Storm Clouds over the FTC

R ecent developments cast a shadow over the future of antitrust enforcement at the Federal Trade Commission (FTC), a five-member federal agency led by Biden appointee Lina Khan.

The FTC recently lost two merger challenges brought before its internal administrative court — and, even more significantly, faces a Supreme Court challenge to its administrative-enforcement authority.

This November, in Axon Enterprise, Inc. v. FTC, the Supreme Court will consider whether a company facing an FTC administrative complaint may bring a constitutional challenge, in a federal court, to the FTC’s structure, procedures, and even its existence. The case involves the merger of two manufacturers of body-worn camera equipment and related data-management software for law-enforcement agencies. The parties went to federal court arguing that the FTC had no right to challenge their deal.

The Axon matter comes at a time of renewed Supreme Court interest in the Constitution’s separation of powers — under which the right to enforce the law and the right to render judgments are assigned to separate government branches, the executive and the judiciary. Such concerns are particularly acute in the case of administrative-law enforcement at “independent agencies” (which enjoy some statutory freedom from presidential control) such as the FTC.

Criticism of the FTC’s administrative actions is long-standing. If a majority of FTC commissioners have “reason to believe” the law has been violated, they may handle things internally rather than sue in federal court. They can issue a complaint that goes to an FTC “administrative law judge” (ALJ) — an FTC employee — who then holds a trial-like hearing in which the commissioners do not participate, and issues an opinion upholding or rejecting the complaint.

The ALJ’s decision may then be appealed to the full commission, which almost always finds an antitrust violation — this is hardly surprising, since it’s the very agency that has authorized antitrust charges in the first place! In sum, the commission arguably acts as both prosecutor and judge. This has led some critics to call the FTC an unfair “kangaroo court” that offends due process of law.

Under the looming constitutional storm cloud, the FTC will soon also hear two new appeals from ALJ decisions rejecting merger-related complaints made by commissioners. Early this year, the ALJ dismissed charges that Altria, the largest U.S. tobacco company (the corporate parent of Philip Morris), violated antitrust laws in acquiring a 35 percent interest in JUUL Labs, the largest e-cigarette company. The ALJ stressed that since Altria acquired its stake in JUUL, the e-cigarette market has become more competitive, not less, contrary to the theory of the FTC’s complaint.

Most recently, on September 1, the same ALJ rejected a 2021 FTC challenge to the $7.1 billion acquisition of GRAIL by Illumina, Inc., a leader in next-generation DNA-sequencing platforms used to support genetic-testing programs. GRAIL makes a noninvasive, early-detection, liquid-biopsy test that can screen for up to 50 types of cancer. Illumina formerly owned GRAIL. It sought to reacquire it to allow GRAIL’s unique cancer test to be scaled up, distributed, and marketed more effectively, which would be a major benefit to patients.

But the FTC gave this benefit short shrift. Its complaint emphasized that the transaction could subsequently harm competition in a hypothetical future market for multi-cancer early-detection tests. This FTC theory was criticized by its former chairman Timothy Muris, who said the commission was sacrificing large tangible benefits based on merely speculative, future competitive harm.

Against the Democratic majority in the FTC, two of the five commissioners, Christine Wilson and Noah Phillips, have taken Khan to task for arbitrarily changing merger-review policy and for imposing new procedural obstacles to mergers. The FTC’s unprecedented assault on mergers — combined with other actions that increase business uncertainty — are an affront to the rule of law. The Supreme Court, which unanimously held in 2021 that the FTC had exceeded its legal authority in seeking monetary recoveries, will undoubtedly be following the FTC’s actions closely.

So will Congress. Indeed, complaints about FTC overreach have led several prominent Republicans to endorse stripping the commission of its antitrust powers. And Utah senator Mike Lee, prominent Republican member of the Senate Judiciary Committee, has sponsored legislation to move all federal antitrust enforcement to the Justice Department (which currently shares such authority with the FTC).

Unless the FTC changes course, its days as an antitrust enforcer may be numbered.