Back in February 2022, the Federal Trade Commission (FTC) announced an advance notice of proposed rulemaking (ANPRM) on “deceptive or unfair earnings claims.” According to the FTC…

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The government has become increasingly suspicious of major mergers over the past decade, under both political parties. The Justice Department under Donald Trump sued to prevent AT&T from buying Time Warner. The Federal Trade Commission under President Biden is continuing a case the Trump administration initiated against Meta, parent of Facebook, to force the firm to cough up Instagram and WhatsApp, which it swallowed during the Obama years. In January, JetBlue Airways’ plans to merge with Spirit Airlines and Amazon’s plans to acquire iRobot were deterred under regulatory pressure.

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The National Institute for Standards and Technology (NIST) published a request for information (RFI) in December 2023 on its “Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights.” It’s quite something, if not in a good way.

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ICLE Senior Scholar Daniel J. Gilman took part in a virtual panel convened by the Federalist Society on the Federal Trade Commission (FTC) and U.S. Justice Department’s (DOJ) recent moves to put labor issues at the center of antitrust enforcement and policy making. Video of the full event is embedded below.

The Federal Trade Commission (FTC) has now gone on record in comments to the National Institute of Standards and Technology (NIST) that it supports expanded “march-in rights” under the Bayh-Dole Act (Act). But if NIST takes the FTC’s (unexpected, but ultimately unsurprising) contribution seriously, such an expansion could lead to overregulation that would ultimately hurt consumers and destroy the incentives that firms have to develop and commercialize lifesaving medicines.

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tl;dr

Background: Created by Congress in 1914, the Federal Trade Commission (FTC) has employed in-house administrative adjudications for more than a century. The agency’s constitutionality was challenged early in its existence, and upheld by the U.S. Supreme Court in its 1935 Humphrey’s Executor decision. Federal courts have, in the years since, been hesitant to invalidate an agency that has been functioning without issue for decades. 

But… Recent rulings in Seila (2020) and Axon (2023) have raised questions about the extent to which the Supreme Court would still recognize the agency’s legitimacy. In Seila, the Court held that Humphrey’s Executor applies only when an agency “do[es] not wield substantial executive powers.” In Axon, it held that federal courts can entertain constitutional challenges even while an administrative adjudication is pending. 

Such rulings have paved the way for challenges to the FTC’s constitutionality. Most notably, Meta filed a challenge in November 2023 after the FTC sought to use administrative adjudication to modify a 2020 consent decree. Amgen brought a similar challenge in response to merger proceedings, as did Walmart during anti-fraud proceedings. Six primary arguments have been raised against the FTC’s constitutionality.

KEY TAKEAWAYS

FTC COMMISSIONERS ARE INSULATED FROM PRESIDENTIAL REMOVAL

By statute, the president of the United States may remove commissioners of the FTC only “for inefficiency, neglect of duty, or malfeasance in office.” Humphrey’s Executor upheld this process, because the FTC was not deemed to exercise executive power. 

But the FTC has changed dramatically over the past century. In the 1970s, Congress broadened its authority to pursue injunctive relief in federal court and to seek civil penalties, which would typically be considered executive functions. The agency now functions primarily as an enforcer of laws, and much more rarely exercises its quasi-judicial and quasi-legislative powers.

In short, there is a question whether the FTC, in its current form and operations, violates the constitutional separation of powers.

THE FTC IS BOTH PROSECUTOR AND JUDGE

The FTC’s administrative-adjudication process has also raised constitutional questions. FTC staff may, following a preliminary screening, be authorized to investigate a potential violation of the law. That investigation, in turn, can lead commissioners to vote on whether to issue a complaint.

If it is not settled, the complaint is heard by an administrative law judge (ALJ) who, under recently revised agency process, issues a “recommended decision” to the commission. Previously, the ALJ would issue an “initial decision” that would stand unless the FTC or defendant sought review. 

The FTC then decides whether to accept, revise, or wholly replace the recommended decision with one of its own.  Serving as both a prosecutor and judge may violate the Fifth Amendment’s Due Process Clause.

