The first half-year of the Biden Administration has signaled a potential sea change at the Federal Trade Commission (FTC), and in particular how the agency approaches antitrust and consumer protection enforcement.
Notably, the Senate has confirmed Lina Khan, a progressive reformer, to the five-member Commission, and President Biden has named her Chair. The Commission has held an historic open meeting. And the agency has announced some major policy shifts. These may have an especially significant effect on technology companies, even setting aside the possibility of meaningful reforms of the antitrust laws in Congress—where proposals would bring sweeping changes to substantive law.
New Leadership at the FTC Foretells New Era of Aggressive Law Enforcement
The appointment of Lina Khan as a Commissioner of the FTC is one of the clearest signals to date that the Biden Administration brings a new vision to competition and consumer protection policy.1 Khan's appointment swings which party holds the majority of the five-member panel, and thus controls whether to open full investigations or initiate enforcement actions for violations of federal antitrust and consumer protection laws. This alone would have been a meaningful development in light of the aggressive stance of the Democratic Party's electoral platform on regulating large companies and consolidated industries, especially in technology markets.
But Khan's appointment carries special significance because she is seen as a progressive advocate for aggressive enforcement of the nation's antitrust laws. She has no private sector background, and has focused her research and advocacy on arguing for more expansive uses of existing antitrust laws and broader powers for the federal agencies (in particular the FTC) responsible for enforcing them.
Shortly after her appointment as Chair, Khan named the new acting heads for the Bureau of Competition and Bureau of Consumer Protection. Both of the named directors, Holly Vedova (antitrust) and Sam Levine (consumer protection), as well as newly appointed Chief Technologist Erie Meyer, were advisors to Rohit Chopra, a sitting Democratic Commissioner who in recent years has been seen by many as the torch-bearer for expansive views of the FTC's antitrust and consumer protection powers. This means that leadership at the agency bureaus responsible for overseeing the staff who conduct investigations and litigation is likely to be aligned with Khan's and Chopra's views.2
Historic FTC Open Meeting Offers Glimpse of Choppy Regulatory Waters Ahead
The first glimpse into how things might change under the newly composed FTC came during last week's historic open meeting of the Commission. (Meetings at which the Commissioners vote have historically been closed to the public.) Commissioners at the July 1, 2021, meeting voted along a 3-2 party split to make several important policy changes in the agency's enforcement of competition and consumer protection laws.
Bureau of Consumer Protection Rulemakings
The Commission streamlined the procedures for rulemakings under Section 18 of the FTC Act, which empowers the FTC's Bureau of Consumer Protection to go after companies that engage in "unfair or deceptive acts or practices." Unlike many federal agencies, the FTC rarely engages in rulemakings, instead usually proceeding via individual enforcement actions. This is in part because of a series of statutory restrictions on the agency's rulemaking power enacted in 1975 and 1980,3 but also due to restrictive rulemaking practices developed within the agency itself.4
The changes enacted last week seek to eliminate "red tape" and "reinvigorate the FTC's rulemaking procedures." In particular, the Commission voted to eliminate a requirement for a staff report on proposed agency rules; allow stakeholders to weigh in more easily at informal hearings; and shift oversight over rulemakings from a neutral in-house FTC administrative law judge to the politically-appointed Commission.5
Bureau of Competition 2015 Policy Statement
The Commission also voted to rescind a 2015 policy statement setting out the contours for the agency's reliance on Section 5 of the FTC Act, which bars "unfair methods of competition." Section 5 has been at the center of much controversy. Its critics say the use of Section 5 "unfair competition" claims should be constrained in order to avoid overbroad and arbitrary enforcement by the FTC.
Its proponents in academic and policy circles, on the other hand, argue that Congress intended an expansive use of the provision that would reach conduct that has proven difficult for enforcers when relying on traditional antitrust laws—the Sherman Act and the Clayton Act—such as invitations to collude, so-called "pay-for-delay" pharmaceutical deals, exclusive dealing, and employee non-competes.6
The 2015 policy statement signaled that the FTC had conceded to a more restrictive view of Section 5. It declared the "consumer welfare standard" the predominant rubric for adjudging whether competition has been harmed in Section 5 cases; promoted the use of a "rule of reason" balancing test for proving competitive effects; and backed off relying on standalone Section 5 claims where enforcement of traditional antitrust laws would suffice.7
These positions have been targeted by reformers, who viewed them as barriers to broader enforcement of competition laws. The July 1, 2021, decision by the FTC to rescind the 2015 policy statement could signal an expansion of agency powers to target novel claims under Section 5:
- For antitrust reformers, going beyond "consumer welfare" would mean expanding protections for rivals and enabling theories of harm based on innovation, choice, access, and other aims not directly tied to consumer pricing and supplier output.
- Backing off the "rule of reason," where an antitrust violation may only be found after a careful balancing of pro- and anti-competitive effects demonstrates a net harmful effect on competition, would likely mean more reliance on rebuttable presumptions (based on market shares, etc.) that try to establish what is more akin to a bright-line rule against certain conduct.
- Loosening restrictions on bringing standalone claims for "unfair methods of competition" would provide an opening for the FTC to police conduct that is not unlawful under prevailing judicial interpretations of traditional antitrust laws.
