CEI - Competitive Enterprise Institute

04/22/2024 | News release | Distributed by Public on 04/22/2024 16:11

FTC tightens grip over its in-house judges

Photo Credit: Getty

The Federal Trade Commission (FTC) possesses one of the most conflicted administrative law court (ALC) systems. The agency recently began hiring new administrative law judges (ALJs) to manage its growing caseload. Yet, the FTC also nullified the decision-making authority of its ALJs last year, following an unexpected and rare set of losses within the agency. What is the FTC's aim by increasing the size of its in-house courts at the same time it disempowers its judges?

The FTC once enjoyed a 25-year winning streak in its administrative adjudications. The agency won literally every case that was managed by its ALJs. That winning streak was recently snapped by two major 2022 cases reviewed by the agency's Chief ALJ, Michael Chappell. He surprisingly ruled against the FTC in the Illumina-Grailand Altria Group/Juul Labs matters. Both cases were originally triggered by antitrust suits launched by the FTC to prevent lucrative investment opportunities. Both outcomes likely led to the agency's decision to demote the decision-making authority of its ALJs to non-binding recommendations.

With the Illumina case, the FTC was attempting to prevent Illumina's reacquisition of Grail LLC, after the latter developed a revolutionary multi-cancer early detection (MCED) test. Illumina is a successful, publicly traded biotech company that once owned Grail, its former subsidiary. The FTC sought to break up this attempt at a vertical merger by invoking the Clayton Act on the grounds that the deal would likely lessen competition in the market for cancer detection software.

Chief ALJ Michael Chappell issued a rare opinion disagreeing with the FTC, finding no evidence that an Illumina-Grail merger would "cause a substantial lessening of competition" for patients to take MCED tests. On the contrary, Chappell rightfully found that competition would remain for Grail's MCED because of Illumina's Open Offer-where it lowered Grail's share price to attract potential buyers on the market. He determined that this offer "effectively constrains Illumina from harming Grail's alleged rivals and rebuts the inference that future harm to Grail's alleged rivals, and thus future harm to competition, is likely."

Chappell dismissed the complaint brought by the FTC attorneys, sparking outrage within the agency. When the case was appealed by the government attorneys before the full Commission, the FTC commissioners overruled Chappell's decision and handed themselves the victory anyway. Only one Commissioner, Christine Wilson, partially concurred with the ruling, yet agreed with the outcome. This rare ruling by the Chief ALJ against the FTC would not go unnoticed (nor unpunished) and arose again in the matter of Altria Group/Juul Labs.

Here, Altria Group acquired a 35 percent stake in Juul Labs, an e-cigarette company that spun-off from Pax Labs in 2017. The FTC took issue with a series of agreements between the two companies, including one where Altria Group would remove itself from the e-cigarette market in exchange for the 35 percent partial ownership and $12.8 billion investment in Juul. Chief ALJ Chappell, however, diverged from the reasoning of the FTC officials and dismissed the antitrust complaint in 2022. He argued that the FTC's counsel did not prove the alleged anti-competitive effects from the noncompete provision of the deal between Altria and Juul Labs. He also pointed out that the FTC did not demonstrate a reasonable likelihood that Altria would have superseded its agreement by competing in the e-cigarette market, either through a future collaboration or by an independent product release.

Chapell even pointed to evidence that the Altria deal with Juul Labs actually stimulated greater competition in the once insular e-cigarette market. Altria's decision to retract its products did not undermine competition in the market, despite claims to the contrary.

This did not persuade the FTC commissioners, who, as in the Illumina matter, overturned the initial judgement of the Chief ALJ and returned the entire ordeal to the ALC for reconsideration.

Beyond overruling its Chief ALJ these two times, FTC Chair Lina Khan issued a retributive mandate impacting all the agency's ALJs. To ensure the agency avoids future defiance from its ALJs and retains monopolistic control over its adjudication, the FTC reduced its ALJs initial decisions to mere non-binding recommendations. This effectively demoted the ALJs to administrative figureheads with no quasi-judicial power.

Before this edict, a decision by the FTC's ALJ could stand as the final ruling, if not ultimately appealed to the Commission by the losing party. Today, the decision-making authority over cases rests exclusively with the Commissioners.

In returning to the reason why the FTC is likely bolstering the size of its ALC, the ALJs would retain their usefulness to the agency by reviewing and developing conclusions based on the facts of the case, while losing their authority to manage the case's outcome.

The FTC's tightening of its grip here represents one of the most egregious examples of agency adjudication being weaponized against the private party. If nothing is done to reform the control that agencies can exert over their ALCs, we will continue to see the abuse of power by entities like the FTC, where the house wins every single time.


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