Commissioners cut procedures, overrule policy, hold staff accountable, target technology
With an unprecedented attack on policies long adopted by the Federal Trade Commission, the new majority of Democratic commissioners have revealed a bold enforcement program that would circumvent Supreme Court rulings and avoid congressional limits.
It was a meeting like no one has ever been organized by the Federal Trade Commission. With a week’s notice, the Commission passed new rules to impose civil penalties on substandard U.S.-made claims, removed judges and warranties from regulatory proceedings, repealed its policy statement of 2015 application on unfair competition methods and granted staff more powers to issue subpoenas and civil investigation requests. Voting on each issue followed party lines. Republican Commissioners Noah Phillips and Christine Wilson voted against all, and Democratic Commissioners Chopra, Khan and Slaughter rejected all of the amendments. President Khan announced that town halls will become regular events at the FTC.
Made in the USA
Commissioner Chopra took the lead in the Made-in-USA (MUSA) Rule, which would impose civil penalties on claims that do not meet FTC standards for domestic content, whether those claims appear on labels or in marketing. He has criticized the Commission for years for allegedly allowing misleading allegations to persist and wrongdoers to escape fines. The imposition of fines, he said, was a way of reclaiming the power the Commission was denied in the Supreme Court ruling in AMG Capital Management v. FTC, which ruled that Section 13 (b) of the FTC Act did not authorize the Commission to obtain monetary relief.
Phillips opposed the rule, saying Congress had not given the FTC the power to enact them; it had only authorized MUSA rules for product labels. Unless and until Congress grants authority to expedite rule-making on advertising claims, which Congress is now considering, he insisted the FTC was required to use the procedures more restrictive Magnusson-Moss. Wilson objected to the short notice announcing the meeting, objected to excluding staff from the meeting, and warned that it was unwise to disregard a unanimous Supreme Court that had just reprimand the Commission for going beyond its power to obtain money in consumer protection cases.
Speed up rule making
The foreshadowing of an ambitious regulatory agenda was a motion to streamline the new rules under Section 18 of the FTC Act. The motion would remove the chief administrative law judge from the role of chair in rule-making. The president of the FTC would preside. The motion also proposed eliminating the requirement for a staff report to accompany a rule recommendation. Slaughter said these were unnecessary “self-imposed” limits. Chopra hailed proposal to help end era of “perceived helplessness” at FTC
Phillips and Wilson objected, citing concerns that the judge’s removal would threaten the independence of the rule-making process – a broad fact-finding exercise – and support challengers who claim the rules of the FTC are politically motivated. As for the staff reports, Phillips noted that they give Commissioners and the public some confidence that a rule will not inflict unnecessary damage to the economy. Wilson reminded colleagues that zealous rule-making in the 1970s precipitated an existential crisis for the agency. It closed after public resistance and widespread ridicule prompted Congress to fund the FTC. It wasn’t until the Commission promised a return to a responsible app that it was allowed to reopen. The FTC has kept that promise with a series of policy statements clarifying unfair acts and practices, illegal deception, and the necessary justification for advertising claims.
Wilson offered to publish the procedural changes for comment. He failed 3-2. Phillips offered to keep the chief justice and the staff report. He also failed to attract a Democratic vote. Rules without a judge and staff report adopted without a Republican vote.
Cancellation of the competition policy statement
Radically departing from a bipartisan antitrust policy, the Commission repealed its 2015 policy statement on unfair competition. Khan argued that the FTC should not have to show a likelihood of competitive prejudice to declare unfair conduct. In his view, the FTC act was intended to circumvent the Supreme Court’s adoption of the rule of reason in antitrust cases – a requirement that condemned trade restrictions only when their anti-competitive effects outweighed the pro-competitive advantages. The rule of reason made it too difficult to prove violations, Khan said, and the FTC’s policy statement unduly limited the agency to an enforcement policy indistinguishable from the standards enforced by DOJ.
Wilson saw the cancellation as a departure from the consumer welfare standard, the framework of antitrust analysis for half a century. She expressed concern that if competition policy was not designed to benefit consumers, it could be co-opted by special interests. She added that when the FTC had failed to enforce a standard that complied with antitrust laws in the past, its decisions were often overturned on appeal. (The FTC lost a series of appeals in the 1980s when it attempted to prohibit refusal to bargain, price discrimination that could be competitive, pricing policies of suppliers and distributors, and practices that could facilitate collusion.) Phillips noted that the Supreme Court’s decision in the NCAA case just applied the rule of reason in arresting plaintiffs, so this was hardly an obstacle to successful prosecution. Republicans were worried about a Congressional proposal that would eliminate the FTC’s competition authority altogether.
Proposals to solicit comments on the cancellation were rejected along party lines. Competition policy at the FTC will depend on future actions by the Commission.
Target sectors and suspects
Finally, the FTC identified seven areas in which it would pass omnibus resolutions authorizing a mandatory process – civil investigation requests and enforceable subpoenas in court. The Commission usually authorizes a mandatory process when it identifies specific companies or behaviors – such as a merger or deceptive practice – that warrant intensive and urgent investigation. These resolutions covered broad sectors of the economy and authorized investigations under the practices of any law administered by the FTC. As explained in its press release, the focus of the Commission is on these sectors and individuals:
Priority targets include repeat offenders; technology companies and digital platforms; and healthcare companies such as pharmaceutical companies, pharmacy benefit managers, and hospitals. The agency is also prioritizing investigations into harm to workers and small businesses, as well as harm related to the COVID-19 pandemic. Finally, at a time when merger filings are increasing, the agency is stepping up the crackdown on illegal mergers, both proposed and consummated.
With these resolutions, the FTC delegated the decision to issue a mandatory process to staff and a single commissioner. In the past, an investigation in a new area could not use the mandatory process until the committee votes on the resolution. These omnibus resolutions have waived this procedure. Khan hailed the move as a reduction in “administrative bureaucracy”. Wilson countered that the commissioners were repealing their sworn oversight responsibilities. This last comment reveals the scope of the change. If Chopra goes to the Consumer Financial Protection Bureau, which he has been appointed to lead, Democrats will lose their majority. These resolutions will allow staff to initiate investigations, request documents and make depositions without the approval of the Commission. All staff will need the approval of a commissioner.
The future of FTC enforcement
In short, July 1, 2021 was an extraordinary day in the history of the FTC. This is an unmistakable harbinger of a Commission which aims to accelerate enforcement beyond the levels it sought to achieve in the 1970s. None of the supporters of the agenda had any responses to it. the repeated question from dissidents: how will the agency overcome the obstacles that have hampered its unbridled ambitions in the past? How will he react to the resistance he faces from Congress, the courts and the public he is supposed to serve? The public present at that meeting, noted Phillips, was required to comment once the Commission had made its decisions, ensuring that their testimony would not be considered before the votes.
It will be difficult to predict how far the Commission can go with this agenda until the inevitable allegations of unauthorized investigations, arbitrary and capricious rules, unpredictable decisions and deprivations of due process reach higher authorities. . Safer Predictions: We’ll see the fruits of yesterday’s decisions in the form of CIDs, assignments, proposed rules, and new interpretations of a century-old competition statute. Businesses and citizens will be faced with the first engagement. Then Congress and the courts will join the fray. For a glimpse of the potential results, there is no better place to start than the rich literature in the history of the FTC.
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