by Alexander Paul Okuliar and David J. Shaw

In just over two weeks as chair of the Federal Trade Commission (FTC or “Commission”), Lina Khan already appears to be making significant changes at the agency.[1] As one of her first acts, Chair Khan called for a Commission meeting on Thursday, July 1, 2021 to consider and vote on several important changes to agency rules and procedures, as well as to open several broad investigations. The actions taken at the FTC meeting anticipated the significant Executive Order signed by President Biden last Friday (on which we will shortly send a separate client alert). It was the first public meeting of the FTC in decades (although it won’t be the last – the FTC just announced another public meeting for July 21) and the matters adopted during the meeting promise to shape the direction of the agency and competition law enforcement in the United States for years. The agenda — published on June 24, 2021[2]— outlined votes on four issues.

• Change “Made in the USA” Rules. The Commission’s first order of business was to consider adopting a “Made in the USA” rule imposing civil penalties on marketers making unqualified claims that their products are “Made in the USA” unless 1) final assembly or processing of the product occurs in the United States, 2) all significant processing that goes into the product occurs in the United States, and 3) all or virtually all ingredients or components of the product are made and sourced in the United States.[3]
• Remove ALJ as Presiding Officer of Mag-Moss Rulemakings. Next, the Commission debated whether to change Section 18 of the Magnuson-Moss Warranty Act (“Mag-Moss”) rulemaking procedures[4] by 1) making the FTC chair, rather than the chief administrative law judge, the presiding officer, 2) eliminating the requirement of a staff report, and 3) eliminating recommendations as to the final rule for public comment.[5]
• Rescind the UMC Policy Statement. Third, the Commission was asked to look at its competition enforcement standards and rescind the 2015 “Statement of Enforcement Principles Regarding ‘Unfair Methods of Competition’ Under Section 5 of the FTC Act” (“UMC Policy Statement”).
• Open Industrywide Investigations and Minimize Procedures for Compulsory Process. Finally, the Commission considered whether to open several broad investigations and minimize Commission oversight of compulsory process initiated by career lawyers. The resolutions cut across the economy, including “technology platforms, health care, and pharmaceuticals,” mergers (both proposed and consummated), “repeat offenders” of FTC orders, “business practices that target workers and operators of small business,” and “potential infractions of FTC-administered statutes as they relate to COVID-19.”

In a sometimes contentious meeting, the Commission approved each measure along party lines, with all three Democrats voting in favor and Republicans Christine Wilson and Noah Phillips voting against and offering topping motions that were defeated by the three Democrats. While each of the issues is important, the latter two regarding the rescission of the UMC Policy Statement and the expansion and consolidation of investigative power in the chair have raised a raft of questions among the antitrust community and portend a potentially major departure for the agency in its enforcement approach. We discuss the implications of these competition policy changes below.

Rescinding the 2015 UMC Policy Statement: A Possible Rejection of the Consumer Welfare Standard and Traditional Rule of Reason

The Commission rescinded a bipartisan 2015 UMC Policy Statement that laid out the framework for enforcing Section 5 of the Federal Trade Commission Act. Section 5 makes “unfair methods of competition” unlawful and is the basis by which the FTC brings competition actions.[6] Case law establishes that Section 5 sweeps in conduct condemned by the Sherman Act and Clayton Act, but there is longstanding ambiguity about how far Section 5’s prohibitions extend beyond the Sherman and Clayton Acts. The 2015 UMC Policy Statement contemplated case-by-case Section 5 enforcement “guided by the public policy underlying the antitrust laws, namely the promotion of the consumer welfare standard” using a framework “similar to the rule of reason” requiring evidence of “harm to competition or the competitive process,” including taking into account “cognizable efficiencies and business justifications.”[7] The 2015 UMC Policy Statement was intended to place reasonable bounds on the agency’s ambiguous Section 5 authority and to harmonize its approach to antitrust with that of other government enforcers, private parties, and courts.

