[Note: This post originally appeared at the Yale Journal on Regulation on Oct. 23, 2022]

The Federal Trade Commission appears on a collision course with the Supreme Court. Even as the Court reins in the discretion of independent agencies to increase their accountability to the President and Congress, the FTC is charging ahead with new rules and novel theories that stretch the limits of its authority. For instance, the FTC is seeking to cripple the ad-supported Internet, cancel the gig economy, reimagine the merger guidelines, and expand the scope of its mandate beyond consumers to encompass workers, health and safety risks, and equity for historically underserved communities. 

These initiatives could prod the high court to take a hard look at the FTC’s place in the constitutional order. Later this year, the Court will hear oral argument in Axon Enterprise, Inc. v. Federal Trade Commission on a narrow procedural question, namely, whether someone can raise certain structural constitutional challenges to the FTC directly in federal court or must first wade through the agency’s administrative processes. By expanding its regulatory reach in ways that may exceed its mandate, the FTC could persuade the Court that companies need the ability to go into federal court immediately to challenge activities that exceed the agency’s statutory authority. Moreover, by pushing the envelope on rulemakings and policy guidance, the FTC may well lay the groundwork for the Court to revisit the FTC’s constitutionality in future cases. 

This article outlines the FTC’s constitutional history and explains how its current agenda could raise questions about the agency in Axon and future cases.

I. The FTC’s Ongoing Constitutionality Remains Open to Debate

A creature of the first progressive era, the Federal Trade Commission’s powers have always been subject to scrutiny. In 1914, Congress created the agency as a multimember body with features of all three branches of government. The FTC could investigate, prosecute, adjudicate, and even legislate rules of conduct for the business community. At the time, President Woodrow Wilson’s Attorney General (and later Supreme Court Justice) James Clark McReynolds publicly doubted the agency’s constitutionality. Although President Wilson, a progressive, ultimately supported the agency, even he wanted to constrain its authority to avoid empowering a “smug lot of experts.” As the president explained, “God forbid that in a democratic country we should resign the task and give the government over to experts. What are we for if we are to be scientifically taken care of by a small number of gentlemen who are the only men who understand the job?”

These concerns helped to shape the agency’s authority. In Humphrey’s Executor v. United States, 295 U.S. 602 (1935), the Supreme Court upheld for-cause limits on the president’s ability to remove a commissioner, somewhat insulating the FTC from the rest of the executive branch, but only because the agency had a limited mandate and operated under multiple constraints. Most importantly, the FTC’s mission was “neither political nor executive, but predominantly quasi-judicial and quasi-legislative.” Any executive functions were strictly limited to implementing these “quasi-legislative or quasi-judicial powers.”

Moreover, in the Court’s view at the time, the commission did not set policy or operate in a partisan manner. The FTC was “nonpartisan,” acted with “entire impartiality,” and “charged with the enforcement of no policy except the policy of the law.” Indeed, it was “essential that the commission should not be open to the suspicion of partisan direction.” 

Finally, the Court placed great stock in the wisdom of the individual commissioners. The commissioners were “called upon to exercise the trained judgment of a body of experts.” As the Court explained, the commission’s work demanded “persons who have experience in the problems to be met — that is, a proper knowledge of both the public requirements and the practical affairs of industry.”

Of course, in the nine decades since Humphrey’s Executor, constitutional jurisprudence has become even more skeptical of agency authority. In West Virginia v. Environmental Protection Agency, No. 20-1530 (2022), the Supreme Court invoked the “major questions doctrine” to find that the Clean Air Act did not grant the EPA authority to devise carbon emission caps. In a recent lower court decision, Jarkesy v. Securities and Exchange Commission, 34 F.4th 446 (2022), the Fifth Circuit held that Congress unconstitutionally delegated legislative power to the SEC, another multimember agency.

The courts have also reined in the FTC. In AMG Capital Management v. FTC, 593 U.S. __ (2021), the Supreme Court unanimously held that the FTC lacked statutory authority to seek equitable monetary relief in federal court under Section 13(b) of the FTC Act. The Court found that the agency had improperly stretched its statutory language to circumvent various procedural guardrails for defendants. Perhaps unused to a judicial rebuke, the agency’s Acting Chair responded that “the Supreme Court ruled in favor of scam artists and dishonest corporations, leaving average Americans to pay for illegal behavior.” 

Other opinions call into question the agency’s very existence, as currently structured. In Seila Law v. Consumer Financial Protection Bureau, 591 U.S. __ (2020), the Court, reading Humphrey’s Executor narrowly, held that the President can remove the head of the CFPB without cause, thereby tying the agency closer to the rest of the executive branch. In a dissent in PHH Corp. v. Consumer Financial Protection Bureau, No. 15-1177, (D.C. Cir. 2018), then-Judge Kavanaugh wrote that the FTC and other independent agencies “collectively constitute, in effect, a headless fourth branch of the U.S. Government.” Echoing President Wilson’s original concerns with a “smug lot of experts,” Kavanaugh wrote that independent agencies “hold enormous power over the economic and social life of the United States. Because of their massive power and the absence of Presidential supervision and direction, independent agencies pose a significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances.”

II. The FTC’s Aggressive Agenda Could Lead to a Significant Loss in the Supreme Court 

The pending case of Axon v. FTC could bring many of these issues to a head. Axon itself involves a narrow procedural issue about when companies can bring a structural constitutional challenge to the FTC in federal court, but the case’s outcome could affect the agency’s ability to implement its broader agenda. The FTC is contemplating new rules and guidelines to regulate everything from privacy and mergers to the gig economy and the ad-supported Internet. With a win in Axon, the FTC likely could implement its full agenda while keeping judicial scrutiny at bay for years; with a loss, companies likely could challenge, and quite possibly forestall, questionable rules much earlier in the process. Beyond these very practical questions, the case also could lay the groundwork for a full-scale review of Humphrey’s Executor. Although the Court declined to consider that question, some pending lower court cases raise the same issues and the FTC’s current agenda is likely to lead to significant legal questions sooner rather than later. Moreover, several sitting justices, including Justices Kavanaugh and Thomas, have shown an interest in examining the role of independent agencies in our constitutional system. 

