Earlier this year, the U.S. District Court for the District of Columbia denied a request by the Electronic Privacy Information Center, known as EPIC, to compel the Federal Trade Commission (FTC) to enforce its 2011 consent order with Google Inc. Within days, Google, the FTC and countless news publications and pundits, almost unanimously, voiced the position that EPIC, which was not suing Google and was a non-party to the consent order, had no grounds to bring suit due to lack of standing.

As widely predicted, it turned out that they were right. The court, without even reaching the merits of the complaint, granted the FTC’s motion to dismiss. Hours after the decision was handed down, EPIC filed an emergency appeal with the U.S. Court of Appeals for the D.C. Circuit that was summarily dismissed four days after Google’s new privacy policy went into effect.

While the Administrative Procedure Act (APA) does provide a cause of action permitting a third party to compel a federal agency to enforce its laws against third parties, it does so on a very limited basis, and the compelled enforcement of an FTC consent order is not one of them.

‘EPIC v. FTC’

If you turned on a computer connected to the Internet in the month of February, chances are you are already familiar with the underlying issue in dispute.1 In January 2012, Google announced that on March 1, 2012, it would change its privacy policy, consolidating all user data from across its services and create a single merged profile for each user.

EPIC, a third-party watchdog for the public interest, viewed Google’s planned changes as a violation of a 2011 consent order between Google and the FTC that barred Google from sharing user data with outside sources without obtaining clear permission from its users.2 This planned privacy change prompted EPIC to preemptively file suit (without requesting that the FTC further investigate the matter) seeking to compel the FTC to exercise its enforcement powers under the 2011 consent order through application of §§701 and 706 of the APA.

While the merits of EPIC’s claim alleging that the policy change would be in violation of four parts of the FTC consent order are of great importance, the court’s consideration of the FTC’s motion to dismiss did not make it so far as to even evaluate whether EPIC’s allegations were meritorious. Though the court did note that EPIC had “advanced serious concerns that may well be legitimate,”3 the determination that judicial review was unavailable had fatally fated the case from the start. Focusing solely on the issue of whether a non-party to the FTC-Google consent order could compel the FTC to take action in the first place, the motion to dismiss was granted.

Privity of Contract

Historically, FTC consent orders have always been interpreted as contracts between an administrative agency and the respondent and no third-party beneficiaries have been afforded a right to enforce that contract.4 However, it also follows that because the FTC is a government agency, it is treated differently to allow for a system of checks and balances. As U.S. Supreme Court Justice Clarence Thomas has famously stated, “our constitutional structure contemplates judicial review as a check on administrative action that is in disregard of legislative mandates or constitutional rights.”5 As a result, Congress has provided a means to ensure the fidelity of administrative agencies in their relationships with the public, other governmental institutions and corporations.

Judicial Review

So that agency programs are carried out uniformly and that their actions are not arbitrary or capricious, Congress enacted the APA that, generally, allows for judicial review of agency action or inaction. In order to ensure that private actors do not abuse the right of accountability, courts have typically limited the scope of the claims that can be brought and have stated that administrative decisions are presumptively immune from judicial review.

Section 701(a)(2) of the APA precludes from judicial review agency actions “committed to agency discretion by law.”6 Section 706 then lays out the standard of review that the courts will apply and the types of remedies available. Specifically, §706(1) allows that courts “compel agency action unlawfully withheld and unreasonably delayed” while §706(2) allows courts to “set aside agency action.”

EPIC brought its claim under §706(1), the more difficult of the two APA sections under which to prevail. Section 706(1) allows relief only where a clearly defined agency duty exists. In Heckler v. Chaney,7 the standard most widely applied to §706(1) claims, the Supreme Court held that “an agency’s decision not to prosecute or enforce, whether through civil or criminal process, is a decision generally committed to an agency’s absolute discretion” and is presumptively non-reviewable. But, this presumption of non-reviewability “may be rebutted where a substantive statute has provided guidelines for the agency to follow in exercising its enforcement powers.”8

EPIC’s attempt to overcome the negative presumption of reviewability is primarily predicated upon 15 U.S.C. §45(l).9 But, in the mistaken construction of §45, EPIC placed its emphasis on the provision that states that violators “shall forfeit a penalty to the United States.” 15 U.S.C. §45(l) (emphasis added). The court noted that this language is not directed at something the agency must do. The obligations created by that language have to do with a specific violation of the FTC Act. In absence of being able to point to any duty not “committed to agency discretion by law” on the part of the FTC, EPIC’s reliance upon §45 could not overcome its burden warranting judicial review.

