Facebook’s backup argument to toss FTC case is public policy pickle

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(Reuters) - A back-door argument in Facebook Inc’s new motion to dismiss an amended antitrust complaint by the U.S. Federal Trade Commission presents a real policy conundrum. Do we want federal agencies to be led by experts who have developed and expressed strong views about companies they oversee? Or are agencies ultimately undermined when their leaders’ decisions are open to accusations of partiality?

This is not just a hypothetical question, of course. Facebook contends that FTC Chair Lina Khan staked out such antagonistic positions toward the company in her previous work as a public policy analyst, law professor and Congressional investigator that she should have stepped aside when the commission voted to authorize the FTC’s amended complaint. Her participation, wrote the company’s lawyers at Kellogg, Hansen, Todd, Figel & Frederick, tainted the FTC’s vote to proceed, so the new lawsuit must be dismissed.

The recusal argument is not Facebook’s primary defense. As my Reuters colleagues reported on Monday, the company’s leading argument is that the FTC’s attempted revival of its case suffers from the same market-defining defects as its first complaint, which was dismissed in June by U.S. District Judge James Boasberg of Washington, D.C.

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But don’t write off the company’s alternative arguments about Khan’s recusal. Two government ethics experts – law professor Kathleen Clark of Washington University in St. Louis and Scott Amey of the Project on Government Oversight – told me that Facebook has made out a compelling case for why Khan’s impartiality toward the company could reasonably be questioned.

The FTC chair, Clark said, didn’t just take an ideological or industry-wide stance on tech companies and monopolistic behavior. She expressed specific views about Facebook’s conduct. “Would a disinterested person believe (Khan) was impartial with respect to Facebook?” Clark said. “I think there’s a good chance Facebook’s argument will succeed.”

I should caution that a third ethics scholar I talked to, law professor Louis Virelli of Stetson University College of Law, disagreed. Virelli said that Khan was acting more like a prosecutor than a judge in voting to authorize the filing of the FTC’s amended complaint. There’s a higher bar, he said, for prosecutorial recusal: Facebook would have to show that Khan had a financial interest in the Facebook case or personal animus against Facebook, not just that she developed strong legal conclusions in her previous work.

Virelli pointed out that all of the case law Facebook cited in support of its recusal demand, including 1970 precedent from the District of Columbia U.S. Circuit Court of Appeals in Cinderella Career and Finishing Schools Inc v. FTC, involved administrative proceedings in which FTC commissioners would ultimately act as judges. (Most of the cases also, as it happens, involved the same onetime FTC chair, a crusader named Paul Dixon, who had an unfortunate habit of proclaiming the guilt of FTC targets while their cases were ongoing.)

The FTC’s case against Facebook, by contrast, is in federal court, so Khan is not subject to judge-like recusal standards. In that context, Virelli said, Khan’s previously stated legal conclusions about Facebook can be characterized as “a product of expertise, not bias.”

You can see the policy implications in that divide. Virelli’s view is that Khan’s previous work demonstrates her expertise, a desirable quality for a government official. Clark and Amey focused on the government’s overriding interest in the appearance of impartiality – even if that interest precludes fierce advocates like Khan from making decisions about companies she has studied for years.

Facebook’s expert on recusal, Northwestern University Pritzker School of Law professor Daniel Rodriguez, warned in his declaration that the appearance of impartiality isn’t just a matter of government ethics but the foundation of the entire U.S. regulatory regime. Regardless of whether commissioners are acting like prosecutors, as in the Facebook case, or like judges in voting on the outcome of administrative proceedings, Rodriguez said, they wield so much power that they must be committed to a fair and transparent process.

Recusal in a situation like this he said, is “not as a badge of dishonor for previous views articulated or an acknowledgment of some sort of corruption, but simply as a reflection of the fundamental idea that government officials should be beyond reproach.”

The FTC didn’t respond to my email query about Facebook’s recusal argument. Two former FTC general counsel also didn’t respond. But the public record, albeit skimpy, suggests that the FTC, like Virelli, rejected Facebook’s call for recusal because Khan was not acting as a judge in the vote to authorize the amended complaint.

Facebook filed a recusal petition with the FTC in July, before the vote took place. On Aug. 19, when the agency filed the amended complaint, an FTC official informed Kellogg Hansen in an email that the recusal petition was premature because Khan was not acting as an adjudicator. The FTC’s press release on the same day said that the agency had dismissed Facebook’s recusal petition after careful review because “the case will be prosecuted before a federal judge (so) the appropriate constitutional due process protections will be provided to the company.”

The Khan recusal controversy is, no doubt, unusual. She took the FTC’s top job, said ethics expert Clark, with an extraordinarily robust record of statements about Big Tech’s alleged antitrust violations. Facebook’s insistence that she cannot make impartial decisions about the FTC’s case against the company, Clark said, should not have come as a surprise to the Biden administration.

Clark predicted limited fallout, even if Facebook wins in Boasberg’s courtroom. Amazon has already petitioned for Khan’s recusal in unspecified FTC matters involving the company, asserting more or less the same arguments as Facebook. But not many other potential targets can make similar arguments, and agencies have the power, Clark said, to override even strong arguments to recuse officials if regulators believe the public’s interest would be best served by their participation.

I’m glad the FTC will have to brief a response to Facebook’s recusal argument. I’m sure the agency believes Khan’s vote was valid. We ought to know all of the reasons why.

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Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.