A. Axon and Alleged Agency Overreach

By itself, Axon presents a case study in the costs of administrative processes. Axon manufactures body cameras and other equipment for law enforcement. In 2018, Axon purchased a failing competitor; the FTC investigated on antitrust grounds. After eighteen months of back and forth, $1.6 million in legal fees, and a demand that Axon spin-off the acquired company and share its own intellectual property, Axon sued the FTC in federal court. Axon specifically requested a reversal of Humphrey’s Executor, contending that the FTC’s structure and selection process for Administrative Law Judges were unconstitutional. In response, the FTC filed an administrative enforcement petition and argued in court that the administrative proceedings had to play out before the court could assert jurisdiction. The district court agreed with the FTC.

On appeal, a split panel of the Ninth Circuit reluctantly affirmed. (While the certiorari petition was pending, the en banc Fifth Circuit held that district courts have jurisdiction over these constitutional challenges. Cochran v. SEC, 20 F.4th 194 (5th Cir. 2021). The Supreme Court then granted certiorari to resolve the circuit split.) The majority concluded that, under controlling precedent, Axon had to navigate the administrative process before moving to federal court. Still, the majority acknowledged that Axon had “serious concerns about how the FTC operates,” including “legitimate questions about whether the FTC has stacked the deck in its favor in its administrative proceedings.” The court noted that the FTC “has not lost a single case [internally] in the past quarter-century.” In a partial dissent, Judge Bumatay reasoned that Axon should have the ability to file its constitutional claims directly in federal court, both because the FTC’s adjudicators had no special expertise in constitutional law and because lengthy administrative processes could effectively deny Axon judicial review.

The Supreme Court granted certiorari on the procedural question of whether someone can challenge the FTC’s constitutionality directly in federal court. The Court declined to consider the second question presented in the petition, which was whether the FTC’s structure is consistent with the Constitution. Oral argument is set for November 7th.

B. The FTC’s Agenda Could Help to Shape Axon – and Vice Versa

As the Supreme Court prepares to hear Axon, it will likely evaluate the procedural rights of defendants and the objectivity of the agency’s internal processes, with an eye toward future cases involving the FTC. In particular, the Court may think about future cases that raise statutory challenges to the FTC’s activities: if the FTC promulgates a rule that exceeds its statutory authority, should someone have to wade through years of administrative litigation before challenging that rule in federal court? Axon could shed light on that question.

With these future cases in mind, the Court may consider, or at least note, the fact that the FTC is currently contemplating one of the most aggressive agendas in its history. That agenda seeks to reshape broad swaths of the U.S. economy with little regard for its statutory constraints or judicial precedent. The FTC’s current chair, Lina Khan, has argued for the government to play a larger role in “shaping markets and economic outcomes” while decrying the free market as a “product of metaphysical forces.” According to two commissioners, the agency’s leadership intends to “embark on a sweeping campaign to replace the free market system with its own enlightened views of how companies should operate … goals that are ripe for political manipulation.”

Without immediate recourse to federal courts, the FTC could force the business community to abide by arguably illegal rules for years to come, with profound consequences for the U.S. economy, technological innovation, and global competitiveness.

In perhaps its most significant initiative, the FTC has issued an Advance Notice of Proposed Rulemaking (ANPRM) regarding “commercial surveillance and data security.” According to the two commissioners who dissented from the ANPRM’s issuance, the potential rulemaking could ban or severely restrict “common business practices we have never before even asserted are illegal.” For instance, the FTC could promulgate a rule to do the following: 

(1) restrict or ban “personalized” or “targeted” online advertising, which for decades has served as a cornerstone of the free, ad-supported Internet; 

(2) declare that consumers cannot consent to sharing personal data online, either for themselves or their children;

(3) ban any computer programs that produce disparate outcomes, a rule that could cripple the development of advanced artificial intelligence; and 

(4) by limiting data collection, effectively eliminate customer loyalty programs.

Any one of these rules would land like a giant asteroid in the middle of the U.S. economy, setting off tsunamis and dust clouds that could drive many companies past the point of extinction and leave consumers with fewer choices and higher prices.

Faced with such consequences, the question becomes paramount of when an affected party could challenge such a rule in federal court. As both dissenting commissioners explain, the FTC lacks the statutory authority to issue a broad rule (and likely the requisite constitutional authority, given the major questions and non-delegation doctrines). Still, there is no guarantee that anyone could bring an immediate facial challenge to such a rule. The FTC could easily craft a somewhat amorphous rule – e.g., “companies shall not use computer programs that result in a disparate impact on workers” — that imposes no definitive requirements on companies. Such a rule could leave the agency with discretion to apply the rule as it sees fit, insulated from effective challenge while chilling legitimate business activity for years.

In another major initiative, the FTC and the Department of Justice’s Antitrust Division are planning to re-imagine the horizontal and vertical merger guidelines. Companies rely on the guidelines to structure their transactions and to gain insights into the thinking of the antitrust agencies. Last updated during the Obama administration and approved by unanimous vote, the guidelines affect hundreds of billions of dollars in deals every year. 

