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This week, the United States Supreme Court agreed to hear Axon Enterprise Inc.’s (Axon) challenge to the Federal Trade Commission’s (FTC) administrative process. Axon Enterprise, Inc. v. Federal Trade Commission, U.S. No. 21-86, cert. granted 1/24/22. In a case that has been ongoing since 2020, the Supreme Court granted Axon’s petition for writ of certiorari on a single issue: “Whether Congress impliedly stripped federal district courts of jurisdiction over constitutional challenges to the [FTC’s] structure, procedures, and existence by granting the courts of appeals jurisdiction to ‘affirm, enforce, modify, or set aside’ the commission’s cease-and-desist orders.” A favorable ruling from the Supreme Court could open the floodgates to a wave of constitutional challenges to the FTC, and other executive branch regulatory agencies.

Background

The FTC filed an administrative complaint against Axon’s consummated acquisition of its competitor Vievu, claiming the acquisition violated Section 7 of the Clayton Act prohibiting acquisitions where the effect may be substantially to lessen competition. In response, Axon filed a complaint against the FTC in federal district court seeking to enjoin the FTC’s administrative proceedings. Axon Enterprise, Inc. v. Federal Trade Commission, 452 F.Supp.3d 882 (D. Arizona 2020). Axon made three claims that it argued the district court – not the FTC – should decide: (1) the clearance process used to determine whether the FTC or Department of Justice (DOJ) will review a merger violates due process, (2) the fact that the FTC combines investigatory, prosecutorial, adjudicative, and appellate functions within a single agency violates due process, and (3) the dual-layer of protection given to FTC ALJs violates the Appointments Clause of Article II of the Constitution.

In January 2021, a divided Ninth Circuit affirmed the district court’s ruling that Axon had to bring constitutional challenges to the FTC’s administrative process in the FTC’s own administrative court, before a federal court can hear those claims. Axon Enterprise, Inc. v. Federal Trade Commission, 986 F.3d 1173 (9th Cir. 2021).

In its opinion, the Ninth Circuit makes very clear that it viewed itself bound by the Supreme Court’s precedent and all but invited the Supreme Court to reexamine the standard. Indeed, the court expressly agreed with the dissent that “it makes little sense to force a party to undergo a burdensome administrative proceeding to raise a constitutional challenge against the agency’s structure before it can seek review from the court of appeals. And if we were writing on a clean slate, we would agree with the dissent.” The court then mused that “Perhaps the Supreme Court in the near future will clarify and extend the holding of Free Enterprise to include any constitutional challenge to any agency’s structure, procedure, or existence.”

Importantly, the Ninth Circuit acknowledged that “Axon raises legitimate questions about whether the FTC has stacked the deck in its favor in its administrative proceedings,” but lamented that it could not go beyond the factors established in the Supreme Court’s prior cases.

In its Petition for Writ of Certiorari, Axon writes “Indeed, this Court could illustrate the advantages of choosing prompt judicial review that prevents constitutional injury by resolving that question itself and putting an end to this clearly unconstitutional agency arrangement. But, at a minimum, the Court should decide whether Axon really must suffer the constitutional injury of submitting itself to the jurisdiction of unaccountable executive officers before it can challenge their constitutionality.”

Analysis

The Supreme Court appears to want to address a very narrow issue – whether federal district courts have subject matter jurisdiction to hear constitutional challenges, at least relating to the FTC. Its decision on this issue would resolve a Circuit split just created by a Fifth Circuit ruling in December, which, contrary to five other circuit courts, ruled that the plaintiff did not have to go through the SEC’s full administrative process before bringing constitutional claims in federal district court. Cochran v. U.S. Securities and Exchange Commission, 20 F.4th 194 (5th Cir. 2021). The Supreme Court’s decision could also have serious ramifications for arguably the most important tool in the FTC’s tool box – its administrative complaint and hearing process.

Even though it agreed to take up the question of subject matter jurisdiction, the Supreme Court did not take up the second issue that Axon presented – whether the fundamental structure of the FTC itself is consistent with the Constitution. So a favorable ruling from this Court would be limited, for now. But Axon’s underlying constitutional questions on the “structure, procedures, and existence” of the FTC are still live. If the Supreme Court rules in favor of Axon and sends the case back to the district court, those issues would then be addressed on the merits – potentially upending the FTC’s ability to challenge both antitrust and consumer protection claims through its administrative process. As Axon noted, the FTC has not lost a case brought through its administrative process in 25 years. Antitrust cases, such as Impax (reverse payment) or ProMedica Health System (health system acquisition), would be able to be challenged by companies at the outset as a way to avoid the FTC’s process. Consumer protection cases, such as ECM Biofilms (false advertising) and LabMD (data security), could also be challenged. 

The FTC has not had recent success in the Supreme Court when it comes to its agency powers. Last April, the Supreme Court held that the FTC Act did not authorize the agency to pursue monetary relief in antitrust conduct cases alleging unfair methods of competition. Congressional action to codify the FTC’s ability to pursue monetary relief has to date only passed in the House. The Senate has not taken any action on the proposed bill since it received it in July.

The differences between the FTC’s administrative process and the DOJ, which can also bring antitrust complaints but must go through federal court, have been the subject of criticism for quite some time. Members of Congress have tried to resolve these differences through proposed legislation in the past; also to no avail.

In the meantime, antitrust and consumer protection practitioners will be keeping a close eye on this case, while continuing to navigate the FTC’s administrative process.