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Policy Decisions of Antitrust Institutions Series: The Future of the FTC and Its Perils

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In recent months, antitrust law and policy in the U.S. has attracted a lot of attention, so it was only a matter of time before the debate would touch upon antitrust institutions themselves, i.e. the U.S. Federal Trade Commission (FTC), the U.S. Department of Justice (DOJ), and the U.S. Attorney Generals (AGs).  This comes as no surprise, aside from multiple news headlines, as antitrust experts know, the truth is that institutional design shapes substance. So what are the key concerns that have gained attention with respect to antitrust agencies?  DisCo will analyse these antitrust institutional matters in a series of blog posts to understand the importance of what is happening in the U.S. and its potential impact on consumers. This first post will deal exclusively with the FTC.

The FTC’s Enforcement Authority

Let’s get started by understanding why the FTC’s antitrust policy rerouting has raised a lot of questions.  The FTC is one of the two federal agencies that has authority over competition, and consumer protection matters. Throughout its enforcement, advocacy and regulatory activities, the FTC has endorsed competition policy that has inured to the benefit of consumers in the U.S. economy. 

As most DisCo readers know, the FTC under a Neo-Brandeisian leader has in a short period of time made drastic changes to the bipartisan consensus that had traditionally governed the FTC’s enforcement decision-making framework.  In this respect, the most prominent example is the FTC’s recent decision to rescind the Statement of Enforcement Principles Regarding “Unfair Methods of Competition” Under Section 5 of the FTC Act (Section 5 Policy Guidelines). 

In 2015, under the Obama administration, the FTC adopted the Section 5 Policy Guidelines with bipartisan support.  These guidelines were the result of a lot of work put forward throughout many years by the antitrust community including academia and FTC staffers.  Although the Guidelines were short, and maybe imperfect, they covered the minimum principles to guide the FTC when enforcing Section 5 of the FTC Act relating to ‘unfair methods of competition’ that fell outside the scope of the Sherman and Clayton Acts.  

Moreover, Section 5 Policy Guidelines reaffirmed the FTC’s commitment to carrying out its antitrust mandate under the consumer welfare standard as noted by the Chairwoman Edith Ramirez: “The promotion of consumer welfare is a cornerstone of the FTC’s antitrust enforcement, and these principles reaffirm the agency’s legal framework in carrying out that important mission.

But most importantly, the Section 5 Policy Guidelines acted as the guardrails to avoid situations where the FTC, in an effort to expand its enforcement authority, would lose many antitrust stand-alone Section 5 cases in court, to the detriment of the institution itself.  Indeed, the Section 5 Policy Guidelines were the result of lessons learned throughout the history of the FTC and represented a tool to avoid history repeating itself.  In this respect, it is important to recall that back in the 70s, under Chairman Pertschuck, and in the following years, the FTC suffered immensely due to disparities between enforcement promises and implementation capabilities.  Much of the institutional suffering came from the agency not self-imposing limitations and standards to bring cases under Section 5 of the FTC Act which led to numerous litigation losses, consequential institutional reputational damage, and lack of political support.

But the current FTC leadership seems to have overlooked the agency’s history.  As such, it has already promised to produce different policy outcomes and noted that the Section 5 Policy Guidelines were shortsighted. As a result, the current FTC has decided, with the support of the other two Democratic Commissioners, to rescind the Policy Guidelines.  

It is unknown whether the current FTC will try to adopt different guidelines or whether it will start opening more cases under Section 5 of the FTC Act.  Furthermore, it is less clear whether the new FTC leadership currently counts with the sufficient and aligned Neo-Brandeisian human talent to bring solid cases that are not based on the consumer welfare standard or to litigate before judges that support the Neo-Brandeisian vision of antitrust. 

What seems clear is that the new agency’s leader might find it hard to bring all Commissioners to an agreement with respect to what the agency can do with Section 5 of the FTC Act, and this situation, in and of itself, puts the agency in peril.  

The FTC’s Rulemaking Authority

Another important policy change that may be detrimental to the FTC is its expressed willingness to expand the agency’s rulemaking authority under, e.g., Section 18 of the FTC Act.  It is well known that in addition to its authority to investigate law violations by individuals and businesses, the FTC also has federal rulemaking authority to issue industry-wide regulations.  

However, the agency’s rulemaking authority has been self-limited since the 80s in an effort to ensure the institution doesn’t overuse its capacity to adopt industry-wide regulations and raise concerns with those policy makers that are against the legislature deferring its core mandate to an independent agency that doesn’t represent the people. 

Traditionally the legislature has the constitutional mandate to create laws affecting different sectors of the economy.  Whereas it is legally accepted to design independent agencies with constrained mandates to adopt regulations, such powers are not necessarily understood to construe independent agencies as substitutes for the legislature’s powers. It is a basic tenet of administrative law, that agencies are constrained by the enabling statute that gives them authority to promulgate regulations in the first place.

Against this background, it seems risky for the new leadership to engage in broad rulemaking endeavors that might raise concerns from an institution legitimacy perspective.  In the long term, it is predictable that many policymakers might not be supportive of an agency that implements its rulemaking authority in its broadest sense.  As a result, some degree of political backlash against the agency might not help the agency’s lifecycle, especially if the agency is not granted with specific legislative guidance in the form of new legislation. 

The Future of the FTC

One of the most challenging matters to tackle when it comes to leadership of antitrust authorities, or administrative agency for that matter,  is legacy and the impact for the future of the agency.  To put it simply, while antitrust leaders leave agencies, the side effects of leadership’s successes and failures condition the future of the agencies. Their leadership has consequences and sets precedent which will bind the agency well into the future.

Under the current political context, it would not be surprising if the current Neo-Brandeisian FTC enjoyed political support and success with its decision to bring big cases, especially against leading tech companies.  In the short term, if the FTC makes headlines for opening cases against “Big Tech”, policymakers pushing for antitrust reforms will surely applaud the new changes as they would reflect a commitment to enhanced enforcement outcomes notwithstanding the strength of the cases.

However, in the mid-and long-term, if the FTC loses the big cases, the commitment to policy outcomes won’t be met.  And then, it is unlikely that the question would be whether the antitrust norms are fit for today’s economy, but rather if the agency is capable of executing its mandate effectively. The recent decision in the FTC v. Facebook case is a good example of this paradigm, where the Judge expressed that the FTC had not carried out a sufficiently robust analysis supported by evidence, and therefore dismissed the case.

Eventually, the agency’s short-term reputational gains could quickly turn into a debacle for the institution itself with the caveat that by then, most probably, Neo-Brandeisian leadership will be long gone.  Unfortunately then, the U.S. antitrust system — which is the only one to keep two federal antitrust agencies, bringing about positive outcomes for consumers — might be at risk. Political support to merge these two institutions could gain even more support, as has happened in the past, to the detriment of consumers.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.