Challenge to the FTC's Independence

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2:06What stands out in the long list is Trump firing the two Democratic members of the Federal Trade Commission. Rebecca Kelly Slaughter is fighting her dismissal in court, arguing that it was illegal. Only one time in history has a president attempted to remove an FTC commissioner over a policy disagreement. It was 90 years ago. President Roosevelt tried to remove Commissioner Humphrey. And in the face of the clear language of the statute, the Supreme Court said that was illegal, that the statute is constitutional and that FTC commissioners and other commissioners of multi-member bipartisan agencies cannot be simply removed because the president doesn't agree with them.

2:48But the Justice Department has said it's going to ask the Supreme Court to reverse that 90-year-old precedent called Humphrey's executor. Legal experts say there'll be broad ramifications if the president can fire FTC commissioners at will and the agency is no longer independent. My guest is William Kvasek, former FTC chair and a professor at the George Mason University School of Law. Bill, tell us about the president firing Slaughter. Yeah, the president decided that he has the authority to simply fire members of the FTC without any cause. And this contradicts a 1935 Supreme Court decision called Humphreys Executor that said that FTC commissioners can be removed only for good cause.

3:37The president clearly wanted to remove the two Democrats from the FTC, Rebecca Kelly Slaughter and Alvaro Bedoya, and he simply dismissed them. So he decided not just for the FTC, but I think as part of a program for government generally, decided to assert executive authority to control more directly who can serve on these regulatory agencies. Slaughter won her first battle in court. A federal judge reinstated her last month, although that reinstatement has been put on hold pending an appeals court decision. Explain the judge's reasons for reinstating her. Now, she concluded that the president's authority is defined by the 1935 Supreme Court decision.

4:20And the 1935 Supreme Court decision said that the president can remove federal trade commissioners only for good cause, that the limitation on removal was established in the FTC statute adopted in 1914, and that the Supreme Court's interpretation of that statute limited the circumstances in which the president could remove FCC commissioners. Judge Ali Khan, in the district court opinion, concluded that those authorities are controlling, that the statute itself makes clear the conditions in which removal can take place. And the Supreme Court upheld the limitation on executive power. And she said the president contradicted that approach.

5:03And until the Supreme Court says otherwise about its 1935 decision, that decision is binding on me. And Commissioner Slaughter is entitled to be reinstated. It seems like Humphrey's executor is in jeopardy at the Supreme Court. In July, the court allowed the Trump administration to remove three Democratic members of the Consumer Product Safety Commission that were fired by Trump and then reinstated by a federal judge. And in May, the court ruled that the Democratic members of the NLRB and Merit Systems Protection Board couldn't return to their jobs because the government was likely to be able to show that the agencies exercised considerable independent power.

5:47So does it seem like the Supreme Court is ready to overturn Humphrey's executor? As you say, June, the court's given a number of hints that it is ready to revisit Humphrey's executor and to overturn it. The court has cautioned at every burn in the road that we're not making a final decision on the merit, that that fuller evaluation of the merit of Humphrey and its vitality today remains to take place. So they've said, we're not deciding now. But the way in which they've written the decisions that you referred to, even these preliminary rulings where they're not offering a final view about the legitimacy of the challenges at issue, have given hints that at least three members of the court think that Humphreys must be overturned.

6:31Maybe two more members of the court are wavering in their support of Humphreys. I suppose if you were making a wager now about whether Humphreys will live through the end of 2026, I suppose the way to bet would be to say no, that it won't. I don't think the possibilities for Humphreys' executors to survive have been extinguished. There's still possibilities that the court might reflect on the basis for the creation of the limit on removal. might think more completely about existing controls that the president already has over administrative agency discretion. To realize that the choice here is not between having no control and absolute control over appointments and removal.

