FTC Issues Guidance on Unfair Competition Enforcement

While experts have not proclaimed it an overwhelmingly helpful resource, the Federal Trade Commission (FTC) released a Statement of Enforcement Principles Regarding "Unfair Methods of Competition" Under Section 5 of the FTC Act (Statement). The Statement issued earlier this month sets forth three principles addressing how the FTC enforces Section 5 of the FTC Act prohibiting unfair competition. The FTC explains that Section 5 takes FTC's enforcement reach beyond violations of the Sherman and Clayton Acts to encompass activities "that contravene the spirit of the antitrust laws and those that, if allowed to mature or complete, could violate the Sherman or Clayton Act." (Emphasis added).

The Sherman and Clayton Acts are antitrust laws that prohibit activity that restrains trade and address potential for such restraint posed by monopolies, exclusive contracts, mergers and acquisitions and certain contracting arrangements. The FTC notes that Congress left it to the commission, "an expert administrative body," to interpret and apply Section 5 on a "case-by-case basis" so that enforcement could "evolve with changing markets and business practices." The Statement expresses three principles that will guide FTC enforcement of the unfair competition prohibition in Section 5:

• A public policy supporting protection of consumer welfare.
• A rule of reason analysis that considers whether the activity will "cause, or [be] likely to cause, harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications."
• A violation is "less likely" to be found if the Sherman or Clayton Act "is sufficient to address the competitive harm."

In an address last month at the Competition Law Center, George Washington University Law School, FTC Chairwoman Edith Ramirez called the issuance of the principles a "milestone" and confirmed her preference for a "case-by-case" approach to enforcement rather than specifically enumerating "precisely what conduct is prohibited." It would be "nearly impossible to describe in advance all of the conduct that may threaten competition or the competitive process in our dynamic economy," she explained.

While the FTC asserted that the principles "are ones on which there is broad consensus," Commissioner Maureen K. Ohlhausen issued a dissenting statement objecting to the issuance of "this policy statement in this manner"—claiming it is "too abbreviated in substance and process" and "provides more questions than answers, undermining its value as guidance." (Emphasis in original) Ohlhausen also criticized the lack of public input from stakeholders and the lack of reference to prior court decisions regarding unfair competition cases or examples of "either lawful or unlawful conduct to provide practical guidance" on how the law will be enforced.

Takeaway: The Federal Trade Commission has made a policy statement on unfair competition but the brevity and generality of the statement has stakeholders and industry experts questioning its value.