Archives For Lina Khan

A White House administration typically announces major new antitrust initiatives in the fall and spring, and this year is no exception. Senior Biden administration officials kicked off the fall season at Fordham Law School (more on that below) by shedding additional light on their plans to expand the accepted scope of antitrust enforcement.

Their aggressive enforcement statements draw headlines, but will the administration’s neo-Brandeisians actually notch enforcement successes? The prospects are cloudy, to say the least.

The U.S. Justice Department (DOJ) has lost some cartel cases in court this year (what was the last time that happened?) and, on Sept. 19, a federal judge rejected the DOJ’s attempt to enjoin United Health’s $13.8 billion bid for Change Healthcare. The Federal Trade Commission (FTC) recently lost two merger challenges before its in-house administrative law judge. It now faces a challenge to its administrative-enforcement processes before the U.S. Supreme Court (the Axon case, to be argued in November).

(Incidentally, on the other side of the Atlantic, the European Commission has faced some obstacles itself. Despite its recent Google victory, the Commission has effectively lost two abuse of dominance cases this year—the Intel and Qualcomm matters—before the European General Court.)

So, are the U.S. antitrust agencies chastened? Will they now go back to basics? Far from it. They enthusiastically are announcing plans to charge ahead, asserting theories of antitrust violations that have not been taken seriously for decades, if ever. Whether this turns out to be wise enforcement policy remains to be seen, but color me highly skeptical. Let’s take a quick look at some of the big enforcement-policy ideas that are being floated.

Fordham Law’s Antitrust Conference

Admiral David Farragut’s order “Damn the torpedoes, full speed ahead!” was key to the Union Navy’s August 1864 victory in the Battle of Mobile Bay, a decisive Civil War clash. Perhaps inspired by this display of risk-taking, the heads of the two federal antitrust agencies—DOJ Assistant Attorney General (AAG) Jonathan Kanter and FTC Chair Lina Khan—took a “damn the economics, full speed ahead” attitude in remarks at the Sept. 16 session of Fordham Law School’s 49th Annual Conference on International Antitrust Law and Policy. Special Assistant to the President Tim Wu was also on hand and emphasized the “all of government” approach to competition policy adopted by the Biden administration.

In his remarks, AAG Kanter seemed to be endorsing a “monopoly broth” argument in decrying the current “Whac-a-Mole” approach to monopolization cases. The intent may be to lessen the burden of proof of anticompetitive effects, or to bring together a string of actions taken jointly as evidence of a Section 2 violation. In taking such an approach, however, there is a serious risk that efficiency-seeking actions may be mistaken for exclusionary tactics and incorrectly included in the broth. (Notably, the U.S. Court of Appeals for the D.C. Circuit’s 2001 Microsoft opinion avoided the monopoly-broth problem by separately discussing specific company actions and weighing them on their individual merits, not as part of a general course of conduct.)

Kanter also recommended going beyond “our horizontal and vertical framework” in merger assessments, despite the fact that vertical mergers (involving complements) are far less likely to be anticompetitive than horizontal mergers (involving substitutes).

Finally, and perhaps most problematically, Kanter endorsed the American Innovative and Choice Online Act (AICOA), citing the protection it would afford “would-be competitors” (but what about consumers?). In so doing, the AAG ignored the fact that AICOA would prohibit welfare-enhancing business conduct and could be harmfully construed to ban mere harm to rivals (see, for example, Stanford professor Doug Melamed’s trenchant critique).

Chair Khan’s presentation, which called for a far-reaching “course correction” in U.S. antitrust, was even more bold and alarming. She announced plans for a new FTC Act Section 5 “unfair methods of competition” (UMC) policy statement centered on bringing “standalone” cases not reachable under the antitrust laws. Such cases would not consider any potential efficiencies and would not be subject to the rule of reason. Endorsing that approach amounts to an admission that economic analysis will not play a serious role in future FTC UMC assessments (a posture that likely will cause FTC filings to be viewed skeptically by federal judges).

In noting the imminent release of new joint DOJ-FTC merger guidelines, Khan implied that they would be animated by an anti-merger philosophy. She cited “[l]awmakers’ skepticism of mergers” and congressional rejection “of economic debits and credits” in merger law. Khan thus asserted that prior agency merger guidance had departed from the law. I doubt, however, that many courts will be swayed by this “economics free” anti-merger revisionism.

Tim Wu’s remarks closing the Fordham conference had a “big picture” orientation. In an interview with GW Law’s Bill Kovacic, Wu briefly described the Biden administration’s “whole of government” approach, embodied in President Joe Biden’s July 2021 Executive Order on Promoting Competition in the American Economy. While the order’s notion of breaking down existing barriers to competition across the American economy is eminently sound, many of those barriers are caused by government restrictions (not business practices) that are not even alluded to in the order.

Moreover, in many respects, the order seeks to reregulate industries, misdiagnosing many phenomena as business abuses that actually represent efficient free-market practices (as explained by Howard Beales and Mark Jamison in a Sept. 12 Mercatus Center webinar that I moderated). In reality, the order may prove to be on net harmful, rather than beneficial, to competition.

Conclusion

What is one to make of the enforcement officials’ bold interventionist screeds? What seems to be missing in their presentations is a dose of humility and pragmatism, as well as appreciation for consumer welfare (scarcely mentioned in the agency heads’ presentations). It is beyond strange to see agencies that are having problems winning cases under conventional legal theories floating novel far-reaching initiatives that lack a sound economics foundation.

It is also amazing to observe the downplaying of consumer welfare by agency heads, given that, since 1979 (in Reiter v. Sonotone), the U.S. Supreme Court has described antitrust as a “consumer welfare prescription.” Unless there is fundamental change in the makeup of the federal judiciary (and, in particular, the Supreme Court) in the very near future, the new unconventional theories are likely to fail—and fail badly—when tested in court. 

Bringing new sorts of cases to test enforcement boundaries is, of course, an entirely defensible role for U.S. antitrust leadership. But can the same thing be said for bringing “non-boundary” cases based on theories that would have been deemed far beyond the pale by both Republican and Democratic officials just a few years ago? Buckle up: it looks as if we are going to find out. 

The Federal Trade Commission (FTC) wants to review in advance all future acquisitions by Facebook parent Meta Platforms. According to a Sept. 2 Bloomberg report, in connection with its challenge to Meta’s acquisition of fitness-app maker Within Unlimited,  the commission “has asked its in-house court to force both Meta and [Meta CEO Mark] Zuckerberg to seek approval from the FTC before engaging in any future deals.”

This latest FTC decision is inherently hyper-regulatory, anti-free market, and contrary to the rule of law. It also is profoundly anti-consumer.

Like other large digital-platform companies, Meta has conferred enormous benefits on consumers (net of payments to platforms) that are not reflected in gross domestic product statistics. In a December 2019 Harvard Business Review article, Erik Brynjolfsson and Avinash Collis reported research finding that Facebook:

…generates a median consumer surplus of about $500 per person annually in the United States, and at least that much for users in Europe. … [I]ncluding the consumer surplus value of just one digital good—Facebook—in GDP would have added an average of 0.11 percentage points a year to U.S. GDP growth from 2004 through 2017.

The acquisition of complementary digital assets—like the popular fitness app produced by Within—enables Meta to continually enhance the quality of its offerings to consumers and thereby expand consumer surplus. It reflects the benefits of economic specialization, as specialized assets are made available to enhance the quality of Meta’s offerings. Requiring Meta to develop complementary assets in-house, when that is less efficient than a targeted acquisition, denies these benefits.

Furthermore, in a recent editorial lambasting the FTC’s challenge to a Meta-Within merger as lacking a principled basis, the Wall Street Journal pointed out that the challenge also removes incentive for venture-capital investments in promising startups, a result at odds with free markets and innovation:

Venture capitalists often fund startups on the hope that they will be bought by larger companies. [FTC Chair Lina] Khan is setting down the marker that the FTC can block acquisitions merely to prevent big companies from getting bigger, even if they don’t reduce competition or harm consumers. This will chill investment and innovation, and it deserves a burial in court.

