How a carefully planned strategy can persuade a skeptical judiciary

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Former FTC Bureau of Consumer Protection Director Howard Beales and former FTC Chairman Timothy J. Muris co-authored a new CEI paper contrasting the radical change in agenda at the Biden FTC with previous change eras in 1971 and 1981.

Beales and Muris write that prior-era FTC leadership used reorganization as a key tool to address staff issues and deployed careful legal strategies to implement change. In contrast, current FTC Chair Khan arrived "with a bunch of answers" and targets, "but no actual strategy for how to achieve her objectives within the agency's legal and resource constraints."

Beales and Muris highlight a recent example of the FTC executing a carefully planned strategy to persuade a skeptical judiciary of its view on how to treat hospital mergers in the 21st century.

They write:

Even with judicial opposition, law reform is still possible. It requires, however, a carefully planned strategy to persuade the courts to change. For example, Thurgood Marshall and others famously implemented a long, successful strategy of civil rights litigation, including the court's decision in Brown vs. Board of Education. There is little, if any, indication that the Biden administration has such a plan. Congress seems unlikely to enact new legislation during Khan's tenure, and filing cases with little chance of success under existing law seems an inefficient and strange method of law reform.

A good example of a legal strategy for change was the FTC's 21st century approach to hospital mergers. Although the FTC and the DOJ had successfully challenged anticompetitive mergers in the 1980s, they met serious judicial resistance in the 1990s. Some courts accepted that nonprofit hospitals had non-financial motives and would not translate market power into higher prices. Other courts followed an approach to market definition derived from markets for physical goods that could place hospitals 100 miles away in the same geographic market.346 When we returned to the FTC in 2001, the government had lost its previous seven hospital merger challenges and had essentially given up.

Because some hospital mergers harmed consumers, we disagreed, thought abandonment was intolerable, and adopted a new strategy. The Bureau of Economics published a series of retrospective case studies of prior hospital mergers, some using data obtained under the Commission's unique compulsory process authority to collect data for studies. These studies documented the clear consumer harms from various prior mergers, and exposed the flaws in the economic assumptions that had been used to defend them. The author of the geographic market definition test that had led courts to accept such large markets testified that courts were misusing his test in hospital mergers. The FTC and the Justice Department conducted public workshops on hospital mergers and other healthcare competition issues, leading to a joint report. In 2004, the Commission filed an administrative test case challenging a hospital merger, and in 2007 it found against the merger. Courts blessed the Commission's new approach during the Obama administration.

Although the process took many years, the Commission thereby successfully reversed the string of court defeats. The history of the "failed" 40 years shows many other successful efforts at legal reform, including fraud and privacy in consumer protection, evolving merger guidelines, attacking anticompetitive restraints in the professions, and competitor misuse of government in antitrust.

Read Beales and Muris's full report "Achieving Change at the Federal Trade Commission: Success and failure" on CEI.org.