United States: FTC Puts "Standalone" Section 5 Enforcement Approach On The Record

Last Updated: August 19 2015
Article by Alex Okuliar and Antony P. Kim

For the first time in its 101-year history, the Federal Trade Commission yesterday issued a policy statement outlining the extent of its authority to police "unfair methods of competition" on a "standalone" basis under Section 5 of the Federal Trade Commission Act.1  In a terse Statement of Enforcement Principles, the Commission laid out a framework for its Section 5 jurisprudence that was predictably tethered to the familiar antitrust "rule of reason" analysis but also sets forth a potentially expansive approach to enforcement.2  Indeed, the Commission's approach could encompass novel enforcement theories premised on acts or practices that "contravene the spirit of the antitrust laws" as well as those incipient acts that, if allowed to mature or complete, "could violate the Sherman or Clayton Act."3  Commissioner Ohlhausen's lone dissent recognizes these potentially disconcerting developments for private industry.4

Summary of Statement and Dissent

The Commission identified three core principles that will frame its decisions to challenge an act or practice as an unfair method of competition on a standalone Section 5 basis:

  • First, the Commission will consider the public policy underlying the antitrust laws for guidance, "namely, the promotion of consumer welfare;"5
  • Second, the Commission will apply "a framework similar to the rule of reason," meaning the "act or practice challenged by the Commission must cause, or be likely to cause, harm to competition or the competitive process," taking into account "cognizable efficiencies and business justifications;"6 and,
  • Third, the Commission is less likely to pursue a standalone Section 5 claim if enforcement under the "Sherman or Clayton Act is sufficient" to address the competitive harm.7

Interestingly, the Commission represents that it will apply something "similar" to a rule of reason analysis, but not necessarily the rule of reason itself. This potentially expansive approach is made clear in a second Statement by the Commission where it offers only that decisions will be "informed by economic analysis"8 and leverage "accumulated knowledge and experience." 9

In her dissent, Commissioner Ohlhausen took issue with "such an unbounded interpretation" of the law as it "is almost certain to encourage more frequent exploration of this authority in conduct and merger investigations and standalone Section 5 enforcement by the Commission."10 She offered pointed criticisms of the Commission Statement, including that it contains little practical guidance for how the Commission will apply its policy.11 She also notes that it is written so broadly as to potentially encompass a wide range of acts or practices that fall short of Sherman or Clayton violations, 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."12 The Commissioner pointed out that the Commission Statement does not reflect a change from the agency's current case-by-case approach and could lead to a divergence in enforcement when compared to the Antitrust Division of the U.S. Department of Justice, which does not have similar statutory authority.13 She also criticized the Commission for not seeking public comment before issuing the Statement.14

Key Takeaways

Despite its brevity, the Commission Statement could have several important implications for federal and state antitrust enforcement.

  • The Commission has chosen "flexibility" over stakeholder "certainty."

The Statement largely endorses the Commission's traditional case-by-case approach, which was preferred in particular by Chairwoman Ramirez and Commissioner Brill. As the Chairwoman has said before, "I favor the common law approach, which has been a mainstay of American antitrust policy since the turn of the twentieth century."15 At the time, she also observed that "there is some tension between flexibility and certainty" and "if we think a little more deeply, we see that erring on the side of rigidity produces certainty only for some commercial actors, not necessarily for the marketplace as a whole."16 The Chairwoman reiterated this point yesterday in her remarks announcing the statement when she said, "As Congress understood when it gave the Commission the authority to apply this broadly worded phrase, the Commission would need to apply this provision flexibly, and on a case-by-case basis, to deal with constant flux in the American economy."17

The approach in the Commission Statement differs sharply from those of Commissioners Ohlhausen and Wright, who are both advocates of greater formality and certainty in the agency's analysis. Commissioner Wright, despite voting in favor of the Statement, has expressed that his "preferred approach" is to use standalone Section 5 authority "only ... where there are no cognizable efficiencies present."18 This would represent a very stringent test that would have been deferential to legitimate business justifications.  He also observed in a co-authored article last year that a case-by-case analysis could not offer meaningful guidance.  He wrote, "Although the desire to strike the correct balance between flexibility and certainty is well intended, relying upon the common law approach to define the scope of Section 5 ultimately offers no certainty and results in a boundless standard under which the Commission may prosecute any conduct as an unfair method of competition."19

Commissioner Ohlhausen has proposed in the past a multi-step analysis for Section 5 cases that would require a "substantial" harm to competition and a "disproportionate" harm to consumers.20  Her test falls between the Commission Statement and Commissioner Wright's preferred approach, placing a greater burden on the FTC to make its case while also providing specific guidance to industry on how to avoid potential liability. The Commission did not pursue or propose any of these more precise formulations of Section 5 authority, opting instead for flexibility that offers little guidance to industry, consumers and other stakeholders.

