For years, the agency has been pushing the limits of its enforcement powers and exerting undue authority over private businesses.
For years, the agency has been pushing the limits of its enforcement powers and exerting undue authority over private businesses.
T he Federal Trade Commission (FTC) is using its administrative tribunal to block mergers with dubious justification. For years, the agency has been pushing the limits of its enforcement powers and exerting undue authority over private businesses.
One of the most potent and controversial tools at the agency’s disposal is its in-house court, a forum in which the FTC plays the role of judge, jury, and prosecutor. The commission has been using these administrative-review proceedings as a strategic tool to invalidate legitimate business transactions and effectuate a more invasive enforcement regime. Take the case of Illumina and its acquisition of Grail in September 2020, wherein the FTC’s aggressive use of its tribunal effectively silenced opposing viewpoints, stifled innovation, and undermined due process.
After biotechnology company Illumina announced its acquisition of cancer-screening startup Grail for approximately $8 billion, the FTC moved to block the deal based on its theory that the merger would “diminish innovation in the U.S. market for multi-cancer early detection tests,” even though this market does not yet exist. The new blood-testing technology that was enabled by the deal between the two companies was the first of its kind and had not been brought to market because it was still being researched. The commission further reasoned that Illumina might keep a tight hold on its patented technology or raise prices for competitors. Never mind that Illumina offered its customers twelve-year commitments for supply contracts that guaranteed price decreases, binding arbitration to resolve disputes, and access to Illumina’s products on the same terms as Grail receives.
In other words, FTC regulators lacked evidence of any harm from the merger but were attempting to undo it anyway.
Two dozen prominent law professors and economists called attention to this problem in an amicus brief submitted to the FTC’s administrative tribunal. But, unlike in traditional courts, critical perspectives are not particularly welcome in the FTC’s proceedings. The FTC’s counsel rebuffed the amicus brief and, unsurprisingly, the FTC’s administrative law judge rubber-stamped the rejection.
Adam Mossoff and Richard Epstein, two law professors who led the brief-filing effort, recently commented that it was “galling to have a purported judge reject a properly filed legal brief without even reading it, which highlights the inherent bias in letting an administrative agency be a judge in its own cause.” Professor Thom Lambert, also on the brief, commented that FTC “staffers insinuate that we amici have been bought off by the merging parties and that our views should therefore be ignored. . . . It’s awfully rich for FTC to cry bias in an administrative proceeding in which it acts as both prosecutor and judge.”
The FTC’s denial of the amicus brief demonstrates its lack of interest in considering divergent perspectives and its focus on winning, even when evidence shows that a business decision would harm competition or the welfare of consumers.
In a public letter, Representatives Jim Jordan (R., Ohio) and Darrell Issa (R., Calif.) highlight that the FTC sought an injunction against the Illumina–Grail merger in federal court while reviewing the merger in its own internal administrative proceeding. The congressmen explain that the “district court’s ruling functionally makes or breaks these types of cases.” However, in this case, the FTC abruptly withdrew its complaint.
This suggests, the congressmen write, that “the FTC took significant steps to avoid speedily resolving novel legal issues under U.S. law in a forum — federal district court — where the FTC was more likely to lose.” The commission preferred to “makes its case before an administrative law judge [given] the agency’s remarkable win rate when litigating before its in-house tribunal.”
The implications of the FTC’s move are far-reaching. If the commission successfully breaks up this acquisition, development of Grail’s pioneering cancer-detection research will not benefit from Illumina’s size and resources. Other biotechnology start-ups — and the entrepreneur community as a whole — will be wary of striking deals with large firms, even though such mergers often yield positive outcomes for both parties.
This loss in innovation will affect consumers the most, who will be deprived of the affordable options and choices often attendant to acquisitions. And in this case, the FTC’s actions will delay putting lifesaving technology into patients’ hands.
As Supreme Court justice Potter Stewart lamented in the 1960s, the only consistent factor in high-court antitrust decisions is that the “government always wins.” This trend continues in the FTC’s administrative proceedings. Regulators substitute biased proceedings for due process to further their ideological goals and reshape the economy as they see fit.
The FTC’s misguided abuse of authority is starting to attract attention. Last month, the Supreme Court agreed to hear a case about the constitutionality of the agency’s internal tribunal. In 2018, the agency used its in-house court to block Axon Enterprise, a company that sells body cameras for law-enforcement equipment, from acquiring a competitor on the grounds that the deal would severely limit competition. Axon argues that the FTC’s administrative proceeding was an “unconstitutional process” that does not adhere to the “separation of powers and due process principles.”
The Supreme Court will hear Axon’s case in its next term. At least until then, the commission will continue to challenge many efficient business deals in its in-house forum, including Lockheed Martin’s proposed acquisition of Aerojet Rocketdyne Holdings.
The FTC’s internal decision on the Illumina–Grail merger is forthcoming, though it’s highly unlikely to be in the companies’ favor. If the agency undoes the merger, it will remind us that the biased nature of the FTC’s in-house court has significant consequences for Americans. Every time the commission uses its authority to dissolve legitimate, productive mergers, it harms both innovation and the consumers who would otherwise benefit.