FTC Abandons Axon Challenge Following Supreme Court Loss

We have previously reported on Axon Enterprise, Inc. v. Federal Trade Commission, 598 U.S. ____, 143 S. Ct. 890 (2023), a case involving the question whether parties seeking to undertake a transaction subject to FTC review (in the case of Axon Enterprise, a merger with a competitor) and who seek to challenge the constitutionality of the FTC’s fundamental structure/processes are required to go through the regular FTC review process only then to seek review in a federal court of appeals, or whether they may instead bypass FTC review and submit the constitutional questions to immediate review in federal district court.

This past April, the U.S. Supreme Court ruled unanimously in favor of Axon and against the FTC, holding that the district courts have jurisdiction to hear these suits and to resolve the constitutional challenges to the FTC’s structure/processes. In so doing, the Court reversed the decision of the Ninth Circuit Court of Appeals that had ruled in favor of the FTC and remanded the case to the Ninth Circuit, which remanded it to the district court.

On Oct. 13, faced with the fact that the constitutional challenges to its structure/processes would now be adjudicated by the district court, the FTC announced it was dropping its case.[1]

In so doing, the FTC put off until another day the adjudication of the challenges, which Justice Kagan in her opinion in the case described as “fundamental, even existential.”

To Be Noted:

The constitutional challenges to the FTC’s structure/processes are two-fold:

• FTC administrative law judges (“ALJs”) hold two layers of tenure protection, based on the fact that, by statute, ALJs may be removed only for good cause as determined by the Merit Systems Protection Board, whose members themselves can only be removed by the President for good cause — it thus being asserted that this arrangement so greatly insulates ALJs from presidential supervision as to violate the separation of powers, i.e., Article II’s vesting of executive power in the President; and

• The combination of prosecutorial and adjudicative functions in the FTC violates due process rights, and the “arbitrary” process by which enforcement actions are in some instances brought by the FTC and in other instances by the U.S. Department of Justice violates due process and equal protection rights.

These constitutional challenges have also been raised, but not adjudicated, in several other recent cases. This includes by Amgen, Inc. and Horizon Therapeutics plc in connection with the FTC’s challenge to their merger (which was recently settled), and by Illumina, Inc. in connection with its challenge to the FTC’s decision to block its proposed repurchase of Grail, Inc.

[1] In its order dismissing the complaint, the FTC stated that: “[N]early four years after this merger challenge was first filed and six years after the deal was consummated — the constitutional challenge has now been remanded to the federal district court in which it began. … The Commission anticipates those challenges will likely result in years of additional litigation … The complaint states that this merger eliminated competition between two rivals, effectively creating a monopoly. … As it does with any enforcement action, however, the Commission must constantly evaluate the deployment of its limited agency resources to ensure maximal efficacy and utility. … Based on the totality of the circumstances, we have come to the difficult conclusion that the public interest requires that this litigation no longer be continued.”