Archives For Unfair Methods of Competition Symposium

James Cooper on the Limits of Section 5’s Scope Beyond the Sherman Act

totmauthor —  1 August 2013

James Cooper is Director, Research and Policy at the Law & Economics Center at George Mason University School of Law

The FTC has long been on a quest to find the elusive species of conduct that Section 5 alone can tackle.  A series of early Supreme Court cases interpreting the FTC Act – the most recent and widely cited of which is more than forty years old (FTC v. Sperry & Hutchinson Co., 405 U.S. 233 (1972)) –appeared to grant the FTC wide ranging powers to condemn methods of competition as “unfair.”[1]  A series of judicial setbacks in the 1980s and early 1990s, however, scaled back Section 5’s domain.[2]

Since 1992, the FTC has continued to define Section 5’s reach internally – through settlements primarily involving two classes of conduct: so-called “invitations to collude” (ITC);[3] and breaches of agreements to disclose or to license standard-essential patents (SEPs).[4] Similar in spirit to ITCs, the Commission has also alleged pure Section 5 violations in cases involving sharing of competitively sensitive information.[5]

In addition to these lines of cases, the FTC has used Section 5 in two additional matters: the “CD MAP” cases, involving the parallel adoption by major record companies of “minimum advertised price” restrictions; and the suit against Intel for engaging in exclusionary conduct, including deception and certain pricing practices.

Absent external appellate review, however, it remains unclear whether Congress intended for these classes of conduct to be illegal as “unfair methods of competition.”  Because settlement with the FTC will be preferable to litigation in a wide array of circumstances, what is considered illegal under Section 5 largely has become whatever at least three Commissioners can agree on.  Accordingly, there is still a relatively large zone in which the FTC can develop this quasi Section 5 common law with little fear of triggering litigation, and the concomitant specter of judicial scrutiny.

The recent Google investigation provides some evidence as to just how large this zone of discretion may be.  Although the Commission eventually decided to close its investigation into Google’s search practices – and was able to extract informal concessions from Google related to “scraping” and failures to facilitate “multihoming” – that the Commission would entertain a case premised on such conduct hints at a willingness to make arguments that clear Sherman Act precedent involving duties to aid rivals does not apply to the Section 5 actions, or that misappropriation can serve as the basis for a Section 5 theory.  The Commission’s settlement with Google concerning breaches of commitments to license SEPs on FRAND terms, moreover, continued its application of antitrust and consumer protection law to contractual disputes between sophisticated businesses.

Parsing the statements in Google suggest at least four directions in which at least one commissioner was willing to expand Section 5 beyond the Sherman Act:  duties to aid rivals, misappropriation, failure to disclose the relationship between data collection and market power, and breach of an agreement to license SEPs on FRAND terms.  Further, in two instances, at least one commissioner additionally was willing to declare the same conduct an unfair act or practice.  This is far from a coherent framework for Section 5.

The FTC’s discretion under Section 5 potentially comes at a steep price.  First, it creates uncertainty.  If businesses are unsure about where the line between legal an illegal behavior is drawn, they rationally will take too much care to avoid violating the law, which in antitrust can mean competing less aggressively.  Second, the more discretion the FTC enjoys to condemn a practice as an unfair method of competition, the more competition will be channeled from the marketplace to 600 Pennsylvania Avenue.  Although this may be a good development for economists and attorneys, it is bad for consumers.

The FTC could go a long way toward solving this problem if it were to take a cue from the history of its consumer protection program.  The FTC’s overreach in the 1970s earned it the moniker “national nanny,” nearly shut the agency down.  As part of a program to instill public – and more importantly Congressional – trust, the FTC adopted a series of binding policy statements that made consumer harm the touchstone of its authority to challenge “unfair or deceptive acts or practices” (UDAP authority).

A similar effort at self-restraint that limits the FTC’s UMC authority could help reduce uncertainty and rent seeking.  Both Commissioners Ohlhausen and Wright should be commended on their impressive efforts to start this discussion.  In my first post, however, I’d like to discuss a more dramatic path that neither has addressed: confining Section 5 to the Sherman Act.

In many ways the search for Section 5’s domain beyond the Sherman Act is a solution in search of a problem.  There is certainly no consensus that the Sherman Act – even after some recent limitations imposed by cases like Twombly, Trinko, and Credit Suisse – is no longer fit for the task of policing anticompetitive conduct.  It may well be that the FTC is trying to sell a product that nobody needs.  Consequently, the costs of abandoning an expansive Section 5 may be small; with the exceptions of ITCs and information sharing involving small firms, the rest of the FTC’s Section 5 portfolio also can be reached under existing Sherman Act theories (albeit with more difficulty), or handled through other bodies of law or self-regulation.

For example, under the D.C. Circuit’s decision in Rambus, Section 2 is available for cases involving deception at the time of the standard adoption that materially affected the choice of standard.[6] Accordingly, a Section 2 case could be made out if the Commission could show that the defendant either concealed an SEP or if a FRAND commitment was made in bad faith and affected the choice of standard.  Even if deception cannot be show, breaches of FRAND commitments involving SEPs that result in hold-up necessarily involve legal review; the court (or ITC) must decide whether to grant the SEP holder’s request for an injunction (or an exclusion order), and the alleged infringer has opportunities to raise a variety of contract and patent law objections.  Likewise, bundling, predatory pricing, and deception claims like those in Intel are clearly cognizable under Sherman Section 2 (which is why Intel was pled both ways).

Confining Section 5 to the Sherman Act would also have the advantage reduce arbitrage opportunities between the FTC and the Antitrust Division.  As Commissioner Ohlhausen has noted, if the same conduct results in different legal treatment depending on which agency wins clearance – as it arguably would have in the Google investigation – these routine bureaucratic procedures could have substantial influence on ultimate liability.

