FTC Formalizes Existing Section 5 Enforcement Principles, With Few Specifics

The statement is meant to “reaffirm the principles that guide our enforcement decisions, leaving for future generations the flexibility to do the same,” said Ramirez during a speech at The George Washington University Law School.

The FTC voted 4-1 earlier this week to adopt the statement, with Commissioner Maureen Ohlhausen dissenting. Her dissent statement was several times longer than the policy statement itself. The other GOP FTC member, Joshua Wright, praised the statement on Twitter.

The FTC codified that it will be “less likely” to use its standalone Section 5 authority in cases of unfair competition if enforcement of Clayton Act or Sherman Act statutes “is sufficient to address the competitive harms arising from the act or practice.” The FTC agreed to examine possible Section 5 cases “under a framework similar to the rule of reason” test, in which harmful practices are evaluated against potential benefits of the actions. The commission will also be “guided” to exercise its Section 5 authority for “the promotion of consumer welfare,” the FTC said in the policy statement.

The policy statement “does not signal any change of course in our enforcement policies and priorities,” Ramirez said during her speech Thursday, saying it simply makes the FTC’s existing evaluation process on Section 5 “explicit.” Ramirez has long resisted adopting a formal framework for evaluating Section 5 enforcement cases and said Thursday that she still favors a “common-law approach to the development of Section 5 doctrine.” The policy allows the FTC to “preserve our doctrinal flexibility even while we reaffirm the basic objectives that we seek to achieve when we invoke our standalone Section 5 authority,” Ramirez said. “There is indeed broad consensus at the commission on what those objectives have been and will continue to be.”

The FTC’s decision to release the Section 5 policy statement “has nothing to do with politics” but instead resulted from “lingering” concerns among FTC stakeholders about the commission’s decision-making process, Ramirez told reporters after the speech. The FTC has faced recent scrutiny from congressional Republicans on its Section 5 authority (see 1505150030). Ohlhausen and Wright have pushed for the commission to adopt a formal Section 5 framework. The FTC's adoption of the statement is "a real victory for Wright since even in the minority he was able to put this on the table for the FTC to do," said International Center for Law & Economics Associate Director Ben Sperry in an interview.

The adopted policy statement “is seriously lacking,” Ohlhausen said in her dissent. The statement “does not mention, much less grapple with, the existing case law. While the majority might like to sweep that unfortunate history under the rug, the fact is that the FTC was repeatedly rebuffed by the courts when it last tried to reach well beyond settled principles of antitrust law in asserting its Section 5 authority. Instead, the Commission acts as if it is writing on a clean slate.” Wright didn’t issue his own official statement. He said via Twitter that linking FTC evaluation of unfair competition practices to the rule-of-reason balance test under existing antitrust laws brings it into “the world of modern antitrust policy.”

The Section 5 policy statement has “a little more bite” than Ohlhausen believes it does, said Venable regulatory lawyer Robert Davis, former aide to then-FTC Chairman Jon Leibowitz, in an interview. Davis said he believes the statement would limit or eliminate FTC authority to pursue Section 5 enforcement on two types of unfair competition practices, though both appear to be mostly theoretical. One of the possibly limited classes of case involves no-fault price increases that customers generally approved of, he said. The FTC attempted to enforce such cases primarily during the late 1970s and early 1980s, most notably in the Boise Cascade case, Davis said. The policy statement’s commitment to factoring in potential benefits of a business practice in Section 5 cases would appear to limit FTC ability to pursue such cases in the future, he said. The statement also appears to limit the agency’s ability to use Section 5 to enforce laws like the Environmental Protection Act or food safety regulations because the statement emphasizes prosecuting cases to promote consumer welfare, Davis said.

Wright’s endorsement of the policy statement gives the FTC “a little bit of cover” from criticism about Section 5 enforcement for now, but the statement’s long-term ability to mollify critics will depend on how the commission implements the statement, Davis said. FTC standalone Section 5 enforcement on unfair competition grounds is already relatively rare, so it “may be a while before people actually see the effect of the statement,” he said.

Congressional Republicans generally endorsed the policy statement Thursday, though several said they will continue to monitor FTC enforcement activities. “This is a good first step and we are pleased that the FTC has finally heeded the Committee’s calls for guidance,” said House Judiciary Committee Chairman Bob Goodlatte, R-Va., and House Antitrust Subcommittee Chairman Tom Marino, R-Pa., in a joint statement. “However, we will vigilantly monitor the manner in which the FTC applies its guidance and evaluate whether additional action is necessary to ensure that the FTC administers our antitrust laws in a transparent, stable, fair, and predictable manner and that it does not exceed its statutory authority.”

The policy statement “is a welcome development and a step forward for business owners who want to abide by the law,” said Senate Judiciary Committee Chairman Chuck Grassley, R-Iowa, in a statement. “It's hard for businesses to comply with Section 5 if it isn't clear what constitutes a violation of the law. Although I wish the commission had allowed for public comment, I appreciate the FTC taking the concerns of Congress into consideration as they wrote this new guidance.” The FTC should now “pursue and fight anti-competitive misconduct even more vigorously,” said Senate Consumer Protection Subcommittee ranking member Richard Blumenthal, D-Conn., in a statement. “My hope is that it will lead to more frequent and effective enforcement actions to protect both consumers and businesses that may be victims of market misconduct and manipulation.”