Spotlight on Antitrust: FTC Open Meeting Reflects Changing Tide

Wilson Sonsini Goodrich & Rosati

Wilson Sonsini Goodrich & Rosati

On July 1, the Federal Trade Commission (FTC) held its first open meeting in decades. At the meeting, the FTC adopted the four items on its agenda, all along partisan lines. The Commission rescinded the 2015 Statement of Enforcement Principles Regarding "Unfair Methods of Competition" Under Section 5 of the FTC Act, adopted new rulemaking procedures under Section 18 of the FTC Act, passed an omnibus package that included a series of resolutions authorizing FTC staff to launch investigations related to "key law enforcement priorities," and approved a new "Made in USA" labeling rule. After the FTC voted on the four agenda items, it heard from members of the public about their antitrust and consumer protection concerns.

Rescission of the Section 5 Policy Statement

The FTC voted 3-2 to rescind the 2015 FTC guidelines discussing the antitrust principles that guide the agency's application of its statutory authority to take action under Section 5 of the FTC Act against "unfair methods of competition." The 2015 statement was a bipartisan effort during the Obama administration that sought to provide clarity in how the agency intended to exercise its standalone authority under Section 5 of the FTC Act. Progressives, such as Chair Khan, have criticized the 2015 statement as part of the FTC's "long-standing failure" to pursue Section 5 violations under the "unfair methods of competition" standard. According to Chair Khan, Congress explicitly meant for the FTC's authority to extend beyond the Sherman and Clayton Acts when it gave the FTC its standalone authority. The rescission of the 2015 statement is a signal of the new Democratic-majority Commission's change in enforcement standards and priorities.

Introducing the resolution, Chair Khan first stated that the 2015 guidelines were, in part, why the FTC had failed to effectively investigate and pursue unfair competition. She stated, and the other Democratic Commissioners agreed, that the 2015 guidelines contravened the text, purpose, and history of Section 5. Chair Khan also argued that the modified rule of reason analysis the agency had previously used suffered from soaring costs and resulted in an overly defendant-friendly regulatory framework. In addition, the Democratic Commissioners asserted that by tying Section 5 to the Sherman Act's "likelihood" requirement, the FTC would be unable to work fast enough to intervene against anticompetitive behavior until it was too late.

Commissioners Phillips and Wilson objected to rescinding the guidelines. Commissioner Wilson noted that the consumer welfare standard was developed through years of judicial intervention and expert advice, and departing from the standard means more politicized enforcement. She also argued that not having a principle to replace the consumer welfare standard will make it difficult for well-intentioned businesses to comply with the law. Commissioner Phillips argued it was improper to rescind the guidelines without public comment, and the FTC should be hesitant to depart from the rule of reason, as doing so might exceed their statutory mandate.

Changes to FTC Rules of Practice for Rulemaking Under Section 18 of the FTC Act

In a 3-2 vote along party lines, the FTC voted to approve changes to the agency's Rules of Practice for rulemaking. Section 18 of the FTC Act allows the FTC to create rules to identify conduct or practices as unfair or deceptive under Section 5. Parts 0 and 1 pertain to the organization of the FTC and its general practice in enforcing Section 5. Commissioner Slaughter stated that the proposed revisions would bring the Commission's rules governing its rulemaking authority more in line with its statutorily delegated authority. Perhaps the most drastic change gives the Chair of the FTC (or a person appointed by the Chair) the role of Chief Presiding Officer in rulemakings. Previously, the Chief Administrative Law Judge for the FTC served as the Chief Presiding Officer in rulemakings. Other changes include removing the requirement for a staff report on proposed rules and allowing the Commission to designate disputed issues of material fact earlier in the rulemaking proceeding with the issuance of the Notice of Proposed Rulemaking.

Commissioners Wilson and Phillips objected to the proposed revisions. Commissioner Wilson pointed to the FTC's "sweeping regulatory efforts of the late 1970s," which were followed by a backlash from industry groups. This backlash led to the passage of the Federal Trade Commission Improvements Act of 1980, through which Congress imposed additional requirements for Section 18 rulemaking. Commissioner Wilson urged her fellow Commissioners to further consider these proposals before adopting them.

Commissioner Phillips also disagreed with the proposed changes, arguing that the lack of input from the public sets bad precedent for future changes. Commissioner Phillips specifically decried the removal of the requirement for a staff report on proposed rules, something that he called "essential for informing the public." Commissioners Phillips and Wilson agreed that removing the Chief Administrative Law Judge as Chief Presiding Officer "ensures that the fact-finding process is biased toward the chair's viewpoint, regardless of who the chair is."

