The FTC Power Grab
At the urging of big business opponents, President Biden appointed Lina M. Khan, an advocate for greater government control over the economy, to chair the Federal Trade Commission. The FTC has now declared that the agency has, and will exercise, extraordinary powers that it never before asserted.
On strict party lines, the FTC released a November 10 Policy Statement on enforcement against “unfair methods of competition” under Section 5 of the FTC Act. The statement claims “to assist the public, business community, and antitrust practitioners by laying out the key general principles that apply to whether business practices constitute unfair methods of competition.” In fact, the statement provides little guidance and no comfort.
The policy statement declares that the FTC is free from the requirements of evidence and analysis that are imposed both on private antitrust plaintiffs and on the Department of Justice, and nevertheless “entitled to deference from the courts as an independent, expert agency.”
The FTC is outlining arguments it plans to make when courts review its orders barring practices it finds unfair. The FTC is previewing the arguments now to persuade enforcement targets that mounting a defense would be fruitless, and it would be fruitless if reviewing courts deferred to the agency on the meaning of “unfair” and on determinations of unfairness in particular cases.
Notably, the policy statement rejects the usual antitrust standard — the “rule of reason,” which distinguishes between reasonable and unreasonable business practices. The Supreme Court recently described the rule of reason as a “fact-specific assessment” designed to determine a practice’s “actual effect on competition.”
The rule of reason does not prescribe any particular mode of analysis. The Supreme Court observed in one of the FTC’s cases that it invites “an enquiry meet for the case, looking to the circumstances, details, and logic” of a practice to reach “a confident conclusion about [its] principal tendency” with respect to competition.
The policy statement asserts that applying the rule of reason would frustrate the FTC’s mission of “stopping unfair methods of competition in their incipiency.” But what the rule frustrates is the FTC’s desire to condemn practices without examining their “circumstances, details, and logic” and without finding that they palpably threaten competition.
Chair Khan rightly observes that “Congress passed the FTC Act to push back against the judiciary’s adoption and use of the open-ended rule of reason for analyzing Sherman Act claims,” which could “deliver inconsistent and unpredictable results.” These fears were prevalent when the FTC was created because the Supreme Court had not yet given the rule of reason any content.
But four years after Congress passed the FTC Act, the Supreme Court explained that the rule of reason asks whether a business practice “merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition.” The Court has often reiterated this formulation, and the policy statement articulates no alternative test.
The policy statement does indicate that the FTC is prepared to depart from the rule of reason in two fundamental ways: The FTC plans to condemn practices based on a fear that they could harm competition, rather than on concrete evidence that they have harmed competition, or are likely to do so. And the FTC plans to condemn practices on bases other than harm to competition.
The FTC’s focus is not competition as such, but rather “negative consequences” of practices for “consumers, workers, or other market participants.” The statement cites “raising prices, reducing output, limiting choice, lowering quality, [and] reducing innovation,” but business practices can have any of these consequences without harming competition.
The statement asserts that Section 5 prohibits practices that are “unfair” in senses other than “anticompetitive.” The statement explicitly declares that “exploitative” conduct is “unfair,” but that term describes the most benign exercise of economic power through charging prices generating profits. The FTC, thus, asserts the power to regulate any price it deems too high.
Enforcement guidelines are helpful when they tell potential targets what is safe, but the statement makes no practice safe. Enforcement guidelines also are helpful when they articulate “off ramps”—conditions that make a challenge unlikely. The statement, however, seeks to maximize the FTC’s discretion and says next to nothing about what cases the FTC will not bring.
Under Chair Khan, the FTC is not merely advocating for enormous power; it is publishing a blueprint for consolidating power. And the FTC is constructing a powerful administrative state on the foundation of a vague phrase in a century-old statue.
Gregory Werden retired in 2019 from his position as Senior Economic Counsel, Antitrust Division, Department of Justice and is a now visiting fellow at the Mercatus Center at George Mason University.
