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United States:  FTC’s abandonment of case against Axon clouds Administrative Merger Challenges

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In brief

In a notable turn of events, the Federal Trade Commission (FTC) announced that it would abandon its in-house post-consummation challenge of the 2018 acquisition by Axon Enterprise, Inc. (“Axon”) of VieVu, LLC (“VieVu”). The FTC’s decision follows a recent adverse ruling from the Supreme Court, which held that parties are entitled to assert constitutional challenges against the FTC before being required to participate in its administrative proceedings.

In a statement announcing the decision, the FTC said it abandoned its administrative actions because of the “increasingly unlikely possibility of reaching a timely resolution of the antitrust merits that led to the filing of [the] complaint in the first place.” Following the Supreme Court’s decision, the FTC is likely to confront more challenges when pursuing enforcement actions—including, in particular, merger challenges—through its in-house administrative proceedings.

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Key Takeaways

  • Parties can pursue constitutional challenges in district court without first going through FTC administrative proceedings. A key takeaway from the Supreme Court’s decision in Axon Enter., Inc. v. FTC (“Axon”) is that private parties subject to the FTC’s administrative adjudication process need not wait until the resolution of administrative proceedings to separately bring constitutional challenges against the agency in federal court1. As was the case with Axon, a party can press constitutional challenges in district court without first “exhausting” its options administratively.  
  • The decision may facilitate convergence the way that the Antitrust Division of the Department of Justice (DOJ) and FTC pursue challenges of consummated mergers. While the DOJ and FTC can challenge consummated transactions (even those that were subject to premerger review), the FTC has traditionally pursued such cases administratively, whereas the DOJ must pursue any challenge in federal district court. The FTC’s decision to abandon its administrative challenge against Axon demonstrates that any collateral attack on the FTC’s constitutional authority can materially delay administrative prosecution. The prospects for such a delay may push the FTC to avoid the issue and pursue its challenge in federal court.
  • The FTC may face more constitutional challenges when pursuing standalone administrative proceedings of consummated mergers and mergers subject to concurrent regulatory reviews that prevent the parties from closing. Historically, like in Axon, the FTC has pursued challenges of consummated transactions administratively without seeking relief in federal court. In addition, the FTC has utilized its administrative process to challenge proposed mergers when the transaction is subject to concurrent regulatory reviews that preclude the parties from closing their transaction2. Any FTC decision to proceed administratively in such cases in the future will be subject to collateral constitutional attacks by the parties.
  • The decision may impact negotiation dynamics in merger settlements and challenges where the FTC seeks a preliminary injunction in federal court. Under Section 13(b) of the Federal Trade Commission Act, the FTC need only satisfy a “public interest” standard to obtain a preliminary injunction. This standard imposes a lower burden than the traditional equity standard, which the DOJ must satisfy to obtain the same relief. Because the FTC’s public-interest standard is intended to facilitate its ability to hold in-house hearings, the FTC may face constitutional challenges to its authority when seeking to take advantage of that standard in federal court. In close cases, this dynamic may strengthen merging parties’ bargaining position in pursuing settlement. 

In depth

On 3 January 2020, the FTC voted to issue an administrative complaint challenging Axon’s 2018 acquisition of VieVu. Axon and VieVu made and sold certain policing equipment. In its complaint, the FTC alleged that Axon violated Section 5 of the FTC Act by acquiring VieVu, which the FTC characterized as Axon’s “closest competitor.”

Just before the FTC filed its administrative action, Axon filed a complaint in federal court seeking a declaratory judgment that the FTC’s adjudication process was constitutionally deficient. After initially losing for lack of subject matter jurisdiction due to Axon’s failure to exhaust the FTC’s administrative process, Axon appealed and filed an emergency motion to stay the FTC’s administrative trial. Axon’s emergency motion was granted, which halted the administrative trial and ultimately led to the Supreme Court’s decision on 14 April 2023.