This is bad enough. But the commission’s proposal to require blanket preapprovals of all future Meta mergers (including tiny acquisitions well under regulatory pre-merger reporting thresholds) greatly compounds the harm from its latest ill-advised merger challenge. Indeed, it poses a blatant challenge to free-market principles and the rule of law, in at least three ways.

  1. It substitutes heavy-handed ex ante regulatory approval for a reliance on competition, with antitrust stepping in only in those limited instances where the hard facts indicate a transaction will be anticompetitive. Indeed, in one key sense, it is worse than traditional economic regulation. Empowering FTC staff to carry out case-by-case reviews of all proposed acquisitions inevitably will generate arbitrary decision-making, perhaps based on a variety of factors unrelated to traditional consumer-welfare-based antitrust. FTC leadership has abandoned sole reliance on consumer welfare as the touchstone of antitrust analysis, paving the wave for potentially abusive and arbitrary enforcement decisions. By contrast, statutorily based economic regulation, whatever its flaws, at least imposes specific standards that staff must apply when rendering regulatory determinations.
  2. By abandoning sole reliance on consumer-welfare analysis, FTC reviews of proposed Meta acquisitions may be expected to undermine the major welfare benefits that Meta has previously bestowed upon consumers. Given the untrammeled nature of these reviews, Meta may be expected to be more cautious in proposing transactions that could enhance consumer offerings. What’s more, the general anti-merger bias by current FTC leadership would undoubtedly prompt them to reject some, if not many, procompetitive transactions that would confer new benefits on consumers.
  3. Instituting a system of case-by-case assessment and approval of transactions is antithetical to the normal American reliance on free markets, featuring limited government intervention in market transactions based on specific statutory guidance. The proposed review system for Meta lacks statutory warrant and (as noted above) could promote arbitrary decision-making. As such, it seriously flouts the rule of law and threatens substantial economic harm (sadly consistent with other ill-considered initiatives by FTC Chair Khan, see here and here).

In sum, internet-based industries, and the big digital platforms, have thrived under a system of American technological freedom characterized as “permissionless innovation.” Under this system, the American people—consumers and producers—have been the winners.

The FTC’s efforts to micromanage future business decision-making by Meta, prompted by the challenge to a routine merger, would seriously harm welfare. To the extent that the FTC views such novel interventionism as a bureaucratic template applicable to other disfavored large companies, the American public would be the big-time loser.

[TOTM: This guest post from Svetlana S. Gans and Natalie Hausknecht of Gibson Dunn is part of the Truth on the Market FTC UMC Symposium. If you would like to receive this and other posts relating to these topics, subscribe to the RSS feed here. If you have news items you would like to suggest for inclusion, please mail them to us at ghurwitz@laweconcenter.org and/or kfierro@laweconcenter.org.]

The Federal Trade Commission (FTC) launched one of the most ambitious rulemakings in agency history Aug. 11, with its 3-2 vote to initiate Advance Notice of Proposed Rulemaking (ANPRM) on commercial surveillance and data security. The divided vote, which broke down on partisan lines, stands in stark contrast to recent bipartisan efforts on Capitol Hill, particularly on the comprehensive American Data Privacy and Protection Act (ADPPA).  

Although the rulemaking purports to pursue a new “privacy and data security” regime, it targets far more than consumer privacy. The ANPRM lays out a sweeping project to rethink the regulatory landscape governing nearly every facet of the U.S. internet economy, from advertising to anti-discrimination law, and even to labor relations. Any entity that uses the internet (even for internal purposes) is likely to be affected by this latest FTC action, and public participation in the proposed rulemaking will be important to ensure the agency gets it right.

Summary of the ANPRM  

The vague scope of the FTC’s latest ANPRM begins at its title: “Commercial Surveillance and Data Security” Rulemaking. The announcement states the FTC intends to explore rules “cracking down” on the “business of collecting, analyzing, and profiting from information about people.” The ANPRM then defines the scope of “commercial surveillance” to include virtually any data activity. For example, the ANPRM explains that it includes practices used “to set prices, curate newsfeeds, serve advertisements, and conduct research on people’s behavior, among other things.” The ANPRM also goes on to say that it is concerned about practices “outside of the retail consumer setting” that the agency traditionally regulates. Indeed, the ANPRM defines “consumer” to include “businesses and workers, not just individuals who buy or exchange data for retail goods and services.”

Unlike the bipartisan ADPPA, the ANPRM also takes aim at the “consent” model that the FTC has long advocated to ensure consumers make informed choices about their data online. It claims that “consumers may become resigned to” data practices and “have little to no actual control over what happens to their information.” It also suggests that consumers “do not generally understand” data practices, such that their permission could be “meaningful”—making express consumer consent to data practices “irrelevant.”

The ANPRM further lists a disparate set of additional FTC concerns, from “pernicious dark pattern practices” to “lax data security practices” to “sophisticated digital advertising systems” to “stalking apps,” “cyber bullying, cyberstalking, and the distribution of child sexual abuse material,” and the use of “social media” among “kids and teens.” It “finally” wraps up with a reference to “growing reliance on automated systems” that may create “new forms and mechanisms for discrimination” in areas like housing, employment, and healthcare. The issue the agency expresses about these automated systems is with apparent “disparate outcomes” “even when automated systems consider only unprotected consumer traits.”

Having set out these concerns, the ANPRM seeks to justify a new rulemaking via a list of what it describes as “decades” of “consumer data privacy and security” enforcement actions. The rulemaking then requests that the public answer 95 questions, covering many different legal and factual issues. For example, the agency requests the public weigh in on the practices “companies use to surveil consumers,” intangible and unmeasurable “harms” created by such practices, the most harmful practices affecting children and teens, techniques that “manipulate consumers into prolonging online activity,” how the commission should balance costs and benefits from any regulation, biometric data practices, algorithmic errors and disparate impacts, the viability of consumer consent, the opacity of “consumer surveillance practices,” and even potential remedies the agency should consider.  

Commissioner Statements in Support of the ANPR

Every Democratic commissioner issued a separate supporting statement. Chair Lina Khan’s statement justified the rulemaking grounds that the FTC is the “de facto law enforcer in this domain.” She also doubled-down on the decision to address not only consumer privacy, but issues affecting all “opportunities in our economy and society, as well as core civil liberties and civil rights” and described being “especially eager to build a record” related to: the limits of “notice and consent” frameworks, as opposed to withdrawing permission for data collection “in the first place”; how to navigate “information asymmetries” with companies; how to address certain “business models” “premised on” persistent tracking; discrimination in automated processes; and workplace surveillance.   

Commissioner Rebecca Kelly Slaughter’s longer statement more explicitly attacked the agency’s “notice-and-consent regime” as having “failed to protect users.” She expressed hope that the new rules would take on biometric or location tracking, algorithmic decision-making, and lax data security practices as “long overdue.” Commission Slaughter further brushed aside concerns that the rulemaking was inappropriate while Congress considered comprehensive privacy legislation, asserting that the magnitude of the rulemaking was a reason to do it—not shy away. She also expressed interest in data-minimization specifications, discriminatory algorithms, and kids and teens issues.

Commissioner Alvaro Bedoya’s short statement likewise expressed support for acting. However, he noted the public comment period would help the agency “discern whether and how to proceed.” Like his colleagues, he identified his particular interest in “emerging discrimination issues”: the mental health of kids and teens; the protection of non-English speaking communities; and biometric data. On the pending privacy legislation, he noted that:

[ADPPA] is the strongest privacy bill that has ever been this close to passing. I hope it does pass. I hope it passes soon…. This ANPRM will not interfere with that effort. I want to be clear: Should the ADPPA pass, I will not vote for any rule that overlaps with it.

