Biden Signs Sweeping Market Competition/Concentration Order
On July 9, President Biden signed one of the widest-ranging executive orders of his Administration, EO 14036, “Promoting Competition in the American Economy.” It may have significant effects on the way the U.S. Department of Transportation manages airline competition and customer service, and urges federal regulatory commissions to examine freight rail and ocean shipping competition as well.
Background. Since the late 1980s, there has been a general pro-merger bipartisan consensus among federal policymakers, as shown by the way that major mergers were approved by the last four Administrations:
|Clinton||Pfizer/Warner-Lambert, Exxon/Mobil, Citicorp/Travelers, NationsBank/Bank America, Chevron-Texaco, various Baby Bell mergers, AOL/Time Warner|
|G.W. Bush||Comcast/AT&T Broadband, JP Morgan Chase/Bank One, Procter & Gamble/Gillette, financial services mergers relating to 2008 crisis|
|Obama||Pfizer/Wyeth, Dow/DuPont, Heinz/Kraft, AT&T/TimeWarner, Charter/TimeWarner Cable|
|Trump||Disney/Fox, United Tech/Raytheon, Bristol-Myers Squibb/Celgene, T-Mobile/Sprint|
In the last few years, there has been a growing and bipartisan sense that the pendulum may have swung too far towards allowing corporate mergers. This is not just about the big-ticket mergers shown above, but also about how established companies (particularly in the tech sector) have been able to buy out every new entrant company with a good idea that threatens their business model and then either incorporate it into theirs, or kill it.
The new executive order was drafted by the National Economic Council. The new policy, as expressed in section 1 of the order, is mostly focused on antitrust:
…it is the policy of my Administration to enforce the antitrust laws to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly and monopsony—especially as these issues arise in labor markets, agricultural markets, Internet platform industries, healthcare markets (including insurance, hospital, and prescription drug markets), repair markets, and United States markets directly affected by foreign cartel activity.
It is also the policy of my Administration to enforce the antitrust laws to meet the challenges posed by new industries and technologies, including the rise of the dominant Internet platforms, especially as they stem from serial mergers, the acquisition of nascent competitors, the aggregation of data, unfair competition in attention markets, the surveillance of users, and the presence of network effects.
Whereas decades of industry consolidation have often led to excessive market concentration, this order reaffirms that the United States retains the authority to challenge transactions whose previous consummation was in violation of the Sherman Antitrust Act (26 Stat. 209, 15 U.S.C. 1 et seq.) (Sherman Act), the Clayton Antitrust Act (Public Law 63–212, 38 Stat. 730, 15 U.S.C. 12 et seq.) (Clayton Act), or other laws. See 15 U.S.C. 18; Standard Oil Co. v. United States, 221 U.S. 1 (1911).
Scope. EO 14036 addresses a wide range of areas, and is organized in six parts, of which section 5 is the most important, as shown below:
|Sec. 1. Policy|
|Sec. 2. Citation of Statutory Basis|
|Sec. 3. Agency Cooperation|
|Sec. 4. White House Competition Council|
|Sec. 5. Further Agency Responsibilities|
|(a) Everyone – further the policies in sec. 1|
|(b) Justice and FTC – enforce antitrust laws “fairly and vigorously”|
|(c) Justice and FTC – review horizontal and vertical merger guidelines|
|(d) Justice and Commerce – intersection of IP and antitrust|
|(e) Justice, Fed, FCIC, Comptroller – review bank merger oversight|
|(f) Justice and FTC – guidance for human resources professionals|
|(g) FTC – non-compete clauses and other worker mobility impediments|
|(h) FTC – other unfair practices|
|(j) Treasury, Justice, FTC – assess alcoholic beverage industry rules|
|(k) Treasury – rulemaking based on 5(j) assessment|
|(l) FCC – Net Neutrality, spectrum concentration, tenant cable/ISP rights|
|(m) DOT (see below)|
|(n) STB (see below)|
|(o) FMC (see below)|
|(p) HHS – hospital price transparency, health insurance choice, generic drugs|
|(q) FDA – drug importation|
|(r) Commerce – NIST issues|
|(s) Defense – manufacturing and innovation base|
|(t) CFPB – consumer data portability, crackdown on unfair/deceptive/abusive acts|
|(u) OMB – OIRA regulatory review|
|(v) Treasury – study labor market competition and non-bank consumer finance|
|Sec. 6. General Provisions|
Limits on Presidential authority. Section 5 gives a lot of direction to a lot of federal officials, but not all Presidential instructions are created equal. The President can give orders to most federal officials with a reasonable expectation that legal orders will be carried out, because the President has the power to fire those officials if they don’t. This goes for Cabinet Secretaries and individual heads of agencies, and the directions given to such Secretaries and directors by section 5 of the order is that each official “shall” carry out their section 5 instructions.