7:12The president already has a number of tools at the president's disposal to influence the way in which the Federal Trade Commission and similar agencies operate. The real issue here is whether that control must be absolute. And the court might reflect on that in a more elaborate way and come to a different conclusion. But that's a long way of saying that Humphrey's executor appears to be in peril. And that when the court does come at some point, perhaps in 2026, to confront the continuing vitality of Humphrey's executor, it will probably say that we've decided to change our minds. Bill, is the FTC right now a fully independent agency?

7:51When you look at the design, organization and operation of the agency, I think we discover that the English word independence is badly ill suited to describe the commission's place in the political landscape. You know, first, the president gets to designate the chair from among existing members of the commission. And that only takes signing a letter that says you're the chair. That comes with a lot of power because since 1949, 1950, the chair of the so-called independent agencies has been the chief operating officer and the chief executive of these agencies. and exercises extraordinary authority as part of that reshuffling of government power that took place in the Government Reorganization Act of 1949 and a reorganization plan that was put in place for the FTC in 1950.

8:43So that already gives the president a lot of power. Of course, the White House submits the budget on behalf of the United States to the Congress. The FTC does not do that directly. So the FTC's budget requests have to be filtered through the White House. The White House controls whether FTC officials can go overseas. The executive branch gives permission to FTC officials to travel abroad for government purposes. So if they don't want the FTC roaming the global landscape, speaking on its own, they can stop that right away. The Department of Justice intervenes in a number of instances in the cases of the FTC to oppose the FTC.

9:24This is a short list of ways in which the FTC is not independent. And in a broader sense, when we look at Congress, the Congress, of course, controls the FTC's budget. And every year the FTC has to go ask for money. I would say that an agency that every year has to ask Congress for an allowance is not very independent, no more independent than a college student is going to their parents at the beginning every school year and saying, top up my allowance. That independence is severely constrained. Maybe a better way to describe the FTC's relationship to the political process is semi-autonomous with respect to some functions like adjudication.

10:03But independence is a badly inaccurate way to describe its place in the political ecology. Let's talk about what would happen, the changes, if the FTC loses the independence it now has. It's been said that one casualty would be the in-house adjudication system. I think that's right, June. I think the administrative in-house adjudication system ultimately topples for this reason. I think crucial to the legitimacy of any judicial dispute resolution tribunal is some degree of autonomy. This is where the autonomy is most important for legitimacy. Once it becomes apparent that the president can simply fire federal trade commissioners because he doesn't like their work, doesn't like their philosophy, I think that system unravels.

10:50You can't have courts where the judges are aware that a decision or a specific approach taken in a given case could cause their dismissal. And the FTC commissioners serve as adjudicators when the FTC uses that internal mechanism. So I think a domino that falls if Humphreys' executor is overturned is the perceived legitimacy and functioning of the administrative adjudication system that disappears. And even now we're seeing motions to dismiss FTC cases, electing that the FTC structure is unconstitutional because of this weight over Humphreys. I think the deeper threat to the FTC's effectiveness is that when it goes to court, it has always had the capacity to tell the court the positions we're taking are the result of our best professional judgment.

11:45And as an expert body, we are asking for respect for our judgments because they're based on our accumulated experience, our research in the field of competition and consumer protection, and the expertise that individual members of the commission bring to the analysis of specific cases. When you put all of those together, you have a key element of professional judgment that might not be always correct, but it deserves respect because it is more likely to be correct than the judgment of individual federal judges, the parties in the cases. That is, that that judgment is worthy of respect. It doesn't mean that the FTC is always going to prevail in court.

12:27The moment that courts perceive that you are using your authority, not because of your best professional judgment, but because you are simply an extension of the political process and you are serving the specific interests or whims of the chief executive, that element of professional judgment and respect disappear. They're gone. So I think a consequence, if Humphreys dies, is that the commission loses the ability to stand before the courts and say, you can trust us. And in so many ways, that's what government agencies ask courts is trust us because we are the professionals. We're using professional judgment.