Although the 2015 UMC Policy Statement explicitly noted that Section 5 reaches conduct outside the letter of the Sherman Act, [8] Chair Khan criticized it as artificially limiting the scope of the FTC’s authority by tying it to existing antitrust jurisprudence. According to Chair Khan, “coupling Section 5 to the Sherman Act has led courts to bind the FTC to liability standards created by generalist judges in private treble-damages actions under the Sherman Act.”[9] Further, she said, “in practice, the 2015 statement has doubled down on the agency’s longstanding failure to investigate and pursue unfair methods of competition.”[10]

Neither Chair Khan nor any other commissioner supporting rescission has advanced a framework to replace the old 2015 policy. But Chair Khan intimated that the FTC may engage in substantive rulemaking on the matter,[11] stating that “in the coming months, the Commission will consider whether to issue new guidance or to propose rules that will further clarify the types of practices that warrant scrutiny under this provision. In the meantime, the Commission will exercise responsibly its prosecutorial discretion in determining which cases are appropriate under Section 5, consistent with legal precedent.”[12]

Senator Klobuchar praised the move  saying, “We need aggressive action from our antitrust enforcers. Chair Khan has a bold vision for the FTC, and I am encouraged that the Commission is taking steps to use its full legal authority to protect competition.”[13]

Both Republican commissioners opposed rescinding the policy statement.[14] Commissioner Wilson noted that the 2015 UMC Policy Statement was bipartisan, and expressed discontent that it was repealed on a party line vote. She stated that the repeal is an “unfortunate first step” towards a “new concerted effort by the Commission to exceed the FTC’s authority regarding the use of Section 5 of the FTC Act.”[15] Commissioner Phillips also objected to the repeal, arguing that it was unclear what guidance would replace the policy statement and that the decision to rescind without a meaningful opportunity for public input was “inconsistent with the rhetoric” of transparency from Chair Khan.[16]

Rescinding the 2015 UMC Policy Statement has wide ranging and potentially dramatic implications for FTC enforcement under Chair Khan. As a threshold matter, it is consistent with an aggressive, populist neo-Brandeisian view of antitrust that is skeptical of the consumer welfare standard as the cornerstone of competition enforcement. It also shows hostility toward the antitrust laws as interpreted by the federal judiciary. Chair Khan criticized the 2015 UMC Policy Statement as binding the FTC to Sherman Act case law developed by “generalist judges.” Rescinding the policy statement also opens the door to FTC rulemakings for new substantive competition rules. (For a more in-depth discussion of a potential substantive competition rulemaking, see our previous Client Alert.) Finally, it could signal future Robinson-Patman Act enforcement by the FTC. The Robinson-Patman Act prohibits price discrimination, and has been widely criticized as protecting competitors and not competition.[17] While still on the books, neither the FTC nor the U.S. Department of Justice’s Antitrust Division have brought any Robinson-Patman Act enforcement actions in decades.[18] Some neo-Brandeisians have advocated a return to active Robinson-Patman Act enforcement by the federal government,[19] however, and rescinding the 2015 UMC Policy Statement would be consistent with such a return.

Investigations and Enforcement Resolutions

By another 3-2 party-line vote, the Commission approved a series of resolutions authorizing agency staff to investigate and use compulsory process (e.g., civil investigative demands or subpoenas) in seven areas deemed to be “enforcement priorities.” Although the specific resolutions are not publicly available, based on Chair Khan’s remarks and the FTC’s press release, the resolutions appear to cover wide segments of the American economy, including “technology platforms, health care, and pharmaceuticals” and a “general resolution authorizing the use of compulsory process when investigating mergers.” Other resolutions capture investigations involving “repeat offenders,” investigations of “business practices that target workers and operators of small business,” and investigations of “potential infractions of FTC-administered statutes as they relate to COVID-19.”[20] Chair Khan justified the new resolutions as eliminating “extra bureaucratic hurdles [that] slow down and hobble investigations unnecessarily.”[21]

