FTC Prepares to Expand Rulemaking, Including on Privacy and Data Use

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Last week the Federal Trade Commission (FTC) announced the creation of a new rulemaking group within the FTC’s Office of the General Counsel. The announcement and other statements signal that the FTC under Acting Chairwoman Slaughter will be much more active in proposing rules on high profile issues. The agency’s announcement notes that the rulemaking group will tackle both unfair and deceptive practices and unfair methods of competition. And in separate remarks on March 26 at the American Bar Association Antitrust Law Spring Meeting, Acting Chairwoman Slaughter suggested that the agency may move forward on rulemakings about data use – which could encompass privacy, concerns about alleged manipulation on data platforms, and competition issues.

The New Office is a Shift From the Commission’s Decades-Old Approach to Rulemaking

The establishment of a dedicated rulemaking group is a significant change for the FTC, which has been restricted in its rulemaking activity since the last century. In response to controversies over how the FTC was engaged in rulemaking at the time, Congress passed legislation over four decades ago that significantly constrained the FTC’s rulemaking authority. In general, the FTC is required to follow cumbersome rulemaking requirements in addressing unfair or deceptive practices (generally known as “Magnusson-Moss” rulemaking), which go well beyond normal agency Administrative Procedures Act (APA) procedures. 

As a result, in recent years, the FTC has relied much more heavily on enforcement actions rather than rulemaking to articulate its expectations. This approach has been controversial and resulted in high profile disputes in the area of data security, including prolonged litigation with Wyndham and LabMD. Structurally, responsibility for various rules is currently distributed among staff throughout the agency. And many of the rules the FTC still enforces are focused on narrow segments of the economy (e.g., the contact lens rule). 

This means that, unlike the Federal Communications Commission (FCC), the FTC has comparatively little expertise in traditional rulemaking procedures, such as under the Administrative Procedure Act. In the context of ongoing debates over federal privacy law, some commentators have warned against giving the FTC broad rulemaking authority. 

A rulemaking group within the General Counsel’s office would not only develop greater expertise in rulemaking best practices, it would help agency leadership evaluate legal issues, both in the record and in court. Substantively, a rulemaking group would be charged with considering rules dealing with both consumer protection and competition issues. As the agency’s release put it:  “The new structure will aid the planning, development, and execution of rulemaking – especially new rulemakings – in turn making the Commission’s work more efficient and potent.” Additionally, as the General Counsel is appointed by the Chair, the Chair would be better able to coordinate rulemaking efforts (though any notices or final rules will require a Commission vote).

What Will the Agency’s Rulemaking Priorities Be?

Last week, at the ABA Antitrust Law Spring Meeting, Acting Chairwoman Slaughter indicated that one priority would be to conduct a data-related rulemaking, which could encompass not just traditional privacy issues, but also alleged manipulation on data platforms and competition issues. She may have bipartisan support on the Commission for at least some rulemaking in this area:  In a speech at Silicon Flatirons in February, Commissioner Christine Wilson stated that she may be open to the possibility of a privacy rulemaking, in order to address what she characterized as a “market failure” in privacy, and to bring greater certainty and predictability for business. 

Acting Chairwoman Slaughter has also been outspoken about the need for the agency to address algorithmic discrimination and what she has long called “data abuses.” In a speech last year, she argued that a Magnusson-Moss rulemaking this area, while “slow and imperfect,” could “generate a rule in this area if Congress ultimately fails to act,” or at least “significantly advance the public debate.” And she argued that a rule “might be able to affirmatively impose requirements of transparency, accountability, and remedy . . . in a way that takes into account context and relative risk.”

There may be greater rulemaking on the antitrust side as well. In recent Congressional testimony, Acting Chairwoman Slaughter noted that rulemaking may be preferable to case-by-case litigation in dealing with certain competition issues. One likely area appears to be non-compete provisions in employment contracts. In her testimony, she noted that she “strongly support[s] the Commission taking up and considering a rulemaking to address unfair and anticompetitive non-compete provisions in employment contracts.” Similarly, Lina Khan, who has been nominated for the open Commissioner slot, has also indicated that she is favor of a non-compete rulemaking in an article co-authored with current Commissioner Rohit Chopra (who has been nominated to lead the Consumer Financial Protection Bureau). 

Targeted rulemaking is also one potential response to the prospect of FTC losing the AMG case at the U.S. Supreme Court. If the FTC loses that case, its ability to seek monetary relief in FTC Act cases in federal court will be limited. However, the agency would still have the ability to seek civil penalties for rule violations – so it may seek to enact rules that are consistent with its recent enforcement actions. Indeed, the agency appears to be moving forward on a potential “Made in the USA” rule in part for this reason.  

What’s next?

As noted above, the agency faces greater procedural hurdles when conducting Magnusson-Moss rulemakings, including additional notice and hearing requirements, which make the overall process lengthier. It has APA authority in some areas, and Acting Chairwoman Slaughter and Commissioner Chopra have also called for the FTC to use APA authority to engage in rulemaking regarding unfair methods of competition, which would be relatively novel and untested.

However, the agency arguably can move quickly to start various rulemaking processes, particularly once the new rulemaking group is up and running. It may also solicit public comments through public workshops or similar events. Wiley’s decades of experience managing analogous FCC rulemaking activity gives us a glimpse of what the future may hold: thorough and contested rulemakings, disputes and different perspectives within the agency, thorny legal questions, and perhaps legal challenges to FTC rules—based on both substance and process. This may prove to be an eventful time at the FTC as it explores the strength of its regulatory tools, sometimes in controversial policy areas.

Particularly as top Commission personnel continue to change with the new Administration, companies should consider how to respond to the FTC’s plans to – in the words of Acting Chairwoman Slaughter – “activate” its rulemaking authority going forward.   

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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