But the Supreme Court, in a trilogy of decisions (starting with Humphrey’s Executor vs. U.S. (1935), refined in Morrison vs. Olson (1988), and then recently expressed in Seila Law vs. CFPB (2020)), says that independent regulatory commissions, like the FCC, the FTC, and the transportation-focused STB and FMC, don’t work that way. The President can’t fire Senate-confirmed members of those panels for refusal to obey lawful orders, only for some kind of malfeasance or incompetence cause. Their decisions are supposed to be independent of the regular executive branch policy and political processes. Because of that, section 5 doesn’t actually order the chair of each panel to do anything – it only says that each chairman “is encouraged to work with the rest of the [Board/Commission] to” take certain actions.
By law, both the Surface Transportation Board (railroad regulation) and the Federal Maritime Commission (ocean shipping regulation) are five-member panels, of which no more than three members can be from any one particular party. Despite dropping the ball on a lot of other non-judicial nominations, the Trump Administration managed to make sure that both panels were full as of December 2020, and both panels had three Republicans and two Democrats.
Right now, STB member Ann Begeman (R) saw her term end on December 31, 2020 and entered a statutory one-year holdover period that will end early if a successor is confirmed by the Senate. President Biden has nominated Karen Hedlund (D) to take her place, which would flip the Board to a Democratic majority, but because Hedlund is the majority-maker, there is incentive for railroad allies to slow-walk her nomination behind the scenes in the Senate by blocking unanimous consent for her nomination, which could take some time. Similarly, at the FMC, Commissioner Michael Khouri (R) saw his term expire on June 30, 2021 and has entered his one-year holdover period, and President Biden has nominated a Democratic replacement, who also may take some time to confirm.
Transportation directives. Section 5 of the new order gives eighteen transportation-specific directives, as follows (with the notation from above that the directives to the SecDOT are “shall” orders while all of the directives to STB and FMC chairs are “encouraged to work with other members to” requests:
|5(m)(i)(A)||SecDOT||30 days||Adjust membership of and convene Advisory Committee for Aviation Consumer Protection|
|5(m)(i)(B)||SecDOT||no deadline||“promote enhanced transparency and consumer safeguards” for airline flight information and look for unfair/deceptive practices|
|5(m)(i)(C)||SecDOT||45 days||Report to WH on progress of getting airlines to make promised refunds for COVID flight cancellations|
|5(m)(i)ID)||SecDOT||45 days||Publish a proposed rule requiring airlines to refund baggage/ancillary fees when service is substantially delayed or not provided|
|5(m)(i)(E)||SecDOT||60 days||Start development of redefinitions of “unfair” and “deceptive” practices under 49 U.S.C. §41712 (current definitions are in 14 CFR 399.79)|
|5(m)(i)(F)||SecDOT||90 days||“Consider” initiating a rulemaking to ensure that customers have all ancillary fee information at time of ticket purchase|
|5(m)(ii)(A)||SecDOT||30 days||Convene DOT working group to evaluate effectiveness of FAA rules|
|5(m)(ii)(B)||SecDOT||no deadline||Consult with Justice on enhancing DOJ-DOT cooperation on competition and new entrants|
|5(m)(ii)(C)||SecDOT||no deadline||“Consider” airport development and competition measures including slot administration|
|5(m)(iii)(A)||SecDOT||no deadline||“ensure” that DOT takes action to facilitate market leadership in new aerospace tech|
|5(m)(iii)(B)||SecDOT||no deadline||“ensure’ that DOT provides “vigilant oversight” over new aerospace tech market participants|
|5(n)(i)||STB Chair||no deadline||“consider” reciprocal switching agreement regulation if the chair determines it is in the public interest|
|5(n))ii)||STB Chair||no deadline||“consider” any other rulemaking relevant to competitive access, including bottlenecks|
|5(n)(iii)||STB Chair||no deadline||“vigorously enforce” new PRIIA on-time performance rules taking effect July 1|
|5(n)(iv)||STB Chair||no deadline||consider Amtrak’s access rights when considering freight railroad mergers|
|5(o)(i)||FMC Chair||no deadline||“vigorously enforce” new ban on unjust/unreasonable detention and demurrage practices|
|5(o)(ii)||FMC Chair||no deadline||Ask NSAC for recommendations how to improve detention/demurrage practices|
