-importation activity to identify the completion of infringement.”
In particular, each of the enforcement powers in § 337(a) contains a clause that, in addition to a prohibition against, e.g., infringing articles at the time of importation, also prohibits “the sale within the United States after importation by the owner, importer, or consignee, of articles[.]” Thus, Congress explicitly contemplated that the ITC would have the power to act upon articles at various points in time, not limiting it to a power effective only at the moment of importation.
Although the particular power to reach into the domestic market has to do with preventing the importer or its agent from making sales, this doesn’t undermine the larger point here: the ITC’s power to prevent infringing articles extends over a range of time. Given that “articles that … infringe” is at the very least ambiguous, and, as per the Federal Circuit (and our own position), this ambiguity allows for indirect infringement, it isn’t a stretch to infer that that Congress intended the ITC to have authority under § 337 to ban the import of articles that induce infringement that occurs only after the time of importation..
To interpret § 337 otherwise would be to render it absurd and to create a giant loophole that would enable infringers to easily circumvent the ITC’s enforcement powers.
A Dissent from the Dissent
The dissent also takes a curious approach to § 271 by mixing inducement and contributory infringement, and generally making a confusing mess of the two. For instance, Judge Dyk says
At the time of importation, the scanners neither directly infringe nor induce infringement… Instead, these staple articles may or may not ultimately be used to infringe… depending upon whether and how they are combined with domestically developed software after importation into the United States (emphasis added).
Whether or not the goods were “staples articles” (and thus potentially capable of substantial noninfringing uses) has nothing to do with whether or not there was inducement. Section 271 makes a very clear delineation between inducement in § 271(b) and contributory infringement in § 271(c). While a staple article of commerce capable of substantial noninfringing uses will not serve as the basis for a contributory infringement claim, it is irrelevant whether or not goods are such “staples” for purposes of establishing inducement.
The boundaries of inducement liability, by contrast, are focused on the intent of the actors: If there is an intent to induce, whether or not there is a substantial noninfringing use, there can be a violation of § 271. Contributory infringement and inducement receive treatment in separate paragraphs of § 271 and are separate doctrines comprising separate elements. This separation is so evident on the face of the law as well as in its history that the Supreme Court read the doctrine into copyright in Grokster — where, despite a potentially large number of non-infringing uses, the intent to induce infringement was sufficient to find liability.
Parting Thoughts on Chevron
We have some final thoughts on the Chevron question, because this is rightly a sore point in administrative law. In this case we think that the analysis should have ended at step one. Although the Federal Circuit began with an assumption of ambiguity, it was being generous to the appellants. Did Congress speak with clear intent? We think so. Section 271 very clearly includes direct infringement as well as indirect infringement within its definition of what constitutes infringement of a patent. When § 337 references “articles … that infringe” it seems fairly obvious that Congress intended the ITC to be able to enforce the prohibitions in § 271 in the context of imported goods.
But even if we advance to step two of the Chevron analysis, the ITC’s construction of § 337 is plainly permissible — and far from expansive. By asserting its authority here the ITC is simply policing the importation of infringing goods (which it clearly has the power to do), and doing so in the case of goods that indirectly infringe (a concept that has been part of US law for a very long time). If “infringe” as used in the Tariff Act is ambiguous, the ITC’s interpretation of it to include both indirect as well as direct infringement seems self-evidently reasonable.
Under the dissent’s (and Alden’s) interpretation of § 337, all that would be required to evade the ITC would be to import only the basic components of an article such that at the moment of importation there was no infringement. Once reassembled within the United States, the ITC’s power to prevent the sale of infringing goods would be nullified. Section 337 would thus be read to simply write out the entire “indirect infringement” subdivision of § 271 — an inference that seems like a much bigger stretch than that “infringement” under § 337 means all infringement under § 271. Congress was more than capable of referring only to “direct infringement” in § 337 if that’s what it intended.
Much as we would like to see Chevron limited, not every agency case is the place to fight this battle. If we are to have agencies, and we are to have a Chevron doctrine, there will be instances of valid deference to agency interpretations — regardless of how broadly or narrowly Chevron is interpreted. The ITC wasn’t making a power grab in Suprema, nor was its reading of the statute unexpected, inconsistent with its past practice, or expansive.
In short, Suprema doesn’t break any new statutory interpretation ground, nor present a novel question of “deep economic or political significance” akin to the question at issue in King v. Burwell. Like it or not, there will be no roots of an anti-Chevron-deference revolution growing out of Suprema.
Gus Hurwitz is Assistant Professor of Law at University of Nebraska College of Law
Administrative law really is a strange beast. My last post explained this a bit, in the context of Chevron. In this post, I want to make this point in another context, explaining how utterly useless a policy statement can be. Our discussion today has focused on what should go into a policy statement – there seems to be general consensus that one is a good idea. But I’m not sure that we have a good understanding of how little certainty a policy statement offers.