Unfortunately, based on their Request for Information (RFI) and public messaging, it appears that the agencies are seeking to rewrite the antitrust laws in ways that would usurp the authority of Congress and the courts. For instance, the agencies repeatedly cite cases from the 1960s that have long been discredited by economists, lawyers, the agencies themselves, and the Supreme Court. Likewise, the RFI frequently asks about topics that the courts have long settled, such as Questions 2(g) (“Should the guidelines’ traditional distinctions between horizontal and vertical mergers be revisited in light of recent economic trends in the modern economy?”) and 6(a) (“Is it necessary to define a market in every case?”). The case law already answers these questions. Neither the FTC nor DOJ should ignore judicial guidance on the distinction between horizontal and vertical mergers and the necessity of market definition.

Here again, a strong Axon opinion could help to keep the FTC in line with its statutory constraints and judicial precedent. As an ordinary matter, of course, a federal court likely would not entertain a challenge to an agency’s guidance or policy documents, as such pronouncements typically lack the force of binding law. Nevertheless, courts have recognized that sometimes agencies attempt to create substantive law through guidelines. For example, in describing some of the EPA’s activities, the D.C. Circuit explained that “as years pass, the agency issues circulars or guidance or memoranda, explaining, interpreting, defining, and often expanding the commands on the regulations. … Law is made, without notice and comment, without public participation, and without publication in the Federal Register or the Code of Federal Regulations. … The agency may also think there is another advantage — immunizing its lawmaking from judicial review.” Appalachian Power Co. v EPA, 208 F. 3d. 1015, at 1020 (D.C. Cir. 2000). 

Indeed, the FTC is actively seeking to avoid judicial review when possible. As a condition of approving mergers, the FTC has started to pressure companies into accepting ten-year “prior approval language” that allows the agency to veto mergers without having to go to court. As part of a contentious merger review, the agency appeared to coordinate with a foreign regulatory agency to deprive a U.S. company of the ability to challenge the FTC’s actions in federal court. More generally, the FTC has simply delayed clearing or challenging mergers with the effect that the merging parties abandon their transactions, again negating the possibility of judicial review. This appears to be part of the plan. In an interview, the FTC’s Chair asked Congress to make it easier for the agencies “to pursue some of the worst violations that we’re seeing, without having to, you know, face the potential of losing significantly.”

A strong Axon opinion, upholding aggrieved parties’ right to immediate judicial review when the FTC exceeds its authority, would help keep the FTC within its constitutional and statutory bounds. Such an opinion would hold that defendants can bring constitutional challenges directly in federal court and signal that courts will apply meaningful judicial review of agency actions that exceed the commission’s statutory bounds. Such a decision would be limited in scope and judicially manageable, but also would remind the agency that it operates in a system of government with checks and balances on all three branches of government, including independent agencies.

C. The FTC’s Agenda Could Reinvigorate a Review of Humphrey’s Executor

More fundamentally, Axon could lay the groundwork for a complete review of Humphrey’s Executor. Although the Court declined to grant certiorari on that question, several justices have expressed interest in the general topic, similar cases are percolating in the lower courts, and the FTC’s aggressive agenda undoubtedly will create new questions for the courts. 

Even a cursory review would show that almost none of Humphrey’s Executor’s rationales have held up over time. Far from being “neither political nor executive,” the FTC at times has sought to set the economic policy agenda for the entire country. In the 1970s, for example, the FTC promulgated numerous rules to regulate the economy, many of which exceeded the FTC’s statutory mandate. In just one year, the FTC launched sixteen rulemakings that sought to “transform entire industries that touch everyday life, from antacids to used cars to vocational schools.” One proposal sought to ban advertising to children. This regulatory excess led the Washington Post to deem the FTC the “national nanny.”

Today, and just as President Wilson feared, the FTC again sees itself as a national driver of broad economic policy. After taking office, the FTC’s current chair described her belief that the agency “shapes the distribution of power and opportunity across our economy.” The FTC’s current Strategic Plan condemns “unwarranted health, safety, and privacy risks” and seeks “equity for historically underserved communities,” important issues but ones that lie far outside the agency’s statutory mandate or historic competence. Current FTC Commissioner Christine Wilson – no relation to Woodrow – complained that the FTC has abandoned its statutory mission of protecting consumers in pursuit of “prevailing but mercurial political winds.” Similarly, a bipartisan group of agency veterans has publicly warned that the commission’s agenda could lead courts to reconsider Humphrey’s Executor.

The Humphrey’s Executor Court also relied heavily on its view that the FTC acted with “entire impartiality” and “should not be open to the suspicion of partisan direction.” Contrary to this view, today the FTC appears to act in concert with the White House — and though it is entirely appropriate for the President to direct the rest of the executive branch, constitutional problems arise when that executive branch agency also exercises quasi-legislative and quasi-judicial powers. In an Executive Order on Promoting Competition in the U.S. Economy, President Biden encouraged the FTC to use its authority to implement a “whole-of-government” competition policy, including using its rulemaking authority to curtail the unfair use of “agreements that may unfairly limit worker mobility.” Although the Executive Order does not direct the FTC to do anything, its issuance certainly creates a “suspicion of partisan direction.” The FTC’s head of policy is a former advisor to the White House and a brief review reveals that, during the last two years, the FTC’s majority Democratic commissioners voted in lockstep to override the concerns of their dissenting Republican counterparts more than a dozen times.

Finally, Humphrey’s Executor placed too much reliance on the experience of the agency’s individual commissioners. The Court expected that those commissioners would have “experience in the problems to be met — that is, a proper knowledge of both the public requirements and the practical affairs of industry.” Oftentimes, however, the FTC’s commissioners have little or no background in the private sector. Many commissioners have substantial (and impressive) experience in academia or on Capitol Hill, but very little practical experience working for or advising the companies that they seek to regulate. 