Allocation of Resources

Section 706(1) of the APA and its progeny of case law are both confusing and unclear and often times the outcome of a case will be decided based on a number of policy considerations.10 The court in Heckler first elaborated on the policy considerations that were discussed in affording deference to agency action or inaction:

The agency must not only assess whether a violation has occurred, but whether agency resources are best spent on this violation or another, whether the agency is likely to succeed if it acts, whether the particular enforcement action requested best fits the agency’s overall policies, and, indeed, whether the agency has enough resources to undertake the action at all.11

Despite there being four factors, the one that plays the largest role in §706 outcomes, is agency allocation of resources. Given the limited resources at the disposal of government agencies, the judiciary recognizes that courts are ill suited to allocate those resources. In many instances, such as Heckler and Norton v. Southern Utah Wilderness Alliance, resource allocation has been said to be outcome-determinative. “As the Third Circuit court has held, ‘the quintessential discretion’ of an agency is ‘to allocate [its] resources and set its priorities.’”12

Other Factors

In addition to the court’s stated reasoning, there were three additional factors that detracted from EPIC’s arguments: 1) EPIC sought enforcement of a consent order without even requesting that the FTC investigate whether the order had been breached; 2) EPIC’s claim was brought before the alleged violation of the consent order had even gone into effect; and 3) EPIC’s claim was brought less than two weeks after the proposed policy change was announced, without giving the FTC adequate time to investigate.

First, had EPIC requested the FTC investigate Google’s privacy policy and the FTC disregarded that request, the appropriate avenue to bring a claim of “denial” would have been through §706(2); and the appropriate prayer for relief would have been to “set aside agency action.”13 Section 706(2)of the APA is a much easier method of obtaining judicial review. Also, by turning to the judiciary first, EPIC denies the FTC, who is in the best position to evaluate whether Google’s new policies will violate the consent order, the ability to do so. One of the longest standing arguments against judicial review of agency action or inaction is that the court does not wish to substitute its discretion for that of an administrative agency.

Second, EPIC’s claim was not ripe. As Judge Amy Jackson notes in a footnote, “[e]ven if plaintiff could somehow point to a mandatory duty on the part of the agency, the Court has serious doubts as to whether plaintiff has properly alleged final agency action and whether this matter is ripe.”14 To file a claim before a policy even goes into effect neglects to satisfy §706 “action” requirement, giving rise to a sanctionable violation.

Third, even if the claim would have been ripe, EPIC dismisses the explicit language of §706(1) to “compel agency action unlawfully withheld or unreasonably delayed,” (emphasis added) by bringing the claim directly to the judiciary only two weeks after the announcement. In fact, at that point in time, the FTC informed the court that it was conducting an investigation of Google’s announced privacy policy.

Moving Forward

The decision in EPIC that the FTC’s decision whether to enforce the consent order is committed to agency discretion and is not subject to judicial review clarifies just another instance where the court will simply not impose its judgment upon an administrative agency. Absent legislative intervention, the proposition that without a “mandatory discretionary duty” to enforce a consent order, the judiciary’s non-intervention policy will continue to limit judicial review of agency inaction for years to come.

Non Sequitur Reality Check

We know we write for a very select micro-audience. In today’s parlance, our monthly musings are marginalized ruminations conceived in an “antitrust bubble,” having no practical utility in the “outside the ‘antitrust bubble’ universe.” Therefore, whenever our views receive validation from non-”antitrust bubble” dwellers, it is time for some modicum of self-acknowledgement.

In the April 1, 2012, edition of The New York Times, “Sunday Review Section,” there was an article written by Kevin Clark and David Primo titled, “Overcoming ‘Physics Envy.’”15

The authors begin their column with the observation that:

Economists, political scientists and sociologists have long suffered from an academic inferiority complex: physics envy. They often feel that their disciplines should be on a par with the “real” sciences and self-consciously model their work on them, using language (“theory,” “experiment,” “law”) evocative of physics and chemistry.

