The FTC has been making moves to usurp the powers of Congress by creating its own rules and the function of the courts by serving as the enforcer of its own rules. The FTC has been moving further and further away from the consumer welfare standard, and these changes have significant consequences for all industries and for consumers. The latest policy shift altered the definition of “unfair methods of competition” under Section 5 of the FTC Act to give the agency more room to exert subjective control over the economy. With these changes in effect, the stage is set for potentially even more aggressive FTC action this year.

— The FTC has spent the past two years dismantling longstanding institutional guardrails.

— At the same time, the agency has limited public input and inquiry, changing policy on short notice without analysis-backed reasoning.

— Changes at the FTC would give the agency more power to regulate the economy and investigate legal business activities, potentially harming consumers. 

— Antitrust experts have pointed out that competition rulemaking from the FTC is legally questionable and would encroach on the authority of Congress.

— Overall, the FTC has signaled that it intends to leave precedent behind and continue expanding its own authority.

Here’s a recap of what you need to know about where the FTC has been and where it could be heading:

The FTC has spent the past two years dismantling longstanding institutional guardrails.

Recent actions at the FTC have “erode[d] certainty regarding rules of the road, a central function of the rule of law,” cautions FTC Commissioner Christine Wilson. “Neo-Brandeisians have undermined transparency and predictability in other ways, as well. These actions erode certainty regarding the rules of the road, a central function of the rule of law. For example, the Neo-Brandeisians at the FTC have:  

— Rescinded the Section 5 policy statement and foreshadowed a more expansive enforcement agenda while failing to issue a new policy explaining this agenda;

— Withdrawn support for the Vertical Merger Guidelines and characterized them as insufficiently aggressive, while declining to provide guidance on where the new lines will be drawn; and

— Failed to challenge mergers within the requisite statutory timeframes and instead issued threatening warning letters as waiting periods expire.”

Changes at the FTC are removing institutional guardrails and long-standing bipartisan agreements around consumer welfare, notes Robert Bork Jr. of the Antitrust Education Project. “They [the FTC majority] also rescinded a bipartisan commitment to the consumer-welfare standard and changed the rules so that it no longer takes a majority of commissioners to launch the investigation of a company. Any commissioner can now decide to put a company and its executives in the crosshairs.”

Shifting away from the consumer welfare standard “is like removing the bumpers” from the FTC, explain Mercatus Center’s Alden Abbott and Andrew Mercado. “Revoking that statement, then, is like removing the bumpers. It may lead to the same result as before, but if you aren’t careful, one wrong throw could break the pin-setting machine.”

At the same time, the agency has limited public input and inquiry, changing policy on short notice without analysis-backed reasoning.

FTC leadership is undoing longstanding policy with “little effort to engage impacted constituencies, and little factual inquiry” says Professor Jonathan Barnett of the University of Southern California, Gould School of Law. “FTC leadership has reversed decades-old elements of antitrust policy with little opportunity for public comment, little effort to engage impacted constituencies, and little factual inquiry that have been the hallmarks of modern antitrust policymaking.”

The FTC is suffering from a “transparency paradox,” highlights Commissioner Wilson. “[W]e have the FTC’s Transparency paradox. We’re told that our new leadership values transparency and public input. Unfortunately the majority repeatedly has chosen to undermine transparency and limit public input.”

FTC policy changes are “unsupported by any empirical analysis,” also points out Commissioner Wilson. When the FTC rescinded the 1995 Policy Statement Concerning Prior Approval and Prior Notice Provisions in Merger Cases, Commissioner Wilson noted, “The Commission has not yet issued findings from its 6(b) study in the tech sector, and has not yet announced studies in other industries. When completed, these analyses may ultimately provide a basis for recommendations to Congress about changes to the [Hart-Scott-Rodino] framework, but the majority’s actions today are unsupported by any empirical analysis.” 

In a letter to the FTC during the last Congress, House Judiciary Republicans note that “so-called” opportunities for public input have been “a sham.” “In addition to these dangerous shifts in policy, the FTC is aggressively undercutting the agency’s deliberative processes and commitment to transparency. The public and Commissioners received little advance notice of the July 1 meeting and inadequate time to consider relevant measures fully. Although votes and limited discussion took place in an open meeting, the FTC only accepted public comments after the Commission’s votes—making this so-called opportunity for public input a sham.”

Changes at the FTC would give the agency more power to regulate the economy and investigate legal business activities, potentially harming consumers. 

Deviating from the consumer welfare standard would result in far worse outcomes for American consumers, warn Phil Gramm, former Senate Banking Committee Chairman and Commissioner Christine Wilson in a WSJ op-ed. “With the consumer-welfare standard uprooted, antitrust would become a license to control the American economy, capriciously rewarding favored businesses and punishing disfavored ones. The president has appointed regulators who are openly hostile to those they regulate and to the economic system of the country. A goal of Republicans in the upcoming antitrust debate should be to codify the consumer-welfare standard.”

The repeal of a bipartisan policy statement eliminating the need for merger “prior approval” could harm growing companies and slow the pace of innovation, note Darren Tucker, Evan Miller, and Laura K. Muse of Vinson & Elkins. “At its July 21 open meeting, the Commission voted on party lines to rescind a bipartisan 1995 policy statement that generally eliminated ‘prior approval’ and ‘prior notice’ requirements in Commissioner orders resolving illegal mergers. As a result of yesterday’s change, we can expect that future FTC merger consent orders will require the respondent to seek the Commission’s prior approval for any future acquisition over a de minimis threshold within markets affected by the transaction.”