Commissioner Statements Opposed to the ANPRM

Both Republican commissioners published dissents. Commissioner Christine S. Wilson’s urged deference to Congress as it considers a comprehensive privacy law. Yet she also expressed broader concern about the FTC’s recent changes to its Section 18 rulemaking process that “decrease opportunities for public input and vest significant authority for the rulemaking proceedings solely with the Chair” and the unjustified targeting of practices not subject to prior enforcement action. Notably, Commissioner Wilson also worried the rulemaking was unlikely to survive judicial scrutiny, indicating that Chair Khan’s statements give her “no basis to believe that she will seek to ensure that proposed rule provisions fit within the Congressionally circumscribed jurisdiction of the FTC.”  

Commissioner Noah Phillips’ dissent criticized the ANPRM for failing to provide “notice of anything” and thus stripping the public of its participation rights. He argued that the ANPRM’s “myriad” questions appear to be a “mechanism to fish for legal theories that might justify outlandish regulatory ambition outside our jurisdiction.” He further noted that the rulemaking positions the FTC as a legislature to regulate in areas outside of its expertise (e.g., labor law) with potentially disastrous economic costs that it is ill-equipped to understand.

Commissioner Phillips further argued the ANPRM attacks disparate practices based on an “amalgam of cases concerning very different business models and conduct” that cannot show the prevalence of misconduct required for Section 18 rulemaking. He also criticized the FTC for abandoning its own informed-consent model based on paternalistic musings about individuals’ ability to decide for themselves. And finally, he criticized the FTC’s apparent overreach in claiming the mantle of “civil rights enforcer” when it was never given that explicit authority by Congress to declare discrimination or disparate impacts unlawful in this space. 

Implications for Regulated Entities and Others Concerned with Potential Agency Overreach

The sheer breadth of the ANPRM demands the avid attention of potentially regulated entities or those concerned with the FTC’s aggressive rulemaking agenda. The public should seek to meaningfully participate in the rulemaking process to ensure the FTC considers a broad array of viewpoints and has the facts before it necessary to properly define the scope of its own authority and the consequences of any proposed privacy regulation. For example, the FTC may issue a notice of proposed rulemaking defining acts or practices as unfair or deceptive “only where it has reason to believe that the unfair or deceptive acts or practices which are the subject of the proposed rulemaking are prevalent.”(emphasis added).

15 U.S. Code § 57a also states that the FTC may make a determination that unfair or deceptive acts or practices are prevalent only if:  “(A) it has issued cease and desist orders regarding such acts or practices, or (B) any other information available to the Commission indicates a widespread pattern of unfair or deceptive acts or practices.” That means that, under the Magnuson-Moss Section 18 rulemaking that the FTC must use here, the agency must show (1) the prevalence of the practices (2) how they are unfair or deceptive, and (3) the economic effect of the rule, including on small businesses and consumers. Any final regulatory analysis also must assess the rule’s costs and benefits and why it was chosen over alternatives. On each count, effective advocacy supported by empirical and sound economic analysis by the public may prove dispositive.

The FTC may have a particularly difficult time meeting this burden of proof with many of the innocuous (and currently permitted) practices identified in the ANPRM. For example, modern online commerce like automated decision-making is a part of the engine that has powered a decade of innovation, lowered logistical and opportunity costs, and opened up amazing new possibilities for small businesses seeking to serve local consumers and their communities. Commissioner Wilson makes this point well:

Many practices discussed in this ANPRM are presented as clearly deceptive or unfair despite the fact that they stretch far beyond practices with which we are familiar, given our extensive law enforcement experience. Indeed, the ANPRM wanders far afield of areas for which we have clear evidence of a widespread pattern of unfair or deceptive practices. 

The FTC also may be setting itself on an imminent collision course with the “major questions” doctrine, in particular. On the last day of its term this year, the Supreme Court handed down West Virginia v. Environmental Protection Agency, which applied the “major questions doctrine” to rule that the EPA can’t base its controversial Clean Power Plan on a novel interpretation of a relatively obscure provision of the Clean Air Act. An agency rule of such vast “economic and political significance,” Chief Justice John Roberts wrote, requires “clear congressional authorization.” (See “The FTC Heads for Legal Trouble” by Svetlana Gans and Eugene Scalia.) Parties are likely to argue the same holds true here with regard to the FTC’s potential regulatory extension into areas like anti-discrimination and labor law. If the FTC remains on this aggressive course, any final privacy rulemaking could also be a tempting target for a reinvigorated nondelegation doctrine.  

Some members of Congress also may question the wisdom of the ANPRM venturing into the privacy realm at all right now, a point advanced by several of the commissioners. Shortly after the FTC’s announcement, House Energy and Commerce Committee Chairman Frank Pallone Jr. (D-N.J.) stated:

I appreciate the FTC’s effort to use the tools it has to protect consumers, but Congress has a responsibility to pass comprehensive federal privacy legislation to better equip the agency, and others, to protect consumers to the greatest extent.

Sen. Roger Wicker (R-Miss.), the ranking member on the Senate Commerce Committee and a leading GOP supporter of the bipartisan legislation, likewise said that the FTC’s move helps “underscore the urgency for the House to bring [ADPPA]  to the floor and for the Senate Commerce Committee to advance it through committee.”  

The FTC’s ANPRM will likely have broad implications for the U.S. economy. Stakeholders can participate in the rulemaking in several ways, including registering by Aug. 31 to speak at the FTC’s Sept. 8 public forum. Stakeholders should also consider submitting public comments and empirical evidence within 60-days of the ANPRM’s publication in the Federal Register, and insist that the FTC hold informal hearings as required under the Magnuson-Moss Act.

While the FTC is rightfully the nation’s top consumer cop, an advanced notice of this scope demands active public awareness and participation to ensure the agency gets it right.  

 

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

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

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

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

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

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

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

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

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

[TOTM: The following is part of a digital symposium by TOTM guests and authors on Antitrust’s Uncertain Future: Visions of Competition in the New Regulatory Landscape. Information on the authors and the entire series of posts is available here.]

Philip K Dick’s novella “The Minority Report” describes a futuristic world without crime. This state of the world is achieved thanks to the visions of three mutants—so-called “precogs”—who predict crimes before they occur, thereby enabling law enforcement to incarcerate people for crimes they were going to commit.

This utopia unravels when the protagonist—the head of the police Precrime division, who is himself predicted to commit a murder—learns that the precogs often produce “minority reports”: i.e., visions of the future that differ from one another. The existence of these alternate potential futures undermine the very foundations of Precrime. For every crime that is averted, an innocent person may be convicted of a crime they were not going to commit.

You might be wondering what any of this has to do with antitrust and last week’s Truth on the Market symposium on Antitrust’s Uncertain Future. Given the recent adoption of the European Union’s Digital Markets Act (DMA) and the prospect that Congress could soon vote on the American Innovation and Choice Online Act (AICOA), we asked contributors to write short pieces describing what the future might look like—for better or worse—under these digital-market regulations, or in their absence.

The resulting blog posts offer a “minority report” of sorts. Together, they dispel the myth that these regulations would necessarily give rise to a brighter future of intensified competition, innovation, and improved online services. To the contrary, our contributors cautioned—albeit with varying degrees of severity—that these regulations create risks that policymakers should not ignore.

The Majority Report

If policymakers like European Commissioner for Competition Margrethe Vestager, Federal Trade Commission Chair Lina Khan, and Sen. Amy Klobuchar (D-Minn.) are to be believed, a combination of tougher regulations and heightened antitrust enforcement is the only way to revitalize competition in digital markets. As Klobuchar argues on her website:

To ensure our future economic prosperity, America must confront its monopoly power problem and restore competitive markets. … [W]e must update our antitrust laws for the twenty-first century to protect the competitive markets that are the lifeblood of our economy.