As discussed in our prior alert, the Supreme Court unanimously held that the administrative review scheme in the Federal Trade Commission Act does not displace a district court’s federal-question jurisdiction to hear claims that challenge the constitutionality of a particular agency (like the FTC) and its administrative adjudication procedures. Accordingly, parties may challenge the constitutionality of the FTC’s administrative adjudication process before being required to participate in such proceedings. The Supreme Court’s decision was based principally on three key findings: 

  • Preclusion of district court jurisdiction “could foreclose all meaningful judicial review” because “subjection to an illegitimate proceeding, led by an illegitimate decision maker” would be impossible to remedy once the proceeding is over and appellate rights became available.
  • The challenge was “collateral” to the subject of the FTC’s enforcement proceeding because Axon challenged the Commission’s “power to proceed at all, rather than actions taken in agency proceedings”.
  • Axon’s claims were “outside” the Commission’s expertise since it dealt primarily with issues concerning separation of powers rather than “competition policy” (which was considered to be the proper domain of the FTC’s expertise). 

On 6 October 2023, the FTC formally issued an Order returning the Axon administrative matter to adjudication and dismissing its administrative complaint. The Order referenced several factors as influencing the dismissal decision, including: (1) the Supreme Court’s decision to remand Axon’s constitutional challenge back to the district court; (2) Axon filing an amended complaint to pursue its constitutional challenge; and (3) the significant passage of time from the date of the FTC’s initial challenge (3+ years) and the transaction’s consummation (5+ years). The Order then provided that “the Commission anticipates those challenges would likely result in years of additional litigation, further delaying the administrative adjudication that would reach the merits of the antitrust action here.” The Order also observed that the Commission “must constantly evaluate the deployment of its limited resources” and “the increasingly unlikely possibility of reaching a timely resolution of the antitrust merits that led to the filing of [the] complaint in the first place.”

The FTC’s decision to abandon its administrative case against Axon tacitly acknowledges the risk the case presents to the constitutionality of its in-house adjudication process. Continuing the litigation against Axon would have exposed the FTC to a district court decision on constitutionality upon remand. It remains to be seen whether the FTC will be more reluctant to pursue cases administratively given the likelihood of constitutional attacks in district court, which could cause delays in prosecution or lead to precedent that could undermine the FTC’s ability to prosecute cases administratively.

1 143 S. Ct. 890 (2023).

2 For example, in its challenge against Illumina/Grail (which was initiated before the Axon decision), the FTC voluntarily decided to dismiss its federal case seeking a preliminary injunction after the European Commission announced it would be investigating the transaction. In its statement, the FTC acknowledged that its decision to drop its federal case was based on its understanding that parties “cannot implement the transaction without obtaining clearance from the European Commission.” See Statement of FTC Acting Bureau of Competition Director Maribeth Petrizzi on Bureau’s Motion to Dismiss Request for Preliminary Relief in Illumina/GRAIL Case, available here.

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Author

Brian Burke is a partner in Baker McKenzie's Washington, DC office. He draws on over 20 years of experience to counsel clients on all federal antitrust issues. He assists clients in successfully navigating the merger clearance process before the US as well as international antitrust authorities. Brian also has extensive experience advising clients on civil and criminal governmental antitrust investigations, commercial antitrust litigation, antitrust compliance programs, risk assessments, and pricing and distribution policies. Brian holds multiple leadership positions in the Firm. He is a member of the Steering Committee for the Firm's North American Antitrust Practice Group, as well of the Global Antitrust and Competition Taskforces for Healthcare, Energy Mining and Infrastructure, and Consumer Goods Industries. He also serves as the co-head of the Firm's Merger-Control Task Force.

Author

Marisa Dieken is an associate in Baker McKenzie's North America Antitrust & Competition Practice Group, based in Washington, DC. Marisa advises clients on a broad range of antitrust law issues before the Department of Justice, Federal Trade Commission, and foreign competition authorities. Prior to joining Baker McKenzie, Marisa worked for the US Department of Justice as a trial attorney. While at the DOJ, Marisa led pre-merger investigations in telecommunications, media, and technology sectors, and contributed to on a wide array of civil merger and conduct investigations. She also worked on litigation teams for the Division including US v. AT&T/Time Warner and US v. American Airlines/Jetblue.

Author

Dan is a senior associate in Baker McKenzie's North America Antitrust & Competition Practice Group.
Dan is an antitrust specialist whose practice focuses on merger control, civil conduct investigations, corporate counseling and compliance, and civil litigation. He advises client across a broad range of industries in matters before US and foreign competition authorities.
Dan maintains an active pro bono practice. He is also an active member of the ABA Section of Antitrust Law and is currently a Vice Chair for the Unfair Competition Committee.

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