ADMINISTRATIVE LITIGATION AT THE FTC: EFFECTIVE TOOL FOR DEVELOPING THE LAW OR RUBBER STAMP?

Abstract

This article provides the most comprehensive study to date of the Federal Trade Commission's Part 3 process. A unique and defining tool, Part 3 allows the FTC to challenge alleged section 5 violations in-house through administrative litigation. Highlighting the agency's expertise, Congress gave the FTC that authority in 1914 to develop antitrust and later consumer-protection law. Although the Commission has used its Part 3 authority to good effect, especially in some recent competition matters, the process is controversial on due-process grounds. After it finds “reason to believe” that a violation exists and authorizes staff to litigate before an independent Administrative Law Judge, the Commission reviews the ALJ's decision de novo. The result, some critics argue, is a foregone conclusion. Rather than advance the law, they contend, Part 3 frees the Commission to reach its favored result. Maligned in some quarters as a “kangaroo court” in which the FTC alleges and later summarily confirms section 5 violations, the key question is whether administrative litigation effectively fulfills the role Congress set out for it. To resolve the debate, we need a clearer picture of how Part 3 operates. Does the FTC rubber stamp its prior determinations, invariably siding with complaint counsel? Or does it change course at the appeal stage and, if so, how often? And, when it does find a section 5 violation on appeal, how often does the FTC nevertheless prune counts and allegations, suggesting that it scrutinizes the factual and legal record before it? Do the answers change with the political constitution of the Commission, such as when a Democratic majority votes out a Part 3 complaint, but a Republican Commission hears the appeal? How often does the Commission's composition change between voting out and later deciding a Part 3 matter, and might the answer resolve the due-process issue? And does the FTC fare better at the U.S. Courts of Appeal if it affirmed or reversed the ALJ? Until now, relatively little empirical work has scrutinized administrative litigation at the FTC. This study tracks every Part 3 case that produced a Commission Decision on or after January 20, 1977. It captures all 145 antitrust and consumer-protection matters falling within that period, tracking their development through initial vote at the “reason to believe” stage, disposition before the ALJ, appeal before the Commission, and petition for review at the U.S. Court of Appeals and beyond. The emerging statistics are illuminative. In hearing an appeal in the last 10 years, the FTC has never rejected an action that it had previously authorized complaint counsel to bring in Part 3. At first blush, that fact might suggest a preordained appellate process. But that phenomenon dissipates when one looks at a larger time horizon, suggesting that uniformity from initial vote to appeal is neither inevitable nor systemic. Indeed, it is possible that recent consistency may be a function of improved case selection, aided by effective factual, economic, and legal analysis by staff and the Commissioners before they authorize a complaint. Evaluating the ten matters voted out and affirmed by the Commission in the last decade lends some support to that proposition. Indeed, Part 3 has been an effective tool in developing complex antitrust questions. This article provides a host of new evidence with which to evaluate administrative litigation at the FTC. The article concludes by exploring some initial teaching points from the data.