Below we discuss the Supreme Court’s decision in Loper Bright Enterprises v. Raimond and explore whether the court’s decision to eliminate the Chevron doctrine may affect the Federal Trade Commission (FTC)’s recent efforts to expand the definition of what conduct may be considered to be an “unfair method of competition” under Section 5 of the FTC Act.
Elimination of the Chevron doctrine removes courts’ deference to federal agency interpretation of administrative statutes
The Supreme Court provided itself with the opportunity to overrule Chevron when it granted certiorari in two separate cases involving challenges to the implementation of a rule issued by the National Marine Fisheries Service (the NMFS Rule). The NMFS Rule required the herring industry to fund at-sea monitoring programs intended to increase monitoring in certain fisheries. In Relentless v. Department of Commerce and Loper Bright Enterprises v. Raimondo, appellate courts in the First and D.C. Circuits, respectively, each affirmed lower court rulings that had granted summary judgment to the government on the basis that the agency’s interpretation of the NMFS Rule was entitled to deference under Chevron. The appellate courts applied the two-step Chevron framework applicable when Congress has provided a federal agency with the general authority to make rules with the force of law. Under Chevron, a court must first use “traditional tools of statutory interpretation” to evaluate whether the intent of Congress is clear as to the question at issue. If the court finds the statute to be ambiguous, then step two of the Chevron framework instructs the court to defer to any “permissible construction of the statute” adopted by the agency. Under the Chevron doctrine, such deference required the court to accept any permissible interpretation of the statute offered by the agency, even if such interpretation was not “the reading the court would have reached if the question initially had arisen in a judicial proceeding.”
In its decision in Loper Bright, the Supreme Court explicitly overruled Chevron, holding that “[t]he Administrative Procedure Act [APA] requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of the law simply because a statute is ambiguous.” Writing for the majority, Justice Roberts found that Chevron “cannot be reconciled with the APA by presuming that statutory ambiguities are implicit delegations to agencies. That presumption does not approximate reality. A statutory ambiguity does not necessarily reflect a congressional intent that an agency, as opposed to a court, resolve the resulting interpretive question.” The Court also held that Chevron’s presumption is misguided since the courts, not the agencies, are better suited to resolve statutory ambiguities.
While the Court jettisoned Chevron deference, agency interpretations are not irrelevant. In exercising their independent judgment to determine the meaning of statutory provisions, courts may “seek aid from the interpretations of those responsible for implementing particular statutes. Such interpretations ‘constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance’ consistent with the APA.” In addition, the court held that when “a particular statute delegates authority to an agency consistent with constitutional limits, courts must respect the delegation, while ensuring that the agency acts within it. But courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous.”
Implications for the FTC’s efforts to target “unfair methods of competition” under Section 5 of the FTC Act
The Loper Bright decision comes at a pivotal time for the FTC. Under the stewardship of Chair Lina Khan and operating with a Democratic majority since 2021, the FTC has espoused a broad interpretation of both what it considers to be an “unfair method of competition” under Section 5 of the FTC Act, as well as the extent of the agency’s authority to promulgate rules defining unfair methods of competition under Section 6(g) of the same statute. In a 2022 policy statement, the FTC asserted an expansive definition of Section 5, stating that “Section 5 reaches beyond the Sherman and Clayton Acts to encompass various types of unfair conduct that tend to negatively affect competitive conditions,” and provided guidance as to how the agency intends to pursue such “standalone” unfair methods of competition claims.
In April 2024, the FTC made its first significant effort to animate the theories espoused in its 2022 Section 5 Policy Statement: the FTC voted to publish a final rule banning the use of non-compete clauses nationwide (the Non-Compete Rule), classifying such clauses as an unfair method of competition under Section 5. The Non-Compete Rule is grounded in the FTC majority’s expansive understanding of its authority to target unfair methods of competition under Section 5. The rule was also presaged by an announcement in 2021 from then-Acting FTC Chairwoman Rebecca Slaughter concerning the creation of a new rulemaking group within the FTC intended to support the agency in strengthening “existing rules and to undertake new rulemakings to prohibit unfair or deceptive practices and unfair methods of competition.”
