Introduction

On August 13, the Federal Trade Commission (“FTC” or “Commission”), in a 4-1 bipartisan vote, issued its first-ever formal policy statement of principles intended to guide industry on the Commission’s authority to challenge as “unfair methods of competition” (“UMC”)  under Section 5 of the FTC Act, conduct that is not within the prohibitions of the federal antitrust statutes.[1] If that was the FTC’s intention, it was met with significant criticism of the policy statement as too brief and general to provide any practical industry guidance.  However, despite its brevity and generality, the one-page statement, along with prepared remarks made by Chairwoman Ramirez at a legal seminar after announcement of the policy,[2] do  afford some insights into the Commission’s intentions as to its short-term use of its “standalone” UMC authority.

The Policy Statement

The FTC statement reiterates the well-established principle that ”Section 5’s ban on unfair methods of competition encompasses not only those acts and practices that violate the Sherman or Clayton Act but also those that contravene the spirit of the antitrust laws and those that if allowed to mature or complete could violate the Sherman  or Clayton Act.” The statement then enumerates three principles the FTC will use in determining whether to bring a standalone Section 5 UMC action, which are quoted verbatim:

  1. The FTC will be guided by the public policy underlying the antitrust laws, namely the promotion of consumer welfare.
  2. The act or practice will be evaluated under a framework similar to the rule of reason, i.e., an act or practice challenged by the FTC must cause, or be likely to cause, harm to competition, or the competitive process, taking into account any associated cognizable efficiencies and business justifications.
  3. The FTC is less likely to challenge an act or practice as an unfair method of competition 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.

An accompanying statement by the four members who approved the policy statement explained that in applying its standalone Section 5 authority, “ the Commission will rely on the accumulated knowledge and experience embedded within the ‘rule of reason’ framework developed under the antitrust laws,” adding that the Sherman and Clayton Acts would continue to be its “primary enforcement tools.”

Commissioner Ohlhausen’s Dissent

Republican Commissioner Maureen Ohlhausen, the lone dissenter, expressed concern that the policy statement was “too abbreviated in substance and process” to provide any meaningful guidance or to constrain the Commission in any way.  To her, the statement “raises more questions than it answers,” particularly because it fails to address, “much less grapple with,” existing case law or to provide any examples of either lawful or unlawful conduct. In her view, the statement constitutes an “official embrace of . . . an unbounded interpretation” of Section 5 that will lead to the expansive use of the FTC’s UMC authority that could potentially accommodate a variety of controversial theories the FTC has pursued unsuccessfully in the past. In particular, she feared that arming the FTC staff with “this sweeping new policy statement is likely to embolden them to explore the limits” of the Commission’s Section 5 UMC authority.

The Chairwoman’s Speech

In her prepared remarks immediately after the policy announcement, which appear to have been directly responsive to Commissioner Ohlhausen’s dissent, Chairwoman  Ramirez emphasized that the policy statement “does not signal any change of course in our enforcement practices and priorities.”  She stressed that the Commission’s aim was “to reaffirm the principles that guide our enforcement decisions, leaving for future generations the flexibility to do the same.” She pointed out that in recent years FTC standalone Section 5 UMC enforcement has only addressed “conduct that diminishes consumer welfare by harming competition or the competitive process, as opposed to conduct that merely harms individual competitors or poses public policy concerns unrelated to competition.”   She highlighted three examples: invitations to collude, exchanges of competitively sensitive information, and breaches of obligations to license standard-essential patents. She asserted that the conduct involved in those cases lacked meaningful efficiencies or business justifications. In sum, Chairwoman Ramirez believed that the FTC consistently is interpreting its standalone Section 5 UMC authority more narrowly at this time than it did “throughout most of the twentieth century.”

Analysis

As Commissioner Ohlhausen and other critics of the FTC’s UMC policy statement have pointed out, its sweeping and general language provides little practical guidance to the business community. In particular, no specificity is provided as to what is meant by: (i) the FTC’s willingness, in enforcing its UMC authority, “to take into account any associated cognizable efficiencies” or “business justifications,” or how such efficiencies and business justifications will be weighed; or (ii) the FTC’s utilization of   “a framework similar to the rule of reason,” or in what circumstances the framework will differ from Sherman or Clayton Act rule of reason evaluation. 

Nevertheless, there are some key themes that emerge from the statement, the Olhausen dissent, and the Chairwoman Ramirez speech:

  • While there is no current plan to seek a major expansion of its standalone UMC enforcement authority, the FTC will not be bound by any formal legal boundaries. The Commission has made clear that it has the authority to pursue anticompetitive acts and practices which contravene the “spirit” but not the letter of the antitrust laws, e.g., without the need to establish an agreement or monopolization.
    • This theme may be intended to make it clear that a litigated or consent order limited to an alleged standalone Section 5 UMC claim cannot support a private suit claiming a Sherman or Clayton Act violation. Only the FTC has authority to enforce Section 5.
      • However, such private suits have nevertheless been regularly brought on the belief that discovery will uncover an agreement or conduct subject to Sections 1 or  2 of the Sherman Act
      • Moreover, there are state “Little FTC Acts” that also cover “unfair methods of competition,” provide for private enforcement, and are guided by law developed by the FTC.
  • The FTC is well aware of three appellate court decisions in the 1980s that limited the FTC’s ability to use its UMC authority to prohibit unilateral conduct without establishing that it would result in substantial competitive harm.
    • In E.I. du Pont de Nemours & Co. v. FTC,[3] the Second Circuit reversed a Commission ruling that parallel pricing conduct in a concentrated industry violated Section 5: the court  stressed  that consciously parallel pricing in an oligopoly may be “condition, not a ‘method;’ indeed it could be consistent with intense competition.”
    • Similarly, in Boise Cascade Corp. v. FTC,[4] the Ninth Circuit declared that non-collusive “delivered pricing” in an oligopoly did not establish a Section 5 violation because it was “a natural and competitive development” in the industry involved.
    • In Official Airline Guides, Inc. v. FTC,[5] the Second Circuit ruled that the publisher of airline flight schedules did not violate Section 5 when it unilaterally refused to publish the schedules of small commuter airlines because the publisher did not compete in the airline industry, and the FTC had no power “to substitute its own business judgment” for that of a monopolist that affects competition in another industry.

There has not been any appellate authority since these 1980s opinions defining the limits of standalone Section 5 UMC authority, the Commission having relied on consent orders in all of its standalone UMC cases since then.

  • Unfortunately, although the statement does establish some limiting principles, it provides scant guidance to businesses as to what practices may trigger an FTC investigation. Moreover, as an independent enforcement agency, what few guidelines the statement may provide today will not be binding on future Commissions.