FTC’s Section 5 guidance — ‘historic step’ or much ado about not very much?

31 January 2017 9:55am

14 August 2015. By Leah Nylen.

The US Federal Trade Commission’s policy statement outlining when the agency will challenge conduct as an unfair method of competition, released Thursday, clocks in at exactly 331 words, 347 if you include the title — roughly three-quarters of a page, or about a dozen or so long Tweets. The short document — the subject of which has been debated by antitrust lawyers for decades — seemed to surprise almost everyone with its brevity, but please very few outside of the FTC’s headquarters at 600 Pennsylvania Avenue.

The US Chamber of Commerce, the country’s largest business lobby, which had long championed the issue, called it “disappointing as it fails to establish an objective standard that closes the door to varying interpretations”.

Congressional Republicans, who had pressed the agency to release guidance, applauded the statement’s existence though not its contents, with House Judiciary members calling it a “good first step” and Senator Mike Lee, chairman of the Senate Committee’s antitrust subcommittee, pledging further “active oversight”.

Only Democratic Senator Richard Blumenthal, a former attorney general and strong supporter of antitrust enforcement, effusively praised the new statement as a “historic step” that could help the FTC pursue antitrust enforcement “more vigorously”.

Section 5 of the FTC Act allows the agency to police “unfair methods of competition.” It also permits the agency to challenge “unfair or deceptive acts or practices.” In the 1980s, the FTC released policy statements on both unfair and deceptive practices, each detailed documents with dozens of legal citations. But the agency had never before defined unfair methods of competition, in part because of deep divides among commissioners on the exact scope of that power in relation to other antitrust laws.

Thursday’s policy statement was adopted on a 4-1 vote, with Republican Commissioner Joshua Wright and the agency’s Democrats in favor, and Republican Commissioner Maureen Ohlhausen dissenting. Both Wright and Ohlhausen had pressed the agency to issue guidance, offering their own formulations on appropriate limits for the FTC’s authority in speeches over the past two years. The final product, though, adopted neither Wright’s “cognizable efficiencies” test nor Ohlhausen’s for “disproportionate harm.”

Instead, the document laid out three guiding principles for when the FTC would pursue cases under its unfair competition authority — that the agency would focus on consumer welfare; that the FTC would use a framework similar to the rule of reason balancing test that weighs the anticompetitive effects against the procompetitive benefits; and that the agency would be “less likely” to use Section 5 if the conduct could be challenged under the traditional antitrust laws, namely the Sherman and Clayton Acts.

The principles appear carefully couched so as not to impinge on future commissions — a framework “similar” to the rule of reason, the agency is “less likely” to use Section 5 if the other laws would be “sufficient” to address the harm.

In her six-page dissent, Ohlhausen criticized the statement as being “seriously lacking” and unlikely to provide sufficient guidance. Unlike the agency’s previous statements on its unfairness and deception authority in the consumer protection area, she wrote, the new statement offers no examples and doesn’t address any existing case law on how courts have interpreted that statute.

“This statement raises many more questions than it answers,” Ohlhausen wrote. “I fear that this will ultimately lead to more, not less, uncertainty and burdens for the business community.”

In a speech and comments unveiling the statement, FTC Chairwoman Edith Ramirez hailed it as an “important accomplishment,” emphasizing that the guidance was flexible. (Her prepared comments, in fact, repeated the phrase “flexibility” six times.) She also stressed that the principles don’t represent a policy change for the agency, but merely reflect more explicitly how the commission has used its authority in the recent past.

“I personally felt that the principles that … we are describing in the policy statement today were all plainly evident from what the commission had done in its recent application of standalone Section 5,” Ramirez said in response to a question. “But at the same time, I had to listen to the fact that there appeared to be some lingering concerns over this issue. And, in light of that, I concluded that if the commission could reach broad, bipartisan consensus of what the principles ought to be, that we would articulate those and make them … explicit.”

Ramirez’s speech, held in a classroom at George Washington University Law School and hosted by former FTC Chairman William Kovacic, was attended by more than a dozen current and former FTC staffers, including General Counsel Jonathan Nuechterlein and Debbie Feinstein, director of the FTC’s Bureau of Competition.

Wright also put in an appearance, seated in the classroom’s back row.

Ramirez rejected the idea that political pressure from Republicans on Capitol Hill had any effect on this agency’s decision to release a statement.

“This has nothing to do with political heat. This has nothing to do with politics,” she said. “It simply is an effort on my part to listen to concerns that were out there about possible lingering concerns over Section 5.”

The chairwoman also dismissed criticism from Ohlhausen that the agency should have made the policy available for public comment before its adoption.

“This is consistent with what the commission has done in connection with prior significant policy statements,” Ramirez said. Section 5 “is an issue that has been discussed extensively inside the agency, outside the agency. So let’s just say that we had a pretty good sense of the spectrum of views that exist when it comes to Section 5.”

Wright, who had relentlessly championed issuing a Section 5 statement since joining the agency in 2013, said the principles reflect a consensus that Section 5 should be aligned with the other antitrust laws.

“Antitrust lawyers who can counsel the rule of reason can and should be able to counsel businesses on the contours of Section 5,” he said in a statement. “I am delighted the Commission has reached this historic bipartisan agreement on the limits of its unfair methods of competition authority.”

In an interview, Democratic Commissioner Julie Brill agreed that the statement simply sets forth principles that the FTC has already been following.

“I think it sets down with clarity how we are going to use Section 5 going forward,” she said. The statement also “rejects the notion that we’re going to hamstring Section 5 beyond an ordinary balancing test.”

For his part, Wright said it was unclear whether the new policy was in line with previous cases since former commissioners indicated they had different views on what was required to establish a Section 5 violation.

“It is impossible to know with any precision the analytical basis for what the agency has done in recent cases,” he said. “Whether the prior cases are consistent with the new rule-of-reason-based statement is up for some dispute. …The rule of reason imposes boundaries under the other antitrust laws and — we now know — will do so in the context of the Commission’s UMC authority. These are boundaries all antitrust lawyers understand and are familiar with, and that are focused upon consumer welfare and informed by economic analysis.”

In her dissent and an interview Thursday, Ohlhausen expressed concerns that her colleagues may interpret the statement differently, making the certainty supposedly offered by guidance moot.

“I think we would need to define Section 5 a lot more clearly than this,” she said, calling the principle a “generally, open-ended statement” that encourages FTC staff to explore expansive views.

Ohlhausen agreed that the agency didn’t accept public comments on its prior Section 5 statements on its unfairness and deception powers in the consumer protection area.

“Those might not have had public comments, but a lot of deliberations and consultation” went into those statements, she said. “This did not have that.”

Commissioner Terrell McSweeny couldn’t be reached for comment Thursday.

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