Without such practical experience, how can commissioners fully appreciate the difficult tradeoffs for businesses as they strive to develop innovative products, serve their customers, and satisfy their responsibilities to their shareholders? The FTC recently eliminated language from its Strategic Plan declaring that the agency should enforce the law “without unduly burdening legitimate business activity” – would anyone who has ever run a business vote to remove such language? For people without such experience, businesses are merely soulless entities to be taxed, regulated, and controlled, rather than vibrant organizations, staffed and owned by actual human beings, that satisfy consumer demand, drive innovation, and secure the nation’s economic and military needs. 

To be sure, the Humphrey’s Executor Court expected commissioners to gain some of that practical experience on the job, but one suspects that even President Wilson, hardly an advocate of limited government, would have worried about a government given over to “experts” without experience.

***

The passing decades have borne out many of President Wilson’s concerns even as they have cast doubt on most of the assumptions that underlay Humphrey’s Executor. In Axon, the Supreme Court will have a chance to subject the FTC to judicial scrutiny and to revisit its place in the nation’s constitutional order.

Asheesh Agarwal served as Assistant Director of the FTC’s Office of Policy Planning under former Chairman Timothy Muris. For their helpful review and comments, he thanks Ted Gebhard, Matt Perault, Alden Abbott, John Delacourt, Geoff Manne, Bilal Sayyed, and Todd Zywicki. See more in his mini-bio on the Contributors page.

[Note: This book review originally appeared at Law & Liberty on June 23, 2021]

In her new book, Antitrust: Taking on Monopoly Power from the Gilded Age to the Digital Age, Senator Amy Klobuchar leaves no doubt as to who are the heroes and who the villains in America’s economic history. The heroes are hard-working Americans, farmers, miners, and union members, who have been exploited for more than a century by corporate robber-barons, oligarchs, and monopolists, spanning from Rockefeller to Zuckerberg, aided and abetted by lobbyists, Republicans (except TR, sort of), and worst of all, conservative judges. We, the People, are the Morlocks. They, the Monopolists, are the Eloi. To stop them, we must enact new laws to give the government much more control over the economy.

Even if one questions this stark historical narrative, this is an important and often entertaining book. Senator Klobuchar chairs the Senate Subcommittee on Competition Policy, Antitrust, and Consumer Rights and therefore helps to shape the nation’s economic policies. Her book squarely lays out the progressive case for reworking the nation’s antitrust laws, and in so doing, provides insights into progressive thinking. Whereas free market capitalists see a dynamic economy that is producing remarkable new technologies at low prices, progressives see exploited workers and outrageous corporate profits. This book explains her perspective and policy ideas. Along the way, she relays countless historical anecdotes, such as how a monopoly helped to spur the American Revolution and how a merger dispute cost one party the presidency.

And there’s another reason to read this book: a fair reading leaves little doubt that the senior senator from Minnesota is not yet ready to concede the 2024 (or perhaps 2028) Democratic presidential nomination to Vice President Harris.

Antitrust History

As the book relays, antitrust issues have been integral to the nation’s history. “In the British Empire, the monopolies conferred by Parliament were the product of corruption, influence peddling, and outright bribes,” (not unlike the consequences of government intervention in markets today). In Klobuchar’s telling, after Parliament handed control of the tea market over to the British East India Company, Americans resisted via the Boston Tea Party and ultimately the Declaration of Independence, which represented “an act of economic rebellion against monopoly power” (conferred by the government).

Monopoly concerns spurred another famous schism, this one between the first President Roosevelt and his successor. In 1907, Roosevelt informally agreed not to sue U.S. Steel under the Sherman Act, in exchange for the company’s help in stabilizing the stock market. In 1911, ignoring this gentlemen’s agreement, President Taft’s Justice Department sued U.S. Steel for acquiring a large competitor. According to the book, this lawsuit exacerbated the personal rift between Roosevelt and Taft, leading to Roosevelt’s third-party challenge in 1912, the split Republican vote, and the election of Woodrow Wilson, who campaigned on a song titled, “Bust the Trusts.”

For Senator Klobuchar, antitrust is very personal. She contrasts her ancestors, who worked as iron ore miners, with corporate titans such as Minnesota’s James J. Hill, who created the Great Northern Railway and who profited from her ancestors’ labor. “Two generations of the Klobuchar family had worked underground in servitude to the mining interests.” “Unlike James J. Hill, the Klobuchar family owned no railroads.” “As a little girl growing up in the Twin Cities, I never got to go inside [Hill’s 36,000 square foot] house until it opened for public tours.” Although some may describe her views as generational class envy, Klobuchar is absolutely sincere in believing that owners and executives earn too much and workers too little. (My own family history might provide a different lesson: two of my uncles were coal miners; that income allowed all five of their children to attend college, four to earn advanced degrees, and three to become medical doctors).

Klobuchar blames a failure of antitrust law for “too much business consolidation in this country.” Klobuchar, an attorney and alumnus of the University of Chicago Law School, excoriates what is now known as the “Chicago school” of antitrust thinking, which focuses on economic efficiency and consumer welfare, rather than on the number and size of competitors in a particular market. In Klobuchar’s telling, the Chicago school and its chief proponent, Robert Bork, “grossly perverted the whole history of the Sherman Act, which was to protect American farmers and workers and consumers from the power of monopolists.” She describes Bork’s consumer welfare standard as “bizarre.” In her view, the Chicago school’s failure to promote competition has led to high cable rates, airline fares, drug prices, seed and fertilizer costs, and income disparities. (As a fellow alumnus of Chicago Law, I can’t help but wonder who taught Klobuchar antitrust. My guess is that it wasn’t such Chicago luminaries as Richard Posner, Richard Epstein, or Frank Easterbrook, but instead some visitor from Yale, or possibly even Berkeley. Who knows, but for a scheduling conflict, perhaps Klobuchar would have become a Republican!)