There has been significant public pushback with respect not only to the Noncompete Rule but also, more generally, to the notion that Section 6(g) of the FTC Act even provides the FTC with rulemaking authority related to unfair methods of competition to begin with. A handful of plaintiffs have already brought lawsuits in federal court challenging the legality of the Non-Compete Rule and seeking, among other things, to permanently enjoin the FTC from enforcing the new rule. In the first challenge following the publication of the new rule, filed by Ryan, LLC, a tax services and software firm, plaintiffs argued that “Section 6(g) of the FTC Act grants the Commission authority only to promulgate procedural rules . . . [t]he absence of any penalty for violating rules promulgated under Section 6(g) confirms that the provision confers no substantive rulemaking authority.” In the same case, plaintiff-intervenors (including the U.S. Chamber of Commerce) challenged not only the Non-Compete Rule, but also the FTC’s “radical new Policy Statement regarding its authority under Section 5 of the FTC Act – one that would ultimately clear the path for its nationwide regulation of noncompete agreements.” Plaintiff-intervenors argue that the Policy Statement is unsupported by decades of bipartisan enforcement policy that “had interpreted Section 5 to prohibit only practices that cause actual harm to competition and are not outweighed by procompetitive justifications.”
On July 3, 2024 the Texas federal judge presiding over Ryan issued a preliminary injunction postponing the September 4, 2024 effective date of the Non-Compete Rule as applied to Plaintiffs. While the decision is preliminary and therefore not on the merits, the court issued a 33-page opinion outlining its view that “the text, structure, and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition under Section 6(g).” The court said that it intends to issue an opinion on the merits on or before August 30, 2024.
To-date, the FTC has not utilized the Chevron doctrine to support its rulemaking authority with respect to “unfair methods of competition” under Section 5,and it has been the subject of scholarly debate whether Chevron deference is applicable to the agency’s interpretation of Section 5. For example, some scholars that consider the Chevron doctrine to be inapplicable to the FTC’s interpretation of its Section 5 argue that, since there are not significant gaps between the scope of Section 5 and the Sherman and Clayton Acts, the requisite statutory ambiguities justifying the application of Chevron do not exist.
Notably, however, current FTC Chair Lina Khan has taken the opposite view. In a 2020 article co-authored by then-FTC Commissioner Rohit Chopra, Khan—writing in her capacity as an Academic Fellow at Columbia Law School—made clear her position that the Chevron doctrine is applicable to support the FTC’s interpretation of its rulemaking authority related to unfair methods of competition under Section 5. In the article, Rohit and Khan argue that [t]he Commission’s ‘unfair methods of competition’ rulemaking authority . . . remains governed by the Administrative Procedure Act, and FTC interpretations of ‘unfair methods of competition’ are subject to Chevron deference.”
Given that Chair Khan is on the record with respect to this understanding of Chevron, it is not a stretch to assume that, under her stewardship, the FTC very well may have asked the court to apply Chevron deference to the FTC’s newly-expansive interpretation of Section 5, either in a rule-making or judicial review of an FTC adjudication decision. However, Loper Bright is the nail in the coffin, eliminating this significant potential argument that the FTC may have employed to push back against current and future challenges to the FTC’s expansive view of Section 5. Most immediately, the Loper decision will prevent the FTC from arguing that Chevron deference applies in any future appeal to the likely forthcoming decision on the merits in Ryan v. FTC striking down the Non-Compete Rule.
Looking ahead
Hogan Lovells will continue to monitor and report on significant developments stemming from the Loper Bright decision as they occur. Additional views from the Hogan Lovells appellate team about the potential impact of the Loper Bright decision are available here and here.
Please do not hesitate to contact us if you have any questions.
Authored by Logan Breed, Chuck Loughlin, Ilana Kattan, and Jill Ottenberg.
References
1 Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984), overruled by Loper Bright Enterprises v. Raimondo, No. 22-1219, 2024 WL 3208360 (U.S. June 28, 2024).
2 Id. at 25.
3 Loper Bright Enterprises v. Raimondo, No. 22-1219, 2024 WL 3208360 (U.S. June 28, 2024).
4 15 USC 45(a).
5 See Relentless, Inc. et al. v. Department of Commerce, et al., No. 22-cv-1219 (1st Cir. 2022) and Loper Bright Enterprises et al. v. Raimondo, No. 21-cv-5166 (D.C. Cir. 2022).
