The Progress of FTC Rulemaking, by Blake Emerson
These remarks were delivered at the BYU Law conference on “The Past, Present, and Future of FTC Rulemaking” (Feb. 24, 2023).
I’m not an antitrust scholar, rather, I’m a scholar of administrative law. And from that point of view, the Federal Trade Commission’s authority to issue rules concerning unfair methods competition is clear. I want to begin by addressing the legal framework, and then place the FTC’s current actions in historical perspective. The current rulemaking strikes me as an example of the Commission’s making good on its original Progressive purposes.
The FTC Act of 1914 makes “unfair methods of competition […] unlawful.” In addition to giving FTC the authority to adjudicate and to bring enforcement actions, the Act gives FTC the authority to “make rules and regulations for the purpose of carrying out” the act. Professor Thomas Merrill has some plausible arguments that this rulemaking authority was not substantive but purely procedural. However, the courts haven’t generally interpreted it that way. And Congress subsequently affirmed FTC’s rulemaking authority in reliance on that understanding.
In National Petroleum Refiners v. Federal Trade Commission, the D.C. Circuit Court of Appeals held that the FTC Act’s grant of authority to “make rules and regulations” included the power to issue substantive rules that have the force of law. The rule at issue in National Petroleum Refiners concerned unfair methods of competition as well as unfair or deceptive acts or practices.
National Petroleum Refiners isn’t some obscure case. It’s a landmark holding on agency rulemaking authority by the nation’s most important administrative law circuit court—one that is frequently taught in administrative law courses. If National Petroleum Refiners is wrong, not only is the FTC’s competition rulemaking power under threat, but also certain rulemaking powers of agencies, such as EPA, which have long issued substantive regulations under general grants of rulemaking authority.
The Magnuson-Moss Act of 1975 subsequently affirmed the FTC’s rulemaking authority and specified some trial-type procedures for rulemaking with respect to unfair or deceptive acts or practices, but not with respect to unfair methods of competition. It says that the Act “shall not affect any authority of the Commission to prescribe rules […] with respect to unfair methods of competition.” In light of the holding of National Petroleum Refiners, this language means that the FTC can use the Administrative Procedure Act’s informal rulemaking, or “notice-and-comment,” procedures to issue rules concerning unfair methods of competition. Thus, I believe the FTC’s authority is quite firmly rooted. Next I will address the broader historical context.
The FTC is one of the great Progressive Era agencies. It was created largely in response to the Supreme Court’s restrictive construction of unfair competition under the Sherman Act. As scholars such as Sanjukta Paul and Luke Herrine have demonstrated, the Progressive politics in which the FTC was conceived went far beyond restrictive conceptions market regulation centered around low consumer prices.. Rather, Congress emphasized substantive notions of fairness and was concerned with avoiding social exploitation and domination. The 1913 Senate Committee Report on the proposed legislation emphasized the “inherent rights of the people” to preservation of fair and competitive markets and insisted that “the people of this country will not permit the courts to declare a policy for them.” For then, “we cease to be a Government of law, and become a government of men, and moreover, a very few men and they appointed by the president.”
Congress made the Commission independent and expected it to be guided by its subject-matter expertise and experience. But the Progressive Era conception of administration was not all about experts. It was also about democracy. Prominent theorists of administration, such as Mary Follett and John Dewey, saw agencies as providing crucial settings in which to engage the public in the formulation of regulations. The Forest Service was one prominent example. Another was the Federal Trade Commission’s “Trade Practice Submittals,” as recounted in Gerald C. Henderson’s 1924 classic study of the Commission. At least as early as 1920, the Commission would invite firms within particular industries to deliberate over the fairness of various practices within their industries. If the group reached near consensus on the lawfulness or not of a practice, then the Commission would accord “great weight” to that conclusion in its adjudications. Indeed, some of the Commission’s case law described these submittals as “conclusive” unless rebutted by substantial evidence. This procedure went on through the 1930s, by which point one commentator, Milton Handler, described them as “rules” or “regulations.” Handler’s critical commentary on the procedure informed the American Bar Association’s Special Committee on Administrative Law’s arguments in favor of rulemaking in the debates preceding adoption of the Administrative Procedure Act of 1946 (APA).
The FTC thus provided an early prototype of (and motivation for) the notice-and-comment procedures that the Commission engages in today, and which were formally embraced in the APA. Congress designed the APA’s rulemaking provisions to “democratiz[e]” the administrative process, in the words of the minority report of the Attorney General’s Committee on Administrative Procedure. The House committee reporting the APA contemplated that agencies would decide “matters of great import” through rulemaking, though they expected them to go beyond the bare minimum in so doing. Even conservative opponents of the New Deal sought to encourage agencies to proceed by rulemaking, believing this procedure to be fairer than case-by-case adjudication. This same impulse motivated Judge Skelly Wright in National Petroleum Refiners to read the FTC Act as granting the Commission a rulemaking authority.
The mainstream of administrative law scholarship, as well as the legislative history of the APA, understand rulemaking to be a far superior mode of making policy. It gives regulated parties fair notice of the requirements to be imposed upon them. And it provides ample and open opportunity for broad public involvement and contestation over new policies, including the possibility of revisions to those policies before they are finalized. The FTC is in the midst of that deliberative process today.
Blake Emerson is Professor of Law at the UCLA School of Law. The text has been edited to clarify certain points and to include hyperlinks where possible.