Klobuchar makes some fair points about antitrust law. She is right that the authors of the Clayton Act, an early companion to the Sherman Act, wanted to protect small companies and forestall economic concentration, and that antitrust law today does not concern itself with these issues. Unfortunately, Klobuchar does not explain why the courts, with more than a century of experience, eventually found it both impossible and unwise to punish companies based on their size and profit margins. Such criteria proved unworkable and harmful; indeed in the 1960s, LBJ’s antitrust chief, Donald Turner, warned against using the antitrust laws to attack bigness per se.

Klobuchar also makes some claims that are demonstrably false, if not outright troubling. She wrongly asserts that the consumer welfare standard ignores prices paid by actual consumers, when in fact today antitrust concerns itself first and foremost with the possibility of price hikes, along with non-price competitive factors such as quality. She also repeatedly attacks the courts in ways that some may find concerning coming from a member of the august Senate Judiciary Committee. “[T]he extreme views of Gorsuch and Kavanaugh on antitrust issues were one of the many reasons why I fought so hard to keep them off the Court.” Socialist leader Eugene Debs “had good reason to believe that the courts were carrying the water for big business.” Et cetera.

Exchanging Big Business for Big Government

Turning to the future, Klobuchar’s policy proscriptions far exceed the scope of antitrust law—befitting the once and possible future presidential candidate. She writes, for instance, that “We should be investing more in clean energy and green jobs. It is far better for us, as a country, to invest in farmers in the Midwest than in oil sheikhs and oil cartels in the Mideast.” You can hear the applause from the caucus-goers in Des Moines. In nods to progressives, Klobuchar calls for the repeal of Citizens United v. Federal Election Commission, other election changes such as paper ballots and “clear rules of the road for political advertising and truthtelling on major internet platforms,” net neutrality, immigration reform, government price negotiations with drug companies, and more capital for women and minority-owned businesses. Bowing to labor unions, Klobuchar wants a $15 minimum wage, an end to right-to-work laws, and tax reform to “ask our wealthiest citizens to pay their fair share of taxes and that would strengthen labor unions.”

When it comes to antitrust, Klobuchar presents a wide spectrum of ideas. Quite a few make sense and could form the basis for some bipartisan compromise. She wants to provide more funding for the antitrust agencies, which has lagged over time, and focus resources on ways to help lower-income consumers and minorities. She also aims at overly aggressive non-compete clauses, which can hamstring hourly workers. For instance, she notes that Jimmy John’s once forbade its employees from taking jobs with competitors for two years. With due respect for these skilled sandwich artists, neither da Vinci nor van Gogh ever faced such severe post-employment restraints.

Unfortunately, many of Klobuchar’s more aggressive ideas would seriously damage the nation’s economic dynamism. She would reverse the burden of proof for certain mergers by requiring the merging parties to prove that an acquisition enhances competition. (Currently, the government must prove that an acquisition harms competition.) She also would allow the antitrust agencies to seek enormous civil fines for violations of the Sherman Act based on a company’s revenue, untethered to actual harm to consumers, and on top of existing remedies such as treble damages. These sorts of proposals could discourage companies from routine, pro-consumer conduct and would move the United States towards a sort of mother-may-I economy, where private companies would have to seek the government’s permission before doing much of anything.

Indeed, Klobuchar expressly wants the United States to model Europe. In her view, “American antitrust enforcers must be much more vigilant in monitoring high-tech companies, just as European officials have been in investigating and monitoring any potential antitrust transgressions.” Although Klobuchar attended the finest law school in the land, she apparently never studied the law of unintended consequences. Can you couple America’s dynamic and innovative economy, home of the world’s largest and most successful tech companies, with Europe’s burdensome legal and regulatory regime, one that punishes “abuse of dominance”? Europe’s tech sector, which lags far behind ours, suggests not. The Council of Economic Advisers has explained that overly aggressive merger review could harm the economy by reducing venture capital funding for start-ups. America’s tech sector leads the world, at least in part, because we have created a legal, regulatory, and financing regime that encourages and rewards innovation. Should Congress turn America into Europe because of some frustrations with Big Tech, even as major antitrust cases are already pending in court?

Klobuchar’s proposals are also rife with contradictions. For example, Klobuchar rightly decries the numerous industries that have been exempted from the antitrust laws, ranging from Major League Baseball to anti-hog-cholera serum. As she explains, “even a cursory review of the legislative and judicial history of America’s antitrust exemptions—one peppered with backroom deals in the halls of Congress—demonstrates that this area of law is, at its best, incoherent and confusing, and, at its worst, corrupt and unfair.” Nevertheless, she then proposes to create yet another antitrust exemption for a favored industry, news publishers, to bargain collectively (read: fix prices) with tech platforms. She correctly criticizes overly aggressive non-compete clauses for limiting worker freedom, then calls for an end to right-to-work laws. She condemns China for using antitrust to protect its domestic industries but then praises Europe, which frequently uses competition policy to engage in rank protectionism.

In perhaps the richest irony, Klobuchar apparently fails to appreciate that her proposals would dramatically increase the authority of the one entity whose power is nearly impossible to dislodge: the federal government. Viewed in totality, Klobuchar’s historical analysis actually undermines her case for giving the government more discretionary authority. For instance, Klobuchar generally admires Roosevelt but relays that he politicized antitrust enforcement. “William Randolph Hearst would expressly complain about what he called ‘the Roosevelt method,’” she tells us. “The Roosevelt method,” according to Hearst,

was to divide the trusts into good trusts and into bad trusts and to go to extreme lengths in assailing those that were declared by him to be the bad trusts, and to equally extreme and sometimes illegal lengths in aiding and protecting those that were declared by him to be the good trusts.

