The Federal Trade Commission (FTC) is authorized, pursuant to section 5 of the Federal Trade Commission Act (the “Act”), to address “unfair methods of competition.”
However, when drafting section 5, Congress declined to define what constitutes an “unfair method of competition” or delineate how conduct subject to enforcement under section 5 might be analyzed. Over time, judicial decisions have provided some guidance, but the uncertainty both for the FTC and the business community created by the vague language of the Act has persisted since its adoption.
In 2015, the FTC sought to provide some guidance with respect to section 5 by issuing its “Statement of Enforcement Principles Regarding ‘Unfair Methods of Competition’ Under Section 5 of the FTC Act” (the “2015 Statement”). The 2015 Statement was a bipartisan effort, with one Commissioner dissenting, to provide some clarity regarding both the conduct that constitutes unfair methods of competition and the agency’s analysis of such conduct under section 5 of the Act. In summary, the FTC announced in this one-page document that, in addressing conduct under section 5, the agency would (1) be guided by the underlying principles of antitrust policy—namely the consumer welfare standard, (2) analyze most conduct using a “rule of reason” analysis, and (3) be less likely to challenge conduct on a stand-alone basis as a violation of section 5 of the Act if the same conduct could be sufficiently addressed through application of the Sherman Act or Clayton Act.
However, on July 1, 2021, as one of the first actions taken under the new leadership of Commissioner Lina Kahn, the FTC withdrew the 2015 Statement. At that time, the FTC stated that “the 2015 Statement contravenes the text, structure, and history of Section 5 and largely writes the FTC’s standalone authority out of existence. In our view, the 2015 Statement abrogates the Commission’s congressionally mandated duty to use its expertise to identify and combat unfair methods of competition even if they do not violate a separate antitrust statute.”
In an effort to fill the void created by the withdrawal of the 2015 Statement, on November 10, 2022, the FTC issued a 16-page statement entitled “Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act” (the “2022 Statement”). The 2022 Statement, adopted along party lines without the benefit of public input, is notable for many reasons, including the rejection of the consumer welfare standard and the refusal to adhere to the rule of reason in analyzing conduct under section 5. In addition, the FTC has stated that it will use section 5 to address, among other things, conduct that “has a tendency to ripen into a violation of the antitrust laws,” as well as conduct that “violates the spirit of the antitrust laws.” In issuing the 2022 Statement, the FTC indicated that it was trying “to assist the public, business community, and antitrust practitioners.” But only time will tell whether replacing a one-page policy statement with a 16-page document dense with footnotes and legalese provides guidance for any interested party. In her dissent, Commissioner Christine Wilson characterized the 2022 Statement as incorporating a form of “I know it when I see it” approach to enforcement under section 5 of the Act. This type of approach will increase the cost of doing business and necessitate more antitrust counseling.