In what might be a further expansion of antitrust enforcement of interlocking directorates, the Federal Trade Commission (FTC) issued a policy statement announcing that it now interprets Section 5 of the FTC Act to grant it authority to take enforcement action against interlocking directorates or officers of competing firms that do not fall within the “literal language of the Clayton Act.”¹

This interpretation could portend FTC action against interlocks involving board observers or interlocks falling within the de minimis safe harbors, which are not reachable under Section 8 of the Clayton Act.

Over the last two months, we reported on the U.S. Department of Justice’s (DOJ’s) renewed enforcement of the ban on interlocking directorates under Section 8 of the Clayton Act (15 U.S.C. § 19), and the initial results of the DOJ’s enforcement efforts.

Lessons for Companies

The FTC is asserting authority to take enforcement action against interlocking directorates that it views as problematic without regard to the statutory defenses of Section 8 of the Clayton Act. We expect that if the FTC pursues enforcement against interlocking directorates, it might take an expansive view of which companies compete. In addition to our recommendations from September, we also recommend the following to minimize the risk of a Section 5 violation:

• Consider whether modifications to your existing antitrust compliance program might be necessary in light of this expanded interpretation of the prohibition on interlocking directorates.
• Reassess director screening procedures to catch interlocks involving board observers or interlocks falling within safe harbor exemptions.
• Contact antitrust counsel to assess the extent to which existing interlocking directorates that are not within the scope of Section 8 might now be subject to Section 5 enforcement.

Section 5 of the FTC Act and the FTC’s New Policy Statement

Section 5 of the FTC Act proscribes “unfair methods of competition.”² There has been a long running debate about what types of conduct, if any, are reachable under Section 5 that are not reachable under other antitrust statutes. From 2015 to 2021, the FTC interpreted Section 5 to reach conduct which violates the spirit of the antitrust laws and is proved to harm consumers under the “rule of reason.”³ In July 2021, the FTC formally rescinded its prior statements on employing the rule-of-reason framework for standalone enforcement under Section 5 of the FTC Act.⁴

This month, the FTC issued a new interpretation of Section 5 in a policy statement that fully untethers Section 5 from the rule of reason and gives the agency the independence to decide when conduct “threatens fair competition,” regardless of whether that conduct is within the scope of the Sherman and Clayton Acts. Instead, the FTC will assess whether the conduct goes beyond competition on the merits and negatively affects competitive conditions. The policy statement is notable in its considerable reliance on the legislative history of the FTC Act: In considering the Act’s passage, U.S. Congress discussed a myriad of practices that would constitute “unfair methods of competition,” of which interlocking directorates was one.

The Policy Statement’s Effect on Interlocking Directorates Compliance

The FTC’s policy statement lists “interlocking directors and officers of competing firms not covered by the literal language of the Clayton Act” as one example of a “violation” of Section 5.

Under this new interpretation, the FTC appears to be asserting the authority to obtain injunctive relief against “interlocks” not prohibited by the terms of the Clayton Act.

This likely includes, at minimum, “interlocks” involving board observers.⁵ This would include a situation in which:

• an individual serves as a board observer at two competing corporations,
• an individual serves as a board observer at one corporation and a director or officer of its competitor, or
• an entity such as a private equity or venture capital fund is represented by a board observer at one corporation and is represented by a board observer or director at another corporation.

It is possible that the FTC would also use this authority to challenge interlocks that fall within the safe harbor exemptions of Section 8 of the Clayton Act.

Considering this development, firms should actively engage antitrust counsel to consider updates to their current antitrust compliance programs and assess possible increased risk of FTC enforcement related to interlocking directors or other matters.

^[1]FTC, Comm’n File No. P221202, Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act (2022), https://www.ftc.gov/system/files/ftc_gov/pdf/P221202Section5PolicyStatement.pdf.

^[2]15 U.S.C. § 45(a)(1).

^[3]FTC, Statement of Enforcement Principles Regarding “Unfair Methods of Competition” Under Section 5 of the FTC Act (2015), https://www.ftc.gov/system/files/documents/public_statements/735201/150813section5enforcement.pdf.

^[4]FTC, Statement of the Commission on the Withdrawal of the Statement of Enforcement Principles Regarding “Unfair Methods of Competition” Under Section 5 of the FTC Act (2021), https://www.ftc.gov/system/files/documents/public_statements/1591706/p210100commnstmtwithdrawalsec5enforcement.pdf.

^[5]Rohit Chopra, FTC, Comm’r, Comm’n File No. 1910075, Statement In the Matter of Altria Group Inc. and JUUL Labs, Inc. (2020), https://www.ftc.gov/system/files/documents/public_statements/1570265/statement_of_comm_chopra_in_the_matter_of_altria-juul.pdf (“[Interlocks involving board observers] undermine[] a key purpose of Section 8 of the Clayton Act’s prohibition on interlocking directorates and [are] therefore unlawful under Section 5 of the FTC Act.”).