Commissioner Wright’s Call for Section 5 Guidance Getting Attention on Capitol Hill

Thom Lambert —  28 October 2013

Late this summer, TOTM hosted a blog symposium on potential guidelines for the Federal Trade Commission’s exercise of its “unfair methods of competition” authority under Section 5 of the FTC Act.  Commissioner Josh Wright inspired the symposium by proposing a set of enforcement guidelines for the Commission.  Shortly thereafter, Commissioner Maureen Ohlhausen proposed her own guidelines, which were largely consistent with Commissioner Wright’s.  Participants in the blog symposium discussed both sets of guidelines and agreed — without exception, I believe — that it’s time for the FTC to give business some guidance on how it will enforce its “stand alone” Section 5 authority (i.e., its authority to pursue conduct that would not violate the Sherman Act).

The proposals by Commissioners Wright and Olhausen have now attracted attention on Capitol Hill.  In a letter sent last week to FTC Chair Edith Ramirez, eight members of Congress (Senators Charles Grassley and Mike Lee, along with Representatives Bob Goodlatte, Spencer Bachus, Lamar Smith, Trent Franks, Raul Labrador, and Blake Farenthold) acknowledged the chilling effect vacuous liability standards create and urged the FTC to provide some sort of definition of an actionable “unfair method of competition”:

As you know, antitrust enforcement actions pursued under the Clayton and Sherman Acts are subject to rigorous economic tests to ensure that the subject activity results in actual economic harm.  In contrast, stand-alone Section 5 claims do not receive similar scrutiny.  The absence of clear parameters for the FTC’s Section 5 authority based on empirical and economic justifications engenders uncertainty in the business community.  This uncertainty acts as a deterrent to innovation and creativity, which are critical drivers of the American economy and vitally important in today’s challenging economic environment.  Accordingly, articulating a standard by which the FTC intends to utilize its Section 5 unfair method of competition authority should be a high priority.

The members of Congress also disputed Chairwoman Ramirez’s assurances that the FTC’s prior Section 5 enforcement decisions provide the guidance businesses need.  In recent testimony before the Senate Judiciary Committee’s Subcommitte on Antitrust, Competition Policy, and Consumer Rights, Ramirez stated:

I do believe that there is guidance that’s provided.  If you look back at the recent cases in which the agency has taken action, using Section 5 on a standalone basis, it would include cases such as the invitation to collude cases in the context of the exchange of information, that can then be used to facilitate collusion or other unlawful practices and also in the standard-setting arena.

But what about the Intel matter, in which the FTC used Section 5 to go after above-cost loyalty rebates that probably would have passed muster under Sherman Act precedents?  That action resulted in a settlement in which Intel agreed to limit its future discounting.  To the extent that “precedent” provides guidance to businesses, the guidance seems a bit perverse!

Hopefully Chairwoman Ramirez will take the advice of her two FTC colleagues, now echoed by eight members of Congress, and provide the business community with a little clarity.  As she and the other commissioners mull over the matter, I would direct them to the terrific discussion in the links at the bottom of this post.

Thom Lambert

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I am a law professor at the University of Missouri Law School. I teach antitrust law, business organizations, and contracts. My scholarship focuses on regulatory theory, with a particular emphasis on antitrust.