On August 13, the FTC issued its “Statement of Enforcement Principles Regarding ‘Unfair Methods of Competition’ Under Section 5 of the FTC Act.” The 1-page policy statement provides a general framework for the Commission’s exercise of its “standalone” Section 5 authority to fight anticompetitive acts or practices. A bit of context might help to understand why this is newsworthy.

In addition to enforcing the traditional antitrust laws, the FTC is empowered by Section 5 of the FTC Act (which was enacted in 1914) to investigate and proceed against those who engage in “unfair methods of competition” and “unfair or deceptive acts or practices.” Back in 1983, in response to a Congressional inquiry, the FTC issued a Policy Statement spelling out its enforcement policy with respect to “deception.” Similar guidance with respect to its enforcement policy of “unfair methods of competition,” however, was not forthcoming. In recent years, the FTC has used its Section 5 authority to challenge practices that may not be deemed to be unlawful under the antitrust laws. Some defended the FTC’s assumption of such broad authority, pointing out that the FTC was created as an independent agency to develop more novel theories of competitive harm that may not technically violate the Sherman or Clayton Act. In contrast, others contended that development of new competitive theories is one thing, but enforcement of Section 5 against companies that have not otherwise violated the antitrust laws was an abuse of authority.

Whatever the merits of that debate, several have called for the FTC to articulate its enforcement policy as guidance. One of the more vocal proponents was Commissioner Joshua Wright, a Republican appointee who attempted to jumpstart the dialogue by issuing his own policy statement in 2013. That statement focused on two issues:
whether the conduct harms or is likely to significantly harm competition and whether it lacks cognizable efficiencies.

The Statement of Enforcement Principles issued last week is the product of that dialogue. Although somewhat underwhelming in detail, the FTC stated that in enforcing its unfair methods of competition authority, it will adhere to 3 principles :

  1. it will be guided “by the public policy underlying the antitrust laws, namely, the promotion of consumer welfare”;
  2. the conduct will “be evaluated under a framework similar to the rule of reason” – namely, that it will challenge only those acts that cause, or [is] likely to cause, harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications”; and
  3. it will not utilize its Section 5 authority “if enforcement of the Sherman or Clayton Act is sufficient to address the competitive harm arising from the act or practice.”

The Principles were developed to attack those acts “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 Principles did not garner the unanimous support of the Commissioners, however, as Commissioner Maureen Ohlhausen dissented from their issuance, stating that they were “seriously lacking” in detail and resulted in an “unbounded interpretation” of “unfair methods of competition.” She particularly objected to the fact that the Principles allow the Commission to challenge conduct that does not result in “substantial harm to competition.”

To the Commission’s credit, the Principles do break a 101-year silence on the analytical framework that guides the Commission’s application of Section 5—an accomplishment unto itself. The reality, though, is that these principles are nothing new and are already reflected in the Commission’s precedents, as FTC Chairwoman Edith Ramirez acknowledged in an address at George Washington University Law School on the same day of the Commission’s release.

At the end of the day, the mere issuance of the Principles is more noteworthy than the substance contained within them. Chairwoman Ramirez prefers to develop Section 5 law on a case-by-case basis and it seems that it is how it will develop for the time being. Exactly what these principles mean and how they will be applied is unclear. As Commissioner Ohlhausen’s dissent pointed out, how does “a framework similar to the rule of reason” differ from a traditional rule of reason analysis, and what factors will the Commission consider in deciding whether to pursue under Section 5 conduct that it considers insufficiently addressed by the antitrust laws? These and many other questions remain unanswered. And that begs one final question. In practice, will the FTC, which frequently settles Section 5 cases, actually be able to provide guidance on these questions through a common-law approach? Perhaps these are not the final Principles to be issued by the Commission on its enforcement of Section 5 unfair methods of competition. What remains to be seen is whether the issuance of the next one will take another 101 years.