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Independent commissioners have shaped key FTC decisions

Published on March 17, 2017 in Issue 913

President Donald Trump has been unconventional in many ways, and he could continue that pattern by not naming Democrats to fill vacancies on the Federal Trade Commission.

Although Trump hasn’t officially chosen anyone for the agency, his campaign promise to shake things up in Washington could include how he names members.

The commission has three vacancies and presumably two of those would go to Republicans. But while the tradition is usually that the two spots not held by members of the president’s party go to members of the other party, that isn’t always the case.

There have been three independent commissioners throughout the agency’s history: Philip Elman, Mary Azcuenaga and Pamela Harbour. Each one has played a pivotal role in some key cases.

The FTC Act states that: “Not more than three of the Commissioners shall be members of the same political party.”

However, until President John Kennedy named Elman to the commission in 1961, all the previous commissioners had either been Republicans or Democrats.

Elman is one of a handful of commissioners whose career before joining the agency was as important and interesting as his time at the FTC.

He spent 15 years as an assistant solicitor general, where he worked on various cases relating to antitrust and civil rights. Elman wrote the government’s amicus brief in the landmark civil rights case Brown v. Board of Education. In the brief the government pushed for desegregation but urged a more cautious approach than some civil rights activists favored. He urged the use of the phrase “with all deliberate speed,” a term adopted by Justice Felix Frankfurter, for whom Elman had clerked. Frankfurter recommended that Chief Justice Earl Warren use the term in the court’s unanimous opinion and Warren did.

When Kennedy became president, Elman hoped to be named assistant attorney general for civil rights but his interview with Attorney General Robert F. Kennedy didn’t go well, so Elman was picked for the FTC. He would serve until 1970.

At the FTC, Elman provided the intellectual firepower for much of the agency’s work at a time when the agency was sometimes criticized for being insufficiently active on both antitrust and consumer protection enforcement. The agency was chaired by former Senate aide Paul Rand Dixon (see FTC:WATCH, No. 862, Nov. 13, 2004).

Drawing on his time at the DOJ, Elman was a key architect of the agency’s argument that led to its victory at the Supreme Court in FTC v. Procter and Gamble. In the 1967 decision the high court on a 7-0 vote upheld the FTC’s position that the consumer products giant must divest bleach company Clorox.

The FTC contended that the merger between P&G and Clorox shouldn’t be seen in terms of being a horizontal or vertical combination, but rather as a “product-extension merger.” These are combinations in which the companies aren’t direct competitors, but have related production processes and distribution channels. The FTC alleged that these combinations, especially when they involve a large firm like P&G, can stifle competition and hurt small companies.

It was the first case of its kind that the FTC brought and Elman wrote the agency’s opinion with the aid of his adviser Richard Posner, who would go on to become a prominent appeals court judge and antitrust scholar.

On the consumer protection front, Elman persuaded his colleagues to adopt strong policies on placing health warnings on cigarette packages and limiting advertising for those products. The labeling rule required cigarette companies to state the possible linkage between smoking and cancer.

“Notice that that warning has the two trigger words, death and cancer. It's all I cared about. I wanted those two words in every cigarette ad,” he said in an oral history.

Despite these successes, Elman was frustrated by the FTC’s sluggish pace and was a major source for consumer advocate Ralph Nader’s critical report on the agency (see FTC:WATCH, No. 864, Dec. 16, 1014).

Azcuenaga was named to the FTC by President Ronald Reagan in 1984 after serving as a lawyer at the agency for 11 years.

She served on the commission until 1998 and wasn’t always easy to peg in terms of ideology.

When the FTC approved the merger of aircraft giants Boeing and McDonnell Douglas in 1997, she joined with her colleagues in part and dissented.

Azcuenaga agreed that merging the companies’ space and defense lines ought to be approved, but said the agency should block the merger of the companies’ commercial aircraft divisions.

“My colleagues conclude that most airlines will not buy planes from Douglas, a factual conclusion with a surprising reach for a simple announcement of failure to prosecute and a conclusion and implication of competitive insignificance with which I disagree after having reviewed the available information,” she wrote. “After reviewing the available information, I conclude that the combination in the commercial aircraft market creates a classic case for challenge in accordance with the merger guidelines, and I find reason to believe that it would violate Section 7 of the Clayton Act. What is less clear on the existing information is the availability of an adequate remedy.”

That same year she was one of two commissioners who dissented in the FTC’s complaint against R.J. Reynolds. The agency alleged that the tobacco company’s “Joe Camel” advertisements were unfair or deceptive in violation of Section 5 of the FTC Act.

Azcuenaga tried to strike a middle ground in her statement. She stated that while the “actions alleged in the complaint are serious, and intuition suggests reason to believe they are true, intuition alone, however, is not a sufficient basis for issuing a complaint under the statute.”

She added that there wasn’t enough additional evidence to reach a different conclusion than when the FTC decided not to file a complaint against R.J. Reynolds for similar advertisements in 1994.

The FTC dropped its lawsuit the next year after the settlement reached between 46 states and the tobacco industry achieved the agency’s objectives, including banning cartoon characters in tobacco ads.

Harbour was named to the FTC in 2003 by President George W. Bush after spending 11 years in the New York state Office of the Attorney General and several years in private practice.

While at the FTC, she wrote the opinion for a unanimous commission that concluded that Rambus unlawfully monopolized the market for four computer memory technologies.

She wrote that the company was “able to distort the standard-setting process and engage in anticompetitive ‘hold up’ of the computer memory industry. Conduct of this sort has grave implications for competition.”

In the 2006 case the FTC reversed an opinion of the agency’s in-house administrative law judge. However, the victory was short lived. Rambus appealed to the US Court of Appeals for the DC Circuit, which reversed the opinion and ruled in the company’s favor. The Supreme Court declined the FTC’s request to hear the case.

Harbour dissented with the remedy in a 2004 case in which the FTC charged that KFC had deceptively advertised that its fried chicken had some positive health benefits. The fast-food restaurant chain was barred from saying that its fried chicken is better for a consumer's health than eating a Burger King Whopper, or that its fried chicken is compatible with “low carbohydrate” weight-loss programs unless it backs the claim with competent and reliable evidence.

She concluded that “where a company appears to have exploited a national health crisis, an even stronger response from the Commission is warranted.” Harbour added that while “it may be difficult to calculate monetary relief in these kinds of cases,” the agency should develop a methodology to do so in the future.

Her interest in diet products continues. After leaving the agency in 2010, she returned to private practice, and in 2014 became senior vice president of Herbalife. Last year the dietary supplement company reached a settlement with the FTC, agreeing to refund $200 million to consumers for deceiving them about money-making prospects (see FTC:WATCH, No. 900, July 29, 2016).

—Claude R. Marx