FTC Issues Guidance on Application of Section 5 of the FTC Act; Commissioner Wright Steps Down

The past month has included several changes at the Federal Trade Commission (FTC or Commission). First, the FTC (with one commissioner dissenting) issued a somewhat unexpected "Statement of Enforcement Principles Regarding 'Unfair Methods of Competition' under Section 5 of the FTC Act" on August 13, 2015. Shortly after, Commissioner Joshua Wright announced that he would depart from the FTC as of August 24, 2015 to resume teaching at George Mason School of Law. The FTC's newly stated Enforcement Principles reflect a long-standing FTC preference -- to maintain flexible standards that allow for the exercise of discretion in applying Section 5 of the FTC Act.

I.         Overview of the Enforcement Principles

The Enforcement Principles are notable for their brevity. The Statement begins by noting that the FTC understands its authority under Section 5 to be broader than under traditional antitrust laws: "Section 5's ban on unfair methods of competition encompasses not only those acts and practices that violate the Sherman or Clayton Act but also those that contravene the spirit of the antitrust laws and those that, if allowed to mature or complete, could violate the Sherman or Clayton Act."¹ The Statement then explains the basis for that view:

The Commission then lays out the Enforcement Principles:

In an accompanying statement, the FTC explained its view "that Section 5 is aligned with the other antitrust laws, which have evolved over time and are guided by the goal of promoting consumer welfare informed by economic analysis".⁴ The accompanying statement indicates that the Sherman Act and Clayton Act would continue to be the "primary enforcement tools" used by the FTC but notes also that the FTC plans to "apply its [Section 5] authority in a manner similar to the case-by-case development of the other antitrust laws."⁵

In remarks during a speech made shortly after publication of the Enforcement Principles, Chairwoman Edith Ramirez noted that the contours of US antitrust law have developed over 125 years via common law, and explained that the Commission believes the contours of the FTC Act are best developed in a similar manner -- "flexibly, and on a case-by-case basis, to deal with constant flux in the American economy."⁶ Chairwoman Ramirez indicated that this authority is and should be exercised only with regard to "conduct that threatens competition or the competitive process," and stated that the Commission will "invoke the same kind of careful economic analysis that we use in all of our enforcement matters to ensure that we exercise our authority wisely."⁷ Chairwoman Ramirez also expressed her view that the "standalone" authority granted by Section 5 is now exercised more narrowly than it was "throughout most of the twentieth century."⁸

II.        Dissenting View of Commissioner Ohlhausen

In contrast, the lone dissenting Commissioner, Maureen K. Ohlhausen, asserted that the new Enforcement Principles "provide more questions than answers" and characterized the Commission's statement as an "official embrace of . . . an unbounded interpretation of [unfair methods of competition]."⁹ Commissioner Ohlhausen noted her concern that the FTC did not include in its principles a "substantial harm" requirement and warned that the statement "is almost certain to encourage more frequent exploration of this authority in conduct and merger investigations and standalone Section 5 enforcement by the Commission."¹⁰ Commissioner Ohlhausen also expressed disappointment that the Commission did not seek public comment before releasing the guidance.¹¹

III.      Departure of Commissioner Wright

In the wake of the issuance of the Enforcement Principles, Commissioner Joshua Wright announced his departure from the Agency, noting the "bipartisan effort to provide guidance on the boundaries and meaning of its Section 5 unfair methods of competition authority . . . have been some of the most fulfilling experiences of my career."¹² While Commissioner Wright initially had called for more detailed and extensive guidance, and argued that such guidance should offer a safe harbor for conduct creating "cognizable efficiencies,"¹³ ultimately he joined the majority of the Commissioners in the official statement. In an interview with Politico, Wright explained that "when we finished the Section 5 statement, I felt we had done the thing I set as the highest priority in my time at the [C]ommission to do."¹⁴ Commissioner Wright has returned to his teaching post at George Mason School of Law.

IV.      Looking Forward

The new guidelines are essentially an expression of current Commission practice. As noted by Chairwoman Ramirez, "the policy statement marks no change in course; it merely makes explicit what has been evident to close observers of FTC enforcement actions over the past few decades."¹⁵ Thus, the guidance does little to affect how private practitioners should counsel clients regarding potential Section 5 risk.¹⁶ It also seems unlikely to resolve the internal FTC divide over these issues. Commissioner Ohlhausen had previously stated that she would not vote to approve any new Section 5 cases unless and until the FTC provided more detailed guidance regarding its enforcement approach, and there is little in the policy statement, or in Commissioner Ohlhausen's dissent, to indicate that the guidance will change her position.