Relaxing Limits on Compulsory Process Investigations
The Commission also voted at its July 1, 2021, meeting to relax the limits on agency compulsory process—the FTC equivalent of a subpoena—for seven specific sectors, including "technology companies and digital platforms."8 The FTC usually requires a full Commission vote to initiate investigations and issue civil investigative demands or subpoenas. But under this new procedure, a single Commissioner is authorized to approve the issuance of compulsory process.
The practical effect of this is that the agency's bureaus will no longer need to gauge the temperature of a majority of the Commission when proposing a detailed investigation. One Commissioner's support, at least in the sectors targeted by this change, would suffice.
This change, which Khan described as "rethinking the work of the FTC" to more "comprehensively investigate unlawful business practices," will affect both antitrust and consumer protection investigations.9 Priority will, according to the agency, be placed on investigations that deal with "harms against workers and small businesses," as well as "ramping up enforcement against illegal mergers."
What an FTC in Transition Means for Technology Companies
The recent developments at the FTC reflect an antitrust and consumer protection regulatory landscape that is very much in flux, with technology markets, in particular, in the cross hairs. Companies should expect to encounter a more aggressive FTC that opens a larger volume of investigations, brings more borderline cases, and wields its rulemaking authority more broadly.
For large technology incumbents, these developments suggest meaningfully more regulatory and legal risk, in particular as these companies expand into new markets either through internal product development or by acquisition.
What constitutes "unfair methods of competition" under Section 5, for example, could be open to quite broad interpretation. At a minimum, it should be expected that the FTC will push for more aggressive enforcement to protect of rivals, trading partners, buyers, and employees, even where customers or consumers are not being harmed.
More aggressive merger enforcement in technology markets will likely single out acquisitions of nascent or potential rivals. It seems plausible that the agency will also more frequently rely on novel theories of competitive harm, such as those involving purported vertical or conglomerate effects that an acquisition may have on the wider ecosystem in which a technology company operates.
Using its rulemaking powers, the agency may target employee noncompete agreements, restrictions imposed on sharing information about wages, and exclusive arrangements with upstream or downstream partners. Another potential subject—on both the competition and consumer protection side—is data access, collection, and use (including, for example, system interoperability, data portability, privacy, and cybersecurity).
At the same time, a more active FTC could spell opportunity for smaller or medium-sized technology companies, which can leverage the enforcement and rulemaking powers of the agency to push their larger rivals or partners for more access to critical infrastructure, force non-discriminatory and transparent terms and conditions, and force data sharing and protections as well as interoperability or data portability. Increased reliance on bright-line rules or rebuttable presumptions that shift the burden of proof away from enforcers and onto the companies they are investigating, combined with broader discretion for agency staff to open investigations, could make it easier for third parties to wield the powers of the FTC to their advantage (on both the competition and consumer protection side).
It all means that, even in the absence of any of the significant antitrust reforms being considered by Congress, companies should prepare for choppy regulatory waters ahead.
Stay Tuned for More
The FTC's Chair said at the recent open meeting that there is more to come with respect to plans to target "unfair methods of competition." And with all of these changes, there will surely be significant legal challenges, with courts weighing in on the scope of the agency powers. And, as with any policy shift in enforcement, staff discretion and agency resource constraints will factor into which cases are brought and what types of conduct are targeted.
It will no doubt be a fast-changing regulatory climate for technology companies, in particular, which are finding themselves in the spotlight on both the competition and consumer protection front.
FOOTNOTES
1 As this blog post was going to press, President Biden signed an Executive Order outlining a variety of additional proposals to address competition issues in the marketplace, and the FTC indicated it will jointly review its merger guidelines with the DOJ. Our analysis of the Executive Order will be posted soon.
2 Commissioner Chopra has been nominated to become the head of the Consumer Financial Protection Bureau, though the Senate has to date not acted on that nomination.
3 See, e.g., Lubbers, It's Time to Remove the 'Mossified' Procedures for FTC Rulemaking, 83 G.W. L. Rev. 1979 (2015).
4 See https://www.ftc.gov/system/files/documents/public_statements/1591522/joint_rules_of_practice_statement_final_7121_1131am.pdf.
5 https://www.ftc.gov/news-events/press-releases/2021/07/ftc-votes-update-rulemaking-procedures-sets-stage-stronger.
6 Chopra and Khan, for example, wrote an article in 2020 that advocated the FTC had broad antitrust powers under Section 5. The Case for "Unfair Methods of Competition" Rulemaking, University of Chicago Law Review: Vol. 87: Iss. 2., Article 5, available at https://www.ftc.gov/system/files/documents/public_statements/1568663/rohit_chopra_and_lina_m_khan_the_case_for_unfair_methods_of_competition_rulemaking.pdf.
7 https://www.ftc.gov/system/files/documents/public_statements/735201/150813section5enforcement.pdf.
8 https://www.ftc.gov/news-events/press-releases/2021/07/ftc-authorizes-investigations-key-enforcement-priorities.
9 https://www.ftc.gov/system/files/documents/public_statements/1591510/remarks_of_chair_khan_on_the_investigatory_resolutionsjuly_1_2021.pdf.
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