On August 13, 2015, over a century after the enactment of the Federal Trade Commission Act, the FTC released its first statement on the principles that will guide its enforcement of the Act’s central but ambiguous provision, the prohibition on “unfair methods of competition” contained in Section 5 of the Act.1 While the policy statement falls short of providing specificity regarding future enforcement, it makes clear that the FTC interprets Section 5 as empowering the agency to challenge conduct otherwise permissible under the antitrust laws, if the conduct contravenes the “spirit of the antitrust laws” or could “mature” into an antitrust violation.
The statement’s broad view of Section 5 enforcement accommodates theories of harm that go beyond the Sherman and Clayton Acts. For example, the FTC does not define what the “spirit of the antitrust laws” entails, and announcing that it will challenge incipient threats to competition signals that conduct that has yet to cause harm may be viewed by the FTC as fair game for an enforcement action.
The statement, nevertheless, provides three important limiting principles the FTC will consider in determining whether to challenge a practice as an “unfair method of competition” on a standalone basis.
- First, the FTC will be guided by the public policy underlying the antitrust laws, namely, the promotion of consumer welfare.
- Second, the conduct will be evaluated under a framework similar to the rule of reason – the conduct must cause, or be likely to cause, harm to competition or the competitive process, taking into account cognizable efficiencies and business justifications.
- Third, the FTC is less likely to challenge conduct on a standalone basis under Section 5 if enforcement of the Sherman or Clayton Act is sufficient to address the competitive harm.
These principles, while useful, allow the FTC significant flexibility and provide less specificity than past enforcement guidance, such as the 34-page FTC/DOJ Horizontal Merger Guidelines (2010), the 142- page FTC/DOJ Statements of Antitrust Enforcement Policy in Health Care (1996), and the FTC’s detailed statement in 1980 on Section 5’s prohibition of “unfair or deceptive acts,” all of which are replete with examples of the types of conduct the agencies will likely challenge. Commissioner Maureen Ohlhausen’s dissent raises key unanswered questions regarding how the new enforcement policy will be implemented, such as: (i) to what extent will the FTC be guided by public policy, (ii) how does a framework “similar to the rule of reason” differ from traditional analysis, and (iii) importantly, what factors will the FTC consider in deciding whether to pursue under Section 5 conduct that it considers insufficiently addressed by the other antitrust laws. Many in the business community, as well as Commissioner Ohlhausen, had hoped that the statement would provide more practical guidance regarding the specific types of conduct the FTC may pursue under Section 5. Instead, the statement leaves the business community uncertain as to the FTC’s view of the Act’s outer boundaries.
On the merger front, the policy statement would not restrict the FTC from challenging conduct unrelated to the transaction through the merger review process. The FTC previously faced criticism in connection with its review of a 2012 acquisition by Bosch, when it required Bosch to make available for licensing certain standard-essential patents of the target, even though the FTC’s concerns arose from licensing practices that predated and were unrelated to the merger.2 As a result, merging parties may face the specter of potentially lengthier and broader merger investigations when their transaction is reviewed by the FTC, rather than the DOJ.
With respect to ordinary course of business conduct, the FTC’s potentially more expansive view of Section 5 means that a broad spectrum of conduct may be at risk of scrutiny, including conduct that does not violate other antitrust laws but could mature into an antitrust violation, thus requiring businesses to spend more time and resources on antitrust compliance. In recent years, the FTC has challenged invitations to collude (e.g., Valassis, U-Haul) and licensing practices relating to standard-essential patents (e.g., Google/Motorola Mobility) as unfair methods of competition.3 These types of conduct are arguably beyond the reach of the Sherman Act, and the statement anticipates similar enforcement actions in the future. However, absent a consent order, any effort to block business conduct that has not ripened into an antitrust violation still requires the FTC to prove, in an administrative trial or a federal court, that the conduct violates the Act, and the FTC’s policy statement does not in any way change the state of the law or the requisite burden of proof.