United States: FTC Revises Its Rule 3 Administrative Process

The Federal Trade Commission has taken aggressive action in both enforcement and policy over the past couple years, but one recent update occurred quietly. In June 2023, FTC Commissioners voted to modify Parts 0-4 of the Commission's Rules of Practice. Notably, the FTC revised its Part 3 administrative hearing process, diminishing the role of its administrative law judge (ALJ). The FTC's ALJ adjudicates agency antitrust challenges to mergers and acquisitions once the Commissioners vote to authorize an administrative complaint.

With the FTC's revised process, the ALJ will no longer render an "initial decision" that would become the agency's decision absent an appeal or internal review by the Commission. Rather, the ALJ will issue a "recommended decision." A "recommended decision" is then automatically reviewed by the FTC Commissioners. In addition, instead of being able to appeal an ALJ decision to the Commission as they can currently, parties will now submit "exceptions" to the ALJ's recommendation. The Commission has to rule on each exception presented. The revised rule also deleted language about referring motions for summary decision to the ALJ, meaning with the new rules the Commission would resolve any such motions. The FTC final rule noted that the Commission has not referred motions for summary decision to the ALJ since that provision was revised in 2009, allowing the Commission to resolve dispositive motions in the first instance, which has been its common practice.

The decision may have been motivated by recent struggles in merger cases. Notably, the FTC lost in two high-profile merger cases before its ALJ in 2022—Altria/JUUL and Illumina/Grail. The Commission can overturn the ALJ's ruling, and it did so in the Illumina/Grail matter. In April 2023, the Commission ordered the divestiture of Grail as Illumina closed on the transaction already. Illumina appealed the FTC order, and the Fifth Circuit agreed to a fast-track appeal. The FTC's struggles to block mergers have continued. Prior to a trial before its ALJ commenced, the FTC filed in federal court and failed to obtain a TRO to block Microsoft from consummating its acquisition of Activision. Shortly after this ruling, the FTC filed to appeal the federal judge's ruling and was denied in its appeal.

One criticism of U.S. antitrust agencies under previous leadership is that they lagged behind aggressive enforcement exemplified by the EU and more recently the UK's Competition and Markets Authority (CMA), including aggressive action against U.S. companies. While differing results in merger challenges reflect different legal standards and market realities, another relevant factor is that U.S. antitrust agencies have to argue cases before a federal court or an ALJ rather than an agency process where agency rulings are appealed to a court or tribunal. The FTC's revised process brings it closer to that of other competition authorities such as the CMA.

The FTC's revision to its administrative process also follows the Supreme Court's recent ruling in Axon v. FTC, issued in April of this year. The Supreme Court's decision allows parties to bring constitutional challenges regarding the agency's structure, procedure or existence in federal court for ongoing FTC administrative cases, rather than having to go through the entire administrative hearing first. Axon sought to enjoin the FTC from forcing Axon to submit to its Part 3 administrative hearing arguing that "the FTC will act as prosecutor, judge, and jury". The FTC's revised process may lend more credence to Axon's argument regarding the role of the FTC.

The FTC has also been facing legal scrutiny from Congress. The House Committee on Oversight and Accountability launched an investigation into whether the agency is abusing its power. Now, after Axon, companies can bring constitutional challenges about the FTC administrative process directly to federal court. This revision to the FTC process may raise additional challenges for the agency attempting an aggressive enforcement agenda as it could engender more constitutional challenges.

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