FTC releases first formal policy on unfair methods of competition

Global Publication August 2015

On August 13, 2015, the Federal Trade Commission (FTC)—for the first time in its over 100-year existence—issued a Policy Statement outlining its approach to policing “unfair methods of competition” under Section 5 of the FTC Act,[1] a historically hazy area. No public comment preceded the Policy Statement, which was issued by a Commission vote of 4-1. Although not binding, FTC policy statements offer key insight into the agency’s decision making that could affect firms with respect to enforcement and, as discussed below, private litigation.

The Policy Statement sets forth the FTC’s “‘standalone’ Section 5 authority to address acts or practices that are anticompetitive but may not fall within the scope of the Sherman or Clayton Act,” including those acts “that contravene the spirit of the antitrust laws” and “that, if allowed to mature or complete, could violate the Sherman or Clayton Act.”[2] The FTC’s standalone authority is not novel but its scope has been left largely undefined by the agency and by courts.

The FTC’s Policy Statement lists three general principles that guide the FTC’s decisions whether to enforce Section 5’s ban on unfair methods of competition:

  • The public policy underlying the antitrust laws, namely, the promotion of consumer welfare;
  • An evaluation under a framework similar to the rule of reason, that is, an act or practice challenged by the Commission must cause, or be likely to cause, harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications; and
  • The Commission is less likely to challenge an act or practice on a standalone basis if enforcement of the Sherman or Clayton Act is sufficient to address the competitive harm arising from the act or practice. [3]

The Statement, however, offers no specific guidance or examples as to how the FTC will apply these broadly stated principles to any particular acts or practices.

As argued by Commissioner Maureen Ohlhausen in her Dissenting Statement, it is the generalities of the Policy Statement that make it most dangerous, potentially accommodating—in both the FTC’s conduct and merger review—“a host of controversial theories pursued or considered by the Commission over the past four decades, including breach of standard-setting commitments, loyalty discounts, facilitating practices, conscious parallelism, business torts, incipient violations of the antitrust laws, and unfair competition through violation of various laws outside the antitrust context.”[4] Commissioner Ohlhausen also warns that the business community and other key stakeholders are “left guessing” about past liability theories premised on mere market structure and “simple oligopolistic interdependence” that now appear tenable under the Policy Statement.[5]

Commissioner Ohlhausen has, on the other hand, previously expressed her approval of Section 5 reaching “invitations to collude” or activity that borders on anticompetitive price-fixing but does not rise to the level of a Sherman Act Section 1 conspiracy, and exchanges of competitively sensitive information among competitors, even where there is no agreement for such exchange.[6]

In response to critiques like that by Commissioner Ohlhausen, Commissioner Joshua Wright, who previously pushed for and even proposed his own policy statement,[7] has downplayed any risk of an “explosion of litigation” resulting from the Policy Statement,[8] as has FTC Chairwoman Edith Ramirez who remarked that the Policy Statement “marks no change in course; it merely makes explicit what has been evident to close observers of FTC enforcement actions over the past few decades.”[9] In an unrelated event, less than a week later, the FTC announced Commissioner Wright’s resignation from the agency as of August 24, 2015.[10]

Whether or not the Policy Statement signals potential expansion of the FTC’s enforcement net, firms should be wary of the relationship with and possible effects on private litigation under state law. While a violation of the FTC Act does not give rise to a private cause of action under federal law, most, if not all, states have codified violations of the FTC Act or similar violative conduct under their own state consumer protection or deceptive trade practices laws, which do allow for private causes of action.[11] That has resulted in private parties filing state law complaints against firms, commonly as proposed class actions, on the heels of FTC complaints against those same firms.[12] With the recently issued Policy Statement, any potential expansion of or shift in Section 5 enforcement could therefore also see parallel shifts in private litigation under state law.

In sum—although not a model of detail or clarity, the FTC’s August 13, 2015, Policy Statement does provide some guidance where there was none. With the FTC’s express reliance on familiar antitrust principles, the Statement shows generally that, as a baseline strategy for avoiding Section 5 challenges, firms should look to existing antitrust law and policy. The Statement also indicates, however, that the FTC is looking to target, as part of both its conduct and merger review, those acts that the Sherman or Clayton Act do not reach, perhaps including “invitations to collude” and activity by a single firm in a concentrated market that does not fall within Section 2 of the Sherman Act or Section 7 of the Clayton Act. As discussed above, the Policy Statement and any subsequent FTC action may also have consequences on the private litigation front, namely with respect to class action suits brought under state consumer protection laws.

[1] 15 U.S.C. § 45.

[2] https://www.ftc.gov/system/files/documents/public_statements/735201/150813section5enforcement.pdf.

[3] Id.

[4] https://www.ftc.gov/system/files/documents/public_statements/735371/150813ohlhausendissentfinal.pdf, at 3-4.

[5] Id. at 1-2.

[6]https://www.ftc.gov/sites/default/files/documents/public_statements/section-5-principles-navigation/130725section5speech.pdf, at 16-18.



[9] https://www.ftc.gov/system/files/documents/public_statements/735411/150813section5speech.pdf.

[10] https://www.ftc.gov/news-events/press-releases/2015/08/ftc-commissioner-joshua-d-wright-resign.

[11] See Henry N. Butler & Joshua D. Wright, “Are State Consumer Protection Acts Really Little FTC-Acts?,” 63 Fla. L. Rev. 163 (2011).

[12] See Liu v. Amerco, No. 10-11221 (D. Mass. 2010).

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