Speaking of the recently passed DMA, Vestager suggested the regulation could spark an economic boom, drawing parallels with the Renaissance:

The work we put into preserving and strengthening our Single Market will equip us with the means to show the world that our path based on open trade and fair competition is truly better. After all, Bruges did not become great by conquest and ruthless occupation. It became great through commerce and industry.

Several antitrust scholars have been similarly bullish about the likely benefits of such regulations. For instance, Fiona Scott Morton, Steven Salop, and David Dinielli write that:

It is an appropriate expression of democracy for Congress to enact pro-competitive statutes to maintain the vibrancy of the online economy and allow for continued innovation that benefits non-platform businesses as well as end users.

In short, there is a widespread belief that such regulations would make the online world more competitive and innovative, to the benefit of consumers.

The Minority Reports

To varying degrees, the responses to our symposium suggest proponents of such regulations may be falling prey to what Harold Demsetz called “the nirvana fallacy.” In other words, it is wrong to assume that the resulting enforcement would be costless and painless for consumers.

Even the symposium’s pieces belonging to the literary realms of sci-fi and poetry shed a powerful light on the deep-seated problems that underlie contemporary efforts to make online industries “more contestable and fair.” As several scholars highlighted, such regulations may prevent firms from designing new and improved products, or from maintaining existing ones. Among my favorite passages was this excerpt from Daniel Crane’s fictional piece about a software engineer in Helsinki trying to integrate restaurant and hotel ratings into a vertical search engine:

“We’ve been watching how you’re coding the new walking tour search vertical. It seems that you are designing it to give preference to restaurants, cafès, and hotels that have been highly rated by the Tourism Board.”

 “Yes, that’s right. Restaurants, cafès, and hotels that have been rated by the Tourism Board are cleaner, safer, and more convenient. That’s why they have been rated.”

 “But you are forgetting that the Tourism Board is one of our investors. This will be considered self-preferencing.”

Along similar lines, Thom Lambert observed that:

Even if a covered platform could establish that a challenged practice would maintain or substantially enhance the platform’s core functionality, it would also have to prove that the conduct was “narrowly tailored” and “reasonably necessary” to achieve the desired end, and, for many behaviors, the “le[ast] discriminatory means” of doing so. That is a remarkably heavy burden…. It is likely, then, that AICOA would break existing products and services and discourage future innovation.

Several of our contributors voiced fears that bans on self-preferencing would prevent platforms from acquiring startups that complement their core businesses, thus making it harder to launch new services and deterring startup investment. For instance, in my alternate history post, I argued that such bans might have prevented Google’s purchase of Android, thus reducing competition in the mobile phone industry.

A second important objection was that self-preferencing bans are hard to apply consistently. Policymakers would notably have to draw lines between the different components that make up an economic good. As Ramsi Woodcock wrote in a poem:

You: The meaning of component,
We can always redefine.
From batteries to molecules,
We can draw most any line.

This lack of legal certainty will prove hard to resolve. Geoffrey Manne noted that regulatory guidelines were unlikely to be helpful in this regard:

Indeed, while laws are sometimes purposefully vague—operating as standards rather than prescriptive rules—to allow for more flexibility, the concepts introduced by AICOA don’t even offer any cognizable standards suitable for fine-tuning.

Alden Abbott was similarly concerned about the vague language that underpins AICOA:

There is, however, one inescapable reality—as night follows day, passage of AICOA would usher in an extended period of costly litigation over the meaning of a host of AICOA terms. … The history of antitrust illustrates the difficulties inherent in clarifying the meaning of novel federal statutory language. It was not until 21 years after passage of the Sherman Antitrust Act that the Supreme Court held that Section 1 of the act’s prohibition on contracts, combinations, and conspiracies “in restraint of trade” only covered unreasonable restraints of trade.

Our contributors also argued that bans on self-preferencing and interoperability mandates might be detrimental to users’ online experience. Lazar Radic and Friso Bostoen both wrote pieces taking readers through a typical day in worlds where self-preferencing is prohibited. Neither was particularly utopian. In his satirical piece, Lazar Radic imagined an online shopping experience where all products are given equal display:

“Time to do my part,” I sigh. My eyes—trained by years of practice—dart from left to right and from right to left, carefully scrutinizing each coffee capsule on offer for an equal number of seconds. … After 13 brands and at least as many flavors, I select the platforms own brand, “Basic”… and then answer a series of questions to make sure I have actually given competitors’ products fair consideration.

Closer to the world we live in, Friso Bostoen described how going through a succession of choice screens—a likely outcome of regulations such as AICOA and the DMA—would be tiresome for consumers:

A new fee structure… God, save me from having to tap ‘learn more’ to find out what that means. I’ve had to learn more about the app ecosystem than is good for me already.

Finally, our symposium highlighted several other ways in which poorly designed online regulations may harm consumers. Stephen Dnes concluded that mandatory data-sharing regimes will deter companies from producing valuable data in the first place. Julie Carlson argued that prohibiting platforms from preferencing their own goods would disproportionately harm low-income consumers. And Aurelien Portuese surmised that, if passed into law, AICOA would dampen firms’ incentives to invest in new services. Last, but not least, in a co-authored piece, Filip Lubinski and Lazar Radic joked that self-preferencing bans could be extended to the offline world:

The success of AICOA has opened our eyes to an even more ancient and perverse evil: self-preferencing in offline markets. It revealed to us that—for centuries, if not millennia—companies in various industries—from togas to wine, from cosmetics to insurance—had, in fact, always preferred their own initiatives over those of their rivals!

The Problems of Online Precrime

Online regulations like AICOA and the DMA mark a radical shift from existing antitrust laws. They move competition policy from a paradigm of ex post enforcement, based upon a detailed case-by-case analysis of effects, to one of ex ante prohibitions.

Despite obvious and superficial differences, there are clear parallels between this new paradigm and the world of “The Minority Report: firms would be punished for behavior that has not yet transpired or is not proven to harm consumers.

This might be fine if we knew for certain that the prohibited conduct would harm consumers (i.e., if there were no “minority reports,” to use our previous analogy). But every entry in our symposium suggests things are not that simple. There are a wide range of outcomes and potential harms associated with the regulation of digital markets. This calls for a more calibrated approach to digital-competition policy, as opposed to the precrime of AICOA and the DMA.

The Biden administration’s antitrust reign of error continues apace. The U.S. Justice Department’s (DOJ) Antitrust Division has indicated in recent months that criminal prosecutions may be forthcoming under Section 2 of the Sherman Antitrust Act, but refuses to provide any guidance regarding enforcement criteria.

Earlier this month, Deputy Assistant Attorney General Richard Powers stated that “there’s ample case law out there to help inform those who have concerns or questions” regarding Section 2 criminal enforcement, conveniently ignoring the fact that criminal Section 2 cases have not been brought in almost half a century. Needless to say, those ancient Section 2 cases (which are relatively few in number) antedate the modern era of economic reasoning in antitrust analysis. What’s more, unlike Section 1 price-fixing and market-division precedents, they yield no clear rule as to what constitutes criminal unilateral behavior. Thus, DOJ’s suggestion that old cases be consulted for guidance is disingenuous at best. 

It follows that DOJ criminal-monopolization prosecutions would be sheer folly. They would spawn substantial confusion and uncertainty and disincentivize dynamic economic growth.

Aggressive unilateral business conduct is a key driver of the competitive process. It brings about “creative destruction” that transforms markets, generates innovation, and thereby drives economic growth. As such, one wants to be particularly careful before condemning such conduct on grounds that it is anticompetitive. Accordingly, error costs here are particularly high and damaging to economic prosperity.