Administrative Stare Decisis?
I alluded in my previous post to the absence of stare decisis in the administrative context.This is one of the greatest differences between judicial and administrative rulemaking: agencies are not bound by either prior judicial interpretations of their statutes, or even by their own prior interpretations. These conclusions follow from relatively recent opinions – Brand-X in 2005 and Fox I in 2007 – and have broad implications for the relationship between courts and agencies.
In Brand-X, the Court explained that a “court’s prior judicial construction of a statute trumps an agency construction otherwise entitled to Chevron deference only if the prior court decision holds that its construction follows from the unambiguous terms of the statute and thus leaves no room for agency discretion.” This conclusion follows from a direct application of Chevron: courts are responsible for determining whether a statute is ambiguous; agencies are responsible for determining the (reasonable) meaning of a statute that is ambiguous.
Not only are agencies not bound by a court’s prior interpretations of an ambiguous statute – they’re not even bound by their own prior interpretations!
In Fox I, the Court held that an agency’s own interpretation of an ambiguous statute impose no special obligations should the agency subsequently change its interpretation.[1] It may be necessary to acknowledge the prior policy; and factual findings upon which the new policy is based that contradict findings upon which the prior policy was based may need to be explained.[2] But where a statute may be interpreted in multiple ways – that is, in any case where the statute is ambiguous – Congress, and by extension its agencies, is free to choose between those alternative interpretations. The fact that an agency previously adopted one interpretation does not necessarily render other possible interpretations any less reasonable; the mere fact that one was previously adopted therefore, on its own, cannot act as a bar to subsequent adoption of a competing interpretation.
What Does This Mean for Policy Statements?
In a contentious policy environment – that is, one where the prevailing understanding of an ambiguous law changes with the consensus of a three-Commissioner majority – policy statements are worth next to nothing. Generally, the value of a policy statement is explaining to a court the agency’s rationale for its preferred construction of an ambiguous statute. Absent such an explanation, a court is likely to find that the construction was not sufficiently reasoned to merit deference. That is: a policy statement makes it easier for an agency to assert a given construction of a statute in litigation.
But a policy statement isn’t necessary to make that assertion, or for an agency to receive deference. Absent a policy statement, the agency needs to demonstrate to the court that its interpretation of the statute is sufficiently reasoned (and not merely a strategic interpretation adopted for the purposes of the present litigation).
And, more important, a policy statement in no way prevents an agency from changing its interpretation. Fox I makes clear that an agency is free to change its interpretations of a given statute. Prior interpretations – including prior policy statements – are not a bar to such changes. Prior interpretations also, therefore, offer little assurance to parties subject to any given interpretation.
Are Policy Statements entirely Useless?
Policy statements may not be entirely useless. The likely front on which to challenge an unexpected change agency interpretation of its statute is on Due Process or Notice grounds. The existence of a policy statement may make it easier for a party to argue that a changed interpretation runs afoul of Due Process or Notice requirements. See, e.g., Fox II.
So there is some hope that a policy statement would be useful. But, in the context of Section 5 UMC claims, I’m not sure how much comfort this really affords. Regulatory takings jurisprudence gives agencies broad power to seemingly-contravene Due Process and Notice expectations. This is largely because of the nature of relief available to the FTC: injunctive relief, such as barring certain business practices, even if it results in real economic losses, is likely to survive a regulatory takings challenge, and therefore also a Due Process challenge. Generally, the Due Process and Notice lines of argument are best suited against fines and similar retrospective remedies; they offer little comfort against prospective remedies like injunctions.
Conclusion
I’ll conclude the same way that I did my previous post, with what I believe is the most important takeaway from this post: however we proceed, we must do so with an understanding of both antitrust and administrative law. Administrative law is the unique, beautiful, and scary beast that governs the FTC – those who fail to respect its nuances do so at their own peril.
[1] Fox v. FCC, 556 U.S. 502, 514–516 (2007) (“The statute makes no distinction [] between initial agency action and subsequent agency action undoing or revising that action. … And of course the agency must show that there are good reasons for the new policy. But it need not demonstrate to a court’s satisfaction that the reasons for the new policy are better than the reasons for the old one; it suffices that the new policy is permissible under the statute, that there are good reasons for it, and that the agency believes it to be better, which the conscious change of course adequately indicates.”).
[2] Id. (“To be sure, the requirement that an agency provide reasoned explanation for its action would ordinarily demand that it display awareness that it is changing position. … This means that the agency need not always provide a more detailed justification than what would suffice for a new policy created on a blank slate. Sometimes it must—when, for example, its new policy rests upon factual findings that contradict those which underlay its prior policy; or when its prior policy has engendered serious reliance interests that must be taken into account. It would be arbitrary or capricious to ignore such matters. In such cases it is not that further justification is demanded by the mere fact of policy change; but that a reasoned explanation is needed for disregarding facts and circumstances that underlay or were engendered by the prior policy.”).
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