FTC Spells Out Principles On When It Will Exercise Its Standalone Authority Under Section 5

August 14, 2015

The one-page statement, at the level of broad general principles, keeps with recent practice and does not signal any significant increase in enforcement under “unfair methods of competition” theories.

On August 13, the US Federal Trade Commission (FTC or Commission) issued a policy statement describing for the first time the principles that will guide the agency’s exercise of its “standalone” Section 5 authority to address anticompetitive acts or practices that fall outside the scope of the Sherman and Clayton Antitrust Acts. Under Section 5 of the Federal Trade Commission Act (FTC Act), the FTC has enforcement authority over “unfair methods of competition.” The courts and the FTC have long interpreted Section 5 as applying to conduct beyond the other federal antitrust statutes, but the FTC had never offered an explanation of how it interpreted or intended to apply this statutory authority.

The policy statement explains that the Commission will adhere to the following principles when deciding whether to use its standalone authority under Section 5 of the FTC Act to challenge unfair methods of competition:

  • 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.
  • 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 policy document was accompanied by a brief statement by the Commission that emphasizes the role of the rule of reason and economic analysis in the application of Section 5.

The statement does not discuss any specific types of conduct or any of the recent Section 5 cases the FTC has brought. For example, it is not clear how the statement might affect the agency’s current use of Section 5 to challenge alleged breaches of commitments to license standard essential patents. Although the statement does not place any constraints on the Commission (beyond those already widely understood) regarding the types of cases it may bring, we do not believe it indicates any significant increase in enforcement under “unfair methods of competition” theories.

Issuance of the statement had been a high priority for Republican Commissioner Joshua Wright and should relieve pressure on the agency from Capitol Hill to clarify its interpretation of its standalone Section 5 authority. The Commission vote to issue the policy statement was four to one, with Republican Commissioner Maureen Ohlhausen opposed because, in her words, the statement “provides more questions than answers, undermining its value as guidance.”