They also “borrow a metaphor from the philosopher of science Ronald Giere, theories are like maps: the test of a map lies not in arbitrarily checking random points but in whether people find it useful to get somewhere.”

In our August 2010 column16 we commented on the Revised Merger Guidelines’ disproportionate reliance on economics, a social science “aspir[ing] to be a hard science.”

After individuals or institutions have analyzed whether mergers “tend to lessen substantially competition” countless times over four, five, or six decades of changing economic, political, and social conditions, guidelines, revised or otherwise, aren’t necessary or, for that matter, very helpful to anybody.

Similarly, Clark and Primo conclude their analysis,

Rather than attempt to imitate the hard sciences, social scientists would be better off doing what they do best: thinking deeply about what prompts human beings to behave the way they do.

Neal R. Stoll and Shepard Goldfein are partners at Skadden, Arps, Slate, Meagher & Flom. Drew L. Fabrikant, an associate at the firm, assisted with the preparation of this column.

Endnotes:

1. After all, this is what EPIC suggested the FTC do in its pleadings to become familiar with the issue, stating that “[i]f the government is unaware that Google plans to make a substantial change in its business practices on March 1, 2012, it should turn on a computer connected to the Internet.” Opposition to Defendant’s Motion to Dismiss, at *11, note 4, EPIC v. FTC, No. 12-0206 (ABJ) (D.D.C. Feb. 24, 2012).

2. In the 2011 consent order (stemming from another EPIC-filed complaint) Google admitted using deceptive tactics when it introduced Google Buzz into service in 2010, in violation of the FTC Act. In re Google Buzz, Request for Investigation and Imposition of Fines and Other Remedies for Violation of “Google Buzz” Consent Decree, No. C-4336, Feb. 22, 2012.

3. EPIC v. FTC, No. 12-0206, 11 (ABJ) (D.D.C. Feb. 24, 2012).

4. California State Automobile Association Inter-Insurance Bureau v. The Superior Court of the City and County of San Francisco, 50 Cal.3d 658, 663 (Cal. 1990) ( “stipulated judgments bear the earmarks both of judgments entered after litigation and contracts derived through mutual agreement”).

5. Shalala v. Illinois Council on Long-Term Health Care Inc., 529 U.S. 1, 44 (200) (Thomas J. dissenting).

6. 5 U.S.C.S. §701(a).

7. 470 U.S. 821, 831 (1985).

8. Id. at 833.

9. “Any person, partnership, or corporation who violates an order of the Commission after it has become final, and while such order is in effect, shall forfeit and pay to the United States a civil penalty of not more than $10,000 for each violation, which shall accrue to the United States and may be recovered in a civil action brought by the Attorney General of the United States.” 15 U.S.C. §45(1).

10. See Eric Biber, “Two Sides of the Same Coin: Judicial Review of Administrative Agency Action and Inaction,” 26 VA. ENVTL. L.J., 461 (2008).

11. EPIC v. FTC, at *7 (quoting Heckler at 831-832).

12. “Administrative Law Review: The Importance of Resource Allocation in Administrative Law,” 60 Admin. L. Rev. 1, FN64 (2008) (quoting Oil, Chem & Atomic Workers Union v. OSHA, 145 F.3d 120,123 (3d Cir. 1998)), Norton v. Southern Utah Wilderness Alliance, 542 U.S. 55, 63 (2004).

13. In Norton v. Southern Utah Wilderness Alliance, 542 U.S. 55, 63 (2004), the court made a distinction between “failure to act” and a “denial” when deciding whether 706(1) or 706(2) was the proper avenue for a claim, stating the “later is the agency’s act of saying no to a request; the former is simply the omission of an action without formally rejecting a request.”

14. EPIC v. FTC, at *10, note 3.

15. Kevin A. Clarke and David M. Primo, “Overcoming ‘Physics Envy,’” New York Times, April 1, 2012, at SR9.

16. Neal R. Stoll and Shepard Goldfein, “Sizzling Summer Non-Sequiturs,” NYLJ, Aug. 17, 2011.