“The good trusts,” he noted, “were the trusts that politically supported Roosevelt and the bad trusts were the trusts that politically opposed Roosevelt.”

How can Klobuchar discount the very real possibility that her proposals would lead to more of the same? It is true that progressives generally fear excessive corporate power and that conservatives fear excessive public power, but Klobuchar repeatedly and rightly highlights instances in which government played favorites in the antitrust space. Past is prologue, no?

Senator Klobuchar deserves credit for writing a thoughtful and engaging analysis of antitrust law. No one can begrudge her seeking to use her committee perch to set forth a national political platform. But as shown by her review of TR, the British Empire, and anti-hog-cholera serum, policymakers of both parties should exercise caution before they give the government even more discretion to police our economic freedoms.

Asheesh Agarwal is an attorney and an advisor to the American Edge Project and the U.S. Chamber of Commerce.  See more on the Contributors page.

[Note: This post originally appeared at Law & Liberty on Jan. 13, 2021]

Just before the holidays, 44 states filed two separate lawsuits alleging that Google violated the Sherman Act and 16 separate state statutes. The lawsuits, totaling 245 pages, seek to dismember the company and force it to pay perhaps hundreds of billions of dollars in treble damages. In a nutshell, the suits focus on two main themes:  Google has attempted to monopolize the online search engine market (“the search lawsuit”), and Google has attempted to monopolize the online advertising market (“the ad tech lawsuit”). 

The search lawsuit, led by Colorado, largely tracks an earlier lawsuit filed by the Department of Justice. It alleges that Google unlawfully maintains monopolies through exclusionary contracts that require computer and mobile device manufacturers to set Google as the default search engine and to preinstall Google applications. Like DOJ, the states charge that Google is using exclusive contracts to monopolize the search components of the Internet of Things, such as automobiles and voice assistants, and that Google’s algorithms disadvantage specialized search competitors, like Yelp and Expedia.

The ad tech lawsuit, led by Texas, alleges that Google improperly monopolizes online advertising by manipulating auctions in its favor, colluding with Facebook, and pressuring advertisers to use its full suite of ad tools. At its core, the lawsuit alleges that Google uses its size to give it unfair competitive advantages in placing ads. For instance, the suit claims that Google promised advertisers that its tools would let them place ads on competing engines and exchanges, but actually tilted the playing field in its own favor. According to the complaint, Google gave Facebook preferential treatment and more data, in exchange for Facebook’s agreement to limit competition for advertising auctions. Similarly, the states allege that Google “uses its market power to withhold YouTube inventory from competing buyside ad buying tools, forcing advertisers to use Google’s tools in order to purchase ad space from the leading provider of video inventory in the United States.”

The lawsuits raise numerous complex factual and legal issues that likely will take years to sort out. Even at this early stage, however, a few points become clear.

These lawsuits, along with two suits against Facebook, firmly move the antitrust debate from Congress to the courts. Many reformers, particularly on the left but also on the right, are seeking to expand the scope of antitrust law. Some proposals would force companies to separate into single lines of business, hamper certain firms’ ability to acquire other companies, and even have antitrust law take into account amorphous values like “fairness” and “democratic ideals.” With these lawsuits pending, Congress is less likely to enact major antitrust legislation. Many reformers, such as House Judiciary Chairman Jerrold Nadler, praised the lawsuits as an “important step” in preserving competition online. Given that the existing laws, as written, may well allow the courts to address any competitive concerns, antitrust reformers will have a harder time persuading their colleagues that Congress must overhaul the antitrust laws now. At the very least, given that the most significant antitrust cases in two decades are now in the courts, Congress should take a deep breath before trying to rewrite a century of antitrust law.

The lawsuits challenge the idea that vertical integration benefits consumers. Google both places ads for advertisers and sells advertising space for most of the world’s ad-supported websites. Google operates the most popular general search engine and many properties, such as YouTube and map apps, that attract millions of eyeballs. Google’s popularity gives it an upper hand in the ad search market; Google offers tools to assist advertisers in evaluating consumer interactions and serves as an intermediary between the ad exchanges for publishers and its own online ad servers. In the states’ telling, Google abuses its breadth by “tying” together these offerings, which “coerces” advertisers and publishers into accepting all of its offerings and paying higher prices in order to reach, or have better chances of reaching, the millions of eyeballs otherwise not accessible to those looking for more direct deals with other networks. At least in theory, this conduct could violate the antitrust laws: in this narrative, Google’s use of its search market power qualifies as a tying violation when Google (allegedly) restricts customers’ ability to advertise on Google’s most popular offerings, like YouTube, unless those customers also use Google’s full suite of products. Google likely will counter that its integrated offerings benefit its customers through lower prices and efficient services, and in any case, that Google has every right to give preferential treatment to customers who use more of its services. While the facts will come to light over time, in general, tying claims are notoriously difficult to prove in court, and economic research suggests that vertical integration benefits consumers. The antitrust agencies agree with this principle.

The lawsuits attempt to define away the broader competitive landscape. Most antitrust lawsuits hinge on the definition of the market: the narrower the market, the easier it is to argue that a company has the market power to charge higher prices. In these cases, the states define the relevant markets as narrowly as an election margin in Wisconsin. For instance, the states define the advertising market to exclude TV, radio, print, and outdoor advertising, and the search market to exclude specialized search engines and social media advertising. Indeed, the ad tech lawsuit alleges that YouTube dominates the market for “online instream video advertising,” which comes close to alleging that YouTube dominates the market for YouTube. In reality, advertisers can reach consumers at many other websites that stream videos, including Facebook, Flickr, TikTok, Twitch, Twitter, Dailymotion, Snapchat, and even MySpace, which still receives fifteen million views monthly.

