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On January 3, 2019, Axon Enterprise, Inc. ("Axon"), amanufacturer of body-worn cameras for law enforcement, filed a complaint againstthe Federal Trade Commission seeking a declaratory judgment in theDistrict of Arizona. In the complaint, Axon alleges that theFTC's administrative procedures and structure areunconstitutional, and seeks to enjoin the FTC from pursuing anadministrative enforcement action against Axon. Although anantitrust case, the matter provides interesting issues that alsoinvolve the FTC's consumer protection mission.

A little background: On June 14, 2018, the FTC opened aninvestigation into Axon's attempted acquisition of Vievu, whichalso sells public safety camera systems. Axon contends that itcooperated with the FTC's investigation over an 18-monthperiod, only to result in the FTC threatening to sue in anadministrative proceeding unless Axon "surrender[ed] a'blank check' divestiture." Axon protested that it didnot violate the Clayton Act or any other antitrust laws in itsacquisition of Vievu and filed the pending lawsuit, arguing thatthe FTC's structure and administrative adjudication proceduresviolate the U.S. Constitution.

As for the constitutional challenges, Axon first argues that theFTC's administrative procedures whereby it acts asprosecutor, judge, and jury violate Axon's FifthAmendment due process rights. Essentially, Axon asserts that whenthe FTC brings an administrative proceeding against a party, itinfringes on that party's right to a fair trial before aneutral judge in accordance with the Fifth Amendment. Accordingly,subjecting Axon to an FTC administrative proceeding will force itto "submit to a hearing process with a preordainedresult." As Judge Posner noted years ago, "It is too muchto expect men of ordinary character and competence to be able tojudge impartially in cases that they are responsible for havinginstituted in the first place." Remember, however, that Axonis not the first company caught in the FTC's crosshairs toraise this argument, and these prior challenges have failed.

Axon also alleges that the very structure and makeup of the FTCviolate Article II of the Constitution, and therefore anyaction the FTC takes is unconstitutional. Currently, as anindependent agency, FTC Commissioners and Administrative Law Judges(i.e., the judges who hear FTC administrative proceedings) are notsubject to at-will removal by the President. Though FTCCommissioners are nominated by the President and confirmed by theSenate, they can only be removed by the President for"inefficiency, neglect of duty, or malfeasance inoffice." Further, FTC-appointed ALJs can only be removed bythe FTC for "good cause." However, Axon alleges that theFTC commissioners and ALJs are "Executive officials exercisinglaw-enforcement power" who are constitutionally required to besubject to at-will removal by the President under Article II.

Important to Axon's "at-will removal" argument isthe fact that in Lucia v.SEC, the Supreme Court recently held that the appointmentof SEC ALJs violated Article II. The Lucia decisiondid not, however, resolve whether statutory "for cause"removal protections afforded administrative law judges areunconstitutional. In moving to preliminarilyenjoin the administrative proceedings, Axon asks the districtcourt to answer this question in the affirmative. Specifically,Axon contends that there is a growing consensus that FTCCommissioners' and ALJs' protection from at-will removalviolates Article II.

The FTC responded to the Axon lawsuit by arguing that thedistrict court lacks jurisdiction over Axon's claims becauseAxon did not follow the review procedure of the FTC Act and did notchallenge any final agency action.

This case provides another example of the increasing focus onthe FTC, along with other independent agencies such as the SEC andCFPB, regarding whether its actions and structure can surviveconstitutional scrutiny. Those who are subject to pressure from theFTC are continuing to challenge its ability to serve as theprosecutor, the judge, and the jury in administrative proceedingsthat have far-reaching implications. As we've writtenpreviously, the FTC's ability to obtain relief in federal courtalso is being re-examined by several courts, including the Third Circuit andthe Supreme Court.

As this case was filed just last month, Axon has several hurdlesto clear before getting to the merits of its claims. One majorhurdle is whether the court will decide to exercise itsjurisdictional discretion under the Declaratory Judgment Act. Wemay not have to wait long, though, as Axon recently requested thatthe district court expedite the proceedings in light of theadministrative proceeding hearing currently scheduled for May 19,2020. Given the Supreme Court's penchant for taking caseschallenging the constitutional and statutory authority ofindependent agencies, those following might want to hit the"record" button.

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A Constitutional Challenge To Watch: Axon Sets Its Sight On The Structure Of The FTC - Mondaq News Alerts