Although this conduct is reachable under the Sherman Act, many of the cases would be difficult to win.  To the extent that these Sherman Act rules reasonably sort anticompetitive from procompetitive or benign conduct, however, forcing the Commission to satisfy Sherman Act standards would assure that its actions promote consumer welfare.

The only types of conduct that clearly slip out of the FTC’s reach when Section 5 is confined to the Sherman Act are ITCs and information sharing involving firms with low market shares.  The costs of letting this conduct go, however, are likely minimal.  Although most would agree that this conduct is  worth stopping, the FTC has pursued less than ten of these cases in the past 20 years.  Even including deterrence effects, removing ITCs and information sharing cases from the FTC portfolio is unlikely to cause a great deal of consumer harm.  Most managers are probably aware that price fixing is illegal, and it is doubtful that anybody proposes a cartel or shares information without hoping that the other party will get on board.  At the same time, these Section 5 cases are obscure – lurking in a series of consent orders on the FTC’s web site.  The sophisticated antitrust bar likely is familiar with this strain of Section 5 activity, but outside of the clients counseled by top tier law firms, it is not obvious that many businesses are aware of there existence.  Without awareness, there can be no deterrence.  Further, if either of these acts leads to a conspiracy or significant market power, it will be reachable under the Sherman Act.

Finally, removing the FTC’s Section 5 authority will not diminish its role as an antitrust norm creator.  Indeed, over its near 100-year history, however, the FTC has not used Section 5 to implement any important antitrust norms.[7]  That is not to say that the FTC has lacked influence over the development of antitrust jurisprudence – to the contrary, it clearly has, but within the confines of the Sherman Act.  For example, the FTC has made major positive contribution in the fields of joint conduct,[8] state action,[9] Noerr-Pennington,[10] the treatment of professional regulation,[11] and most recently in the context of pharmaceutical reverse settlements.[12]

Of course, if Section 5 is to offer nothing beyond the Sherman Act, that begs the question of whether the FTC is needed at all? In this manner, the quest for a species of harmful conduct that is reachable only through Section 5 is an existential one.  Does it make sense to have two agencies enforcing the same law?[13]  Probably not.  The FTC’s comparative advantage over DOJ lays in its research capability, and of course its consumer protection mission.  Accordingly, stripped of a unique antirust enforcement authority, one possible reorganization would be to house enforcement in DOJ, with the FTC providing competition and consumer protection policy R&D that would feed into case selection designed to improve these bodies of law.

However attractive it may be from a policy standpoint, jettisoning Section 5 beyond the Sherman Act is a political non-starter; Congress would never permit the FTC to abrogate its UMC power.  Indeed, recall the nasty fight that erupted when the FTC and DOJ attempted to reach a clearance agreement in 2002.  Accordingly, a more realistic path for the Commission to take would be to spell out the circumstances under which it would consider a stand alone Section 5 case.[14]  I will turn to this in my next posting.

[1] See, e.g., FTC v. Sperry & Hutchinson Co., 405 U.S. 233 (1972); William E. Kovacic & Marc Winerman, Competition Policy and the Application of Section 5 of the Federal Trade Commission Act, 76 Antitrust L.J. 929, 930-31 (2010).

[2] FTC v. Boise Cascade, 637 F.2d 573, 581 (9th Cir. 1980); Official Airline Guides, Inc. v. FTC, 630 F.2d 920 (2d. Cir. 1980); E.I DuPont de Nemours & Co. v. FTC, 729 F.2d 128 (2d Cir. 1984).  The FTC’s last judicially decided Section 5 action was in 1992. FTC v. Abbott Labs, 853 F. Supp. 526 (D.D.C. 1992).

[3] In re U-Haul Int’l, Inc. (June 9, 2010); In re Valassis Communications, Inc. (April 19, 2006); In re Stone Container Corp. (June 3, 1998); In re Precision Moulding Co. (Sept. 3, 1996); In re YKK(USA) (July 1, 1993); In re A.E. Clevite, Inc. (June 8, 1993); In re Quality Trailer Prods. Corp. (Nov. 5, 1992).

[4] In re Dell Computer (1996); In re Negotiated Data Systems, Inc. (2008); In re Robert Bosch GmbH (2012); In re Google, Inc. (2013).

[5] In re Bosely (2013); In re Nat’l Ass’n of Music Merchants (2009).

[6] Rambus Inc. v. FTC, 522 F.3d 456 (D.C. Cir. 2008); see also Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3rd Cir. 2007); Microsoft, 253 F.3d 3, 76 (D.C. Cir. 2001); Conwood Co. v. U.S. Tobacco Co., 290 F.3d 768 (6th Cir. 2002).

[7] See Kovaic & Winerman, supra note__, at 941 (“The FTC’s record of appellate litigation involving applications of Section 5 that go beyond prevailing antitrust norms is uninspiring.”).

[8] See Polygram Holding, Ltd. v. FTC, 416 F.3d 29 (D.C. Cir. 2005).

[9] See FTC v. Ticor Ins. Co, 504 U.S. 621 (1992); North Carolina Board of Dental Examiners v. FTC, No. 12-1172 (4th Cir. May 31, 2013).

[10] See FTC v. Phoebe Putney Healthcare System, Inc. (Feb. 13, 2013); FTC v. Superior Court Trial Lawyers Ass’n, 493 U.S. 411 (1990).

[11] See FTC v. Indiana Federation of Dentists, 476 U.S. 447 (1986); FTC v. California Dental Association, 526 U.S. 756 (1999).

[12] FTC v. Actavis, Inc., Slip Op. No. 12-416 (June 16, 2013).

[13] See Kovacic & Winerman

[14] Commissioners Ohlhausen and Wright have recently begun this discussion.  See __.