  • The Commission may consider challenging more matters administratively.

The Commission's decision to retain enforcement flexibility makes the Commission Statement susceptible to the same criticism that initially animated many stakeholders' concerns about a case-by-case approach. That is, unlike the common law for traditional antitrust matters like those brought in federal court by the Department of Justice, standalone Section 5 authority in the past has not been used frequently enough for any meaningful common law to develop.21 Indeed, critics have pointed out the relative paucity of such cases and the poor success rate of standalone Section 5 cases when appealed to federal court.22 Given the Commission's formal commitment to developing its standalone Section 5 authority using a case-by-case approach, the agency may consider turning more frequently to administrative challenges to address standalone Section 5 cases, allowing the agency to build a body of relevant law internally.

  • The Commission views its mission broadly and may pursue novel theories, especially in areas of policy tension or in emerging industries.

The Commission now has formally endorsed a policy that its competition enforcement authority extends beyond that of the DOJ to include acts or practices that "contravene the spirit of the antitrust laws." As broad as this language is, Chairwoman Ramirez in her speech yesterday indicated a potentially even more expansive understanding of the agency's enforcement role. In announcing the new Statement, she pointed out that "Congress wrote the prohibition against unfair methods of competition . . . and it purposefully chose open-ended language to accommodate the new agency's broad institutional mission."23 She then went on to note that Congress assigned the Commission an "open-ended mandate" to identify and remedy new forms of potentially anticompetitive conduct because "markets, commercial practices, and economic analysis are all in a state of flux."24

This language could suggest a more ambitious interpretation of the agency's mission.25 Such a view of the agency's role could be most keenly felt in industries that exhibit less well-understood competitive dynamics or in cases that present nuanced questions involving tensions between antitrust principles and the principles animating other areas of law – including, for example, the intellectual property laws, the Hatch-Waxman Act or the interplay between competition and data privacy and security. Agency Staff may feel more comfortable approaching difficult cases without the need to develop theories of liability tied directly to established antitrust doctrine.26 In fact, some of the most aggressive modern cases that the agency lost in the early 1980s, such as challenges involving simple oligopolistic conduct, may well fit within the new rubric set out in the Commission Statement.27

  • The Commission and DOJ may diverge in their approaches to certain conduct.

The Commission Statement could also lead to a greater divergence in enforcement priorities and analyses between the FTC and DOJ. The two enforcement agencies have overlapping jurisdiction for many industries, but also possess sole or primary oversight for others (e.g., pharmaceutical products, oil and gas, telecommunications). The Commission's new approach risks creating meaningful differences between how each agency approaches conduct in its area of industry coverage and, effectively, different rules for different industries. Perhaps even more difficult for industry stakeholders is that the FTC may advocate for a broader role in prosecuting conduct in industries that both agencies cover today. This could include certain technology businesses where the Commission could seek to apply its "flexible" Section 5 authority to complex, multi-faceted ecosystems that do not fit neatly into traditional antitrust analyses.

The Commission Statement might prompt Congress to step in and resolve the possibility of asymmetrical enforcement. Congress is already sensitive to the issue of bifurcated competition enforcement with respect to mergers. It has held hearings and is currently examining concerns over a perceived difference between the standards applied to the agencies by federal courts for preliminary injunctions to block proposed deals.28 Many argue that the FTC benefits from a more relaxed "serious questions" standard, resulting in increased leverage for the agency and an arbitrary bias against deals in industries and between companies that happen to be reviewed by the FTC rather than the DOJ.29

  • The Statement may have implications for interpreting state unfair competition laws.

Finally, looking beyond the enforcement priorities and bandwidth of the Commission, many states have laws modeled on the FTC Act that provide private parties, including the class action plaintiffs' bar, to bring unfair competition or unfair business practices claims. As a result, courts often interpret these state statutes, often referred to as "Little FTC Acts," by relying on cases and enforcement policies applying or interpreting the FTC Act. The Commission's embrace of an undefined analytical framework "similar to a rule of reason analysis," and its amorphous standard of acts or practices that "contravene the spirit" (but not necessarily the substance) of the antitrust laws, may engender more private party and class action litigation, and also may influence how courts interpret and apply state unfair competition laws.

