U.S. Federal Trade Commission Issues Statement Of 'Unfair Methods Of Competition' Enforcement Principles Under FTC Act § 5

Author:Mr David Wales, Kathryn M. Fenton, Michael H. Knight, Geoffrey Oliver and J. Bruce McDonald
Profession:Jones Day
 
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The U.S. Federal Trade Commission ("FTC") has issued formal guidance on how the agency enforces Section 5 of the FTC Act ("Section 5") to police "unfair methods of competition" that may fall outside of the scope of the main federal antitrust statutes, the Sherman and Clayton Acts. While the statement consists of only three bullet points, this is the first formal statement of enforcement principles regarding "unfair methods of competition" under Section 5 issued by the FTC since the enactment of Section 5 more than 100 years ago. Some have criticized the statement for its brevity and lack of details, while others have praised it for filling the void and providing some potential limiting principles on a "know it when you see it" approach to Section 5 enforcement. The bottom line is that the statement can now be used by businesses and their lawyers to try to convince the Commission not to bring Section 5 enforcement actions, but this may not prevent the current or a future Commission from bringing controversial cases.

Background

In 1914, Congress enacted Section 5, empowering the FTC to challenge "unfair methods of competition." Over several decades, the Supreme Court took an expansive view on the scope of Section 5, concluding that the statue was broader than the Sherman Act and that "unfair or deceptive" practices could be covered even absent an effect on competition. See, e.g., Fed. Trade Comm'n v. Sperry & Hutchinson Co., 405 U.S. 233, 239 (1972). As former FTC Chairman Kovacic later explained "Section 5 was deliberately created to have an extraordinary possibility for elastic adaptation and adjustment."

In the 1970s, the FTC brought a number of highly controversial standalone Section 5 enforcement actions. Then in the early 1980s, courts of appeals overturned three of these cases based on insufficient evidence of anticompetitive harm or concern with the FTC's arbitrary application of Section 5. For the next two decades, the FTC was fairly restrained in bringing "standalone" Section 5 enforcement actions (Section 5 actions challenging conduct that was not claimed to violate a mainline antitrust statute). However, in recent years the FTC has increased its standalone use of Section 5 and hinted that it intends to pivot to more expansive enforcement. It has challenged not only invitations to collude (a standalone use of Section 5 that has raised less objection), but also failures to uphold standard-setting commitments and the use of discounts...

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