In Antitrust & Competition, Antitrust Division, Exclusionary Conduct, Federal Trade Commission, Google, Health Care, Intellectual Property, Justice Department, Patent, Pharmaceuticals, Platforms, Section 5, Unfair Methods of Competition Symposium , , , , , , , , ,
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Marina Lao on the FTC’s Section 5 Unfair Methods of Competition Authority

totmauthor —  1 August 2013

Marina Lao is Professor of Law at Seton Hall University School of Law

FTC Commissioner Josh Wright’s recent issuance of a proposed policy statement on Section 5 of the FTC Act has reignited the debate on the appropriate scope of the agency’s authority to prosecute “unfair methods of competition” as standalone Section 5 violations.  While the Supreme Court has held, consistent with clear congressional intent, that the FTC’s authority under Section 5 extends to conduct that is well beyond the reach of the Sherman and Clayton Acts, its last decision on the issue (S&H) is over four decades old.  Given that antitrust jurisprudence has changed dramatically since, and all three subsequent circuit court decisions (Boise Cascade, OAG, Ethyl) have gone against the FTC, it is questionable whether today’s Supreme Court would give as expansive a reading to the Commission’s enforcement discretion.  In any event, it is unlikely that the agency would attempt to exercise its full enforcement authority under the elusive terms in the old case law.  Under the circumstances, if the FTC intends to continue to invoke the section to bring standalone cases—and I believe it should–it would be helpful to the antitrust community for the agency to develop standards and to articulate an analytical framework for its application.  Commissioner Wright’s proposed policy statement, and Commissioner Maureen Ohlhausen’s comments on it, are invaluable in re-starting the discussion, which I hope will result in guidelines from the Commission at some point.

Under Commissioner Wright’s proposal, an act or practice must satisfy a two-prong test before the Commission may challenge it as an unfair method of competition: it must harm or is likely to harm competition, and it must not generate cognizable efficiencies.  I find the second element somewhat troubling.

The Cognizable Efficiency Screen.  Under Commissioner Wright’s proposal, cognizable efficiencies operate as a safe harbor: the FTC would not be able to challenge conduct as an unfair method of competition if any cognizable efficiency exists, no matter how slight the efficiency and how substantial the anticompetitive effects.  There is no balancing of the efficiencies against the anticompetitive harm at all, as is called for in the rule of reason under the Sherman Act.  Under this interpretation, Section 5 will effectively set a higher, rather than a lower, bar than the Sherman Act, which seems contrary to the common understanding of the relative standards of the relevant laws.  Though Commissioner Wright does include some useful limiting principles on what efficiencies would be deemed cognizable (conduct-specific, verifiable, and not derived from anticompetitive reductions in output or service), one can still probably come up with a plausible efficiency for almost any business conduct.  If this prong of the test is adopted, the section may prove to be of limited use to the FTC in bringing pure unfair methods of competition cases.

I would prefer a consideration of efficiencies on a sliding scale, as is done in merger analysis.  The greater the harm (or likely harm) to competition, and the greater the deviation from “normally acceptable business behavior” (Ethyl), the more efficiencies must be generated to offset the harm and avoid an injunction under Section 5.  The lesser the competitive harm, the fewer the efficiencies required.

Commissioner Wright provides three rationales for his bright-line efficiencies screen: it would clearly distinguish between acceptable business behavior and unfair methods of competition thereby providing certainty to businesses; it would allocate the agency’s scarce resources toward targeting conduct that is most likely to harm consumers; and it would avoid deterrence of welfare-enhancing conduct.  In my view, none of the three rationales is entirely persuasive.

Of course, a bright-line safe harbor always provides more certainty to a firm than a standard that requires balancing, but there is nothing in the nature of Section 5 enforcement that calls for this degree of certainty.  Remedies for violations of Section 5 are typically limited to injunctions; the FTC does not recover treble damages.  Moreover, the FTC Act cannot be enforced by private parties.  Even if private plaintiffs attempt to build a class-action under the Sherman Act based on a Section 5 adjudication, a finding for the FTC in the ALJ proceeding is not given prima facie effect in the private lawsuit.  Moreover, when the FTC is relying on Section 5 to prohibit conduct outside of the Sherman Act, its findings on fully litigated issues have no preclusive effect whatsoever on the same issues in any follow-on Sherman Act litigation that private parties may attempt to bring.  Therefore, enforcement of pure Section 5 cases does not inflict the kinds of burdens on defendants that are associated with Department of Justice prosecutions under the Sherman Act, for which a higher degree of certainty for businesses may be justified given the collateral consequences.  In the context of Section 5 enforcement, which results only in an injunction, it is not clear why a firm is entitled to know with absolute certainty that, no matter how harmful its conduct may be to consumers, it would be acceptable if it has any efficiencies at all.

To the extent that an FTC adjudication carries no unusual consequences for the firm, relative to other litigation, requiring a balancing of the conduct’s efficiencies against its anticompetitive harms does not subject a firm to an intolerable amount of uncertainty.  Even in those commercial settings in which businesses are usually governed by very specific rules, generalized standards do exist. For example, though the Uniform Commercial Code (covering a wide variety of commercial transactions) consists primarily of very specific rules, it also includes a number of well-accepted overarching fairness-based provisions, such as the requirements of good faith and fair dealing, the doctrine of unconscionability, and standards based on commercial course of dealing and trade usage.  These benchmarks clearly provide a less predictable standard to distinguish between permissible and impermissible conduct than the “uncertain” standard of a rule-of-reason balancing of efficiencies and harms.

