FTC Could Soon Face High Court Reprimand

The Federal Trade Commission (FTC) recently held a closed session to hear an appeal from its own counsel of a decision handed down in February by an FTC administrative law judge (ALJ) rejecting the commission’s arguments that Altria’s 2020 acquisition of a 35% stake in e-cigarette maker Juul was anticompetitive and harms consumers. It is likely that the commission will side with the arguments it approved its own complaint counsel to develop, declaring itself the winner and Altria and Juul the losers.

This is not the first time the FTC has pursued this approach with merger cases and it likely won’t be the last. It is broadly expected the commission will hear a similar appeal of the ALJ decision handed down earlier this month rejecting the FTC’s challenge to DNA-sequencing provider Illumina’s proposed acquisition of Grail, a maker of multi-cancer early detection tests.

In fact, the commission routinely gives itself multiple bites at the same apple, using a process that keeps cases out of the hands of disinterested federal judges until that multi-year process has played out.

As former Commissioner Joshua Wright has argued, the FTC has a long history of rejecting the comprehensive and fact-laden decisions of its own ALJs in favor of its own preferred legal outcomes. As Wright and Judge Doug Ginsburg of the D.C. Circuit Court of Appeals have written, the FTC uses this lengthy process to push firms into settlements that are more stringent than the law would require, and then points to those settlements to justify its demands in future cases. 

This process doesn’t just shield the FTC’s substantive decisions from review by federal judges. It also makes it harder, and therefore less likely, that firms will incur the cost to bring constitutional or procedural challenges. Among the few cases that have been litigated are some in which federal judges have raised concerns that the commission’s procedures violate constitutional Due Process. There is also the longstanding concern that the structure of the commission itself, which insulates its decisions from the executive branch, is unconstitutional. This is most concerning where the commission acts as an independent enforcer.

Relief might be on the horizon. In November, the U.S. Supreme Court will hear arguments in Axon Enterprise v. Federal Trade Commission, which should settle whether parties subject to administrative proceedings by federal agencies need to wait until such proceedings conclude before they can ask a federal judge to review constitutional and procedural challenges.

The FTC’s aggressive enforcement stance under Chair Lina Khan makes clear the urgency of this issue. Khan has used the FTC’s infirm constitutional foundation to push aggressive legal theories against wide swaths of industry. Many of her interpretations of the FTC Act will likely be rejected by the federal courts as raising “major questions.” But unless the Supreme Court allows such actions to be brought under Axon, they will only get to the courts after years of questionable enforcement proceedings brought by officials wielding questionable authority.

It will be a watershed moment if the Supreme Court holds that these challenges can be brought earlier. Federal agencies have long been able to hide abuses of Due Process behind procedural chicanery. This has allowed agencies to bring constitutionally dubious investigations for decades. It has harmed the firms subject to those investigations and the consumers who ultimately bear the costs of those investigations. Worst of all, it has shielded these agencies from necessary oversight and constitutional questions.

Justin (Gus) Hurwitz is a Professor of Law and Menards Director of the Governance and Technology Center at the University of Nebraska, and the Director of Law and Economics Programming at the International Center for Law and Economics, a Portland-based think tank.