Conclusion

Companies are well advised to keep an eye on what may be a growing "delta" between core Sherman or Clayton Act violations and allegations of "unfair methods of competition" that will invite a Section 5 investigation by the Federal Trade Commission or trigger litigation under state unfair competition laws. Despite the Commission's efforts to include a "business as usual" message in the Statement, the announcement also suggests a broader vision for the use of this unique standalone authority to identify and police novel conduct that otherwise would not violate the antitrust laws. Companies should take this opportunity to review and update their antitrust compliance policies and practices.

Footnotes

1 15 U.S.C. § 45(a)(1).

2 Fed. Trade Comm'n, Statement of Enforcement Principles Regarding "Unfair Methods of Competition" Under Section 5 of the FTC Act (August 13, 2015), available at https://www.ftc.gov/system/files/documents/public_statements/735201/150813section5enforcement.pdf

3 Id.

4 Maureen Ohlhausen, Commissioner, FTC, Dissenting Statement (August 13, 2015), available at https://www.ftc.gov/system/files/documents/public_statements/735371/150813ohlhausendissentfinal.pdf

5 Commission Statement of Principles, at 1.

6 Id.

7 Id.

8 Fed. Trade Comm'n, Statement on the Issuance of Enforcement Principles Regarding 'Unfair Methods of Competition' Under Section 5 of the FTC Act, at 1 (Aug. 13, 2015), available at https://www.ftc.gov/system/files/documents/public_statements/735381/150813commissionstatementsection5.pdf

9 Id.

10 Ohlhausen Dissent, at 1.

11 Id. at 1.

12 Id. at 3-4 (internal citations omitted).

13 Id. at 4.

14 Id. at 5.

15 Edith Ramirez, Chairwoman, FTC, Keynote Address: Unfair Methods and the Competitive Process: Enforcement Principles for the FTC's Next Century, George Mason Univ. Symposium, at 6 (Feb. 13, 2014),available at https://www.ftc.gov/system/files/documents/public_statements/314631/140213section5.pdf; see also Interview with Julie Brill, Antitrust Source, at 6 (Feb. 2012), available at https://www.ftc.gov/sites/default/files/documents/public_statements/interview-ftc-commissioner-julie-brill/120229antitrustsource.pdf.

16 Id.

17 Edith Ramirez, Chairwoman, FTC, Address to Competition Law Center, George Washington University Law School, at 1 (Aug. 13, 2015), available at https://www.ftc.gov/system/files/documents/public_statements/735411/150813section5speech.pdf.

18 Joshua Wright, Commissioner, Section 5 Revisited: Time for the FTC to Define the Scope of its Unfair Methods of Competition Authority, at 16 (Feb. 26, 2015), available at https://www.ftc.gov/public-statements/2015/02/section-5-revisited-time-ftc-define-scope-its-unfair-methods-competition.

19 Jan Rybnicek & Joshua Wright, Defining Section 5 of the FTC Act: The Failure of the Common Law Method and the Case for Formal Agency Guidelines, 21 Geo. Mason L. Rev. 1287, 1304 (2014).

20 See, e.g., Maureen Ohlhausen, Section 5 of the FTC Act: Principles of Navigation, 2 J. Antitrust Enforcement 1 (2014).

21 See, e.g., Rybnicek & Wright, Defining Section 5, at 1304-05.

22 See id. at 1287-88.

23 Ramirez Remarks, at 3.

24 Id. at 6.

25 This is an issue that Commissioner Ohlhausen notes in her dissent. Ohlhausen Dissent, at 4.

26 While it most certainly cannot be ascribed to current agency Staff, the FTC has in the distant past made assertive use of its unfair methods of competition authority. For instance, before passage of the Wheeler-Lea Act in 1938 – which gave agency its consumer protection authority – the FTC regularly pursued consumer protection claims like deceptive advertising as unfair methods of competition. See Maureen Ohlhausen & Alexander Okuliar, Competition, Consumer Protection, and the Right [Approach] to Privacy, 80 Antitrust L. J. 121, 138-140 (Spring 2015).

27 Ohlhausen Dissent, at 2.

28 Ohlhausen Dissent, at 5 n. 16.

29 See H.R. 5402, 113th Cong. (2014); Hearting on the "Standard Merger and Acquisition Reviews Through Equal Rules (SMARTER) Act of 2014, Before the Subcomm. on Regulatory Reform, Commercial and Antitrust Law of the H. Comm. on the Judiciary, 113 Cong. 2 (2014) (statement of Deborah Garza discussing concerns about the FTC).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.