As to the second rationale–that an efficiencies screen would focus the FTC’s resources on conduct most likely to harm consumers–I question the premise that anticompetitive conduct with some efficiencies is necessarily less harmful than conduct with no efficiencies.  Consider the following two examples: First, assume, as in Commissioner Wright’s Example 6, that Firm A makes an ex ante commitment on licensing to an SSO as a condition for the adoption of its IP as part of the standard; Firm A later sells its patent to Firm B which announces that it will no longer license under those terms.  Assume further that Firm B is able to show some efficiency gain from its breach of its predecessor’s commitment, but the consumer harm from the breach may be substantial.  (Reneging on Firm A’s commitment undermines the integrity of the standard-setting process, which could reduce the incentives to participate in the process or to implement the standard because of concerns of patent hold-ups, and ultimately affect consumers who would lose some of the benefits of interoperability which comes from standard setting.)  Under the proposed efficiency screen, the FTC cannot challenge the conduct, regardless of the magnitude and nature of the consumer harm.

Second, assume, as in Commissioner Wright’s Example 2, that Firm A invites Firm B to fix prices, but Firm B declines.  Assume further that Firms A and B operate in an industry that has a competitive culture with no history of collusion.  Thus, while the invitation to collude meets the harm to competition element of the test, the risk of competitive harm may be relatively small.  Though the invitation to collude has no efficiencies, whereas Firm B’s breach in the preceding example is found to have some efficiencies, the conduct in the preceding example is likely to cause more consumer harm than the invitation to collude under my facts.

Rather than set a categorical rule which allows the FTC to only challenge competitively harmful conduct with zero efficiencies, why not allow the FTC to make a judgment based on the evidence of harms and efficiencies, if any, that is available?

As for the third rationale, while the need to avoid false positives in ambiguous situations is an important consideration, so too is the need to avoid false negatives.  As I’ve suggested earlier, the social cost of a false positive is much smaller in a pure Section 5 case than in a Sherman Act action.  There is no threat of treble damages, or of automatic follow-on class action suits (that usually follow a successful Department of Justice antitrust action) for which the liability finding in the DOJ action would have a prima facie effect.  Even if a practice is erroneously identified as an unfair method of competition under Section 5—e.g., a delivered pricing term that, though anticompetitive, had efficiencies that were insufficiently recognized and, thus, wrongly enjoined–the cost of the false positive would be that the market may be deprived of the enjoined practice, and firms may have to look to an alternative practice.  But that is probably not a major social cost as firms are generally adept at finding substitutes.

Conduct Must Harm Competition:

Anticompetitive Effect as Definition of Harm to Competition.   I agree with Commissioner Wright that conduct challenged under Section 5 must have an anticompetitive effect; that is, “it must harm the competitive process and thereby harm consumers,” (Microsoft); harm to competitors alone will not suffice.  One difficulty lies in defining harm to the “competitive process,” which is susceptible to different interpretations.  To me, injury to the competitive process is different than having an effect on price or output, or even diminished quality.  It is less measurable, and the ultimate effect on consumers less obvious.  What would be considered indicia of harm to the competitive process and what would not?  Today, there are many markets with minimal or no price competition, or where firms compete primarily through creativity or product development.  In these types of markets, a price and output measure would be inappropriate; perhaps any forthcoming Guidelines could provide more guidance in this regard.

Anticompetitive Effect/Causation.  Causation is often intertwined with the concept of anticompetitive effect.  In deciding section 2 cases, courts have sometimes held that there is no anticompetitive effect unless the plaintiff can demonstrate that, absent the defendant’s conduct, the “bad” market situation would not have occurred.  For example, assume that a firm deceptively fails to disclose its patents in technologies to an SSO and the technologies were subsequently included by the SSO in industry standards.  However, there was an insufficient showing that, but for the firm’s deception, the SSO would not have included the technologies or would have imposed limits on the patent owner’s licensing fees as a condition for inclusion.  In that situation, courts have held that anticompetitive effect was not shown under Section 2 of the Sherman Act (Rambus).  Even assuming that this restrictive analysis of effect/causation is required under Section 2, though I don’t believe it is, it would seem appropriate to relax this requirement in a pure Section 5 case for the reasons that I have discussed: the absence of collateral impact of a Section 5 violation and the limited remedies that the FTC may seek.  It should be sufficient in this situation to show that the deceptive failure to disclose to the SSO the patents underlying the technology under consideration undermined and harmed the standard-setting processes.  And it should be unnecessary for the FTC to demonstrate that the firm’s deception enabled it to either acquire a monopoly or to avoid the imposition of patent licensing fee limits by the SSO.

Examples of Conduct that is Likely to Harm Competition.  I like both broad categories of conduct that Commissioner Wright described as likely to harm competition under Section 5: invitations to collude; and incipient Section 2 violations—conduct “to acquire market power that does not yet arise to the level of monopoly power” required under Section 2.

With respect to the category of incipient Section 2 violations, I would prefer a slightly broader reach to cover situations where a firm with monopoly power in one market uses that power in a second (complementary or collateral) market and causes considerable harm in the collateral market; however, the firm is unlikely to attain a monopoly in the second market but merely seeks to raise its rivals’ costs.  This claim would clearly not constitute a Section 2 violation today.  I believe that it could fit under Commissioner Wright’s second broad category of conduct likely to harm competition, provided that there is good evidence that competitive harm in the collateral market is likely.

Parallel exclusion, described by Professors Scott Hemphill and Tim Wu in a recent article, could constitute an additional broad category of conduct that could be appropriately addressed under Section 5.  As Professors Hemphill and Wu have explained, the economic effects of parallel exclusion by oligopolists are quite similar to that of exclusion by a monopolist.  Yet, neither section 1 nor section 2 of the Sherman Act can reach that conduct: the agreement element is absent, precluding a section 1 violation; and each firm does not have the requisite market share to meet the monopoly power requirement of section 2 though they collectively share a monopoly, thus precluding a section 2 violation.

In Antitrust & Competition, Federal Trade Commission, Intellectual Property, Justice Department, Patent, Section 5, Standard Setting, Unfair Methods of Competition Symposium , , , , , ,
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Terry Calvani and Angela Diveley on Injury to Competition and Efficiencies in Section 5 Claims

totmauthor —  1 August 2013

Terry Calvani is a former FTC Commissioner and Member of the Governing Board of the of the Competition Authority of Ireland. He is  currently Of Counsel at Freshfields Bruckhaus Deringer. Angela Diveley is an Associate at Freshfields Bruckhaus Deringer.

