In February 2015, Commissioner Joshua Wright of the Federal Trade Commission offered his personal views at the Symposium on Section 5 of the Federal Trade Commission Act, stating that “there is no more important challenge facing the Commission today than finally articulating the appropriate scope and role of the agency’s ‘unfair methods of competition’ authority under Section 5.” In those remarks, Commissioner Wright noted many of the compelling reasons for the Commission to issue a policy statement on its role in “unfair methods of competition” matters, including to provide “meaningful guidance to the business community about the contours of Section 5.”

After a prolonged wait, the FTC, earlier this week, issued its Statement of Enforcement Principles Regarding “Unfair Methods of Competition” Under Section 5 of the FTC Act. The Statement — consisting of three bulleted points — falls short of the guidance discussed by Commissioner Wright.  The Statement does, however, mark a step forward and provides important guidance on the principles that will govern FTC action under its standalone Section 5 authority.

Under Section 5 of the Federal Trade Commission Act, “unfair methods of competition in or affecting commerce” are unlawful.  In the over 100 years since the FTC Act was enacted, there has been much debate as to what exactly this vague language means.  Is this prohibition limited to violations under the Sherman Act and the Clayton Act, as applied by the federal courts and the FTC’s sister agency, the Department of Justice, Antitrust Division?  Or is it intended to be broader, encompassing conduct not covered by the Sherman Act or Clayton Act?  If the latter, then exactly how broadly will the Section be applied and, more importantly, how will businesses understand the contours of this prohibition?  These are some of the vexing issues that have plagued Section 5.  Now the FTC has provided some principles to help put some clarity to the subject.

In the Statement, the Federal Trade Commission, after noting the broad mandate intentionally provided to the Commission by Congress, outlined the “framework” for the Commission’s exercise of its “standalone” Section 5 authority.  The pertinent part of the Statement provides:

In deciding whether to challenge an act or practice as an unfair method of competition in violation of Section 5 on a standalone basis, the Commission adheres to the following principles:

• 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; and
• 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 Act or Clayton Act is sufficient to address the competitive harm arising from the act or practice.

Breaking the Statement down, the FTC will apply its “standalone” Section 5 authority only in situations where there is competitive harm and in doing so, will be governed by a “rule of reason” type of analysis.  These are important clarifying points.  The Statement also makes it clear that “cognizable efficiencies and business justifications” will be considered.  What remains unknown, though, is how such efficiencies will be considered and weighed.  The Statement, while less than definitive, also provides that the FTC will likely not use its Section 5 authority when the practice in question can be addressed under the Sherman or Clayton Act.

The Statement, undoubtedly a compromise between the Commissioners, is certainly not the guidance that many had sought, and about which Commissioner Wright spoke.  In fact, the Statement was approved by a 4-1 vote of the Commissioners, with Commissioner Ohlhausen dissenting.  In her dissent, Commissioner Ohlhausen argues that the Statement is “seriously lacking” and that the Statement “explicitly permits the Commission to pursue conduct under Section 5 in the absence of substantial harm to competition.”  Commissioner Ohlhausen does not see the Statement as a game changer:

In truth, the open-ended ‘similar to the rule of reason’ framework — to the extent I understand how it may be applied — does not seem to differ meaningfully from the existing case-by-case approach heretofore favored by a majority of the Commission.

Commissioner Ohlhausen raises thoughtful points and concerns.  And while more could have been said in the Statement, it is difficult to imagine how the FTC could have issued a guidance that would have provided examples of all prohibited conduct and detail the limits of its authority.  Even with its brevity and absence of detail, though, the Statement does mark an improvement and does help to provide some useful framework to antitrust counselors and the business community about the FTC’s use of this authority.