|5(o)(iii)||FMC Chair||no deadline||Consider further rulemaking on detention and demurrage|
Some of these actions were obviously in the works since before Biden signed the order, such as the new proposed rule from USDOT that was announced on July 9 (the same day Biden signed the order). The new rule would require that, if an airline delays your baggage more than 12 hours behind you for domestic flights (25 hours for international flights), they have to refund your baggage fees (if any) within 7 days (if you paid the fee via credit card) or 14 days for cash and check payments. Similarly, if you paid an ancillary fee for some kind of flight service or amenity (defined in the rule as including, but not limited to, “checked or carry-on baggage, advance seat selection, access to in-flight entertainment program, in-flight beverages, snacks and meals, pillows and blankets, and seat upgrades”), and the airline is unable to provide that service or amenity, you get your refund of the ancillary fee in the same timeframe.
This rule had been in the works for a long time – the Advanced Notice of Proposed Rulemaking was published in October 2016, and public comments were due by November 30, 2016. Then, for four years, the Trump Administration never took final action to convert the ANPRM and its comments into a draft rule. (Comments on the new rule are due by 60 days from whatever date next week the new proposed rule appears in the Federal Register.)
Then, on July 14, DOT announced that they had complied with the new rule’s requirement to add members to the Aviation Consumer Protection Advisory Committee, another action which had to be in the works prior to June 9 (given how long it takes to do routine background checks on advisory committee members).
The current STB chairman, Martin Oberman (D), issued a statement that “…while underscoring that the STB is an independent agency and that maintaining its independence is vital, I welcome the nationwide policy contained in this new Executive Order. The President’s emphasis on improving the competitive landscape across the entire economy fits well with my view of the Board’s mission in the current rail environment.
“In harmony with the White House’s policy that the federal government should seek to boost competition nationwide, as I have previously indicated since being named as Chairman, I intend to urge my fellow Board members to prioritize and strongly consider the concepts embodied in several measures which are already pending or have been recommended by Board staff or stakeholders, including but not limited to reforming the Board’s competitive access policies; enhancing shipper visibility into first mile/last mile service; and increasing the practical accessibility of rate relief measures to shippers in market dominant situations.
“In addition, I know that the Board takes seriously the administration’s emphasis on ensuring that passenger rail is not subject to unwarranted delays and interruptions in service. Freight railroads have obligations to facilitate timely passenger rail service. Earlier this year, I formed an internal working group to advise the Board on the resources necessary to fulfill the agency’s responsibilities to investigate compliance with the new on-time performance standards and, starting next year, to ensure that those standards are enforced. I will be making an announcement about those efforts in the near future.”
Similarly, FMC chairman Dan Maffei (D) was at the July 9 White House signing ceremony and issued his own statement that “In recent months, we have increased our scrutiny of the ocean carrier alliances to identify evidence of anticompetitive behavior regarding rates and capacity, and we will continue to do so as the COVID-19 and import surge crisis continues. We welcome the assistance and cooperation from other agencies, including the Department of Justice. With regard to detention and demurrage charges, it remains a top priority of the agency to identify and take action against those who flout the Commission’s recent interpretive rule on reasonable regulations and practices. The President’s action today reinforces these efforts and indicates his prioritization of a fair and reliable supply-chain.”
The FMC signed a memorandum of understanding (MOU) with the Justice Department this week about how the two entities will work together to regulate the ocean liner shipping industry, which must have been in progress prior to July 9.