The new procedures will empower staff to issue compulsory process within these broad investigations, including issuing demands for documents and testimony through civil investigative demands (CIDs) and subpoenas,[22] without receiving further authorization from the entire Commission. Under the previous rules, compulsory process in antitrust investigations could only be issued if a majority of the Commission voted to do so, typically on a matter-by-matter basis.[23] After such a vote, individual CIDs could be authorized by the signature of a single commissioner. But under these resolutions, one commissioner now has the power to authorize the use of compulsory process for investigations in the enforcement priority areas. In practice, since the chair directs FTC staff on a day-to-day basis, this will give the chair the unilateral ability to authorize compulsory process without any need to keep other commissioners informed. The “bureaucratic hurdles” that Chair Khan referred to are staff recommendations making the case for compulsory process in a particular matter and the occasional back-and-forth across the Commission pending a vote. These changes could result in less involvement by all commissioners in ongoing investigations, prior to an enforcement decision requiring a full Commission vote.

In opposing the resolutions, Commissioner Phillips argued that they exceed the agency’s congressionally given powers. Phillips observed that “Congress gave the Commission, not a single commissioner or staff, the authority to bless compulsory process in its investigations” because “[i]t envisioned an informed and deliberated decision by all commissioners before unleashing the FTC’s considerable investigative power.” These resolutions “undermine all that,” Phillips observed, “[f]or what are likely to be our most prominent and expensive investigations.” Additionally, Phillips noted that the authorizing language in the resolutions — “unfair, deceptive, anticompetitive, collusive, coercive, predatory, exploitative, or exclusionary acts or practices” — extends beyond the FTC’s authority to investigate “unfair methods of competition . . . and unfair or deceptive acts or practices.”[24] His proposed amendment to conform the authorizing language  to be consistent with the FTC’s statutory mandate was voted down.

Commissioner Wilson argued that the FTC commissioners should not abrogate their authority at such a “critical time for both consumer protection and antitrust enforcement” by removing “significant swaths of Commission oversight from our investigations.” As one practical example of why Commission oversight matters, she observed that, in the past, she had used her “vote on compulsory process to narrow the burden of third parties that are not targets of an investigation.” She flagged that the resolutions contain “many broad and vague terms” and queried whether “authorizing investigations into ‘exploitative,’ ‘collusive,’ ‘coercive,’ or ‘predatory’ acts or practices will lead to investigations outside the bounds of judicially recognized antitrust principles[.]”[25]

Looking Ahead: Further Implications for FTC Enforcement

The adoption of these resolutions signifies an attempt to expand the authority of the FTC and increase the volume and scope of its investigations, particularly for the technology and health care sectors. The Commission majority has signaled its interest in scrutinizing digital platforms, technology companies, pharmaceutical companies, pharmacy benefits managers, and hospitals, among others. Merging parties in key areas of interest (including those with consummated deals) should anticipate more frequent and extensive use of agency process, including inquiries with respect to new or historically less commonly explored theories of harm. Moreover, FTC staff will be more likely to issue compulsory process to third parties. Companies operating in or adjacent to markets in which there are pending mergers or FTC conduct investigations should also be prepared to receive compulsory process, potentially multiple times on distinct investigations that touch on common issues. For better or worse, it is clear from the July 1 meeting that Chair Khan and the Democratic majority on the Commission want the FTC to become a more central feature of corporate life in America. The last time the Commission attempted a similar move in the 1970s, it ended with curtailment of the agency’s powers by Congress and the courts. In her dissenting statement, Commissioner Wilson warned that “there are many at the FTC who lived through the 1970s and 1980s and experienced the public and Congressional backlash during those dark days of the agency’s history. There are many others who worked with and lived through that period. Current management would be wise to seek their guidance.”[26] Only time will tell.

Footnotes

[1] Lauren Feiner, Lina Khan, progressive tech critic, sworn in as FTC chair, CNBC (June 15, 2021, 6:11 p.m.), https://www.cnbc.com/2021/06/15/senate-confirms-lina-khan-to-become-ftc-commissioner.html.