Streamlining Enforcement Regulations

In a 3-2 vote along partisan lines, the FTC approved a series of omnibus resolutions authorizing FTC staff to use compulsory process in investigations of "key industries, including technology platforms, health care, and pharmaceuticals." Most notably, the resolutions allow a single Commissioner, instead of a majority of sitting Commissioners, to approve compulsory requests, such as civil investigative demands and subpoenas, for information in FTC investigations. The resolutions allow staff to use compulsory process in investigations into seven priority enforcement areas, notably: repeat offenders, technology companies and digital platforms, healthcare companies, pharmacy benefit managers, and hospitals. The resolutions also give the FTC the power to use compulsory process to investigate both proposed and consummated mergers.

Both Commissioner Chopra and Chair Khan argued that the resolutions cut down on "red tape" bureaucracy and give FTC staff appropriate power to target unfair practices. Commissioner Chopra noted that the failure of the FTC to act and enforce orders in a timely manner can have significant consequences, citing the Facebook-Cambridge Analytica data breach. Commissioner Slaughter gave a general endorsement of the omnibus package and encouraged the use of omnibus resolutions in future settings.

In opposing the omnibus resolution, both Commissioners Wilson and Phillips highlighted the shortened time they had to review the proposed resolutions and warned that the resolutions would lead to politicized FTC investigations. Commissioner Wilson noted that some of the proposals may have merit, but she did not support all the resolutions being voted on all at once on an expedited timeline. She was also concerned that the resolutions removed important oversight and deliberation in investigative work, when the strength of the FTC relied on both.

Commissioner Phillips echoed the previous criticisms, but added concerns that the resolution to grant a single Commissioner power to approve compulsory process went beyond the FTC's implementing statute.

Newly Adopted "Made in USA" Rule

The FTC also addressed the proposed new rule governing "Made in USA" labeling. Commissioner Chopra introduced this rule, for which a notice of proposed rulemaking was issued in July 2020 as a "much-needed" update to the current regulations regarding "Made in USA" labels. Commissioner Chopra made note of the more than 700 comments from manufacturers, retailers, and other members of the business community who deal with "Made in USA" labeling and argued that this new rule will do more to protect them against companies that falsely claim their products are made in the U.S. Specifically, Commissioner Chopra mentioned that some non-physical labels, including certain online and catalog advertising, would be included. Commissioner Slaughter and Chair Khan echoed Commissioner Chopra's comments, but both Commissioners Wilson and Phillips disagreed.

Commissioner Wilson argued that this new rule exceeds the FTC's statutory authority on this matter. Citing the impending amendments to the Country of Origin Labeling (COOL) Act, Commissioner Wilson argued that Congress is obviously aware of, and believes that there is a distinction between, the current "Made in USA" rules and the one proposed for adoption by the FTC. Commissioner Phillips agreed with Commissioner Wilson, criticizing the proposed rule for regulating not only physical labels, but also advertising claims, which he said do not fall within the statutorily delegated authority of the FTC. Commissioner Phillips proposed that the FTC either wait for additional guidance from Congress or revise the proposed rule to be more in line with the current authority of the FTC.

Key Takeaways:

  • The decision to depart from the consumer welfare standard (and possibly the rule of reason) leaves Section 5 without a standard; this will encourage a greater level of FTC intervention in business activity and will require time before businesses can ascertain how to comply with the new rules.
  • FTC staff will now have an expedited ability to carry out compulsory process requests, undoubtedly increasing the number and scope of investigations conducted by the FTC.
  • The Democratic Commissioners stressed that the changes adopted will increase transparency and allow the FTC to be more nimble and responsive in its enforcement, and will allow the FTC to fully live up to its statutory mandate and be a more aggressive enforcer.
  • The Republican Commissioners made repeated arguments that the resolutions went beyond the FTC's statutory mandate, citing AMG Capital Management LLC v. FTC as a recent warning against agency overreach, where the Supreme Court unanimously held that the FTC exceeded its statutory authority under Section 13(b) when seeking disgorgement in federal court. The Republican Commissioners also criticized the lack of notice and public comment, as well as the lack of staff involvement in the lead-up to the meeting.
  • All four votes were decided along partisan lines, with the three Democratic Commissioners voting in favor of all the resolutions and the two Republican Commissioners voting against. This partisan division is likely indicative of what is to come under the Biden FTC as long as the current line-up of Commissioners remains.
  • The public comments at the end of the meeting were largely from participants in various industries, including many from the restaurant, healthcare, and farming industries, calling for more aggressive antitrust and consumer protection enforcement against food delivery services, dominant pharmaceutical companies, dominant technology contractors, predatory franchisors, and grocery suppliers. We can expect that all of these areas will receive some attention in the coming years.

Written by:

Wilson Sonsini Goodrich & Rosati

Wilson Sonsini Goodrich & Rosati on:

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