All Things Newz
Law \ Legal

FTC Announces New Guidelines For Its Section 5 Enforcement Efforts – Antitrust, EU Competition

[ad_1]

On November 10, 2022, the Federal Trade Commission (FTC or
Commission) issued a policy statement outlining the
Commission’s expanded approach to enforcement of Section 5 of
the FTC Act, which prohibits “unfair methods of
competition.” The FTC’s “Policy Statement Regarding
the Scope of Unfair Methods of Competition Under Section 5 of the
Federal Trade Commission Act”1 (2022 Statement)
comes sixteen months after the Commission withdrew a bipartisan
2015 statement addressing the same topic.2 Unlike the
2015 statement, however, the Commission vote here was split along
party lines, with three Democratic Commissioners voting to approve
the 2022 Statement and the one Republican Commissioner voting no.
The 2022 Statement is just the latest action by current antitrust
agency leadership to expand the scope of their enforcement powers
and indicates that the FTC, in particular, will scrutinize a wide
range of conduct not thought previously to violate the antitrust
laws.

History of FTC’s Section 5 Enforcement Policy

Section 5 of the FTC Act prohibits “[u]nfair methods of
competition in or affecting commerce[.]”3 Although
the Commission brings its non-merger actions under Section 5 rather
than the Sherman Act, there has been disagreement about the breadth
of Section 5 and what type of conduct it should reach, beyond what
the Sherman and Clayton Acts may prohibit.4 Conduct
pursued under Section 5 that does not otherwise violate the other
antitrust laws is sometimes referred to as a “standalone”
Section 5 violation. One generally accepted “standalone”
Section 5 theory of harm is an invitation to collude where no
agreement has been reached.5 There is otherwise much
debate about what other conduct might constitute a standalone
Section 5 violation.6 Indeed, one court commented that
“[t]he term ‘unfair’ is an elusive concept, often
dependent upon the eye of the beholder.”7

In 2015, a bipartisan majority of the FTC issued a
“Statement of Enforcement Principles Regarding ‘Unfair
Methods of Competition’ Under Section 5 of the FTC
Act”8 (2015 Statement) in an effort to provide
guidance to the public as to the scope of standalone Section 5
enforcement. In the 2015 Statement, the Commission set out three
“principles” by which it would decide whether to
challenge an act or practice as an unfair method of competition.
First, the Commission announced it intended to be guided by the
traditional public policy underlying the antitrust laws: “the
promotion of consumer welfare” (typically thought of as lower
prices, higher quality products, and higher output). Second, the
Commission anticipated evaluating challenged conduct under a
framework similar to the rule of reason, which would assess harm to
competition and take into account “cognizable efficiencies and
business justifications.” Finally, the Commission noted that
it would be less likely to challenge a particular action under
standalone Section 5 if the Sherman Act or Clayton Act were
sufficient to address the conduct’s competitive harm. As
then-Chair Edith Ramirez noted, even though the 2015 Statement did
not provide a “detailed code of regulations,” it did
include concepts “widely used” in antitrust
law.9

In July 2021, the Commission rescinded the 2015 Statement.
Current FTC Chair Lina Khan expressed concern that the 2015
Statement limited the FTC’s enforcement ability. She argued
that to the extent that Section 5 enforcement was largely
conterminous with the Sherman Act, this would “turn[]
standalone Section 5 into a dead letter.” 10
Instead, Chair Khan indicated that the FTC would approach Section 5
enforcement more broadly.

The 2022 Statement

The Commission’s 2022 Statement presents a much broader
interpretation of standalone Section 5 authority. The 2022
Statement purports to rely on the “text, structure, and
history of Section 5” to distinguish the FTC’s authority
in this space as beyond the accepted parameters of the Sherman and
Clayton Acts.11 In particular, the Commission signaled
its intention to challenge conduct that “goes beyond
competition on the merits” as well as conduct “that
constitutes an incipient violation of the antitrust laws or that
violates the spirit of the antitrust laws.”12

The FTC’s new framework to identify unfair methods of
competition contains two conditions: (1) the challenged conduct
must be “[a] method of competition,” which “is
conduct undertaken by an actor in the marketplace-as opposed to
merely a condition of the marketplace, not of the respondent’s
making” and (2) “[t]he method of competition must be
unfair, meaning that the conduct goes beyond competition on the
merits.”13

To determine whether conduct goes beyond competition on the
merits, the FTC stated that it intends to consider two principles:
(1) whether challenged conduct is “facially unfair”
(which the FTC appears to define as conduct that is “coercive,
exploitative, collusive, abusive, deceptive, predatory, []
involve[s] the use of economic power of a similar nature. . . .
[or] otherwise restrictive or exclusionary”) and (2) whether
the challenged conduct “tend[s] to negatively affect
competitive conditions-whether by affecting consumers, workers or
other market participants.”14

