FTC Section 5 Statement: Less Guidance Than Meets the Eye

Steven J Cernak —  18 November 2022 — 1 Comment

[This post is a contribution to Truth on the Market‘s continuing digital symposium “FTC Rulemaking on Unfair Methods of Competition.” You can find other posts at the symposium page here. Truth on the Market also invites academics, practitioners, and other antitrust/regulation commentators to send us 1,500-4,000 word responses for potential inclusion in the symposium.]

On Nov. 10, the Federal Trade Commission (FTC) issued a new statement explaining how it will exercise its standalone FTC Act Section 5 authority. Despite the length of the statement and the accompanying commentaries from most of the commissioners, there is less guidance than one might expect from so many words. One thing is clear, however: Expect more antitrust enforcement from the FTC in ways we have not seen in years, if ever.

The FTC enforces the antitrust laws through Section 5’s prohibition of unfair methods of competition (UMC). Courts and commentators alike have long agreed that Section 5’s prohibition covers everything covered by the other antitrust laws, such as the Sherman and Clayton Act, plus something more.

How far that extra standalone authority extends has been a point of contention for decades. In the early 1980s, several appellate courts admonished the FTC for an expansive interpretation of that authority, leaving parties uncertain of which actions would be challenged. Or, as the 2nd U.S. Circuit Court of Appeals put it: “the Commission owes a duty to define the conditions under which conduct … would be unfair so that businesses will have an inkling as to what they can lawfully do rather than be left in a state of complete unpredictability.”

In recent decades, the FTC has interpreted its authority much more narrowly. In 2015, a bipartisan collection of commissioners approved a short statement saying that the FTC would interpret its standalone authority consistently with the consumer welfare standard of the other antitrust laws and use the well-known rule of reason to judge any actions. Last year, the Democratic majority of commissioners voted to rescind that 2015 statement. Last week’s statement is the replacement.

Antitrust Fun, Little Guidance

The 16 pages of guidance and the accompanying commentary from three commissioners—two Democrats in support, one Republican in opposition—can be a fun read for antitrust geeks. There is plenty of well-written antitrust history. I learned something. Also, there are arguments about old FTC and appellate court cases that I had not read in 30 years.

But that history lesson did not give as much guidance about future enforcement as it should have. Most of the seven pages the guidance spends on its historical review is dedicated to showing that the FTC’s standalone authority extends beyond the Sherman and Clayton Acts. But that contention is in little dispute.

The more helpful historical question for parties today is how this Commission plans to respond to appellate court cases such as Boise Cascade, OAG, and the above-cited Ethyl that criticized the old Commission for, to paraphrase the statement, insufficient facts of unfairness, oppressiveness, or negative effects on the market. Chair Lina Khan’s commentary does mention the “trifecta” of cases, describing them as cases where courts found that the Commission “had not met its factual or evidentiary burden.” What would have been more helpful is some “inkling” of what kinds of facts this Commission will rely on to avoid the same types of “stinging” losses suffered by those earlier Commissions. Instead, we get multiple references to the Commission as a body of experts with the unstated assumption that, in the future, at least three commissioners will offer enough facts of some kind to convince any appellate court.

After the history section, the statement offers plenty of words on what the FTC majority think will be a standalone violation. All of those words add up, however, to much less guidance than the very brief 2015 statement. That prior statement said that the FTC would use its Section 5 standalone authority to pursue a single goal—consumer welfare—and would use a well-known analytical method to pursue it: the rule of reason. While even that statement left some ambiguity for businesses, and freedom for the Commission, at least it pursued only one goal with an analysis used in decades worth of antitrust cases.

The new statement does not list one goal but instead several, namely that it will challenge conduct that is “coercive, exploitative, collusive, abusive, deceptive, predatory, or involve[s] the use of economic power of a similar nature … that negatively affect[s] competitive conditions [and thereby negatively affects] consumers, workers, or other market participants.”

But mathematically, you cannot maximize more than one variable. Nowhere in this statement is there any attempt to explain the analytical method to be used to balance pursuit of these different goals. What if a challenged action helps workers but harms consumers? What if an action helps workers at some competitors but not others? What if an action helps all competitors but harms workers at some of them? Merely combining all those goals into a single term, “competitive conditions,” does not provide any guidance as to how the FTC will balance all these named (and any unnamed) elements of “competitive conditions.” Again, there is an unstated assumption that three commissioners will expertly balance those competing goals.

Incomplete Lessons from the Past

The new statement does try to provide some guidance at the end of the document when it points to past cases that, perhaps, will be the types of cases that the Commission will now bring under Section 5. One such large category is actions that do not meet the standards for antitrust illegality now but, somehow, violate the “spirit of the antitrust laws.” The statement lists several examples.

To take one, what if a tying case does not meet the standards embodied in Jefferson Parish and its progeny? How will the Commission determine what the statement calls “de facto tying”? Which one or more of the elements expounded in Jefferson Parish will be eased? How? Will the same action by the same parties be subject to different substantive standards if a private plaintiff—or the U.S. Justice Department—is the plaintiff? If so, then parties wanting to avoid any antitrust challenge will need to default to the law of tying laid down by the then-current FTC, not by dozens of court cases over decades. And how will the FTC determine what violates the “spirit” of its own particular law of tying? Again, the unstated assumption is that the decisions of three expert commissioners will set the new law, at least until three new expert commissioners gain control.

Conclusion

To be (slightly) fairer to the new statement, it does confirm what has seemed obvious since the Biden administration started staffing the FTC: this Commission will more aggressively pursue antitrust challenges and will use any tool, including Section 5 standalone authority, to do it. Also, while the statement injects uncertainty into the thinking of businesses, which likely will lead to fewer and less-aggressive business actions, that result would be seen as a feature, not a bug, by the statement’s authors.

Finally, the statement does correctly point out that Section 5 was written at a time when Congress might have thought that the decisions of three expert commissioners would lead to “better” results for the economy, however defined, than decisions of dozens of juries and judges in dozens of cases. That Progressive Era confidence in the decisions of a few government-employed experts has not always worked out for the best, as some would claim from study of the Whiz Kids (Robert McNamara, not Robin Roberts) or recent pandemic policy.

Like it or not, the statement is another step toward a government of men (and women), not laws, and an economy dictated by a handful of experts in Washington, not millions of consumers across the country. Expect aggressive antitrust enforcement from the FTC in ways that many businesses and antitrust practitioners have only read about — about that, the new statement’s guidance is clear.

Steven J Cernak

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Steven J. Cernak is a partner with BonaLaw in Detroit, Michigan, where he serves in the firm's antitrust and competition practice. He previously served as in-house antitrust attorney with General Motors for more than 20 years.

Trackbacks and Pingbacks:

  1. The New FTC Section 5 Policy Statement: Full of Sound and Fury, Signifying Nothing? - Truth on the Market Truth on the Market - November 22, 2022

    […] already explored the legal and policy shortcomings of this misbegotten statement (see, for example, here, here, here, here, here, and here). Suffice it to say there is general agreement that, as Gus […]

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