Moves to shift the burden of proof for mergers will lead to higher costs for consumers, said then-FTC Commissioner Noah Joshua Phillips. “[A]ttempting to flip the burden of proof for all deals will also deter procompetitive and competitively neutral transactions. Like our (allegedly temporary) suspension of early termination, it amounts to a gratuitous tax on normal market operations. Ultimately, American consumers will have to pick up the cost.”

Antitrust experts have pointed out that competition rulemaking from the FTC is legally questionable and would encroach on the authority of Congress.

Congress has already made it clear that the FTC has narrow rulemaking authority, points out former FTC Commissioner Maureen K. Ohlhausen. “Congress got involved and it issued the Magnuson-Moss Warranty and Federal Trade Improvement Act to explicitly give the FTC rulemaking authority, but it only mentioned unfair deceptive acts or practices. And it explicitly said this says nothing about unfair methods of competition, so what it did was give the FTC this rulemaking, but with a lot more procedural hurdles, or safeguards, maybe is a better way of putting it, guardrails in place. So it’s not streamlined APA notice and comment rulemaking; there’s a lot more things the FTC has to do.”

Congress never intended for the FTC to have the competition rulemaking authority it now claims to have, explains the American Bar Association. “The Commission’s [6(g)] rulemaking authority is buried within an enumerated list of investigative powers, such as the power to require reports from corporations and partnerships, for example. Furthermore, the [FTC] Act fails to provide any sanctions for violating any rule adopted pursuant to Section 6(g). These two features strongly suggest that Congress did not intend to give the agency substantive rulemaking powers when it passed the Federal Trade Commission Act.”

While the FTC has issued rules on consumer protection, issuing competition rules would be at odds with the long tradition of focusing on case law, says Mercatus Center’s Alden Abbot, who is a former General Counsel of the FTC. “The FTC has extensive experience in issuing consumer protection rules. FTC regulation of competition through rulemaking, however, would be at odds with a long American tradition of relying on case-by-case antitrust adjudication, rather than rulemaking, to deal with practices that harm the competitive process.”

“The FTC lacks a valid legal basis for UMC rulemakings,” writes ITIF’s Aurelien Portuese. “The FTC intends to justify UMC rulemaking based on Section 6(g) of the FTC Act of 1914 (FTCA). Following the adoption in 1975 of the Magnuson-Moss Act, Congress authorized but conscribed the FTC’s rulemaking authority for consumer protection. Congress has not authorized the FTC to enact substantive rules on UMC, except for procedural and interpretive purposes. The Supreme Court has seminally expressed in the case of Gratz in 1920 that ‘it is for the courts, not the commission, ultimately to determine as a matter of law what [UMC] include.’ Consequently, absent congressional mandate and in line with settled case law, the FTC lacks a valid legal basis for UMC rulemakings. Therefore, the Neo-Brandeisians’ regulatory agenda to ignore the FTC’s institutional constraints amounts to engaging in unlawful UMC rulemaking activity likely to generate congressional and judicial consternation.”

In an interview with Mlex, then-FTC Commissioner Noah Phillips said he believes the idea of an FTC with unlimited power is “not well supported.” “Phillips said there is ‘scant evidence’ that in 1915 Congress decided to make the FTC ‘a sort of sectoral regulator without a sector.’ The notion that Congress delegated virtually unlimited regulatory power to the FTC ‘seems not well supported,’ he said, adding that ‘I have a legal problem, I have a kind of institutional, constitutional problem.'”

— Phillips continues: “To put into effect a regulatory program without a congressional nod to make rules would go down the wrong path, he said. While one can debate about consumer welfare versus Brandeisian deconcentration, there is no debate that antitrust laws are meant to protect competition, Phillips said.”

— Phillips adds: “The lived experience of the US is that often government-directed markets culminate in the opposite of competition, he said. There are rules that can help foster competition, and the FTC should look for those and have the authority to make them ‘but going too far down the regulatory path, I think, will yield the opposite of what the antitrust laws were intended to accomplish,’ Phillips said.”

There is a “strong likelihood” that Section 5 will be struck down as “an unconstitutional delegation of lawmaking powers from the legislative to the executive branch,” warns Professor Jonathan Barnett. “[T]here is a strong likelihood that it would then be compelled to strike down Section 5 as an unconstitutional delegation of lawmaking powers from the legislative to the executive branch.”

— Barnett continues:  “[A]ny enforcement action taken under the agency’s newly expanded understanding of Section 5 is unlikely to withstand judicial scrutiny, either as a matter of statutory construction or as a matter of constitutional principle.”

Overall, the FTC has signaled that it intends to leave precedent behind and continue expanding its own authority.

The FTC’s plans for “an avalanche of rulemaking” are “well under way,” says Commissioner Wilson in her January 2023 dissent to the Annual Regulatory Agenda. “I dissented from the Commission’s publication of its regulatory agenda in December 2021, given the majority’s plans for an avalanche of rulemaking on both the competition and consumer protection fronts. I can confirm that the FTC’s Rule-a-Palooza is well under way. In 2022, the Commission proposed to issue six new rules, and to expand an existing one.”

— Commissioner Wilson continues: “Last year’s Regulatory Agenda and statements from the majority in 2022 foreshadow rulemaking on competition issues, as well.”

Updating Section 5 guidance is a “deliberate move” to “bring a broader range of conduct within the FTC’s crosshairs,” explain lawyers from Foley & Lardner LLP. “The [updated Section 5] Policy Statement is a deliberate move to expand the FTC’s enforcement authority to bring a broader range of conduct within the FTC’s crosshairs.”

The FTC’s updated Section 5 guidance is “a dramatic assertion of regulatory power” which may be used to “expand antitrust enforcement,” note partners at law firm Troutman Pepper. “The new Policy Statement is a dramatic assertion of regulatory power. The FTC has made clear that Section 5 may be used to expand antitrust enforcement for conduct previously not found anticompetitive by courts.”