We welcome Commissioner Wright’s contribution in making the important point that the Commission’s unfair methods of competition (UMC) jurisdiction under Section 5 of the FTCA should be subject to limiting principles.  We make two observations about the policy statement and a more general observation about the FTC in light of its upcoming 100th anniversary.  The first is that injury to competition has long played a role in the debate concerning the appropriate scope of Section 5.  The second is that it is not yet clear what role efficiencies should play in a Section 5 claim.  Finally, we observe that Section 5 is one of a number of aspects of the FTC’s enforcement mandate that is ripe for reconsideration as we approach the centennial anniversary of both the statute and the agency.

Injury to Competition

It is now uncontroversial that the sine qua non of a violation of the antitrust laws is injury to competition.  Yet, the Commission has been struggling with what this assertion means for decades.  In its 1984 General Motors Corp. decision, the Commission declined to adopt the “spirit theory” and find a Section 5 violation where Complaint Counsel did not claim competition was harmed.  The case was brought under Section 2(d) of the Robinson-Patman Act, which prohibits the discriminatory payment of advertising allowances in connection with the resale of goods.  GM was accused of making advertising payments to GMC dealers that leased and rented cars they bought from GM while declining to make such payments to other leasing and rental companies.  The Robinson-Patman Act claim failed because the conduct at issue involved the leasing of cars rather than the resale, a necessary element of the claim.  Complaint Counsel proffered that the Commission should find a Section 5 violation because, although the conduct did not violate the letter of the Robinson-Patman Act, it violated the spirit of the Act.  The Commission in General Motors stated that it would “decline to apply [Section 5] in cases . . . where there has been no demonstration of an anticompetitive impact.”

Commissioner Wright’s proposal finds the General Motors decision to be too restrictive.  Similar to the lease/rental conduct described above, an invitation to collude falls short of a requisite element—an agreement—of a Section 1 claim.  However, many, including Commissioner Wright, would agree that failed invitations to collude should fall squarely within the boundaries of Section 5, even though they do not actually produce anticompetitive effects.  The Commission’s invitation to collude cases, as well as Commissioner Wright’s policy statement thus add to General Motors the ability to establish a Section 5 violation where the effect of the conduct is to “create[] a substantial risk of competitive harm.”  We do not disagree, but observe that this “gap filling” is likely quite small since the Department of Justice prosecutes most such cases as wire or mail fraud.  The universe of cases not involving these media, and thus otherwise unenforced, is likely very small.

Efficiencies

In an attempt to create more certainty for the business community, Commissioner Wright’s policy statement precludes the application of Section 5 where a respondent can proffer any efficiencies.  Commissioner Ohlhausen, on the other hand, has indicated her support of a “disproportionate harm test,” which would allow a Section 5 claim in the face of efficiencies but where the harm substantially outweighs any procompetitive benefits.  Commissioner Wright’s test, while providing certainty to the business community, risks torpedoing claims where substantial competitive harm is present.  Commissioner Ohlhausen’s test would allow for such claims, but risks uncertainty in determining what exactly constitutes disproportionate harm.

Commissioner Wright has explained that the Commission has a poor track record of balancing pro- and anticompetitive effects in a way that provides guidance to the business community.  Moreover, he points out, the limited application of Section 5 does not deprive the FTC of its ability to challenge conduct under the traditional antitrust laws.  He therefore has set forth a clear limitation on the applicability of Section 5 to utilize it in a way that he believes will allow the FTC to best enhance consumer welfare.

Commissioner Ohlhausen’s addition of the disproportionality test is somewhat more expansive in application than Commissioner Wright’s test.  She explains it would avoid the challenges associated with the precise balancing of pro- and anticompetitive effects.  She also states that the disproportionality test is consistent with Commission advocacy and Professor Hovenkamp’s preferred definition of exclusion in the context of Section 2.

Both of these positions have their merits, and we believe they have established the boundaries for the continuing discussion of the appropriate application of Section 5 in its “gap filling” role.

Conclusion

As we approach the FTC’s 100th anniversary, it is important to look at the boundaries of the appropriate utilization of Section 5 in the antitrust context.  Commissioner Wright’s proposed Section 5 policy statement is a timely contribution to the debate.

In light of the milestone anniversary, it is appropriate also to think about the procedural aspects of the FTC’s enforcement mandate.  There has been substantial criticism of the European Commission for its role as judge, jury, and prosecutor; this criticism also applies to the FTC’s Part 3 proceedings, under which the Commission both initiates cases and then acts as the ultimate fact finder.  That said, Part 3 has procedural protections that the EC does not, for example, impartial administrative law judges.  Nevertheless, we believe it important at this juncture to rethink whether the adjudicative process at the Commission is the best practice.

In Administrative Law, Antitrust & Competition, European Union, Federal Trade Commission, International, Regulation, Section 5, Unfair Methods of Competition Symposium , , , , , ,
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Tim Wu on Section 5 Guidelines Would Make the FTC Stronger and Better

totmauthor —  1 August 2013

Tim Wu is Isidor and Seville Sulzbacher Professor of Law at Columbia Law School

I personally believe that a policy statement on Section 5 would be a very good thing for the Federal Trade Commission, especially over the long run.  I think it would strengthen the agency, renew its distinct sense of purpose, and clarify the jobs of the attorneys who enforce the competition laws on a day-to-day basis.  And so, while there is some possibility that Josh Wright & I may disagree on aspects of substance, on the principle of having a policy statement, we agree entirely.

In this post I’ll explain a few reasons why I think a policy statement is a good idea, and then give a very rough idea of what I think a good one would look like; space obviously forecloses full treatment.