The lawsuits attempt to fix an industry that, by many metrics, is already very competitive. Online ad fees are falling, overall ad prices are declining, and output is rising. From 2010 to 2019, domestic spending for online digital advertising quintupled, from $26 billion to nearly $130 billion. Over the same period, Internet advertising costs declined by nearly 40%. In general, these characteristics epitomize a competitive marketplace, not one dominated by a monopolist (monopolists tend to reduce output and raise prices in order to maximize their revenue).

The courts will have to sort through many hotly contested facts. In perhaps the most tantalizing charge, the states accuse Google of colluding with Facebook to limit competition for advertising auctions, to the benefit of both companies. Google counters that Facebook receives no preferential treatment, that dozens of other companies bid in the same auctions, and that Google has made no secret of its agreement with Facebook. As much of the states’ complaints are redacted, time will tell whether the states have identified facts that support a viable antitrust theory.

In another contentious charge, the states allege that Google intentionally limits competition from specialized vertical providers in certain market segments like travel, home improvement, and entertainment, by “limiting those firms’ ability to acquire customers.” So, for instance, the charge is that Google downgrades the search visibility of companies like Expedia and TripAdvisor in order to benefit its own properties. Google counters that its search results preference the businesses themselves, rather than middlemen, thereby allowing businesses to connect directly with their customers. On this point, Google may receive some support from … the Federal Trade Commission. In 2013, the FTC looked into the alleged search bias and concluded that Google’s search tools “likely benefited consumers,” finding that Google designed its search tools to provide quality results, not to stifle competitors. The courts will have to sort through whether the FTC got it right then, whether anything material has changed, and whether Google designed its search algorithms to harm competition or simply to provide individuals with the results that Google thinks they want.

Before the lawsuits conclude, real-world events likely will bring more competition to the marketplace. Including appeals, the state lawsuits likely will take two or three years to play out. Maybe longer. By that time, the competitive landscape could look very different. Reports suggest that Apple is planning to turn Siri into an independent search engine, instead of a voice for Google searches; if so, three of the world’s largest tech companies will compete vigorously in the general search market. A fourth company, Amazon, already has surpassed Google in product searches, where search engines earn almost all their money. Walmart, no competitive slouch, recently launched its own self-serve ad platform. Beyond existing competitors, smart TVs soon could offer personal advertising, European regulators are actively seeking to boost their tech companies by hobbling their American rivals, and Chinese companies continue to invest strategically in nascent technologies. 

As has happened so often throughout the last century, the marketplace likely will move much faster than the court system, particularly in as dynamic an industry as technology. Today’s competitive landscape may seem quaint by the standards of, say, 2025, much as 2008’s landscape, dominated by MySpace and AOL, seems quaint today.  Thus, while the lawsuits certainly bear watching, the real guarantor of competition is likely happening outside the courtroom.

[Note: This post originally appeared at Law & Liberty on Nov. 9, 2020.]

Perhaps Attorney General Bill Barr has been re-reading his history. A few weeks ago, the Department of Justice filed its long-awaited antitrust lawsuit against Google. The lawsuit approaches Google with a scalpel, rather than a sledgehammer, and at most may result in a handful of minor changes to Google’s business model, rather than Google’s wholesale dismemberment, a goal sought by many progressives. As an added bonus, the lawsuit likely slows progressive momentum to rewrite the nation’s antitrust laws to promote social goals and fuzzy notions of fairness.

Nonetheless, the lawsuit has serious flaws. It misconstrues the search market, flirts with the outdated idea that “big is bad,” and ignores the ease with which consumers can switch to other search options. Nevertheless, if a lawsuit had to be filed—and given the intense bipartisan spotlight on Big Tech, some sort of suit seemed inevitable—this suit’s silver lining may well outstrip its cloud: the lawsuit will allow a review of Big Tech’s business practices in deliberate judicial proceedings, rather than frenzied and politicized congressional hearings.

The Backdrop

For more than a year, Google, Apple, Facebook, and Amazon have been in the crosshairs of both the right and the left, the White House and Congress. The right worries about perceived anti-conservative bias among social media platforms and search engines. The left rages about Big Tech’s size, scope, and overall power and earnings. Months ago, Jared Nadler, Chairman of the House Judiciary Committee, declared that the large tech companies “cannot be allowed to exist in society.”

Against this backdrop, the House Antitrust Subcommittee recently issued a lengthy report that recommends the breakup of Big Tech. Among other changes, the report calls for “structural separations” of each company into its primary component parts, each with a single line of business, presumptively prohibiting these companies from purchasing start-ups, and requiring them to offer equal terms to their competitors.

The House report, however, goes beyond Big Tech. It seeks to reimagine antitrust law and perhaps even the entire economy. For decades, a bipartisan consensus has embraced the “consumer welfare standard,” the idea that antitrust law should, first and foremost, protect consumers by focusing on the likely impact of business conduct on prices, an objective metric. The House report dismisses consumer welfare as a “narrow” standard and instead proposes that antitrust law should protect “workers, entrepreneurs, independent businesses, open markets, a fair economy, and democratic ideals.” Who will determine whether business conduct comports with the concepts of a “fair economy” and “democratic ideals”? What criteria will they use? The House report doesn’t say. 

The Lawsuit 

Against this charged backdrop, DOJ, joined by eleven state Attorneys General (all Republicans), filed its lawsuit against Google. The suit alleges that Google unlawfully maintains monopolies in the search and search advertising markets through various anticompetitive practices. In particular, Google enters into exclusive contracts that require computer and mobile device manufacturers who use Android to make Google the default search engine in whatever browser they set as the default, while forbidding them from replacing the Google search box on the Android home screen with competing search software. Google’s contracts also demand that manufacturers preinstall a suite of Google applications, such as Google Maps and Gmail, and ensure that they are accessible through (at least) a folder on the Android home screen. Google’s contracts also specify that those apps must be undeletable. 