The FTC stated that it would weigh these factors on a
“sliding scale” approach. Most notably, the FTC suggested
that if it determines the conduct is “facially unfair,”
“less may be necessary” to show that the conduct
negatively affects competitive conditions. If conduct is not
facially unfair, the FTC will consider whether the conduct tends to
negatively affect competitive conditions. Here, as part of its
analysis, the FTC will take into account the conduct’s
“tendency to generate negative consequences; for instance,
raising prices, reducing output, limiting choice, lowering quality,
reducing innovation, impairing other market participants, or
reducing the likelihood of potential or nascent
competition.”15 However, the FTC will not require a
“separate showing of market power or market definition”
or “actual harm,” but would consider more broadly the
consequences of the challenged action occurring in the aggregate
with other actors engaging in similar behavior.16 The
2022 Statement also sets forth that the burden would be on the
respondent to show that any asserted benefits outweigh identified
harms-and that any such benefits were not “outside the market
where the harm occurs.” 17 Further, the FTC
indicated that it would not assess these factors under any sort of
“net efficiencies test or a numerical cost-benefit
analysis,” but would instead take a broader view which might
also include “non-quantifiable harms.”18

Commissioner Wilson’s Dissent

Dissenting Commissioner Christine Wilson sharply criticized the
majority for adopting an “‘I know it when I see it’
approach” and abandoning “bedrock principles of antitrust
that long have been accepted by the Commission, the courts, the
business community, and enforcers across the
globe.”19 The dissent takes issue with the
majority’s decision to (1) abandon the rule of reason
framework; (2) replace the consumer welfare standard, potentially
protecting workers and less-efficient competitors at the expense of
consumers; and (3) broadly condemn otherwise lawful conduct
supported by precedent.20

According to Commissioner Wilson, the majority puts forth
“a quick look analysis that approximates per se
condemnation,” in lieu of the rule of reason.21 In
her view, abandoning the consumer welfare standard removes a clear
goal around which businesses could structure their behavior.
22 Finally, the dissent also criticizes the majority for
placing too much reliance on its own assessment of what is unlawful
while taking away meaningful protections for businesses that show
“efficiencies and other benefits or
justifications.”23 She expresses concern that the
Commission’s new “open-ended approach” would condemn
the very conduct that courts have previously refused to condemn
under the antitrust laws. For instance, “[n]ewly condemned
conduct may include tacit coordination; parallel conduct; price
discrimination not covered by the Robinson-Patman Act; de facto
tying, bundling, exclusive dealing, and loyalty rebates; mergers
that do not violate the Clayton Act; and interlocking directorates
not covered by the Clayton Act.”24

Furthermore, the dissent states that the 2022 Statement fails to
“provide clear guidance to businesses seeking to comply with
the law,” establish a consistent approach for the term
“unfair,” “provide a framework that will result in
credible enforcement,” or fully account for the legislative
history that “demands economic content for the term
‘unfair’ and cautions against an expansive approach to
enforcing Section 5.”25 Indeed, she asserts that,
in some instances, the 2022 Statement’s “lack of
identified priorities and rules for balancing interests means that
enforcement will be subject to the whims and political agendas of
sitting Commissioners.”26 Thus, it will be
difficult for businesses to “structure their conduct to avoid
possible liability.”27

In sum, Commissioner Wilson pushes back on the majority for
replacing previous guidelines, which found support in economic
analysis and legal precedent, with a statement that “resembles
the work of an academic or a think tank fellow who dreams of
banning unpopular conduct and remaking the
economy.”28

Looking Ahead

The 2022 Statement is not binding on courts and does not change
the law, but it marks the latest attempt by FTC leadership to
expand the scope of its enforcement power and to disregard the
consumer welfare standard. It may be the case that the FTC plans to
use Section 5 to overcome impediments to challenges presented by
existing precedent under the other antitrust laws (e.g., Section 2
of the Sherman Act). It remains to be seen whether federal courts
hearing Section 5 challenges (including courts of appeal hearing
appeals from Commission decisions after trial before an
administrative law judge) will accept the new approach contained in
the 2022 Statement-especially because the “Policy Statement
expressly states that it is willing to disregard judicial
experience.”29 And, as Commissioner Wilson noted,
“[c]ourts have been unwilling to find violations of Section 5
beyond the limits of the Sherman, Clayton, and Robinson-Patman Acts
when the Commission’s theory of liability cannot be turned into
workable rules or standards that can guide the conduct of
businesses.”30

Nonetheless, the FTC has staked out its position for future
investigations and enforcement actions. Even if a federal court
ultimately finds that a business’s conduct is lawful, antitrust
investigations and litigation can still be costly and distracting
for a business. Moreover, a wide range of conduct, previously
considered lawful, may now be subject to investigation and legal
challenges. This seems particularly true of conduct, including
mergers and acquisitions, that the FTC believes merely could lead
to conduct that harms the competitive process. Because federal
courts of appeal must defer to the Commission’s findings of
fact in the appeal of a Commission decision following an
administrative trial, the key question will be whether the
Commission’s conclusion that anticompetitive effects are
possible is enough as a matter of law to violate Section 5.