Moreover, error costs in assessing unilateral conduct are more likely than in assessing joint conduct, because it is very hard to distinguish between procompetitive and anticompetitive single-firm conduct, as DOJ’s 2008 Report on Single Firm Conduct Under Section 2 explains (citations omitted):

Courts and commentators have long recognized the difficulty of determining what means of acquiring and maintaining monopoly power should be prohibited as improper. Although many different kinds of conduct have been found to violate section 2, “[d]efining the contours of this element … has been one of the most vexing questions in antitrust law.” As Judge Easterbrook observes, “Aggressive, competitive conduct by any firm, even one with market power, is beneficial to consumers. Courts should prize and encourage it. Aggressive, exclusionary conduct is deleterious to consumers, and courts should condemn it. The big problem lies in this: competitive and exclusionary conduct look alike.”

The problem is not simply one that demands drawing fine lines separating different categories of conduct; often the same conduct can both generate efficiencies and exclude competitors. Judicial experience and advances in economic thinking have demonstrated the potential procompetitive benefits of a wide variety of practices that were once viewed with suspicion when engaged in by firms with substantial market power. Exclusive dealing, for example, may be used to encourage beneficial investment by the parties while also making it more difficult for competitors to distribute their products.

If DOJ does choose to bring a Section 2 criminal case soon, would it target one of the major digital platforms? Notably, a U.S. House Judiciary Committee letter recently called on DOJ to launch a criminal investigation of Amazon (see here). Also, current Federal Trade Commission (FTC) Chair Lina Khan launched her academic career with an article focusing on Amazon’s “predatory pricing” and attacking the consumer welfare standard (see here).

Khan’s “analysis” has been totally discredited. As a trenchant scholarly article by Timothy Muris and Jonathan Nuechterlein explains:

[DOJ’s criminal Section 2 prosecution of A&P, begun in 1944,] bear[s] an eerie resemblance to attacks today on leading online innovators. Increasingly integrated and efficient retailers—first A&P, then “big box” brick-and-mortar stores, and now online retailers—have challenged traditional retail models by offering consumers lower prices and greater convenience. For decades, critics across the political spectrum have reacted to such disruption by urging Congress, the courts, and the enforcement agencies to stop these American success stories by revising antitrust doctrine to protect small businesses rather than the interests of consumers. Using antitrust law to punish pro-competitive behavior makes no more sense today than it did when the government attacked A&P for cutting consumers too good a deal on groceries. 

Before bringing criminal Section 2 charges against Amazon, or any other “dominant” firm, DOJ leaders should read and absorb the sobering Muris and Nuechterlein assessment. 

Finally, not only would DOJ Section 2 criminal prosecutions represent bad public policy—they would also undermine the rule of law. In a very thoughtful 2017 speech, then-Acting Assistant Attorney General for Antitrust Andrew Finch succinctly summarized the importance of the rule of law in antitrust enforcement:

[H]ow do we administer the antitrust laws more rationally, accurately, expeditiously, and efficiently? … Law enforcement requires stability and continuity both in rules and in their application to specific cases.

Indeed, stability and continuity in enforcement are fundamental to the rule of law. The rule of law is about notice and reliance. When it is impossible to make reasonable predictions about how a law will be applied, or what the legal consequences of conduct will be, these important values are diminished. To call our antitrust regime a “rule of law” regime, we must enforce the law as written and as interpreted by the courts and advance change with careful thought.

The reliance fostered by stability and continuity has obvious economic benefits. Businesses invest, not only in innovation but in facilities, marketing, and personnel, and they do so based on the economic and legal environment they expect to face.

Of course, we want businesses to make those investments—and shape their overall conduct—in accordance with the antitrust laws. But to do so, they need to be able to rely on future application of those laws being largely consistent with their expectations. An antitrust enforcement regime with frequent changes is one that businesses cannot plan for, or one that they will plan for by avoiding certain kinds of investments.

Bringing criminal monopolization cases now, after a half-century of inaction, would be antithetical to the stability and continuity that underlie the rule of law. What’s worse, the failure to provide prosecutorial guidance would be squarely at odds with concerns of notice and reliance that inform the rule of law. As such, a DOJ decision to target firms for Section 2 criminal charges would offend the rule of law (and, sadly, follow the FTC ‘s recent example of flouting the rule of law, see here and here).

In sum, the case against criminal Section 2 prosecutions is overwhelming. At a time when DOJ is facing difficulties winning “slam dunk” criminal Section 1  prosecutions targeting facially anticompetitive joint conduct (see here, here, and here), the notion that it would criminally pursue unilateral conduct that may generate substantial efficiencies is ludicrous. Hopefully, DOJ leadership will come to its senses and drop any and all plans to bring criminal Section 2 cases.

Federal Trade Commission (FTC) Chair Lina Khan recently joined with FTC Commissioner Rebecca Slaughter to file a “written submission on the public interest” in the U.S. International Trade Commission (ITC) Section 337 proceeding concerning imports of certain cellular-telecommunications equipment covered by standard essential patents (SEPs). SEPs are patents that “read on” technology adopted for inclusion in a standard. Regrettably, the commissioners’ filing embodies advice that, if followed, would effectively preclude Section 337 relief to SEP holders. Such a result would substantially reduce the value of U.S. SEPs and thereby discourage investments in standards that help drive American innovation.

Section 337 of the Tariff Act authorizes the ITC to issue “exclusion orders” blocking the importation of products that infringe U.S. patents, subject to certain “public interest” exceptions. Specifically, before issuing an exclusion order, the ITC must consider:

  1. the public health and welfare;
  2. competitive conditions in the U.S. economy;
  3. production of like or directly competitive articles in the United States; and
  4. U.S. consumers.

The Khan-Slaughter filing urges the ITC to consider the impact that issuing an exclusion order against a willing licensee implementing a standard would have on competition and consumers in the United States. The filing concludes that “where a complainant seeks to license and can be made whole through remedies in a different U.S. forum [a federal district court], an exclusion order barring standardized products from the United States will harm consumers and other market participants without providing commensurate benefits.”

Khan and Slaughter’s filing takes a one-dimensional view of the competitive effects of SEP rights. In short, it emphasizes that:

  1. standardization empowers SEP owners to “hold up” licensees by demanding more for a technology than it would have been worth, absent the standard;
  2. “hold ups” lead to higher prices and may discourage standard-setting activities and collaboration, which can delay innovation;
  3. many standard-setting organizations require FRAND (fair, reasonable, and non-discriminatory) licensing commitments from SEP holders to preclude hold-up and encourage standards adoption;
  4. FRAND commitments ensure that SEP licenses will be available at rates limited to the SEP’s “true” value;
  5. the threat of ITC exclusion orders would empower SEP holders to coerce licensees into paying “anticompetitively high” supra-FRAND licensing rates, discouraging investments in standard-compliant products;
  6. inappropriate exclusion orders harm consumers in the short term by depriving them of desired products and, in the longer run, through reduced innovation, competition, quality, and choice;
  7. thus, where the standard implementer is a “willing licensee,” an exclusion order would be contrary to the public interest; and
  8. as a general matter, exclusionary relief is incongruent and against the public interest where a court has been asked to resolve FRAND terms and can make the SEP holder whole.

In essence, Khan and Slaughter recite a parade of theoretical horribles, centered on anticompetitive hold-ups, to call-for denying exclusion orders to SEP owners on public-interest grounds. Their filing’s analysis, however, fails as a matter of empirics, law, and sound economics. 

First, the filing fails to note that there is a lack of empirical support for anticompetitive hold-up being a problem at all (see, for example, here, here, and here). Indeed, a far more serious threat is “hold-out,” whereby the ability of implementers to infringe SEPs without facing serious consequences leads to an inefficient undervaluation of SEP rights (see, for example, here). (At worst, implementers will have to pay at some future time a “reasonable” licensing fee if held to be infringers in court, since U.S. case law (unlike foreign case law) has essentially eliminated SEP holders’ ability to obtain an injunction.)  

