Suppose a federal agency accuses you of violating the law and hauls you before its in-house court. You have good reason to believe the agency’s processes violate the U.S. Constitution. May you sue in federal court to protect your constitutional rights, or must you first endure the agency’s unconstitutional procedures?
That issue came before the U.S. Supreme Court last week in a case involving the Federal Trade Commission (FTC). Axon, the target of an enforcement action in the FTC’s in-house court, maintains that the agency’s structure and practices violate several constitutional requirements. Axon wants a federal court to consider its constitutional claims now.
The FTC contends Axon must wait until the Commission has finished its in-house proceedings. It points to a statute giving federal appellate courts the power to hear appeals from the FTC’s in-house tribunal. That provision, the FTC says, implicitly stripped federal courts of jurisdiction to consider constitutional challenges to in-house proceedings prior to their completion.
There’s no real harm with this scheme, the Commission insists, because Axon can eventually obtain federal court review of its constitutional claims on appeal. If the federal appellate court sides with it, any adverse judgment from the FTC’s in-house proceeding will be undone.
That argument ignores, though, the severe burden of enduring an in-house enforcement proceeding. Oftentimes the process is the punishment, so if the defendant can show the process violates the Constitution, it should be allowed to do so immediately.
For an example of how abusive the FTC’s in-house enforcement process can be, consider a move the Commission pulled just three days before Axon’s Supreme Court argument.
The case at issue concerns dealings between e-cigarette producers JUUL and Altria. In making an investment in JUUL, Altria pulled its own e-cigarette products from the market. The FTC sued the two companies in its in-house court, claiming that they had violated Section 1 of the Sherman Act.
That provision forbids agreements that unreasonably restrain trade. The FTC was thus required to prove two elements: (1) that JUUL and Altria agreed that Altria would withdraw its products and (2) that their agreement unreasonably restrained trade by reducing output in the e-cigarette market.
The FTC prosecuted its case before its administrative law judge (ALJ). After hearing from 20 witnesses and reviewing around 2400 exhibits, the ALJ issued a 250+ page opinion. It ruled for the defendants, concluding that they had not agreed that Altria would remove its products (Altria did so unilaterally) and that Altria’s removal did not unreasonably restrain trade (as consumers were already switching away from Altria’s e-cigarettes).
In the Kafkaesque world of FTC practice, the Commission may appeal a loss before its ALJ to the FTC commissioners themselves. The commissioners heard the JUUL/Altria appeal in September and just last week ordered the defendants to provide additional briefing on why Altria’s removal of its products is not unreasonable “per se.”
Understanding why that demand is vexatious requires some background.
In antitrust, a practice is deemed unreasonable if it injures consumers by reducing market output. That is always the ultimate question, and courts usually answer it by examining evidence of actual or likely market effect. The ALJ followed this “rule of reason” approach here.
Because it considers actual market evidence, rule of reason analysis is the most accurate way to assess whether a practice harms consumers by reducing output. But it’s costly. In some cases, that high cost seems unjustified because the practice is one courts have encountered enough to know that it is almost always bad for consumers. Courts therefore deem some practices, like price-fixing, to be “per se” unreasonable and condemn them without looking at market effects.
Per se rules sacrifice accuracy to reduce administrative costs. But once a rule of reason analysis has been performed—as in the JUUL/Altria case—it makes no sense to ignore actual market effects in favor of a less accurate presumption.
Unless, of course, the evidence of actual market effect is against you, and you want to suppress it. That appears to be the FTC’s aim here.
The FTC acts as prosecutor, judge, and jury in its own cases. It appeals its losses to itself, producing (not surprisingly) a near-perfect appeals record. Its current leadership shows little regard for the rights of defendants and is now moving to expand the Commission’s authority.
Axon deserves its day in court. Now.
Thom Lambert is the Wall Professor of Law at the University of Missouri.