Firms with high shares and firms that engage in conduct that
disadvantages competitors will need to consider their tolerance for
risk given the uncertainty and the costs of defending an FTC
investigation and enforcement proceeding, at least until the courts
have a chance to weigh in on the FTC’s new approach. While this
is especially true for businesses operating in industries where the
FTC has recently focused its enforcement efforts (e.g., digital
markets and the pharmaceuticals), all companies should ensure that
compliance programs are up to date, employees are mindful of
antitrust issues and antitrust counsel has the opportunity to weigh
in on conduct that could pose risks under the FTC’s new
approach to Section 5.

Footnotes

1 FTC Policy Statement Regarding the Scope of Unfair
Methods of Competition Under Section 5 of the Federal Trade
Commission Act (Nov. 10, 2022), available here.

2 See Arnold & Porter Advisory, FTC Open
Meeting Announces Expansion of FTC’s Antitrust Enforcement
Focus
(July 8, 2021), available here.

3 15 USC § 45(a)(1).

4 Arnold & Porter Advisory, FTC Open Meeting
Announces Expansion of FTC’s Antitrust Enforcement Focus

(July 8, 2021), available here.

5 Id.

6 Id.

7 E.I. du Pont de Nemours & Co. v. FTC, 729
F.2d 128, 137 (2d Cir. 1984).

8 FTC Statement of Enforcement Principles Regarding
“Unfair Methods of Competition” Under Section 5 of the
FTC Act (Aug. 13, 2015), available here.

9 Address by FTC Chairwoman Edith Ramirez to the
Competition Law Center at George Washington University Law School
at 9 (Aug. 13, 2015), available here.

10 Statement of Chair Lina M. Khan Joined by Commissioner
Rohit Chopra and Commissioner Rebecca Kelly Slaughter on the
Withdrawal of the Statement of Enforcement Principles Regarding
“Unfair Methods of Competition” Under Section 5 of the
FTC Act at 1, 7 (July 1, 2021), available here.

11 FTC Policy Statement Regarding the Scope of Unfair
Methods of Competition Under Section 5 of the Federal Trade
Commission Act at 2 (Nov. 10, 2022), available here.

12 Id. at 8, 12.

13 Id. at 8-9 (“Competition on the merits
may include, for example, superior products or services, superior
business acumen, truthful marketing and advertising practices,
investment in research and development that leads to innovative
outputs, or attracting employees and workers through the offering
of better employment terms.” (citations omitted)).

14 Id. at 9.

15 Id. at 10.

16 Id.

17 Id. at 12.

18 Id. at 11.

19 Dissenting Statement of Commissioner Christine S.
Wilson Regarding the “Policy Statement Regarding the Scope of
Unfair Methods of Competition Under Section 5 of the Federal Trade
Commission Act” at 2-3 (Nov. 10, 2022), available here.

20 See id. at 8.

21 Id. at 6.

22 See id. at 8 (“The consumer
welfare standard protects consumers, resulting in lower prices,
higher quality, and more innovation.”).

23 Id. at 6.

24 Id. at 13.

25 Id. at 3.

26 Id. at 8.

27 Id. at 13.

28 Id. at 2.

29 Dissenting Statement of Commissioner Christine S.
Wilson Regarding the “Policy Statement Regarding the Scope of
Unfair Methods of Competition Under Section 5 of the Federal Trade
Commission Act” at 7 (Nov. 10, 2022), available here (citing FTC Policy Statement Regarding
the Scope of Unfair Methods of Competition Under Section 5 of the
Federal Trade Commission Act at 13-14 (Nov. 10, 2022),
available here).

30 Id. at 14 (citation omitted).

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

[ad_2]

Source link

Related posts

Digital Policy Alliance – Regulation Of The Metaverse – Call For Registration Of Interest – Privacy Protection

Sneak Peek At The New Restructuring Regime – Insolvency/Bankruptcy

Ενιαίο Σύστημα Φορολογικής Διαχείρισης Tax For All – TFA – Tax Authorities