We’re living through antitrust legal history, folks. Get your stories ready for the grandkids.
A federal court in Texas just issued the first major decision—striking down a Federal Trade Commission ban on non-compete clauses—to make use of the Supreme Court’s ruling in June that ended Chevron deference, the 1980s precedent which had judges yield to the expertise of administrative agencies when it came to interpreting laws that underpin rules and regulations.
Since the high court’s June ruling in Loper Bright Enterprises v. Raimondo, legal experts have been watching for how federal judges would flex the new interpretive powers in different domains of law.
Ed Schwartz, a partner at Reed Smith who specializes in antitrust law, talked CFO Brew through what he thinks are some of the potential impacts on how the Justice Department (DOJ) and the FTC administer and enforce the laws governing competition.
This interview has been edited for length and clarity.
How could the end of Chevron deference affect how the Justice Department and the FTC defend their powers to issue and enforce antitrust regulations?
The impact of Loper Bright on antitrust is probably overall going to be narrower than it is on other areas of practice, like healthcare, energy, [or] financial regulation…The courts aren’t deferring to the DOJ’s interpretation; they’re not applying Chevron deference.
To the extent that Loper Bright affects antitrust enforcement, it’s going to be on the FTC side, and that’s because the FTC’s statutory authority is different than the DOJ’s. The FTC enforces antitrust law pursuant to its authority under Section Five of the FTC Act, which authorizes the FTC to investigate and take action against unfair competition.
The ruling doesn’t impact the DOJ because the DOJ has not tried to rely on Chevron deference in applying the Sherman [Antitrust] Act or the Clayton [Antitrust] Act, because when they go to court, they’re relying on the huge body of existing applicable case law.
The current commission under chair Lina Khan [has] expressly said that the scope of Section 5’s prohibition on unfair methods of competition is broader than…the Sherman Act or Clayton Act Section 7. So one way that Loper Bright could impact antitrust enforcement is if or when someone challenges the FTC’s efforts to enforce Section 5, to block a transaction or challenge conduct that wouldn’t violate the Sherman Act or Clayton Act Section 7…A court may step in and say, “You know what?...We’re going to interpret it ourselves, and we think you’re wrong.”
And so there would be no Chevron deference.
What cases have come up since Loper Bright was decided in late June?
There was [just] a significant development—one of the few that we’re going to see on the antitrust side.
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[A] district court in Texas…issued a nationwide ban on enforcement of the FTC noncompete rule and relied on Loper Bright in that order and opinion—in fact cited Loper Bright in the very first sentence of the analysis of the opinion.
Presumably the FTC is going to appeal that decision to the Fifth Circuit. It’'s likely that the Fifth Circuit is going to uphold the decision. The FTC may move to stay enforcement of the order pending appeal, but in the meantime, the rule is unenforceable.
It held that the FTC was not entitled to Chevron deference [and] struck the rule down under the [Administrative Procedure Act’s] arbitrary and capricious standard, as unreasonably overbroad without a reasonable explanation.
Have you seen any signs since the Loper Bright ruling that the FTC has scaled back its ambitions?
The FTC has relied only to a very limited extent on rulemaking with respect to the competition side of its authority, as opposed to consumer protection.
To the extent that the commission is inclined to use its rulemaking authority in the future—like it has tried to do in issuing the noncompete rule—it will certainly recognize that when its rules are challenged. It’s not going to be entitled to the same deference that it would have been pre-Loper, and so it’s going to have to think much more critically about the chances of any future rulemaking to survive a judicial challenge.
The current commission has been very, very aggressive in seeking to expand its authority and the scope of antitrust law as it enforces it under Section 5, and the noncompete rule is just one of the actions that it’s taken…I would expect that they will be more reticent about issuing other regulations addressing competition.
What takeaways are there for finance leaders from either of these rulings—Loper Bright or the Texas ruling against the noncompete rule?
The most obvious one is don’t worry about your noncompete agreement any more than you did before issuance of the rule…But at the same time, that doesn’t mean that all of their noncompete agreements are legal. They still could be challenged under the existing case law, because there are limits under the antitrust law on the enforceability of noncompete agreements.
The second thing that I would say is we had been counseling clients pre-Loper on at least the theoretical risk that the FTC would be challenging mergers under Section 5 [that] wouldn’t be found to violate the Clayton Act, and the risk of that occurring has probably decreased since Loper Bright.
I would expect that the FTC would feel more constrained in enforcing Section 5.