The Federal Trade Commission (FTC) in 2024 little resembles its former self. The agency has drifted away from its post as a watchdog guarding against anti-competitive schemes and fraud. Instead, it increasingly itself positions as an interventionist economic regulator, intent on nipping and tucking the economy to reflect the biases of its leadership. Over decades, the agency earned a reputation as an economically rigorous institution that played a supporting role in economic matters and, on the whole, played it well. The few short years since President Joe Biden hoodwinked the Senate into installing Lina Khan as chair, the FTC (and Khan) has fractured these foundations. Today’s FTC seeks to expand its remit — both as an enforcer and, increasingly, as a lawgiver.
In April, the FTC adopted a near-categorical ban on non-compete clauses. The rule was meant to apply economy-wide (prospectively and retrospectively) potentially changing the terms of millions of existing contracts. Moreover, it would have overrun 47 states’ existing regulation of non-competes.
A federal judge in Texas tossed the FTC’s non-compete rule last week. The brief and incisive opinion distills much of what ails today’s FTC. First, the agency pushed a dubiously expansive statutory interpretation that places the agency as a regulator over much of U.S. economy. Then, to validate its biases against non-competes, the FTC conducted shoddy economic analysis. Both the theory and the execution were rotten.
The status-quo state-by-state regulation of non-competes will likely continue; the FTC faces stiff odds should it appeal. But it is useful to take seriously the arguments the agency’s lawyers advanced in court and the governmental and regulatory framework those arguments sought to erect.
The interpretational dispute at play involved granular readings of the FTC Act of 1914 and subsequent legislation. In brief, the FTC attempted to extract elephantine powers to pursue regulation of an essentially legislative nature from statutory mouseholes. From a provision allowing for procedural rulemaking to facilitate enforcement against unfair methods of competition, the agency arrogated to itself the power to proscribe entire modes of contract and commerce. Never mind the fact that the FTC disclaimed such authority for the half century following its creation. Moreover, despite certain malicious uses, non-compete clauses are generally not considered to be anticompetitive per se.
The FTC’s willful blindness to inconvenient economic data also doomed its non-compete ban. “The Court concludes that the Rule is arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation,” the judge wrote. On these points the opinion is terse and scathing. “The record does not support the Rule,” it reads, labeling the economic data on which the FTC relied “inapposite” and “inconsistent and flawed.” The judge faulted the agency for imposing a categorical ban with regard neither for instances in which non-competes provide economic benefits nor for narrower, more targeted alternative policies.
The FTC’s efforts seek to liberate the agency from statutory and empirical limits that could slow its ideological agenda. The FTC wishes for arbitrary authority to proscribe whatever business deals, market competitors, or business practices it dislikes. Conducting economically rigorous analysis requires time and resources — as does crafting thoughtful regulation that accounts for the nuances and complexities that such analysis illuminates. The FTC found it far easier to make up its mind first and hastily cobble together convenient economic arguments — until the agency found itself required to defend its shoddy work in court, that is.
The FTC and other federal antitrust officials have claimed vast and arbitrary powers before. Commenting on this state of affairs in 1967, Supreme Court Justice Potter Stewart noted, “The sole consistency that I can find is that…the Government always wins.” These excesses incited a powerful political and legal backlash, which imposed new limits on enforcers and tethered antitrust to the promotion of consumer welfare. Chair Khan and her fellow neo-Brandeisians, who seek to destroy the last half century of reform, court the same fate. Great overreaches naturally invite great rebukes, legislative and judicial, which may dismay the radicals who wish so fervently for revolution.