[2] Id.

[3] Fed. Trade Comm’n, FTC Issues Rule to Deter Rampant Made in USA Fraud (2021), https://www.ftc.gov/news-events/press-releases/2021/07/ftc-issues-rule-deter-rampant-made-usa-fraud.

[4] Note that this change is consistent with the FTC proceeding to make new privacy rules. See Julie O’ Neill, FTC & Privacy: Will the FTC’s Rulemaking Push Result in New Privacy Rules? Morrison & Foerster (May 13, 2021), https://www.mofo.com/resources/insights/210512-ftc-privacy-rulemaking.html.

[5] Fed. Trade Comm’n, FTC Votes to Update Rulemaking Procedures, Sets Stage for Stronger Deterrence of Corporate Misconduct (July 1, 2021), https://www.ftc.gov/news-events/press-releases/2021/07/ftc-votes-update-rulemaking-procedures-sets-stage-stronger.

[6] Fed. Trade Comm’n, The Antitrust Laws (2021), https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws.

[7] Statement of Enforcement Principles Regarding “Unfair Methods of Competition” Under Section 5 of the FTC Act, Fed. Trade Comm’n(Aug. 13, 2015), https://www.ftc.gov/system/files/documents/public_statements/735201/150813section5enforcement.pdf (PDF: 57 KB).

[8] Id. (observing that Section 5 encompasses acts “that contravene the spirit of the antitrust laws and those that, if allowed to mature or complete, would violate the Sherman or Clayton Act”).

[9] Fed. Trade Comm’n, FTC Issues Statement of Principles Regarding Enforcement of FTC Act as a Competition Statute (2015) (“The statement formally aligns Section 5 with the Sherman and Clayton Acts.”), https://www.ftc.gov/news-events/press-releases/2015/08/ftc-issues-statement-principles-regarding-enforcement-ftc-act; Lina Khan, Statement of Lina Khan Joined by Commissioner Rohit Chopra and Commissioner Rebecca Kelly Slaughter on the Withdrawal of the Statement of Enforcement Principles Regarding “Unfair Methods of Competition” Under Section 5 of the FTC Act, Fed. Trade Comm’n at 5 (July 1, 2021) (“Coupling Section 5 to the Sherman Act has led courts to bind the FTC to liability standards created by generalist judges in private treble-damages actions under the Sherman Act, despite the striking differences in institutional contexts and the Commission’s unique role as an expert public body.”) (“Majority Statement on UMC Statement Withdrawal”), https://www.ftc.gov/system/files/documents/public_statements/1591498/final_statement_of_chair_khan_joined_by_rc_and_rks_on_section_5_0.pdf (PDF: 249 KB).

[10] Majority Statement on UMC Statement Withdrawal at 5.

[11] FTC & Privacy: Will the FTC’s Rulemaking Push Result in New Privacy Rules? Morrison & Foerster (May 13, 2021), https://www.mofo.com/resources/insights/210511-ftc-lays-groundwork-rulemakings.html.

[12] Majority Statement on UMC Statement Withdrawal at 5.

[13] News Release, Klobuchar Statement on Federal Trade Commission Vote on Unfair Methods of Competition
(July 1, 2021), https://www.klobuchar.senate.gov/public/index.cfm/news-releases?ID=084E7FBB-40D6-4EC4-9692-90A14EE6FCA5.

[14] Christine S. Wilson, Dissenting Statement of Commissioner Christine S. Wilson, Fed. Trade Comm’n at 1 (July 1, 2021) (“I support greater transparency in government decision making generally. . . . Unfortunately, the format the Chair has chosen for this meeting omits our knowledgeable staff and precludes a dialogue among the Commissioners.”) (“Wilson Dissent”), https://www.ftc.gov/system/files/documents/public_statements/1591554/p210100wilsoncommnmeetingdissent.pdf (PDF: 293 KB).