Second, as a legal matter, the filing’s logic would undercut the central statutory purpose of Section 337, which is to provide all U.S. patent holders a right to exclude infringing imports. Section 337 does not distinguish between SEPs and other patents—all are entitled to full statutory protection. Former ITC Chair Deanna Tanner Okun, in critiquing a draft administration policy statement that would severely curtail the rights of SEP holders, assessed the denigration of Section 337 statutory protections in a manner that is equally applicable to the Khan-Slaughter filing:

The Draft Policy Statement also circumvents Congress by upending the statutory framework and purpose of Section 337, which includes the ITC’s practice of evaluating all unfair acts equally. Although the draft disclaims any “unique set of legal rules for SEPs,” it does, in fact, create a special and unequal analysis for SEPs. The draft also implies that the ITC should focus on whether the patents asserted are SEPs when judging whether an exclusion order would adversely affect the public interest. The draft fundamentally misunderstands the ITC’s purpose, statutory mandates, and overriding consideration of safeguarding the U.S. public interest and would — again, without statutory approval — elevate SEP status of a single patent over other weighty public interest considerations. The draft also overlooks Presidential review requirements, agency consultation opportunities and the ITC’s ability to issue no remedies at all.

[Notable,] Section 337’s statutory language does not distinguish the types of relief available to patentees when SEPs are asserted.

Third, Khan and Slaughter not only assert theoretical competitive harms from hold-ups that have not been shown to exist (while ignoring the far more real threat of hold-out), they also ignore the foregone dynamic economic gains that would stem from limitations on SEP rights (see, generally, here). Denying SEP holders the right to obtain a Section 337 exclusion order, as advocated by the filing, deprives them of a key property right. It thereby establishes an SEP “liability rule” (SEP holder relegated to seeking damages), as opposed to a “property rule” (SEP holder may seek injunctive relief) as the SEP holder’s sole means to obtain recompense for patent infringement. As my colleague Andrew Mercado and I have explained, a liability-rule approach denies society the substantial economic benefits achievable through an SEP property rule:

[U]nder a property rule, as contrasted to a liability rule, innovation will rise and drive an increase in social surplus, to the benefit of innovators, implementers, and consumers. 

Innovators’ welfare will rise. … First, innovators already in the market will be able to receive higher licensing fees due to their improved negotiating position. Second, new innovators enticed into the market by the “demonstration effect” of incumbent innovators’ success will in turn engage in profitable R&D (to them) that brings forth new cycles of innovation.

Implementers will experience welfare gains as the flood of new innovations enhances their commercial opportunities. New technologies will enable implementers to expand their product offerings and decrease their marginal cost of production. Additionally, new implementers will enter the market as innovation accelerates. Seeing the opportunity to earn high returns, new implementers will be willing to pay innovators a high licensing fee in order to produce novel and improved products.

Finally, consumers will benefit from expanded product offerings and lower quality-adjusted prices. Initial high prices for new goods and services entering the market will fall as companies compete for customers and scale economies are realized. As such, more consumers will have access to new and better products, raising consumers’ surplus.

In conclusion, the ITC should accord zero weight to Khan and Slaughter’s fundamentally flawed filing in determining whether ITC exclusion orders should be available to SEP holders. Denying SEP holders a statutorily provided right to exclude would tend to undermine the value of their property, diminish investment in improved standards, reduce innovation, and ultimately harm consumers—all to the detriment, not the benefit, of the public interest.  

Welcome to the FTC UMC Roundup, our new weekly update of news and events relating to antitrust and, more specifically, to the Federal Trade Commission’s (FTC) newfound interest in “revitalizing” the field. Each week we will bring you a brief recap of the week that was and a preview of the week to come. All with a bit of commentary and news of interest to regular readers of Truth on the Market mixed in.

This week’s headline? Of course it’s that Alvaro Bedoya has been confirmed as the FTC’s fifth commissioner—notably breaking the commission’s 2-2 tie between Democrats and Republicans and giving FTC Chair Lina Khan the majority she has been lacking. Politico and Gibson Dunn both offer some thoughts on what to expect next—though none of the predictions are surprising: more aggressive merger review and litigation; UMC rulemakings on a range of topics, including labor, right-to-repair, and pharmaceuticals; and privacy-related consumer protection. The real question is how quickly and aggressively the FTC will implement this agenda. Will we see a flurry of rulemakings in the next week, or will they be rolled out over a period of months or years? Will the FTC risk major litigation questions with a “go big or go home” attitude, or will it take a more incrementalist approach to boiling the frog?

Much of the rest of this week’s action happened on the Hill. Khan, joined by Securities and Exchange Commission (SEC) Chair Gary Gensler, made the regular trip to Congress to ask for a bigger budget to support more hires. (FTC, Law360) Sen. Mike Lee  (R-Utah) asked for unanimous consent on his State Antitrust Enforcement Venue Act, but met resistance from Sen. Amy Klobuchar (D-Minn.), who wants that bill paired with her own American Innovation and Choice Online Act. This follows reports that Senate Majority Leader Chuck Schumer (D-N.Y.) is pushing Klobuchar to get support in line for both AICOA and the Open App Markets Act to be brought to the Senate floor. Of course, if they had the needed support, we probably wouldn’t be talking so much about whether they have the needed support.

Questions about the climate at the FTC continue following release of the Office of Personnel Management’s (OPM) Federal Employee Viewpoint Survey. Sen. Roger Wicker (R-Miss.) wants to know what has caused staff satisfaction at the agency to fall precipitously. And former senior FTC staffer Eileen Harrington issued a stern rebuke of the agency at this week’s open meeting, saying of the relationship between leadership and staff that: “The FTC is not a failed agency but it’s on the road to becoming one. This is a crisis.”

Perhaps the only thing experiencing greater inflation than the dollar is interest in the FTC doing something about inflation. Alden Abbott and Andrew Mercado remind us that these calls are misplaced. But that won’t stop politicians from demanding the FTC do something about high gas prices. Or beef production. Or utilities. Or baby formula.

A little further afield, the 5th U.S. Circuit Court of Appeals issued an opinion this week in a case involving SEC administrative-law judges that took broad issue with them on delegation, due process, and “take care” grounds. It may come as a surprise that this has led to much overwrought consternation that the opinion would dismantle the administrative state. But given that it is often the case that the SEC and FTC face similar constitutional issues (recall that Kokesh v. SEC was the precursor to AMG Capital), the 5th Circuit case could portend future problems for FTC adjudication. Add this to the queue with the Supreme Court’s pending review of whether federal district courts can consider constitutional challenges to an agency’s structure. The court was already scheduled to consider this question with respect to the FTC this next term in Axon, and agreed this week to hear a similar SEC-focused case next term as well. 

Some Navel-Gazing News! 

Congratulations to recent University of Michigan Law School graduate Kacyn Fujii, winner of our New Voices competition for contributions to our recent symposium on FTC UMC Rulemaking (hey, this post is actually part of that symposium, as well!). Kacyn’s contribution looked at the statutory basis for FTC UMC rulemaking authority and evaluated the use of such authority as a way to address problematic use of non-compete clauses.

And, one for the academics (and others who enjoy writing academic articles): you might be interested in this call for proposals for a research roundtable on Market Structuring Regulation that the International Center for Law & Economics will host in September. If you are interested in writing on topics that include conglomerate business models, market-structuring regulation, vertical integration, or other topics relating to the regulation and economics of contemporary markets, we hope to hear from you!

Federal Trade Commission (FTC) Chair Lina Khan missed the mark once again in her May 6 speech on merger policy, delivered at the annual meeting of the International Competition Network (ICN). At a time when the FTC and U.S. Justice Department (DOJ) are presumably evaluating responses to the agencies’ “request for information” on possible merger-guideline revisions (see here, for example), Khan’s recent remarks suggest a predetermination that merger policy must be “toughened” significantly to disincentivize a larger portion of mergers than under present guidance. A brief discussion of Khan’s substantively flawed remarks follows.