First, I think a policy statement would very useful internally.  It can be natural to think, when you’re working at an agency, that the broadest discretion possible would be best.  Who wants rules?  Without any constraints, you can do what you want, and change your mind later, free from having to consult some policy statement written years ago.  In practice, however, I think limits can be, counter-intuitively, both empowering and clarifying, especially in day-to-day practice.

Consider asking a musician to “write a song” – that’s hard.  Ask him to write country, blues, or R&B – and suddenly it’s easier.  And it’s even easier to “write in the style of 1970s heavy metal” or “a piano ballad like Elton John.”

Lawyers, like musicians, actually don’t do well with too much discretion.  The Anticompetitive Practices division is sometimes in this position.  The division knows that, in theory, the FTC has the power to go beyond the Sherman Act – but how far, it doesn’t really know, because nobody does.  Instead of the blank page serving as an inspiration, it becomes a trap.  I think, for day-to-day work of the division, a policy statement would provide a framework for trying to decide in a clearer way whether a complaint is worth looking into or not.  I would expect this to become more valuable over time.

Relatedly, for the agency’s work, a policy statement could be a useful thing for litigation.  If the agency can stand up in appellate court and say, (1) here are our standards for Section 5, and (2) here’s why we think this firm violated them, that strikes me as much stronger than something along the lines of, “we didn’t like what this firm was doing so we trotted out section 5 to deal with it.”  The former position seems much more likely to get at least Skidmore deference, the latter position, judicial mockery.

Externally, and I’m sure others have said this, for those subject to Section 5 (and by this I suppose I mean just about every business other than common carriers) a policy statement would obviously eliminate some uncertainty, particularly if the agency repudiated some of the wilder visions of what section 5 covers.   For example, I think the FTC could and should walk away from:

  • The “regardless … of its effect on competition” line in Sperry & Hutchison.
  • The “deconcentration” policy pursued in Kellogg.
  • Challenges to methods of operation or manufacturing (such as, for example, questionable tax practices that give an advantage, or something like failing to comply with minimum-wage laws).
  • Any targeting of pure parallel pricing.

The third beneficiary is the agency itself. The FTC has something of an identity problem.  Right now, the FTC’s Bureau of Competition is close to a copy of the Justice Department, minus the criminal element; the agency would be stronger with a clear identity of its own.  Of course, the consumer protection business helps distinguish the agency, but a Section 5 policy statement would help clarify what makes the agency distinctive in the competition sphere.

In a strange way the culprit here is the Sherman Act.  Having the Sherman Act jurisprudence to rely on has made the FTC somewhat lazy about developing its own jurisprudence and vision, the way it was supposed to.  Once upon a time it was unclear whether the FTC would have the power to enforce the Sherman Act at all; that surely would have forced the FTC to develop a clearer vision of what Section 5 meant.  Obviously I don’t see the FTC giving up on the Sherman Act – but it could use the policy statement to give some sense of what the FTC stands for.

* * *

These are the reasons I think a policy statement is a good idea.  What would an ideal policy statement contain?  On this, of course, there is more I’d like to say than I have room for.

I favor an approach that emphasizes elements and categories.  I think the FTC should require two elements in any section 5 case, namely: (1) unfair methods and (2) harm to competition or the competitive process.  Unfair methods is an actus reus, or conduct element, familiar to lawyers, and means conduct that is in some way deceptive, collusive, coercive, predatory, exclusionary, or otherwise oppressive.

While it’s at it, the agency should make clear, also, some of its criteria for deciding whether to bring a case — like its relative institutional expertise, the prospects of follow-on litigation by private plaintiffs, and the possibility of deference to other enforcement agencies or legal institutions.

In addition to elements, I think the Commission should create clearer categories that delineate what kind of Section 5 cases it will bring.  Three categories that come to mind are (1) conduct that violates the letter of the Sherman Act; (2) conduct contrary to the policy of the Sherman Act, though possibly beyond the letter; and (3) conduct that independently threatens the competitive process.  The third category is obviously the most interesting and open-ended, but I think it could be cabined by strict attention to the conduct and harm elements.  In particular, as in Section 2 cases, pro-competitive justifications would have to be taken very seriously.

There’s obviously much more to say, but I’ll end instead with a quote from Justice Cardozo about the FTC that I like.  “The careless and the unscrupulous must rise to the standards of the scrupulous and diligent. The Commission was not organized to drag the standards down.”

Tim Wu was formerly a senior advisor to the FTC, but the views expressed here are entirely his own.

In Antitrust & Competition, Federal Trade Commission, Section 5, Unfair Methods of Competition Symposium , , , , ,
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Thom Lambert on Guidelines for the FTC’s UMC Authority: What’s Clear and What’s Not?

Thom Lambert —  1 August 2013

Thom Lambert is Wall Family Foundation Chair in Corporate Law & Governance and Professor of Law at University of Missouri School of Law

In the last few weeks, two members of the FTC—Commissioners Josh Wright and Maureen Ohlhausen—have staked largely consistent positions on guidelines for implementation of the Commission’s “unfair methods of competition” (UMC) authority.  Their statements make two points that are, in my opinion, no-brainers.  Where the statements conflict, they raise an issue worthy of significant contemplation.  I’ll be interested to hear others’ thoughts on that matter.

First, the no-brainers.

No-Brainer #1:  We Need Guidance on the Scope of the FTC’s UMC Authority.