6 The NMFS is a division of the National Oceanic and Atmospheric Administration within the U.S. Department of Commerce.
7 If the court finds that the intent of Congress was clear, then “the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” See Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843
8 Loper Bright Enterprises v. Raimondo, 2024 WL 3208360 at 4 (citing Chevron, U.S.A. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843, n.11).
9 See id. at 7-35.
10 Id. at 5.
11 Id. at 16 (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)).
12 Id. at 35.
13 The FTC’s rulemaking authority is governed by Section 6(g) of the FTC Act. 15 U.S.C. Sec. 46(g), “Additional powers of Commission.”
14 See Federal Trade Commission, “Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act,” Commission File No. P221202 (Nov. 10, 2022) available here.
15 See Federal Trade Commission, “FTC Acting Chairwoman Slaughter Announces New Rulemaking Group” (March 25, 2021) available here.
16 See e.g. American Hospitals Association press release, “AHA Statement on Final FTC Noncompete Regulation” (April 23, 2024) available here; and Associated Builders and Contractors press release, “ABC Denounces FTC’s Blanket Ban on Noncompete Clauses” (April 23, 2024) available here.
17 See e.g. Congressional Research Service, “The FTC’s Competition Rulemaking Authority” (updated Jan. 11, 2023) at 2, available here.
18 See e.g. Complaint, Ryan, LLC v. FTC, No. 24-cv-986 (N.D. Tex. April 23, 2024), ECF No. 1; See also Complaint, ATS Tree Services v. FTC, No. 24-cv-1743 (E.D. Pa. April 25, 2024), ECF No. 1.
19 See Complaint, Ryan, LLC v. FTC, No. 24-cv-986 at 7-8.
20 On May 9, 2024 the Ryan court granted a Motion to Intervene as Plaintiffs filed by the U.S. Chamber of Commerce, Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce (the Plaintiff-Intervenors). The Plaintiff-Intervenors had filed a separate complaint on April 23, 2024 in the Eastern District of Texas also challenging the FTC's Non-Compete Rule. However on May 31, 2024 a Texas federal judge dismissed that lawsuit because “plaintiffs have joined the first-filed Ryan action.” See Order, Chamber of Commerce v. Federal Trade Commission, No. 24-cv-00148 (E.D. Tex. May 30, 2024).
21 Plaintiff-Intervenors’ Complaint for Declaratory and Injunctive Relief, Ryan, LLC v. FTC, No. 24-cv-986 at 5 (N.D. Tex. May 9, 2024) available here
22 Id.
23 See Memorandum Opinion and Order, Ryan, LLC v. FTC, No. 24-cv-00986 (N.D. Tex. July 3, 2024) available here.
24 Id. at 1.
25 Id. at 2.
26 The FTC has, for example, used the Chevron doctrine to defend its interpretation of its authority to promulgate industry-specific rules pursuant to the Hart-Scott Rodino Act (HSR Act). See e.g. Pharm. Rsch. & Manufacturers of Am. v. Fed. Trade Comm'n, 44 F. Supp. 3d 95, 114 (D.D.C. 2014), aff'd sub nom. Pharm. Rsch. & Mfrs. of Am. v. F.T.C., 790 F.3d 198 (D.C. Cir. 2015)
27 See e.g. Zeisler, Royce, “Chevron Deference and the FTC: How and Why the FTC Should Use Chevron to Improve Antitrust Enforcement,” 2014 Colum. Bus. L. Rev. 266 (2014) see also Barthold, Corbin, No, Chevron Deference Will Not Save the FTC’s Noncompete Ban, Truth on the Market (Feb. 14, 2023) available here; and Hurwitz, Gus, “Chevron and Administrative Antitrust, Redux”, Penn Carey Law: Legal Scholarship Repository (2023) available here.
28 Zeisler, Royce, “Chevron Deference and the FTC: How and Why the FTC Should Use Chevron to Improve Antitrust Enforcement,” 014 Colum. Bus. L. Rev. 266, 287- 288 (2014)
29 Rohit Chopra & Lina M. Khan, “The Case for ‘Unfair Methods of Competition’ Rulemaking, 87 U. Chi. L. Rev. 357, 378-79 (2020).
