Earlier this week, the Federal Trade Commission (FTC) received one court’s implicit blessing to overreach on antitrust. The plaintiff had challenged the FTC’s authority to write rules under its antitrust (unfair methods of competition or “UMC”) authority and, against the odds, the judge declined to grant a preliminary injunction. Fortunately, however, this FTC victory is about as pyrrhic as they come. Earlier this month, a different court in Texas had enjoined the same rulemaking. And just five days before that, the United States Supreme Court’s (SCOTUS’) June 28 decision in Loper Bright Enterprises v. Raimondo severely limited courts’ deference to federal agencies, including FTC leeway on UMC. In view of the broader context, the odds are stacked heavily against the FTC as it tries to carry out its UMC plans, including, relevantly for App Association members, to outlaw online marketplace management. While it is great news for small businesses that the FTC’s entire UMC agenda may be headed for the scrap heap, court precedent alone is not enough to realize this outcome.
The rule at issue in both of these recent cases would ban almost all non-compete agreements between employers and employees, a rule the App Association hasn’t supported or opposed. However, we do have a strong interest in ensuring that courts rightfully reject the argument that the FTC has the authority to write such rules under its UMC authority. If they don’t, the FTC could have some success in carrying out its big plans to crushthe online marketplace management that benefits small app companies with its UMC authority. The problem for the FTC is that Loper pretty squarely outlaws both the manner in which it is going about this task, as well as its opposition to the substantive business practices in its crosshairs.
The FTC Lacks the Authority to Issue Substantive UMC Rules Regardless of Loper. Ironically, the Texas court that enjoined the FTC’s ban on non-competes did not even need to apply the Loper precedent in determining the FTC lacked statutory authority to issue the rule. The FTC points to Section 6(g) and Section 57a of the FTC Act as its statutory authority to issue substantive UMC rules. But as the Texas court points out, the title of Section 6(g) is “Classifying Corporations; Regulations,”and only authorizes “rules and regulations to carry out the provisions” of that subchapter, which is entirely administrative and deals with the ability to investigate potential violations of other, substantive provisions of law. The authority to make rules to carry out administrative tasks is simply not the same thing as the power to make rules that create brand new prohibitions or requirements for most of the economy. Similarly, Section 57 could not be more explicit in that it authorizes substantive rules only for “unfair or deceptive acts or practices [UDAP],” which is an entirely separate limb of the FTC’s authority dealing with consumer protection, rather than UMC. The very structure of the FTC itself illustrates how ingrained the separation between UDAP and UMC is, as it is split roughly in half between its consumer protection side, dedicated to UDAP, and the competition side, dedicated to UMC. The FTC couldn’t miss this and shouldn’t expect to succeed in basing UMC rules on 57a UDAP rulemaking authority.
The FTC’s UMC Interpretation is Likely Illegal Regardless of Loper. Now that Loper has trudged its way through the federal courts and is now binding precedent, the FTC’s UMC leeway is even more precarious. Loper provides that where the statutory authority for any agency action subject to the Administrative Procedure Act (APA) is said to be ambiguous, the Court may not give deference to the agency’s interpretation of it in justifying its actions. This new precedent replaces the old Chevron construct, which required courts to give some deference to agencies’ interpretations if the statute at issue is ambiguous. The Texas court never even mentioned the word ambiguous, so invoking Loper might be unnecessary to take down the non-compete ban. But just look at the limitless array of business conduct the FTC purports to be able to ban (via rulemaking, adjudication, or other processes) set forth in its Section 5 UMC policy statement. To the extent the FTC’s UMC authority might be “ambiguous,”Loper will be there to ensure that courts “may not defer” to the FTC’s own preferred (boundless) interpretation of that authorityin writing rules or conducting adjudications.
The FTC Would Rely on its UMC Authority to Kill Online Marketplace Management. To see the policy statement in action, a shining example is the attempt to outlaw the curated online marketplace services small app companies depend on when the FTC brought its case against Amazon. Coupled with its fishing expedition-style investigative harassment of emerging industries, the FTC is revealing its online marketplace-killing ambitions to be future-focused as well. As the FTC and its counterpart at the Department of Justice (DoJ) have written on the wall, their goals align completely with bills like the American Innovation and Choice Online Act (AICOA), which would more directly illegalize online marketplace management. There is no reason to believe AICOA’s failure in Congress will stop the FTC from attempting to replicate it using an inflated interpretation of its statutory authority to address competition issues. UMC rules would be the most pernicious outgrowths of that interpretation and are also most squarely in Loper’s kill zone.
Under Chevron, the FTC’s chances of successfully untethering itself from any limiting principle on UMC were remote. AsLoper plods along, they are vanishing, at least with respect to any actions subject to the APA. The FTC can’t miss that among Loper’s distinctions may very well be a decimation of its plans to put small business innovators’ future under a yoke. It will be up to App Association members and other small business interests to deploy Loper and other limiting principles effectively to ensure the yoke never finally falls on them.