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Federal Trade Commission Issues First-Ever Guidance on “Unfair Methods of Competition”

Federal Trade Commission Issues First-Ever Guidance on “Unfair Methods of Competition”

Section 5 of the 1914 Federal Trade Commission Act declares that “unfair methods of competition in or affecting commerce” are unlawful. The Act also empowers the Commission to prevent persons, partnerships, and corporations from using “unfair” methods of competition. But the FTC, notes the Wall Street Journal, “has never formally defined what it means to compete unfairly.”

Well, had never. On August 13, 2015, the FTC released a statement – its first ever— of three “principles” to which it “adheres” “[i]n deciding whether to challenge an act or practice as an unfair method of competition in violation of Section 5 on a standalone basis. . . .” The “principles” are as follows:

  • 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 framework similar to the rule of reason, that is, 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 cognizable 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 or Clayton Act is sufficient to address the competitive harm arising from the act or practice.

The introduction to the “principles” adds, helpfully, 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 FTC statement recognizes the Commission’s authority and flexibility to apply Section 5 on a case-by-case basis, subject to judicial review, but goes on to provide the “principles” as a framework for its “standalone” authority to address acts or practices that are anticompetitive but that do not fall within existing antitrust laws. The FTC guidance carefully carved out a standalone role for itself that gives deference to existing antitrust laws and cited promotion of consumer welfare as the principal policy concern guiding its decision to invoke its authority.

FTC Chairwoman Edith Rameriz commented that the FTC’s “aim in adopting this policy statement is to reaffirm the principals that guide our enforcement decisions, leaving for future generations the flexibility to do the same.” Specifically, Ms. Rameriz, citing Supreme Court decision in FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 244 (1972) in support of expansive FTC authority, said that the Commission would use Section 5 to target practices likely to harm competition.

Champions of the guidance say that it opens the door for the FTC to maintain course and enables future generations to do the same; but one opponent, Commissioner Maureen Ohlhausen, said that it was too open ended. Ms. Ohlhausen warned that it armed the FTC staff with a sweeping policy statement “likely to embolden them to explore the limits of unfair methods of competition.”

Haley Fowler Gregory

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