US: FTC expands scope of unfair competition

in a nutshell

On November 10, 2022, after a 3-1 vote, the Federal Trade Commission (“FTC”) issued a policy statement broadening its interpretation of unfair competition methods under Section 5 of the Federal Trade Commission Act. announced.¹ Commissioner Christine S. Wilson voted against the policy statement, voicing a relentless 20-page dissent, saying the policy change was a “fundamental” deviation from the agency’s recent enforcement efforts.² Commissioner Wilson said the policy “takes a ‘you can see it’ approach premised on a list of malicious-sounding adjectives,” many of which have no antitrust or economic implications.

Section 5 of the FTC Act prohibits “unfair competition methods” targeting conduct that violates antitrust laws or Section 5 itself.it “empowers[s]The FTC states that it “prevents persons, partnerships, or corporations . . . from using unfair methods of competition in or affecting commerce, From using convention.”³

The FTC has recently attempted to expand its enforcement powers in a number of ways. This policy statement is the latest version of those efforts. In the FTC’s own words, the statement establishes a “strict” enforcement policy for laws prohibiting unfair methods of competition. The FTC said it plans to prosecute conduct in various areas, including “initial violations” of antitrust laws and conduct that violates the “spirit” of antitrust laws.

• The FTC plans to prosecute and punish more “wrongful” conduct than ever before.
• According to the FTC, Section 5 goes beyond the Sherman and Clayton Acts to cover various types of fraud that tend to adversely affect the playing field.
• New actionable conduct may include “initial offenses”[s] Acquisitions that “tend to mature” into actual violations, etc. Conduct that violates the “spirit of antitrust laws,” including conduct that collectively “potentially undermines the playing field,” and a series of acquisitions. However, they may not individually violate antitrust laws. ”

Under the FTC’s new policy, conduct that is not litigable in isolation may become litigable as a whole at the FTC’s discretion.

In July 2021, the FTC withdrew its 2015 Enforcement Principles Statement on “Unfair Competition Methods” under Section 5 of the FTC Act. On November 10, 2022, we issued a new statement. It “replaces all previous FTC policy statements and advisory guidance regarding the scope and meaning of unfair competition methods under Section 5 of the FTC Act.”

This statement describes the FTC’s position on Section 5’s legislative history. Congress said it was expressly intended to allow the FTC to prosecute “unfair” conduct more broadly than is permitted under the Sherman and Clayton Acts. The FTC says Congress intended Section 5 of his FTC Act to extend beyond antitrust law. Congress wanted to protect society more generally from oppressive anti-competitive behavior. As such, Congress wanted to give the FTC the flexibility to adapt to changing conditions over time. Fundamentally, the FTC’s position is that its authority extends to the spirit as well as the letter of antitrust law.

The FTC continues to describe broadly what can be done as “unfair competition methods.” First, the act must be a “way of competition”. That is, any action taken by an actor in the market that is directly or indirectly related to competition. Second, the method of competition must be “unfair.” An unfair act is an act “beyond the competition of merit.” The FTC explains that this means (1) conduct is “coercive, exploitative, complicit, abusive, deceptive, predatory, or involves.”[s] The use of economic power of a similar nature. (2) “Tendency”[s] Adversely affect the competitive conditions. ” These criteria are evaluated on a sliding scale. As an example, if the first criterion is particularly clear, the second criterion is less necessary.

The policy statement identifies several areas of conduct that the FTC deems actionable under Section 5. Procompetitive justification. Below is an excerpt from the FTC’s “non-exhaustive” list of actions that violate Section 5.

1. Conduct that is considered an initial violation of antitrust laws. Initial violations include conduct by a respondent that has not acquired full monopoly or market power or conduct that tends to escalate into antitrust violations. For example:
   • mergers, acquisitions, or joint ventures that are prone to violations of antitrust laws;
   • A series of mergers, acquisitions, or joint ventures that tend to cause harm that antitrust laws are designed to prevent, but may not individually violate antitrust laws.
   • Loyalty rebates, tying, bundling, and exclusive dealing arrangements that are prone to antitrust violations, depending on industry conditions and the respondent’s position within the industry.
2. Acts contrary to the spirit of the Antimonopoly Act. This tends to cause potential harm similar to antitrust violations, but may or may not be covered by the literal wording of antitrust laws, or falls within a “gap” in those laws. and acts that may not be applicable. Examples of such violations are:
   • Parallel exclusive acts that may cause collective harm;
   • Actions by respondents taken in conjunction with other actions and practices that tend to cumulatively undermine the competitive conditions of the market;
   • De facto tying, bundling, exclusive deals or royalty kickbacks that take advantage of market power in a market to entrench that power or prevent competition in the same or related markets;
   • A series of mergers or acquisitions that tend to cause harm that antitrust laws are designed to prevent, but may not individually violate antitrust laws.
   • mergers or acquisitions of potential or early competitors that may tend to reduce current or future competition;
   • Using market power in one market to gain competitive advantage in an adjacent market. For example, exploiting technical incompatibilities to adversely affect competition in adjacent markets.
   • false or deceptive advertising or marketing that tends to create or maintain market power; or
   • Discriminatory refusal to trade that tends to create or maintain market power.