IMPROPER DELEGATION OF LEGISLATIVE POWER

Congress enabled the FTC to decide whether to pursue adjudication in federal courts or within its own administrative process. But under the Constitution’s nondelegation doctrine, when Congress delegates any of its legislative powers, it must provide an “intelligible principle” for an agency to use that power. Some of the recent challenges argue there is no such principle governing which avenue the FTC pursues, rendering the delegation of powers unconstitutional. 

PRIVATE RIGHTS MUST BE ADJUDICATED IN ARTICLE III COURTS 

Among the broad powers conferred to the federal courts under Article III, Section 2 of the Constitution is exclusive jurisdiction to adjudicate private rights. But the FTC has been granted authority to hold administrative adjudications that can result in the deprivation of private rights (e.g., deprivation of property). Such proceedings may be unconstitutional. 

CIVIL PENALTIES WITHOUT A JURY TRIAL

The Seventh Amendment secures the right to jury trial whenever civil penalties exceed $20. This typically applies to deprivation of property rights, as well. But the FTC’s administrative adjudication does not provide for a jury trial. 

DISPARATE MERGER-REVIEW PROCESSES

Under the Hart-Scott-Rodino Act, mergers exceeding certain thresholds must be notified to both the U.S. Justice Department (DOJ) and the FTC. The agencies then follow a so-called “clearance” process to determine which will review the transaction. But the process is largely arbitrary, with some matters allocated based on one agency having more relevant experience, and some on a taking-turns basis.

Unlike the FTC, the DOJ can only challenge transactions before Article III courts, rather than in-house administrative proceedings. These alternative procedures have meaningful procedural and substantive differences. If that leads to disparate treatment, it may violate both the Fifth Amendment’s Equal Protection and Due Process clauses.

For more on this issue, see Daniel Gilman’s Law360 piece “Why Challenges To FTC Authority Are Needed.”

tl;dr

Background: In July 2023, the Federal Trade Commission (FTC) and the U.S. Justice Department (DOJ) Antitrust Division jointly released new draft merger guidelines, to much fanfare and even more controversy. Five months later, the agencies published the final 2023 Merger Guidelines. Many of the same controversies remain.

But… It is appropriate to raise the questions of what exactly the guidelines are and what they are intended to accomplish. According to the DOJ, the merger guidelines “are a non-binding statement that provides transparency on aspects of the deliberations the Agencies undertake in individual cases under the antitrust laws.” According to the FTC, the guidelines “describe factors and frameworks the agencies utilize when reviewing mergers and acquisitions.”

KEY TAKEAWAYS

AGENCY GUIDANCE DOCUMENTS OFFER A WINDOW ON AGENCY POLICY AND PROCESS

The merger guidelines are an example of agency guidance, which is itself a type of “soft law.” Soft law is not really law at all. It doesn’t prohibit anything or require anything—not with the force of law. “Guidance” or “guidelines” are not federal regulations. And courts are not required to interpret, apply, or even consult them. 

But guidance documents can nonetheless be extremely useful. Laws and regulations are not algorithms. They always require at least some degree of interpretation—sometimes a great deal. Guidance documents can provide a window into how agencies interpret the laws they are charged to enforce. 

This is especially true in antitrust law, whose core provisions are written broadly and do not require (or perhaps even permit) implementing regulations. Those laws have been given some detail in federal case law, but the application of that case law to new facts and circumstances also requires interpretation. The case law also continues to develop in response to actions brought by, among others, the FTC and the DOJ. 

Moreover, useful explanations of the law can vary tremendously depending on the intended audience. Hence, guidance documents may be styled “guidance for consumers” or “guidance for industry.” Other potential audiences include the judiciary and, not least, agency staff. 

MERGER GUIDELINES AS AN EXAMPLE OF ‘PERSUASIVE AUTHORITY’

Prior iterations of the merger guidelines have been more than just a transparency document. They’ve had at least some influence on the courts, which often cited, e.g., the 2010 Horizontal Merger Guidelines as “persuasive authority.” In brief, “persuasive authority” might be anything a court thinks informative that’s not binding on the court.