Ours is a government of laws and not of men.  That means, in the words of F. A. Hayek, “that government in all its actions [must be] bound by rules fixed and announced beforehand—rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances and to plan one’s individual affairs on the basis of this knowledge.”  According to the classic statement by A.V. Dicey, the “Rule of Law” means “the absolute supremacy or predominance of regular law as opposed to arbitrary power, and excludes the existence of arbitrariness, of prerogative, or even of wide discretionary authority on the part of government.”  As it stands, Section 5’s prohibition of “unfair methods of competition” is so indeterminate and discretionary that it can hardly constitute law.  The text itself is woefully deficient for, as the Second Circuit observed in analyzing the provision, “[t]he term ‘unfair’ is an elusive concept, often depending upon the eye of the beholder.”  Nor has the caselaw on Section 5 developed in way that lets business planners know what they must and must not do to avoid liability.  The sort of guidance Commissioners Wright and Ohlhausen are proposing, then, is badly needed.

No-Brainer #2:  The FTC Should Not Challenge a Practice Under Its UMC Authority Unless Doing So Is Necessary to Avert an Actual or Likely Harm to Competition.

Commissioners Wright and Ohlhausen agree that for the FTC to bring a “stand-alone” Section 5 action (i.e., one not simply alleging behavior that violates the Sherman Act), the challenged practice must result in, or likely result in, significant harm to competition.  Such harm consists of a reduction in overall market output, usually evinced by an increase in price.  It does not result from mere harm to competitors.  Thus, doing a terrible, horrible, no good, very bad thing to your competitor—while perhaps tortious—would not constitute an unfair method of competition if the action did not, and was not likely to, reduce overall market output.

The reason for this requirement, which may sound harsh and extreme to non-antitrusters, is simple:  Business conduct that hurts competitors without reducing overall market output does not usually leave market output unchanged; rather, it usually enhances market output and thereby benefits consumers.  If the FTC seeks to condemn competitor-harming conduct that doesn’t harm competition, it will likely end up hurting consumers.  In the Brown Shoe case, for example, the FTC condemned exclusive dealing by a shoe manufacturer where harm to competition was unrealistic but competitors were injured.  The effect was to shut down more efficient distribution practices and thereby hurt consumers.  If the FTC is to remain a consumer protection agency, it must limit its UMC challenges to acts causing or threatening significant competitive injury.

That brings us to a somewhat difficult policy question.

The Contestable Issue:  How Broad Should the Safe Harbor for Efficiency-Creating Conduct Be?

Commissioner Wright has taken the position that a second prerequisite to a stand-alone UMC challenge should be that the practice at issue lacks any cognizable efficiencies.  Commissioner Ohlhausen, by contrast, would permit a challenge (assuming her other pre-requisites, which are largely subsumed in Commissioner Wright’s first pre-requisite, are satisfied) when the practice at issue either creates no cognizable efficiencies or “results in harm to competition that is disproportionate to its benefits to consumers and to the economic benefits to the defendant, exclusive of the benefits that may accrue from reduced competition.”  Ohlhausen is careful to emphasize that she is not proposing “to balance precisely” procompetitive versus anticompetitive effects.  Instead, the latter prong of her disjunctive pre-requisite is satisfied only if the surplus lost from reduced output significantly outweighs the efficiencies created by the practice.

As a practical matter, the dispute here may reduce to, “What must a firm show to come within a safe harbor from stand-alone UMC liability?”  According to Commissioner Wright, establishing cognizable efficiencies from the practice at issue will keep you safe.  Commissioner Ohlhausen would require a firm to establish such efficiencies and show that they are not significantly outweighed by lost surplus from reduced output.

So whose approach is better?  I’ll confess that I’ve gone back and forth on that question over the last few days.  On the one hand, Commissioner Wright’s position seems awfully pro-defendant: a tiny increase in productive efficiency stemming from a practice could insulate the practice even if it occasioned huge allocative inefficiencies.  Do we really need so expansive a safe harbor here, given that UMC judgments occasion only injunctive relief (cease and desist orders) and cannot give rise to follow-on private treble damages actions?  On the other hand, Commissioner Ohlhausen’s safe harbor seems pretty unreliable—after-the-fact balancing of competitive effects is always tricky—and there are reasons to worry about follow-on private litigation and the chilling effect it may create.  (For example, as Commissioner Kovacic observed in his N-Data dissent, many states have “little FTC Acts,” a number of which are privately enforceable in treble damages actions.)

At this point, I’m inclined to side with Commissioner Wright on the scope of the safe harbor.  There are few practices that occasion genuine harm to competition but are not covered by the Sherman and Clayton Acts, and most of those—e.g., attempts to collude, market power-creating naked acts of exclusion by firms previously lacking market power—occasion no efficiencies and thus would not come within Commissioner Wright’s broader safe harbor.  See Wright’s Examples 2, 3, 4, 5, 7, 8.  I can think of only one obvious category of conduct that (1) harms competition, (2) is not covered by the Sherman or Clayton Act, and (3) would fall within Commissioner Wright’s, but not Commissioner Ohlhausen’s, safe harbor: oligopolistic coordination using facilitating devices that were adopted unilaterally.  Several prominent antitrust scholars have argued that such conduct should be illegal, see, e.g., Richard A. Posner, Oligopoly and the Antitrust Laws: A Suggested Approach, 21 Stan. L. Rev. 1562 (1969); Herbert Hovenkamp, The Antitrust Enterprise 32-35, 128-34 (2005), and Professor Hovenkamp has argued that it should be policed under the FTC’s UMC authority.  See Herbert Hovenkamp, The Federal Trade Commission and the Sherman Act, 62 Fla. L. Rev. 871, 879-82 (2010).  In light of the judicial hostility toward that approach as evidenced in cases such as Ethyl and Boise Cascade, however, I would not be inclined to exchange Commissioner Wright’s broader safe harbor for Commissioner Ohlhausen’s narrower one in the hopes of pursuing such facilitating devices.

Of course, I may be overlooking other categories of anticompetitive conduct that are not covered by the Sherman and Clayton Acts and would be condemned under Commissioner Ohlhausen’s, but not Commissioner Wright’s, approach.  If anyone can think of something obvious, please let me know.

