Why FTC’s Data Privacy Rulemaking Is Probably Unconstitutional
The recent regulatory agenda as articulated by the FTC is likely beyond the scope of its congressional mandate
Over the past two years, the Supreme Court has issued three rulings transforming how the Court handles cases involving administrative overreach. In 2021, the Court struck down the Centers for Disease Control and Prevention’s (CDC) eviction moratorium, and the Occupational Health and Safety Administration’s (OSHA) vaccine mandate. This year, the Court continued to hold excessive administrative power at bay, rejecting the Environmental Protection Agency’s (EPA) attempt to expand its power through the Clean Power Plan.
This change in jurisprudence will impact how much power administrative agencies can assert without backlash from the Court. Progressive agency heads may see their agendas face legal challenges. Lina Khan, the chairwoman of the Federal Trade Commission (FTC) is among the Biden administration’s most aggressive leaders. Her attempts to greatly expand the FTC’s authority to prosecute unfair and deceptive trade practices, however, could run into the wall of the Court’s most-recently established doctrine.
The Major Questions Doctrine
The judicial doctrine applied in this line of cases is known as the “major questions doctrine.” The decision in West Virginia v EPA solidified the permanence of this doctrine, and signaled the Court’s intention to stand as a barrier between the administrative state and its ambitious quest for power.
Previously absent from majority opinions, Justice Roberts described the doctrine as “an identifiable body of law” that developed to address the problem of “agencies asserting highly consequential power beyond what Congress could reasonably be understood to have granted.”
Thus, at its core, the major questions doctrine protects the separation of powers, one of the most fundamental principles of constitutional order. But, the doctrine does not apply to every case involving possible agency malfeasance. Instead, the Court applies the doctrine only to those decisions where agency action implicates a question of “vast economic and political significance.”
To determine what cases fall within this category, the Court assesses several factors, including the extent to which the agency seeks to expand existing authority, the statutory justification for agency action, and whether Congress intended to grant an agency the power it wants to wield.
Under the major questions doctrine, the Supreme Court is openly skeptical of agency attempts to drastically alter the scope of their regulatory authority. For example, in one of the most heavily cited major questions cases, the Court rejected EPA officials’ efforts to interpret the statutory phrase “air pollutants” to include greenhouse gas emissions. In his concurring opinion, Justice Gorsuch pointed out the EPA’s lack of adequate statutory authority, specifically questioning how this newfound authority came from an “obscure, never-used” section of law.
Specific congressional acts feature heavily in major questions analysis because they can speak directly to the extent of authority delegated to agencies. When rejecting the legality of the CDC’s eviction moratorium, the Court pointed to congressional refusal to pass legislation extending the moratorium. A federal agency designed to prevent the spread of communicable diseases had not been empowered to alter national property rights.
The same issues arose in the battle over OSHA’s vaccine mandate. In an effort to boost vaccination rates, OSHA mandated all employers require their employees to obtain a vaccine or pay out-of-pocket for weekly COVID testing. This mandate covered roughly 84 million Americans and sought to regulate intimate aspects of individual life, therefore falling under major question analysis. Additionally, the mandate was issued under emergency protocols, meaning it was not subject to the typical notice and comment requirements of agency rulemaking.
Applying major question analysis, the Court argued OSHA failed to distinguish between occupational hazards, which the agency is allowed to regulate, and universal risks, which fall outside its authority. Once again, the surrounding context revealed an agency attempt to skirt congressional authority to implement administrative policy. In this case, not long before OSHA issued the mandate, President Biden requested agency action on this issue. The only congressional action taken, however, came in the form of a majority Senate vote condemning the vaccine mandate.
Implications for FTC Administrative Agenda
FTC rulemaking in relation to commercial surveillance and data privacy likely violates its scope of authority under major questions analysis. Recent actions from the agency show it is advancing a regulatory agenda in conflict with the scope of their congressional authority.
Following the confirmation of Lina Khan as the chairwoman of the FTC, the agency’s policy positions have taken a significant lurch leftward, and President Biden wasted no time in working with the progressive chairwoman to drastically expand the scope of FTC’s section-5 regulatory power.
Immediately after Khan’s confirmation, the White House released an executive order asking the agency to “exercise statutory rulemaking authority” to “address persistent and recurrent practices that inhibit competition,” including practices related to “unfair data collection and surveillance practices that may damage competition, consumer autonomy, and consumer privacy.”
Soon after the release of this order, Khan rescinded a 2015 policy statement, jettisoning the agency’s long-standing reliance on decades-old antitrust jurisprudence and instead publishing a policy statement that seeks to “rethink” the agency’s approach to “its mandate to police unfair methods of competition.” This agenda includes expanding beyond the ambit of antitrust legislation found in the Sherman or Clayton Acts.
Now, the agency has issued Advanced Notice of Proposed Rulemaking on trade regulation of commercial surveillance and data security. The implications of this new rulemaking are strikingly broad and could involve government micromanagement of corporate behavior. From the routine collection and retention of data, to the development of AI and algorithms, companies across numerous economic sectors would be impacted.
Chairwoman Khan’s desire to heavily regulate data privacy is likely outside the explicit scope of congressionally mandated authority. First, the FTC’s recently unveiled regulatory agenda breaks from the historical scope of section 5, which relied on long-standing principles of antitrust law when determining whether firm behavior violated law. Indeed, Congress briefly pulled funding from the agency in the 1980s to halt the agency’s expansion of section 5 regulatory authority.
Additionally, why would Congress work on data-privacy legislation if it viewed this as falling under the purview of the FTC? Although no bill has yet been passed, the Supreme Court has made it clear that even failed actions of Congress are relevant to its analysis of the scope of an agency’s authority.
Given the realities of economic activity in the digital era, and the breadth of the agency’s regulatory vision, major questions analysis would likely apply. Indeed, dissenting commissioners noted the danger of this approach, cautioning Chairwoman Khan that her desire to expand the FTC’s role is excessively broad. Commissioner Phillips argued the breadth alone will create senseless ambiguity regarding what constitutes actionable violations of law.
The major questions doctrine pushes back against the administrative state’s quest for ever-expanding executive power. The recent regulatory agenda as articulated by the FTC is likely beyond the scope of its congressional mandate. Ultimately, these rulings impact all Americans because they prevent unelected bureaucrats from imposing sweeping decrees, drastically altering personal freedom without the consent of the governed.
In light of Supreme Court precedent, Congress should take advantage of the opportunity to effectively reassert its power, and agencies should be cautious when seeking to vastly expand the scope of their authority. Additionally, states should monitor events occurring at the federal level, with an eye towards protecting the separation of powers by adopting the same jurisprudential analysis as the Supreme Court.
This op-ed originally appeared in the American Institute for Economic Research.