Discussion

Khan’s remarks begin with a favorable reference to the tendentious statement from President Joe Biden’s executive order on competition that “broad government inaction has allowed far too many markets to become uncompetitive, with consolidation and concentration now widespread across our economy, resulting in higher prices, lower wages, declining entrepreneurship, growing inequality, and a less vibrant democracy.” The claim that “government inaction” has enabled increased market concentration and reduced competition has been shown to be  inaccurate, and therefore cannot serve as a defensible justification for a substantive change in antitrust policy. Accordingly, Khan’s statement that the executive order “underscores a deep mandate for change and a commitment to creating the enabling environment for reform” rests on foundations of sand.

Khan then shifts her narrative to a consideration of merger policy, stating:

Merger investigations invite us to make a set of predictive assessments, and for decades we have relied on models that generally assumed markets are self-correcting and that erroneous enforcement is more costly than erroneous non-enforcement. Both the experience of the U.S. antitrust agencies and a growing set of empirical research is showing that these assumptions appear to have been at odds with market realities.

Digital Markets

Khan argues, without explanation, that “the guidelines must better account for certain features of digital markets—including zero-price dynamics, the competitive significance of data, and the network externalities that can swiftly lead markets to tip.” She fails to make any showing that consumer welfare has been harmed by mergers involving digital markets, or that the “zero-price” feature is somehow troublesome. Moreover, the reference to “data” as being particularly significant to antitrust analysis appears to ignore research (see here) indicating there is an insufficient basis for having an antitrust presumption involving big data, and that big data (like R&D) may be associated with innovation, which enhances competitive vibrancy.

Khan also fails to note that network externalities are beneficial; when users are added to a digital platform, the platform’s value to other users increases (see here, for example). What’s more (see here), “gateways and multihoming can dissipate any monopoly power enjoyed by large networks[,] … provid[ing] another reason” why network effects may not raise competitive problems. In addition, the implicit notion that “tipping” is a particular problem is belied by the ability of new competitors to “knock off” supposed entrenched digital monopolists (think, for example, of Yahoo being displaced by Google, and Myspace being displaced by Facebook). Finally, a bit of regulatory humility is in order. Given the huge amount of consumer surplus generated by digital platforms (see here, for example), enforcers should be particularly cautious about avoiding more aggressive merger (and antitrust in general) policies that could detract from, rather than enhance, welfare.

Labor Markets

Khan argues that guidelines drafters should “incorporate new learning” embodied in “empirical research [that] has shown that labor markets are highly concentrated” and a “U.S. Treasury [report] recently estimating that a lack of competition may be costing workers up to 20% of their wages.” Unfortunately for Khan’s argument, these claims have been convincingly debunked (see here) in a new study by former FTC economist Julie Carlson (see here). As Carlson carefully explains, labor markets are not highly concentrated and labor-market power is largely due to market frictions (such as occupational licensing), rather than concentration. In a similar vein, a recent article by Richard Epstein stresses that heightened antitrust enforcement in labor markets would involve “high administrative and compliance costs to deal with a largely nonexistent threat.” Epstein points out:

[T]raditional forms of antitrust analysis can perfectly deal with labor markets. … What is truly needed is a close examination of the other impediments to labor, including the full range of anticompetitive laws dealing with minimum wage, overtime, family leave, anti-discrimination, and the panoply of labor union protections, where the gains to deregulation should be both immediate and large.

Nonhorizontal Mergers

Khan notes:

[W]e are looking to sharpen our insights on non-horizontal mergers, including deals that might be described as ecosystem-driven, concentric, or conglomerate. While the U.S. antitrust agencies energetically grappled with some of these dynamics during the era of industrial-era conglomerates in the 1960s and 70s, we must update that thinking for the current economy. We must examine how a range of strategies and effects, including extension strategies and portfolio effects, may warrant enforcement action.

Khan’s statement on non-horizontal mergers once again is fatally flawed.

With regard to vertical mergers (not specifically mentioned by Khan), the FTC abruptly withdrew, without explanation, its approval of the carefully crafted 2020 vertical-merger guidelines. That action offends the rule of law, creating unwarranted and costly business-sector confusion. Khan’s lack of specific reference to vertical mergers does nothing to solve this problem.

With regard to other nonhorizontal mergers, there is no sound economic basis to oppose mergers involving unrelated products. Threatening to do so would have no procompetitive rationale and would threaten to reduce welfare by preventing the potential realization of efficiencies. In a 2020 OECD paper drafted principally by DOJ and FTC economists, the U.S. government meticulously assessed the case for challenging such mergers and rejected it on economic grounds. The OECD paper is noteworthy in its entirely negative assessment of 1960s and 1970s conglomerate cases which Khan implicitly praises in suggesting they merely should be “updated” to deal with the current economy (citations omitted):

Today, the United States is firmly committed to the core values that antitrust law protect competition, efficiency, and consumer welfare rather than individual competitors. During the ten-year period from 1965 to 1975, however, the Agencies challenged several mergers of unrelated products under theories that were antithetical to those values. The “entrenchment” doctrine, in particular, condemned mergers if they strengthened an already dominant firm through greater efficiencies, or gave the acquired firm access to a broader line of products or greater financial resources, thereby making life harder for smaller rivals. This approach is no longer viewed as valid under U.S. law or economic theory. …

These cases stimulated a critical examination, and ultimate rejection, of the theory by legal and economic scholars and the Agencies. In their Antitrust Law treatise, Phillip Areeda and Donald Turner showed that to condemn conglomerate mergers because they might enable the merged firm to capture cost savings and other efficiencies, thus giving it a competitive advantage over other firms, is contrary to sound antitrust policy, because cost savings are socially desirable. It is now recognized that efficiency and aggressive competition benefit consumers, even if rivals that fail to offer an equally “good deal” suffer loss of sales or market share. Mergers are one means by which firms can improve their ability to compete. It would be illogical, then, to prohibit mergers because they facilitate efficiency or innovation in production. Unless a merger creates or enhances market power or facilitates its exercise through the elimination of competition—in which case it is prohibited under Section 7—it will not harm, and more likely will benefit, consumers.

Given the well-reasoned rejection of conglomerate theories by leading antitrust scholars and modern jurisprudence, it would be highly wasteful for the FTC and DOJ to consider covering purely conglomerate (nonhorizontal and nonvertical) mergers in new guidelines. Absent new legislation, challenges of such mergers could be expected to fail in court. Regrettably, Khan appears oblivious to that reality.

Khan’s speech ends with a hat tip to internationalism and the ICN:

The U.S., of course, is far from alone in seeing the need for a course correction, and in certain regards our reforms may bring us in closer alignment with other jurisdictions. Given that we are here at ICN, it is worth considering how we, as an international community, can or should react to the shifting consensus.

Antitrust laws have been adopted worldwide, in large part at the urging of the United States (see here). They remain, however, national laws. One would hope that the United States, which in the past was the world leader in developing antitrust economics and enforcement policy, would continue to seek to retain this role, rather than merely emulate other jurisdictions to join an “international community” consensus. Regrettably, this does not appear to be the case. (Indeed, European Commissioner for Competition Margrethe Vestager made specific reference to a “coordinated approach” and convergence between U.S. and European antitrust norms in a widely heralded October 2021 speech at the annual Fordham Antitrust Conference in New York. And Vestager specifically touted European ex ante regulation as well as enforcement in a May 5 ICN speech that emphasized multinational antitrust convergence.)

Conclusion

Lina Khan’s recent ICN speech on merger policy sends all the wrong signals on merger guidelines revisions. It strongly hints that new guidelines will embody pre-conceived interventionist notions at odds with sound economics. By calling for a dramatically new direction in merger policy, it interjects uncertainty into merger planning. Due to its interventionist bent, Khan’s remarks, combined with prior statements by U.S. Assistant Attorney General Jonathan Kanter (see here) may further serve to deter potentially welfare-enhancing consolidations. Whether the federal courts will be willing to defer to a drastically different approach to mergers by the agencies (one at odds with several decades of a careful evolutionary approach, rooted in consumer welfare-oriented economics) is, of course, another story. Stay tuned.  