13:07And that's why you can have confidence in the judgments we're making. You take protection against removal, except for good cause away, the basis for asserting that respect disappears. And I think it means that simply stated, you have a harder time winning your cases when you go to court. Coming up next on the Bloomberg Law Show, I'll continue this conversation with former FTC Chair Bill Kvasek. We'll talk about a bill to consolidate antitrust authority solely in the Justice Department. You're listening to Bloomberg. Everyone's talking about how AI is transforming work, especially in sales. While the landscape shifts, one thing remains the same, the thrill of closing a deal.

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16:12Bill, is there any argument that you see for a president having the ability to fire commissioners at will? I guess the best argument would be this. I mean, suppose you're an incoming president and the existing configuration of the commission means that there is nobody from your political party on the board. Imagine a commission of five and you have two vacancies and the vacancies ordinarily would be your party, but nobody's been confirmed. In that instance, you can make an argument that the president ought to be able to put the president's preferred person on the board. Although even there, they have to go through Senate confirmation.

16:52They'd have to go through Senate confirmation. And if you have a vacancy, you can appoint somebody to fill that spot. I guess the other argument one could make is that, indeed, these agencies exercise significant discretion. They have considerable powers. The FTC has a broad mandate with a number of policymaking tools to implement it. And those are significant, economically important. And if I'm the president, I'm saying I have to have the ability to determine how this large machine of government functions and where it's going. Now, again, as I've said before, I think the president already has a lot of tools to influence that.

17:31And what you have in the status quo embodied in cases like Humphreys is basically a bargain between the legislature and the president over how oversight functions will be allocated. Some of those functions reside in the White House today already, such as the ability to designate the chair among members of the commission. Others, such as congressional oversight, control of the budget, reside in the Congress. One way to put it is that it is shared oversight and accountability that engages the Congress, the president, and indeed the federal court. So my view, and this is very much based on my experience at the FTC as a member of the commission for a year as chair, that I was always aware of the capacity of the White House to shape what we were doing in key respects.

18:15That is from the place that we occupied on Pennsylvania Avenue, I was always aware of both ends of the avenue, that both of them had a lot to do to shape the environment in which we worked in. And when I looked out the window at the front of the building, there also sat the federal courthouse for the District of Columbia. So I always knew that we were working in an environment when all three could hold us to account. And I was aware of the history that showed that they certainly would. Slaughter has said there are two lines of pushback, one legal, the other political. Quote, the legal fight we're having in the court, but the political fight is in the court of public opinion.

18:54Do you think that the public is aware of what's happening with these agencies? For the broader public, I have real doubts. I suspect that there are many in the public for a variety of reasons who are aware that there is something called the Federal Trade Commission. But if you gave the ordinary American citizen a short quiz, true false questions or short multiple choice questions, And I don't know how many would answer it in a way that reflected a real understanding of how these agencies function and what they do. So if we're talking about the U.S. public writ large, I doubt there's a keen awareness of the governance mechanism of the FTC and what removal of commissioners does to that framework.

19:39The larger public might be aware of efforts by the president to consolidate power in the White House. They probably noticed in this barely six months of the second Trump presidency that the president is doing a number of things to exercise power, imposing tariffs, for example, setting in motion dramatic reductions in force for individual federal agencies. And maybe they're aware of the dismissals of heads of different institutions. At a high level, they may be aware that the president's seeking to exert more control over how the government operates. So that awareness, I suspect, exists. And certainly to the extent that the public she is speaking about includes the Congress of the United States, I assume that more keenly than the ordinary citizen, they are very aware of the reallocation of power that's taking place in Washington and ought to be concerned about, especially because in the case of the FTC, when Congress created the FTC in 1914, their unmistakable view is that the FTC would be accountable to the Congress first and foremost.

20:45There were debates in the Senate, for example, where members of the Senate asked as part of the colloquy that takes place in the legislative debates, aren't we giving a lot of fairly open-ended power to the Federal Trade Commission? Shouldn't we specify more carefully what the relevant offenses might be? And the defenders of the FTC Act, as ultimately adopted, said you need a flexible, adaptable mandate. That's why we're putting it that way. And if the FTC ever misused that mandate, we, the Congress that created it, could abolish it. In the words of one senator, we created it, we could destroy it.

