The FTC Lacks Authority for Competition Rulemaking

By: Gregory J. Werden (Truth on The Market)

Before she assumed the position of chair at the Federal Trade Commission (FTC), Lina Khan advocated for the use of rulemaking to enforce a prohibition on unfair methods of competition (UMC), outlined in Section 5 of the FTC Act. In her capacity as chair, she proposed a rule to prohibit noncompete clauses in employment contracts, a move expected to be formalized in the upcoming spring. However, I anticipate that a court will challenge this bold exercise of quasi-legislative authority.

Historically, the FTC exerted its authority over a specific industry during the 1970s by mandating gas stations to display octane ratings for the gas they sold. In justifying that rule, the FTC invoked both its Section 5 powers—pertaining to competition protection and proscribing unfair methods of competition—and its consumer protection powers established in 1938 to prohibit unfair or deceptive acts or practices (UDAP).

Following the implementation of the octane-posting rule, Congress passed the Magnuson-Moss Act, laying out procedures for future consumer protection rules. Although Congress did not explicitly address rules for enforcing the prohibition on unfair methods of competition, it seems improbable that Congress intended to grant the FTC the ability to establish such rules without similar procedural requirements.

In the rush to pass a bill before the end-of-year recess, only one speech was allowed prior to the final vote in the House. Representative Jim Broyhill (R-N.C.) took this opportunity to emphasize that the FTC lacked the authority to promulgate a competition rule…

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