The Constitutional Powers of the FTC.

The Federal Trade Commission (“FTC”) is a quasi-independent agency[1] of the United States government created in 1914 by the Federal Trade Commission Act.[2] The act delegates a power to the President of the United States to appoint five commissioners who must be confirmed by the Senate.[3] This process insulates the FTC from political control, but still allows some elected powers to be involved in the process. Each commissioner serves a seven-year term, and no two seats are vacant at the same time.[4] Furthermore, no more than three Commissioners can be of the same political party.[5] According to their website the FTC has a dual mission to both protect consumers and promote competition in the marketplace.[6] These goals are achieved by reviewing corporate mergers and investigating people and companies who violate antitrust law.[7]

Quasi-independent agencies like the FTC enjoy insulation from executive branch oversight while still enjoying tremendous enforcement powers.[8] Rather than filing lawsuits in federal court, the FTC has the authority to commence administrative enforcement proceedings against companies and individuals before their own administrative law judges.[9] These administrative law judges unsurprisingly rule in favor of the FTC and other quasi-independent agencies that operate in this manner.[10] This synchronous relationship between the administrative law courts and quasi-independent agencies creates a scheme where many due process rights are forgotten about or even trampled for the administrative convenience of the agencies and administrative courts.[11] With growing frustration, pushback is inevitable.

Recently, when the FTC has filed actions against companies they have been challenged with greater fervor. Before 2021, the FTC used Section 13(b) of the Federal Trade Commission Act[12] to enact “permanent injunctions” against defendants and obtain monetary relief through this method.[13] A payday lender had allegedly violated the Federal Trade Commission Act and the FTC sought a permanent injunction that would require the lender to pay $1.27 billion in restitution and disgorgement.[14] After the district court allowed this injunction, an 8 year legal battle took place and ultimately, the Supreme Court of the United States unanimously decided that the statutory language does not allow the FTC to seek, or the court to award, equitable monetary relief through this method.[15] Now that the floodgates have opened, more defendants are challenging the statutory basis of the FTC.

Axon Enterprises, Inc. makes wearable body cameras which are purchased by law enforcement agencies around the world.[16] In May 2016, Axon attempted to acquire a competitor company, Vievu, LLC, but was told by the FTC that the acquisition raised antitrust concerns.[17] The FTC ordered that Axon turn Vievu into a “clone” of Axon using Axon's intellectual property.[18] Axon proceeded to file a claim against the FTC in Federal District Court claiming, among other things, that the FTC's structure violates Article II of the United States Constitution by providing improper insulation from the president.[19] Axon provided evidence that the FTC has not lost an administrative proceeding trial in the past quarter-century.[20] Furthermore, Axon argued that the FTC's administrative law judges impermissibly enjoy dual-layer insulation from presidential control because only the FTC commissioners can remove them for cause and the commissioners, in turn, can be removed only for cause by the President.[21] Currently, the United States Court of Appeals for the Ninth Circuit has punted this question and noted that they do not have the proper jurisdiction to decide this because it has not previously been ruled on before the administrative courts.[22] The court noted, “[w]hether an injury has constitutional dimensions is not the linchpin in determining its capacity for meaningful judicial review.”[23] The Supreme Court of the United States has since granted a petition for certiorari and will hear the due process questions of this case in the coming fall.[24] The petition to the supreme court noted that “Axon has preserved its challenge to the FTC itself and that the case ‘presents an appropriate opportunity’ if the court is inclined to revisit the 1935 ruling in Humphrey's Executor v. U.S., which is considered to have insulated independent agencies to a degree from constitutional challenges.”[25]

Pam Petersen, Axon's vice president of litigation, appears to have a positive outlook on the case and said in an interview that “The question the Court agreed to resolve has enormous practical consequences, both for Axon and for others embroiled in proceedings before the FTC.”[26] She believes that “Under a series of recent Supreme Court decisions, it is clear that there are constitutional defects with how the FTC is structured.”[27] There appears to be a great faction of legal scholars who believe that this argument has feet and that there could be a big shake up in the near future with how quasi-independent agencies will function in the near future. One commentator notes that the FTC is likely losing its power since the loss of its 13(b) permanent injunction ability and is now looking to find new routes to obtain equity.[28]

While the Supreme Court has agreed to take on the procedural and due process questions in this case,[29] there is still a great deal of interest in the constitutionality of quasi-independent agencies who are insulated from executive branch powers in violation of Article II of the United States Constitution.[30] Axon seems like a great candidate to argue this question until it gets the proper review that it deserves as they understand they could “be forced to spend years submitting to proceedings before an unconstitutionally constituted FTC before we can ever get a court to consider and remedy those defects.”[31] But Pam Peterson is hopeful that “the Supreme Court will recognize that there is no legal basis for such an illogical regime.”[32]

[1] Axon Enter. v. FTC, 986 F.3d 1173, 1176 (9th Cir. 2021).

[2] Sept. 26, 1914, ch. 311, §1, 38 Stat. 717.

[3] 15 U.S.C. §§ 41-58.

[4] Id.

[5] Id.

[6] Federal Trade Commission, https://www.ftc.gov/about-ftc/what-we-do (last visited Feb. 26, 2022).

[7] Id.

[8] Axon Enter. 986 F.3d at 1176.

[9] Id.

[10] Id.

[11] Id. at 1177 (Axon’s argument for the case).

[12] 15 U.S.C.S. § 53(b).

[13] AMG Capital Mgmt., LLC v. FTC, 141 S. Ct. 1341 (2021).

[14] Id. at 1345.

[15] Id. at 1344.

[16] Axon Enter. 986 F.3d at 1177.

[17] Id.

[18] Id.

[19] Id.

[20] Id.

[21] Id.

[22] Axon Enter. 986 F.3d at at 1177.

[23] Id. at 1181 (quoting and citing Hill v. SEC 825 F.3d 1236, 1246 (11th Cir.2016)).

[24] Axon Enter. v. FTC, 142 S. Ct. 895 (2022).

[25] Matthew Perlman, Axon Wants High Court To Review Challenge Of FTC Authority, Law360 (Jul. 23, 2021).

[26] Christopher Cole, High Court's FTC Case Carries Potential For Broad Impact, Law360 (Feb. 18, 2022).

[27] Id.

[28] Id.

[29] Axon Enter. 142 S. Ct. 895.

[30] See generally Cole supra note 26.

[31] Cole supra note 26.

[32] Id.