Judicial opinions can cite other judicial opinions in support of their reasoning. Depending on the relationship between the courts, those other opinions are either “binding” or “persuasive” authority. Lower courts, such as the federal district courts, are bound to follow the holdings of higher ones, such as their own federal circuit courts of appeals or the U.S. Supreme Court. 

Opinions published by other district courts or courts in other circuits might be cited as persuasive authority–opinions that the courts consider informative, even though they are not bound to follow them. Courts can also cite to secondary sources, like law-review articles or noted treatises, as persuasive authority; that is, they can cite expert opinions they may consider more or less informative.

Agency guidelines are not binding, but they might be deemed persuasive (or not—it’s up to the court).    

2023 GUIDELINES ABANDON CONSENSUS, PROVIDE SCANT GUIDANCE

Prior editions of the guidelines could be persuasive—and often were—because courts thought they provided a useful synthesis of established law, economic learning, and agency experience. While they were not simply backward-looking reports summarizing prior decisions, they did reflect at least a rough consensus in the antitrust community.

As Luke Froeb, D. Daniel Sokol, and Liad Wagman put it, earlier merger guidelines  encouraged a dialogue “between potential plaintiffs and potential defendants and between attorneys and economists that moved antitrust law and policy forward to promote competition and innovation.” The new guidelines do not so much continue that dialogue as they seek to dictate the terms of a new one. And they replace a rough consensus with none.  

There are many points of contention. For one, despite several decades of literature de-emphasizing the role and reliability of structural presumptions (such as measures of market share) in antitrust analysis, the new merger guidelines rely heavily on simplistic, and even stronger, structural presumptions than did the prior guidelines. More fundamentally, central to established antitrust law is the fact that mergers can be either harmful or beneficial (or benign). Antitrust enforcers are only supposed to block the bad ones.

The 2023 Merger Guidelines give very short shrift to the simple notion that mergers may confer benefits, as well as costs. While the guidelines sketch a number of ways in which the agencies might deem mergers to be anticompetitive, they do not provide staff, industry, or the judiciary any guidance at all on the basic question of how to parse the good from the bad.

Which brings us back to the original question: what are guidelines for? Perhaps not for this.  

For more on this issue, see the “Comments of the International Center for Law and Economics on the FTC & DOJ Draft Merger Guidelines,” as well as several entries in Truth on the Market’s symposium on “The FTC’s New Normal.”

As Greg Werden has noted, the process of defining the relevant market in an antitrust case doesn’t just finger which part of the economy is allegedly affected by the challenged conduct, but it also “identifies the competitive process alleged to be harmed.” Unsurprisingly, plaintiffs in such proceedings (most commonly, antitrust enforcers) often seek to set exceedingly narrow parameters for relevant markets in order to bolster their case. In the extreme, these artificially constrained definitions sketch what can only be called “gerrymandered” markets—obscuring rather than illuminating the competitive processes at issue.

This unfortunate tendency is exemplified in the Federal Trade Commission’s (FTC) recent complaint against Amazon, which describes two relevant markets in which anticompetitive harm has allegedly occurred: (1) the “online superstore market” and (2) the “online marketplace services market.” Because both markets are exceedingly narrow, they grossly inflate Amazon’s apparent market share and minimize the true extent of competition. Moreover, by lumping together wildly different products and wildly different sellers into single “cluster markets,” the FTC misapprehends the nature of competition relating to the challenged conduct.

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Winter was coming, as it does. We knew the agencies were going to issue new merger guidelines, and then they did. On Dec. 18, 2023, the Federal Trade Commission (FTC) and U.S. Justice Department (DOJ) jointly issued merger guidelines, supplanting 2023’s draft guidelines, the 2010 Horizontal Merger Guidelines, and the 2020 (partially withdrawn) Vertical Merger Guidelines.

That’s big news in antitrust, even though the guidelines do not have the force of law. There’s more on the merger guidelines below. But what else is new?

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