Section 5 of the 1914 Federal Trade Commission Act declares that “unfair methods of competition in or affecting commerce” are unlawful. The Act also empowers the Commission to prevent persons, partnerships, and corporations from using “unfair” methods of competition. But the FTC, notes the Wall Street Journal, “has never formally defined what it means to compete unfairly.”
Well, had never. On August 13, 2015, the FTC released a statement – its first ever— of three “principles” to which it “adheres” “[i]n deciding whether to challenge an act or practice as an unfair method of competition in violation of Section 5 on a standalone basis. . . .” The “principles” are as follows:
the Commission will be guided by the public policy underlying the antitrust laws, namely, the promotion of consumer welfare;
the act or practice will be evaluated under a framework similar to the rule of reason, that is, an act or practice challenged by the Commission must cause, or be likely to cause, harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications; and
the Commission is less likely to challenge an act or practice as an unfair method of competition on a standalone basis if enforcement of the Sherman or Clayton Act is sufficient to address the competitive harm arising from the act or practice.
The introduction to the “principles” adds, helpfully, that “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.”
The FTC statement recognizes the Commission’s authority and flexibility to apply Section 5 on a case-by-case basis, subject to judicial review, but goes on to provide the “principles” as a framework for its “standalone” authority to address acts or practices that are anticompetitive but that do not fall within existing antitrust laws. The FTC guidance carefully carved out a standalone role for itself that gives deference to existing antitrust laws and cited promotion of consumer welfare as the principal policy concern guiding its decision to invoke its authority.