According to the FTC, the statement will guide the public, the business community, and antitrust practitioners by setting out the principles that define whether a business practice constitutes an unfair method of competition under Section 5 of the FTC Act. was intended as But really, this statement simply informs the public that the FTC has interpreted Section 5 to extend its powers by penalizing additional conduct. Not much practical guidance is provided.

This policy statement has already been widely criticized, including by Commissioner Wilson. In his dissent, Commissioner Wilson noted some of the statement’s practical shortcomings.^Four It does not (1) “provide clear guidance to businesses seeking compliance with the law,” (2) “provide a framework that results in credible enforcement,” or (3) “address legislative history.” . [of Section 5] that . . . I caution against a broad approach to implementing Section 5. ”^Five Commissioner Wilson asserts that the statement “announces that the Commission has the authority to condemn essentially any conduct of business that the Commission deems objectionable.”⁶ Khan responded by calling Wilson’s concerns “misplaced,” saying that the FTC was only intended to enforce the law and that its policy statement “provides that business practices use ‘unfair methods of competition.’ It identifies the framework and factors that the Commission considers when deciding whether to compose. ”⁷

The U.S. Chamber of Commerce also criticized the policy statement, calling it a “pure political power grab intended to give Chairman Khan complete discretion over when, where and how businesses compete.” said there is.⁸ The Chamber of Commerce continued, “The FTC’s decision to reject decades of bipartisan consensus and declare itself the nation’s economic king will undermine healthy competition and undermine America’s competitiveness. would,’ he said. Other organizations such as Demand Progress, the American Economic Liberties Project and the Open Markets Institute applauded the FTC’s move, saying it would be better prepared to combat anti-competitive practices. says.⁹

In short, the FTC has further elaborated on what it considers to be actionable as part of its effort to prosecute anticompetitive conduct of all kinds. The extent of the FTC’s ability to secure judgments against companies under this new Section 5 policy will become clearer over time as companies challenge her FTC actions. In the meantime, companies should pay particular attention to ways they can curb anti-competitive behavior and reduce their Section 5 liability, such as conducting antitrust compliance reviews and health checks. You can and should consult an attorney before engaging in any activity that may fall under the FTC’s expanded interpretation of the law. If we can help you as you consider how the interpretation of Section 5 of the FTC might affect your company’s antitrust policies and procedures, please contact us.

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1 Fed Trade Comm’n, Policy Statement on Scope of Unfair Competition Methods Under Section 5 of the Federal Trade Commission Act of 2022, https://www.ftc.gov/system/files/ftc_gov/pdf/P221202Section5PolicyStatement .pdf.
2 Comm’r Christine S. Wilson, Opposition Statement on Policy Statement on Scope of Unfair Competition Methods Under Section 5 of the Federal Trade Commission Act (2022), https://www.ftc.gov/system/ files/ftc_gov/pdf/P221202Section5PolicyWilsonDissentStmt.pdf.
3 15 USC § 45.
4 Correspondence Wilson, Dissenting Opinion.
5 Ibid.
6 Ibid.
7 Joined by Chairman Lina M. Khan, Comm’rs Rebecca Kelly Slaughter and Alvaro M. Bedova, Statement on Adoption of Enforcement Policy Statement on Unfair Competition Methods Under Section 5 of the FTC Act (2022), https :/ /www.ftc.gov/system/files/ftc_gov/pdf/Section5PolicyStmtKhanSlaughterBedoyaStmt.pdf.
8 Neil Bradley, Federal Trade Commission Section 5 Guidance Stifles Competition and Hurts America’s Competitiveness. (10 November 2022), https://www.uschamber.com/finance/antitrust/federal-trade-commissions-section-5-guidance-will-discourage-competition-and-damage-americas-competitiveness.
9 See, for example, Press Release, American Economic Liberties Project, FTC Charges Path Forward to Combat Anticompetitive Behavior Across Markets, 10 November 2022, https://www.economicliberties.us/press-release/ftc-charges-path. Ref- Advancing Anti-Competitive Behavior Across Markets /; Press Releases, Open Markets, Public Markets Praise FTC’s New Groundbreaking Policy Statement on Cracking Down on Unfair Ways of Competition Policy (2022 November 10, 2019), https://www.openmarketsinstitute.org/publications/open-markets-applauds-the-ftcs-new-landmark-policy-statement-on-policing-unfair-methods-of-competition-policy .