DOJ alleges that these practices foreclose competition in the markets for online searches and search advertising. They reduce “the quality of search (including on dimensions such as privacy, data protection, and use of consumer data), lessening choice in search, and impeding innovation.” In addition, “by suppressing competition in advertising, Google has the power to charge advertisers more than it could in a competitive market and to reduce the quality of the services it provides them.” 

DOJ’s complaint does not specify the relief that it seeks, but based on its complaint, some reformation of Google’s contracts seems like a plausible remedy. DOJ does not complain about Google’s various acquisitions, such as YouTube, and although it mentions the possibility of “structural relief,” it does not expressly seek to dismantle the company.

The Good

Momentarily setting aside the merits of the case, the lawsuit could achieve a number of salutary objectives. The lawsuit likely takes the wind out of the sails of progressives who want to rewrite the nation’s antitrust laws. For instance, Chairman Nadler called the lawsuit an “important step for ensuring a competitive online space.” As a result, the lawsuit’s very existence will complicate arguments that Congress needs to change the antitrust laws now—why, when a viable lawsuit is winding its way through the courts? Similarly, the lawsuit answers calls from both the right and the left to “do something” about Big Tech (though it doesn’t address concerns about political bias) and ensures that Google’s business practices will receive serious scrutiny from a court of law. In this sense, DOJ has released a pressure valve at just the right time.

Finally, the lawsuit may forestall, or at least color, a much more aggressive lawsuit that could be filed by Democratic Attorneys General or a possible Biden-Harris administration. Of course, nothing actually prevents the filing of new lawsuits, but the current proceeding will shape the perception of any future ones.

The Bad 

Whatever its political value, in the final legal analysis, DOJ’s complaint misconstrues the market in ways that are likely to doom its chances in court. For now, at least, antitrust law protects consumers and competition—not competitors. To determine whether a “market” is competitive for antitrust purposes, courts evaluate, in part, whether consumers have other options. Can consumers easily substitute one product for another? If so, courts are less likely to find an antitrust violation. 

Consumers have a world of search choices online. Although DOJ treats Google’s pre-installation on Android devices as some sort of talismanic black hole from which consumers cannot escape, in reality, consumers can easily change the default search engine in their Android browser to DuckDuckGo or Microsoft’s Bing, competing general-purpose search engines that consumers can use and install at no monetary cost and in virtually no time. Or consumers can simply install an alternative browser that comes with a default search engine other than Google—like Microsoft’s Edge browser. Microsoft, the world’s largest technology company, certainly has the resources to compete with Google. In principle, Microsoft could compete for pre-installation contracts for its Bing search app (which has 10+ million downloads) or Edge. Or, even if manufacturers continue to preinstall Google, Microsoft could fund an advertising campaign to persuade consumers to switch (how about a campaign titled, “Where you search matters?”). 

Consumers also have many choices for the searches that really count, at least from the standpoint of earning money: searches for products. Advertisers pay a premium to place their ads in front of consumers who are searching for particular products. If you search for “pizza” or “shoes,” lo and behold, you’re likely to see a banner ad with a pizza coupon or a shoe brand. Google earns the most money from these types of product searches, and much less from general informational searches. 

A recent survey found that 70 percent of consumers begin their product search on Amazon. Facebook’s product searches are growing at a faster clip than Google’s, and other companies, including Walmart, are further cutting into Google’s share of the product search market. For general services, like plumbers, consumers can turn to Yelp or Angie’s List, and for special or professional services, to sites like LinkedIn. 

DOJ argues that Google’s dominance in the general search market comes from its exclusionary contracts, but a simpler reason may be that consumers prefer Google’s general search functionality, or at least are sufficiently satisfied such that they see no reason to switch. If so, one is hard-pressed to see the consumer benefits that conceivably could flow from this lawsuit. From the standpoint of consumer welfare, does it really matter whether one company dominates in the general search market, when those searches are not valuable economically?

If DOJ prevails, it may well be the first time in history that a court has found that a company has “monopolized” a market where consumers have multiple free alternatives, where the alleged “monopolist” is no longer the leader in the part of the market that actually earns money, and where there has been no showing of higher prices in any relevant market. 

…And the Ugly

Of greater concern is DOJ’s flirtation with the concept that “big is bad.” At one point in time, bigness alone could trigger antitrust scrutiny. Fortunately, this concept has long been discredited in antitrust circles on both sides of the aisle; indeed, President Lyndon Johnson’s Antitrust Division started to chip away at this concept more than 50 years ago.

DOJ repeatedly mentions the scale of Google’s operations and the difficulty that any competitors would have in creating a viable competitor. According to DOJ, “Google’s anticompetitive practices are especially pernicious because they deny rivals scale to compete effectively. . . . To recoup the large investment in creating and maintaining a general search engine, scale is critical to generating the necessary revenues and profits.”

In arguing that scale should invite antitrust scrutiny, however, DOJ treads a dangerous path. Scale is an issue in many industries but need not forestall competition. Auto companies have existing supplier agreements and dealer networks that give them competitive advantages, yet Tesla is growing anyway. Facebook benefits from network effects, yet TikTok and Zoom have gained millions of consumers through savvy marketing and products that people want. McDonald’s is the largest restaurant chain in the world, yet new entrants regularly find space in the market. 

All of which brings us back to Bismarck. The Iron Chancellor once wrote that “Only a fool learns from his own mistakes. The wise man learns from the mistakes of others.” Let’s hope that DOJ’s lawsuit keeps the focus where it should be: not on the outdated idea that the government needs to cut big companies down to size, but on the goal of enhancing consumer welfare.