[This post wraps the initial run of Truth on the Market‘s digital symposium “FTC Rulemaking on Unfair Methods of Competition.” You can find other posts at the symposium page here. Truth on the Market also invites academics, practitioners, and other antitrust/regulation commentators to send us 1,500-4,000 word responses for potential inclusion in the symposium.]

Over the past three weeks, we have shared contributions from more than a dozen antitrust commentators—including academics, practitioners, students, and a commissioner of the Federal Trade Commission—discussing the potential for the FTC to develop substantive rules using its unfair methods of competition (UMC) authority. This post offers a recap of where we have been so far in this discussion and also discusses what comes next for this symposium and our coverage of these issues.

First, I must express a deep thank you to all who have contributed. Having helped to solicit, review, and edit many of these pieces, it has been a pleasure to engage with and learn from our authors. And second, I am happy to say to everyone: stay tuned! The big news this week is that, after a long wait, Alvaro Bedoya has been confirmed to the commission, likely creating a majority who will support Chair Lina Khan’s agenda. The ideas that we have been discussing as possibilities are likely to be translated into action over the coming weeks and months—and we will be here to continue sharing expert commentary and analysis.

The Symposium Goes On: An Open Call for Contributions

We will continue to run this symposium for the foreseeable future. We will not have daily posts, but we will have regular content: a weekly recap of relevant news, summaries of important FTC activity and new articles and scholarship, and other original content.

In addition, in the spirit of the symposium, we have an open call for contributions: if you would like to submit a piece for publication, please e-mail it to me or Keith Fierro. Submissions should be 1,500-4,000 words and may approach these issues from any perspective. They should be your original work, but may include short-form summaries of longer works published elsewhere, or expanded treatments of shorter publications (e.g., op-eds).

The Symposium So Far

We have covered a lot of ground these past three weeks. Contributors to the symposium have delved deeply into substantive areas where the FTC might try to use its UMC authority; they have engaged with one another over the scope and limits of the FTC’s authority; and they have looked at the FTC’s history, both ancient and recent, to better understand what the FTC may try to do, where it may be successful, and where it may run into a judicial wall.

Over 50,000 words of posts cannot be summarized in a few paragraphs, so I will not try to provide such a summary. The list of contributions to the symposium to date is below and each contribution is worth reading both on its own and in conjunction with others. Instead, I will pull out some themes that have come up across these posts:

Scope of FTC Authority

Unsurprisingly, several authors engaged with the potential scope of FTC UMC-rulemaking authority, with much of the discussion focused on whether the courts are likely to continue to abide the U.S. Court of Appeals for the D.C. Circuit’s 1973 Petroleum Refiners opinion. It is fair to say that “opinions varied.” Discussion included everything from modern trends of judicial interpretation and how they differ from those used in 1973, to close readings of the Magnuson-Moss legislation (adopted in the immediate wake of the Petroleum Refiners opinion), and consideration of how more recent cases such as AMG and the D.C. Circuit’s American Library Association case affect our thinking about Petroleum Refiners.

Likely Judicial Responses

Several contributors also considered how the courts might respond to FTC rulemaking, allowing that the commission may have some level of substantive-rulemaking authority. Several authors invoked the Court’s recent “major questions” jurisprudence. Dick Pierce captures the general sentiment that any broad UMC rulemaking “would be a perfect candidate for application of the major questions doctrine.” But as with any discussion of the “major” questions doctrine, the implicit question is when a question is “major.” There seems to be some comfort with the idea that the FTC can do some rulemaking, assuming that the courts find that it has substantive-rulemaking authority under Section 6(g), but that the Commission faces an uncertain path if it tries to use that authority for more than incremental changes to antitrust law.

Virtues and Vices of Rulemaking

A couple of contributors picked up on themes of the virtues and vices of developing legal norms through rulemaking, as opposed to case-by-case adjudication. Aaron Neilson, for instance, argues that the FTC likely most needs to use rules to make bigger changes to antitrust law than are possible through adjudication, but that such big changes are the ones most likely to face resistance from the courts. And FTC Commissioner Noah Phillips looks at the Court’s move away from per se rules in antitrust cases over the past 50 years, arguing that the same logic that has pushed the courts to embrace a case-by-case approach to antitrust law is likely to create judicial resistance to any effort by the FTC to tack an opposite course.

The Substance of Substantive Rules

Several contributors addressed specific substantive issues that the FTC may seek to address with rules. In some cases, these issues formed the heart of the post; in others, they were used as examples along the way. For instance, Josh Sarnoff evaluated whether the FTC should develop rules around aftermarket parts and to address right-to-repair concerns. Dick Pierce also looked at that issue, along with several others (potential rules to address reverse-payment settlements in the pharmaceutical industry, below-cost pricing, and non-compete clauses involving low-wage workers).

Gaining Perspective

And last, but far from least, several contributors asked questions that help to put any thinking about the FTC into perspective. Jonathan Barnett, for instance, looks at the changes the FTC has made over the past year to its public statements of mission and priorities, alongside its potential rulemaking activity, to discuss the commission’s changing thinking about free markets. Ramsi Woodcock juxtaposes the FTC, the statutory framing of its regulatory authority, with the FOMC and its statutory power to directly affect the value of the dollar. And Bill MacLeod takes us back to 1935 and the National Industrial Recovery Act, reflecting on how the history of rules of “fair competition” might inform our thinking about the FTC’s authority today.

That’s a lot of ground to have covered in three weeks. Of course, the FTC will keep moving, and the ground will keep shifting. We look forward to your continued engagement with Truth on the Market and the authors who have contributed to this discussion.

[Wrapping up the first week of our FTC UMC Rulemaking symposium is a post from Truth on the Market’s own Justin (Gus) Hurwitz, director of law & economics programs at the International Center for Law & Economics and an assistant professor of law and co-director of the Space, Cyber, and Telecom Law program at the University of Nebraska College of Law. You can find other posts at the symposium page here. Truth on the Market also invites academics, practitioners, and other antitrust/regulation commentators to send us 1,500-4,000 word responses for potential inclusion in the symposium.]

Introduction

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

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

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

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

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

Setting the Stage, Circa 2013

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

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

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

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

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

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

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

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

The Administrative Antitrust Argument

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

Administrative Antitrust

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

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


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

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

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

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

Chevron and the Limits of Administrative Antitrust

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

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

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

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

Things Change

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

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

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

Administrative Antitrust, Redux

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

Major Questions and Major Rules

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

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

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

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

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

Limits on the Antitrust Side of Administrative Antitrust

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

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

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

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

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

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

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

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

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

Conclusion

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

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

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

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

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

Text, Structure, and Interpretation of the FTC Act

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

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

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

FTC Chair Khan believes that, in adopting the Magnuson-Moss procedures, Congress has implicitly codified Petroleum Refiners‘ holding that the FTC has authority to issue UMC rules. She argues that legislative history for the 1975 amendments show that Congress rejected a version of the bill that applied Magnuson-Moss procedures to all FTC rulemaking, rather than just unfair or deceptive acts rulemaking. And the enacted statute, as well as the conference report for the adopted law, stated that Magnuson-Moss procedures “shall not affect any authority of the Commission to prescribe rules (including interpretive rules), and general statements of policy, with respect to unfair methods of competition in or affecting commerce.” Khan believes that this provision implicitly recognized that, in accord with the holding of Petroleum Refiners, that Section 6(g) grants the commission authority to issue substantive UMC rules. Moreover, in her view, if the FTC adopted her position as its official interpretation of the statute, it would be entitled to Chevron deference.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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