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FTC Issues Policy Statement on Section 5
Practical Law Legal Update 9-618-1306 (Approx. 3 pages)
FTC Issues Policy Statement on Section 5
by Practical Law Antitrust
| Published on 13 Aug 2015 • USA (National/Federal) |
The Federal Trade Commission (FTC) issued a policy statement for the first time on the principles it will adhere to when evaluating whether conduct is an unfair method of competition under Section 5 of the FTC Act. The statement focuses on the FTC's approach to practices that violate Section 5 but not the Sherman or Clayton Acts, known as standalone Section 5 violations.
On August 13, 2015, the Federal Trade Commission (FTC) issued a brief policy statement on the principles it will consider when deciding whether conduct is an unfair method of competition in violation of Section 5 of the FTC Act. In the statement, the FTC noted that when passing the FTC Act, Congress recognized that the meaning of unfair methods of competition would evolve and purposefully did not define the acts that violate Section 5. Since then, the FTC has applied Section 5 on a case-by-case basis. However, there has been a long-standing debate about whether the FTC should issue formal guidelines on the scope of Section 5.
When evaluating potential Section 5 violations under the framework set out in the policy statement, the FTC:
- Will be guided by antitrust laws' underlying public policy, specifically the promotion of consumer welfare.
- Will evaluate the conduct in question using a method similar to the rule of reason, and will challenge conduct that causes or is likely to cause harm to competition, accounting for any efficiencies or business justifications.
- Is less likely to bring a standalone Section 5 challenge to conduct that falls under the Sherman or Clayton Acts.
The statement notes that Section 5 bans not only conduct that violates the Sherman or Clayton Acts but also:
- Conduct that contravenes the spirit of the antitrust laws.
- Incipient conduct that, if completed, would violate the Sherman or Clayton Acts.
In a dissenting statement, Commissioner Maureen Ohlhausen argued that the policy statement provides too little guidance and should not have been issued without first seeking public comment. Commissioner Ohlhausen explained that the statement and its failure to define unfair methods of competition may actually encourage the FTC to overreach when enforcing the statute. Commissioner Ohlhausen also noted that the statement does not address existing case law on the scope of Section 5. She noted that courts had previously prevented the FTC from expanding the reach of Section 5.
Commissioner Ohlhausen stated that for a Section 5 policy statement to be sufficient, it should first be put out for public comment and should include:
- A requirement that the challenged conduct cause substantial harm.
- A disproportionate harm test.
- A stricter standard for whether conduct should be pursued under Section 5 if it also falls within the scope of other antitrust laws.
- A resolution to reduce FTC/DOJ clearance conflicts.
- A requirement that any potential enforcement action:
- rely on economic analysis of the conduct at issue; and
- occur only after considering non-enforcement alternatives.
- A resolution to pursue conduct as either an unfair method of competition or an unfair or deceptive act or practice, not both.
Commissioner Ohlhausen and Commissioner Joshua Wright have pushed the FTC to adopt Section 5 guidelines. In February, Commissioner Wright urged the FTC to properly define the scope of Section 5 authority (see Legal Update, Commissioner Wright Delivers Remarks on Section 5 Formal Guidance). In 2013, Commissioner Wright released proposed Section 5 guidelines (see Legal Update, FTC Commissioner Wright Issues Statement on Unfair Methods of Competition). However, FTC Chairwoman Edith Ramirez has until now resisted issuing a policy statement on Section 5, noting that:
- Congress intentionally designed Section 5 to be flexible.
- It would be impossible to foresee all of the activities that might constitute unfair competition.
- The legal framework of Section 5 should be established through the common law on a case-by-case basis, as it was for the Sherman Act and Clayton Act.
For more on Section 5 and the debate on its scope, see Practice Note, FTC Act Section 5: Overview and Section 5 of the FTC Act: Nonmerger Competition Enforcement Actions Chart.