Politics

Khan’s FTC Aims to Change the Rules of Antitrust

Under newly named Chairwoman Lina Khan, the Federal Trade Commission (FTC) is poised to strike a new tone in antitrust enforcement. At its first open business meeting in over 20 years, the FTC passed several measures that could dramatically change how the agency defines antitrust violations and makes new rules. On cue, President Biden signed an Executive Order last week encouraging the independent agency to create new regulations to curb anticompetitive behavior. As the Chairwoman and executive branch move to give the agency more power to alter antitrust standards, the agency could conflate its intended purpose with political objectives.

Introduction

Chairwoman Khan’s policy position is no secret. She first gained prominence at Yale Law School after publishing a paper that called for antitrust enforcement against Amazon. Most recently, Khan worked on the House Judiciary Committee’s antitrust investigation into Big Tech, which resulted in the introduction of several bills meant to crack down on monopoly power. Khan has wasted no time utilizing her new role as FTC Chair to modify how the agency will police alleged antitrust violations; the commission, voting 3-2 along party lines, passed a series of measures expanding the FTC’s prosecutorial power in antitrust.

First, the commission voted to rescind an Obama-era policy statement that clarified antitrust enforcement practice at the FTC would be bound by the Sherman and Clayton Acts, our nation’s primary antitrust laws. The current standard evaluates the impact certain business practices have on consumer welfare. Now, the FTC can expand its interpretation of what constitutes “unfair methods of competition,” Congress’ broad description of unlawful business practice, beyond the scope of the laws on the books and their judicial interpretations.

Second, the FTC voted to streamline its rulemaking procedure, allowing a commissioner to serve as the Presiding Officer over rulemaking rather than an Administrative Law Judge. The vote also removed the requirement of expert staff reports and public comment on the rulemaking record. This expansion of rulemaking power flies in the face of the Federal Trade Commission Improvements Act, which was passed by Congress in 1980 in response to rampant, harmful rulemaking by the FTC in the 1960’s and 70’s.

Finally, the agency passed a package of measures meant to model antitrust investigations after consumer protection investigations. Among other provisions, the package allows for a commissioner to take unilateral action in authorizing the compulsory process, meaning one vote is enough to trigger an investigation into perceived anticompetitive behavior. As Commissioner Chopra eyes a position at the Consumer Financial Protection Bureau, this vote will still allow Chairwoman Khan to pursue investigations she desires even without a Democrat majority.

The substantial nature of these changes is at odds with Chairwoman Khan’s stated objective to increase transparency at the FTC. The Chairwoman gave her fellow commissioners just one week to review the agenda of the meeting and even less time to read the actual text of the measures being voted on. Additionally, the allotted time for public comment at the open meeting came after the commissioners had already voted. Ironically, some of the newly passed measures allow for an even less participatory process while also removing safeguards. If transparency is the goal, the FTC should at least provide clarity of context – the agency is clearing the path to a regulation lollapalooza.  

The FTC’s Mission and Authority

The FTC was created in 1914 to protect consumers and market participants from anticompetitive behaviors. It is made up of five commissioners, typically split 3-2 along party lines in favor of the party in control of the executive branch. Commissioners serve a seven-year term and must be approved by the Senate. The President also has the power to name the Chairperson of the Commission, who acts as the Chief Operating Officer. Traditionally, the president announces his nominee for Chairperson before a vote in the Senate; however, President Biden waited until after Lina Khan was approved before naming her Chairwoman.

The FTC is an independent federal agency, meaning it acts autonomously from the executive branch. In Humphrey’s Executor v. United States, the Supreme Court maintained that “[t]o the extent that [the FTC] exercises any executive function — as distinguished from executive power in the constitutional sense — it does so in the discharge and effectuation of its quasi-legislative or quasi-judicial powers, or as an agency of the legislative or judicial departments of the Government.”

The FTC’s new measures implicate some of the agency’s fundamental authorizations. Section 5(a) of the Federal Trade Commission Act “empowers the agency to investigate and prevent unfair methods of competition, and unfair or deceptive acts or practices affecting commerce,” as they relate to federal antitrust laws. The 2015 policy statement clarified Section 5 to provide some level of stability in antitrust enforcement.

Under Section 18 of the FTC Act, the Commission is authorized to make “rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce” as they relate to Section 5(a). This rulemaking mandate is limited by the Magnuson-Moss Warranty Act and the FTC Improvements Act, highlighting Congress’ intention that streamlining be within its own jurisdiction rather than the agency’s.

Section 9 of the Act allows the FTC to “require by subpoena the attendance and testimony of witnesses and the production of all such documentary evidence relating to any matter under investigation.” After the July 1 meeting, the compulsory process can now be authorized by a single vote of a commissioner as opposed to review by the entire Commission.

The Impact of the FTC’s Votes

The 2015 policy statement gave companies and consumers alike more knowledge as to how the agency would evaluate antitrust violations. It also firmly focused the FTC’s enforcement on consumers and their welfare. Rescinding this statement reduces transparency by expanding the breadth of what the commission can consider a violation without providing a true standard. In doing so, the agency can effectively bypass the legislative and judicial branches by creating its own definition of “unfair methods of competition,” however broad that definition may be. Without the 2015 policy statement, the FTC has opened the door to a European style “abuse of dominance” standard which could curtail innovation efforts, raise prices, and limit choice for American consumers.

The FTC Act’s Section 18 rulemaking authority is an important aspect of the agency’s role in promoting fair business practice in the United States. However, streamlining the process ignores the specific statutory barriers in place to ensure the agency does not overstep its bounds in imposing regulation. Under the new measure, the FTC risks falling into the same pattern of overregulation that had the agency condemned in the 1970’s. Further, dismissing the contribution of an Administrative Law Judge will result in rulemaking that is underscored by politically motivated goals rather than sound legal policy.

Similarly, the FTC’s decision to allow a single commissioner to sign off on an investigation undermines the agency’s legitimacy as an apolitical, independent, and unified body. The desire may be to speed up the investigative process, but speed does not necessarily equal efficiency. A review by all five commissioners creates more room for expert input and disincentivizes staff reports tailored to a single commissioner’s known tendencies. An agency with as much power as the FTC should expend its resources carefully rather than be subject to the agenda of whoever holds the position of the Chair.

Conclusion

The FTC’s antitrust enforcement authority is paramount to our country’s success in promoting competitive and innovative markets. There is no question that Chairwoman Khan embodies that belief, and her selection as the Chair is not without merit. However, the Chairwoman’s haste in pushing measures that have not been adequately scrutinized is concerning and could lead to unintended consequences. The FTC should be wary of creating undefined antitrust standards, expanding its rulemaking capability, and allowing for unilateral action at an agency designed to be collaborative.

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