Statement
Background
Criticism

On August 13 the US Federal Trade Commission (FTC) issued its first set of principles governing enforcement of 'unfair methods of competition' under Section 5 of the Federal Trade Commission Act. The FTC commissioners voted four to one in favour of the statement, with Commissioner Maureen K Ohlhausen casting the lone dissenting vote.

Statement

According to the statement, three principles guide whether the FTC will challenge an act as an unfair method of competition:

  • The commission will be guided by the public policy underlying the antitrust laws – namely, the promotion of consumer welfare;
  • The act or practice will be evaluated under a similar framework to the rule of reason – that is, that 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 cognisable efficiencies and business justifications; and
  • The commission is less likely to challenge an act or practice as an unfair method of competition on a standalone basis if enforcement of the Sherman Act or Clayton Act is sufficient to address the competitive harm arising from the act or practice.

Background

There is general consensus within the antitrust bar that Section 5 of the Federal Trade Commission Act is broader than the Sherman Act's prohibitions. It therefore enables the FTC to bring cases against clearly anti-competitive conduct that is not covered by the language of the Sherman Act; however, the precise boundaries of the statute are unclear.

The quintessential example is an 'invitation to collude', which raises the possibility of anti-competitive price fixing but does not meet the literal prohibition against an 'agreement in restraint of trade' under the Sherman Act. The FTC has cited Section 5 in some settlements of competition-based investigations, notably its investigation into Intel which resulted in a settlement in 2010. However, the federal courts have not decided a case involving an 'unfair method of competition' claim under Section 5 in more than 50 years.

In 2013 Commissioner Joshua Wright proposed a policy statement that would have enabled the FTC to bring Section 5 claims against practices that:

  • harmed or were likely to harm competition significantly; and
  • lacked 'cognisable efficiencies'.

This proposal, which was ultimately not adopted, kicked off a broad dialogue on the proper scope of Section 5 that has culminated in the commission's recent statement.

Criticism

The statement – which is only 324 words long – gives a terse summary of the principles that have long guided the FTC's enforcement decisions in this area, but provides little concrete guidance to businesses or the antitrust bar advising them. As Commissioner Ohlhausen noted in her dissenting statement:

"The approach of my colleagues to this important issue of competition policy is too abbreviated in substance and process for me to support. …Moreover, what substance the statement does offer ultimately provides more questions than answers, undermining its value as guidance."

It remains to be seen how the commission – and future commissioners – choose to interpret the vague principles described in the statement.

For further information on this topic please contact Logan Breed at Hogan Lovells US LLP by telephone (+1 202 637 5600) or email (logan.breed@hoganlovells.com). The Hogan Lovells website can be accessed at www.hoganlovells.com.