21:19So there was no doubt in the minds of Congress that this institution, with its considerable authority, will answer first and foremost to us. So the Congress ought to be keenly aware of the process by which the relevant oversight responsibility and accountability mechanisms are changing. Can you give us the broader reasons why you think the FTC's independence is critical? The broader high-level reason is that the FTC exercises significant economic policymaking functions and has broad regulatory responsibilities. I think in any economy, and certainly in our market economy, the business community, the citizens as a whole have to have confidence that that authority is being used in a principled way.

22:09And then when it's used, it reflects truly the exercise of high quality professional judgment from an agency that has special expertise, broad experience. And then when it's making those judgments, it's making it on the basis of sound policy analysis. That assumption and confidence vanishes if the head of state can simply designate outcomes or point the agency in a specific direction. I mean, it's the same concern we have about the Federal Reserve Board and monetary policy. Notice how the markets lose their mind when it appears as though the Fed might lose that insulation from direct political influence over the monetary system.

22:49I can't quite assert that the FTC occupies the same position in the minds of business leaders and others about its role in the economy. But I think it is nonetheless an important pillar of the regulatory mechanism in the U.S. If you take away some measure of autonomy, especially in the decision to prosecute, the decision to impose sanctions, the decision to do things that in a broad sense hurt, You take away that presumption of good professional judgment and autonomy with respect to those functions. I think it undermines confidence in the regulatory process itself. And at a higher level for our entire political economy and our stature in the world, for the last 30 plus years, we have been telling the world that these key economic regulatory functions must have some element of protection with respect to these fundamental decisions about prosecuting cases, initiating rules.

23:46that there has to be an accountability regime, but you can't have political leadership telling the agency to punish enemies, reward friends, and otherwise simply be party to a negotiation between top political leadership and individual business interests. So once you do that, confidence in the entire system of government tends to erode. And if the Humphreys' executive protections against removal, except for good cause, disappear, that's a step in the direction of diminishing that confidence and legitimacy for the regulatory process. I want to get your input on the bill to consolidate federal antitrust authority solely within the Justice Department's antitrust division.

24:28So that would lead the FTC as a consumer protection agency. What's your take on that? I think it's a bad time to do that. I think the question of whether you want two federal agencies to occupy, in many ways, the same policy domain is a very useful and important issue that's worthy of debate. I would hope that that debate would involve a more nuanced and careful consideration of what the FTC has brought to the mix. I mention the FTC because the assumption always is, as you say, all that authority will be given to the Department of Justice. The main reason I think it's a bad time to do this is that in the area of all things digital and information systems platforms, there is a growing global awareness that the solution to problems observed in that area and the disciplines that have to be brought to bear to come up with good policy foundations include competition law, antitrust, consumer protection law, and privacy data protection law.

25:30There is one agency in the world that has all three of those mandates under its umbrella, in its portfolio. That's the Federal Trade Commission, which also has distinctive information-gathering powers and report-writing powers, has a collection of policymaking tools that can bring all of these policy domains to bear on specific issues. I think at a time when we are seeing that policymaking involving information systems, digital, AI, involve an intersection of these different policy areas, I think that's exactly the wrong time to divest the FTC of its competition policy mandate. Also because I think the competition policy mandate has brought useful discipline and direction to the consumer protection program.

26:19And if you sever the competition mandate from the consumer protection mandate, I think the consumer protection mandate and the data protection mandate, they both suffer. It's always great to have you on, Bill. Thanks so much. That's former FTC Chair William Kovacic, a professor at George Mason University School of Law. And that's it for this edition of the Bloomberg Law Show. Remember, you can always get the latest legal news on our Bloomberg Law podcast. You can find them on Apple Podcasts, Spotify, and at www.bloomberg.com slash podcast slash law. And remember to tune into the Bloomberg Law Show every weeknight at 10 p.m.

26:58Wall Street time. I'm June Grosso, and you're listening to Bloomberg.

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