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Rigging the Game? The FTC’s 20-Year Winning Streak

November 05, 2016

The Value of Transparency and Fairness in the FTC Administrative Process

By Taylor Becker

Markets are a good thing, but they sometimes break down. Certain innovations—like the sharing economy manifested by companies such as Uber and Airbnb—are examples of how the free market can spur growth and unleash the productive potential of millions of people. However, we can also see that, when left to themselves, companies within the market will act in a profit-maximizing way that seeks to drive other companies out of business so they can shore up their own influence. When companies merge with other companies or engage in other actions with the intent of creating less competition, this is called anticompetitive conduct, and this is where the Federal Trade Commission (FTC) steps in.

Mergers are not always a bad thing. In fact, they often have very good, procompetitive effects. Mergers allow companies to achieve economies of scale necessary to reduce costs and waste, eliminate duplicative services and technology, and spread costs over a larger base. However, imagine that T-Mobile, Verizon, AT&T, and Sprint merged together. This new mega-corporation would now be able to charge customers whatever prices it wanted and would not be incentivized to produce newer and better products (because the customers would have to use them no matter what).

It would seem that the FTC serves a useful, even necessary function to correct the markets and prevent bad mergers. However, there is also the possibility, raised by certain policymakers, that the FTC has become an agency that has almost rigged the system to the detriment of businesses.

The FTC has a fascinating set-up because it plays the role of both prosecutor and judge. The FTC will send a complaint to an FTC Administrative Law Judge (ALJ) who issues a ruling, and then the decision can be appealed back to the Commission. After the Commission has ruled, then and only then can the case be appealed to a federal appellate court. For 19 years, between 1995 and 2014, the FTC had a flawless “winning streak.” That is, in every single case that was appealed to the Commission, they found in favor of the FTC, deciding that there was an antitrust concern. When a team wins a game of basketball, you call them lucky. When they win five games in a row, you call them professionals. When they win every game for 19 years, you check the referee’s bank account to see what’s really going on.

As then-Chairman of the House Judiciary subcommittee on antitrust issues, Spencer Bachus (R-Ala.) said, “With this kind of record and an unbeaten streak that Perry Mason would envy, a company might wonder whether it is worth putting up a defense at all in a system in which the FTC brings a complaint, the case is tried before an administrative law judge at the FTC, and the FTC holds the authority to overturn a decision adverse to the agency” [1].

This raises the question: Is it fair that the FTC is both the prosecutor and judge in its own trials, and can it be trusted to be fair and impartial? It is not only Congressmen and businesspeople who are concerned with the FTC’s impartiality. As a result of these perceived problems, the American Bar Association (ABA) in 1989 assessed whether the FTC should continue to prosecute and adjudicate antitrust cases. The ABA stated: “[N]o thoughtful observer is entirely comfortable with the FTC’s … combining of prosecutory and adjudicatory functions. Whenever the same people who issued a complaint later decide whether it should be dismissed, concern about at least the appearance of fairness is inevitable” [2]. The ABA report concluded that the benefits and safeguards in the FTC’s adjudicatory process was sufficient to assuage worries about its dual prosecutorial and adjudicative role. However, this report in 1989 predated the “winning streak” mentioned earlier.

David Balto, a former Policy Director of the FTC’s Bureau of Competition, helps us understand why these concerns are important to think about [3]. First, there are fundamental rights to due process and fairness that people and businesses deserve when their cases are being heard. Second, respondents may be pressured into settling weak cases if they believe that the system is rigged against them. Third, the administrative process can only be believed to be credible if it is impartial and fair.

In early 2014, the FTC’s winning streak was finally broken (meaning it’s only about a 99% winning streak, rather than a solid 100%). However, concerns about the system still remain. What are the answers to these concerns? Reforms can come in a number of ways, such as expediting the entire administrative process to make it less expensive and less daunting for businesses. The George W. Bush Administration introduced procedural reforms that streamlined litigation, but there is still work that can be done.

If nothing else, the FTC’s adjudication process serves as a reminder of the importance of transparency, fairness, and impartiality in administrative law. The FTC should continue its good work of ensuring a competitive marketplace for consumers, and it must continue to do so with the utmost respect for due process and the right to a fair and speedy trial.

References

  [1] Antitrust Enforcement Agencies: Hearing before the Subcommittee on Regulatory Reform, Commercial and Antitrust Law of the Committee on the Judiciary House of Representatives, 113th Cong., 2013, Serial no. 113–6 

  [2] Report of the ABA Antitrust Section Special Committee to Study the Role of the Federal Trade Commission (1989).

  [3] David Balto, The FTC at a Crossroads: Can it be both Prosecutor and Judge?, Vol. 28 No. 12, Washington Legal Foundation, 2013

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