[15] Id. at 9 (“And as I mentioned previously, the Commission was just admonished by a unanimous Supreme Court in AMG regarding the interpretation of our authority. The response to that decision should not be a new concerted effort by the Commission to exceed the FTC’s authority regarding the use of Section 5 of the FTC Act. A decision to rescind the 2015 Enforcement Principles regarding the use of Section 5 appears to be the unfortunate first step toward that end.”).

[16] Ephrat Livin, The first open meeting of the F.T.C. under Lina Khan starts with political sparks, N.Y. Times (July 1, 2021), https://www.nytimes.com/2021/07/01/business/ftc-lina-khan.html.

[17] Garza et al., Reports and Recommendations, Antitrust Modernization Comm’n at iii (April 2007) (“[T]he [Robinson-Patman Act] protects competitors over competition and punishes the very price discounting and innovation in distribution methods that the antitrust laws otherwise encourage.”), https://govinfo.library.unt.edu/amc/report_recommendation/amc_final_report.pdf (PDF: 2.2 MB).

[18] See Lina Khan, Amazon’s Antitrust Paradox, 126 Yale L. Rev. 710, 727 (2017) (discussing decline in Robinson-Patman Act enforcement); see also William E. Kovacic, The Modern Evolution of U.S. Competition Policy Enforcement Norms, 71 Antitrust L. J. 377, 410–11 (2003).

[19] See Krista Brown, et al., The Courage to Learn, American Economic Liberties Project at 140 (Jan. 2021), https://www.economicliberties.us/wp-content/uploads/2021/01/Courage-to-Learn_12.12.pdf (PDF: 2.1 MB); Matt Stoller, How Democrats Killed Their Populist Soul, The Atlantic (Oct. 24, 2016), https://www.theatlantic.com/politics/archive/2016/10/how-democrats-killed-their-populist-soul/504710/.

[20] Fed. Trade Comm’n, FTC Authorizes Investigations into Key Enforcement Priorities (July 1, 2021) (“FTC Enforcement Priorities Press Release),” https://www.ftc.gov/news-events/press-releases/2021/07/ftc-authorizes-investigations-key-enforcement-priorities; Lina Khan, Remarks of Chair Lina M. Khan on the Investigatory Resolutions, Fed. Trade Comm’n at 1 (July 1, 2021), https://www.ftc.gov/system/files/documents/public_statements/1591510/remarks_of_chair_khan_on_the_investigatory_resolutionsjuly_1_2021.pdf (PDF: 131 KB).

[21] Id.

[22] FTC Enforcement Priorities Press Release (“Compulsory process refers to the issuance of demands for documents and testimony, through the use of civil investigative demands and subpoena. The FTC Act authorizes the Commission to use compulsory process in its investigations. Compulsory process requires the recipient to produce information, and these orders are enforceable by courts.”),https://www.ftc.gov/news-events/press-releases/2021/07/ftc-authorizes-investigations-key-enforcement-priorities.

[23] Note, however, that the FTC has delegated compulsory process authority in some previous consumer protection investigations. These resolutions were generally narrower and the subject matter less complex. See Noah Phillips, Dissenting Remarks of Noah Joshua Phillips, Fed. Trade Comm’n at 2 (July 1, 2021), https://www.ftc.gov/system/files/documents/public_statements/1591634/p210100phillipsstatementomnibusresolutions.pdf (PDF: 183 KB).

[24] Id. at 2.

[25] Wilson Dissent at 9 (“I am concerned that in the aggregate, these seven omnibus resolutions remove significant swaths of Commission oversight from our investigations without adequate justification. . . . I cannot understand why the Commission would abrogate so much of its authority at such a critical time for both consumer protection and antitrust enforcement.”).

[26] Id. at 7.

Alexander Paul Okuliar and David J. Shaw are partners at Morrison & Foerster LLP. Jose L. Urteaga contributed to this article.

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