Regardless of how we resolve the controversy over the scope of any “efficiencies safe harbor,” Commissioners Wright and Ohlhausen deserve our thanks and admiration for pressing a long overdue issue and working to improve the state of American competition law.  I look forward to hearing others’ thoughts on the commissioners’ proposals.

In Antitrust & Competition, Exclusive Dealing, Federal Trade Commission, Section 5, Unfair Methods of Competition Symposium , , , , , , ,
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Dan Crane on Section 5 and Principles of Self-Restraint

Dan Crane —  1 August 2013

Dan Crane is Sr. Professor of Law and Associate Dean for Faculty and Research at the University of Michigan Law School

I’m delighted that Josh and Maureen have launched a concerted effort to have the FTC articulate clear principles for Section 5 enforcement.  My own views on the proper scope of Section 5 are articulated in my book The Institutional Structure of Antitrust Enforcement.  I won’t attempt a comprehensive regurgitation here, but just offer three quick observations that may be relevant to the present debate.

First, the most important reason for the articulation of clear Section 5 principles is not to give greater guidance to the business community, although that’s important too.  The most important reason is to articulate principles of self-restraint that Article III courts can invoke in reviewing Commission decisions applying Section 5 in spaces that Sections 1 and 2 of the Sherman Act would not apply under current judicial doctrine.  History suggests that courts jealously guard their interpretations of the Sherman Act and are reluctant to allow the FTC to effectively override them based on assertions of Section 5 independence.  The courts rejected FTC efforts to wield an independent Section 5 in the late 70s and early 80s.  They will be inclined to do so again if the FTC merely asserts “Section 5 is a prophylactic statute; trust us to wield it to good ends.”  By articulating principles that delimit how far the FTC can go under Section 5, the FTC would provide courts assurances that meaningful judicial review can still occur.

Second, and in the same vein, the Commission needs to articulate principles not just about how far it can go under Section 5 but also about how far it cannot go.  It needs to say, in effect, “courts, here is how you will know if we crossed the line.”  These limitation principles need to be concrete enough that defendants have a reasonable opportunity to show through objective evidence that their conduct does not contravene the statute.  In other words, the Commission needs to explain how its view of Section 5 independence is not a plea for greater administrative discretion, which courts will be unlikely to afford, but for an expanded scope of antitrust coverage under principles that can be fairly contested in litigation.

Shifting to the substance of these limitation principles, my third point concerns one of the criteria proposed by Josh—that the challenged conduct have no cognizable efficiency benefits.  I agree with the thrust of Josh’s suggestion, but would suggest a small qualification.   There is virtually no anticompetitive conduct that doesn’t produce some efficiency.  Heck, even the proverbial blowing up of the competitor’s factory might product some efficiency (the rebuilt factory might be 3% more efficient than the old one and hence might spur greater competition in the long run).  Cartels often have some efficiency benefit—they reduce planning costs, smooth prices to customers, etc.  So if the criterion were that the challenged conduct had to be absolutely devoid of efficiency benefits, that might create a null set of independent Section 5 cases.  I would suggest, as a qualification, that the criterion be akin to that used to justify the per se rule—that the challenged conduct is so unlikely to have redeeming efficiencies that the law is justified in not inquiring into whether there are in fact efficiencies.  This is not to say that Section 5 cases would disallow inquiry into efficiencies, but rather that the Commission would need to show that any claimed efficiencies were so trivial or speculative compared to the clear competitive harms that the conduct was similar in kind to price fixing, market division, or bid rigging.  The paradigmatic Section 5 cases—invitations to collude and fraud—easily fit that bill.

In Amazon, Antitrust & Competition, Cartels, Federal Trade Commission, Platforms, Section 5, Unfair Methods of Competition Symposium , , , ,
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Joe Sims on First Principles of Section 5 Authority

totmauthor —  1 August 2013

Joe Sims is a Partner at Jones Day

I find that discussions on antitrust policy, if they are not to devolve into simple recitations of preferred industrial policy, are most focused when grounded in first principles and, frequently, a little history.  So a few words on both with respect to Section 5, starting with the history.

The FTC Act, in addition to being an early manifestation of the “can we help” school of antitrust, was a reaction to the perceptions of some that the Sherman Act, two decades old at the time, had not been enforced aggressively enough.  Indeed, there was considerable concern that the Supreme Court’s invention, just a couple of years earlier in the Standard Oil decision, of a Rule of Reason doctrine in interpreting the otherwise very broad words of the Sherman Act was going to effectively gut the statute.  Of course, that interpretation almost certainly saved the Sherman Act from an early demise, and opened the door for the extremely wide-ranging enforcement regime we have today.  So in large part, the premises underlying the FTC Act (including the now quaint notion that FTC Commissioners would be business experts) have proven completely wrong.  Does anyone really want to argue today that Standard Oil’s creation of a broad but limiting principle for the unworkable literal language of the Sherman Act was a bad idea?

The main point to take from this history is that the world has changed just a little bit in the last 100 years, so whatever Congress may have intended (of course, the notion of Congressional intent is itself almost a complete oxymoron) in 1914 tells us virtually nothing about what is sensible today.  So I hope we do not hear today the silly argument that the authority exists, so therefore we must use it, or the even sillier argument that if the FTC does not use this “unique” authority, it might as well go out of business.  Whether we need two antitrust agencies is a very valid question, but as we have seen for the last hundred years, Section 5 has very little to add to that debate.

So the real issue today is not what Congress intended a century ago, but what is sensible today – in a very different world.  And to intelligently answer that, we need to return to first principles of competition policy.  Here is how I would phrase the question:  Is even intelligent application (a heroic assumption, no doubt, but appropriate for a policy debate) of an unbounded statutory power by whoever happens to be the majority of FTC Commissioners at any given time likely to improve the competitive environment in the US?

It is very difficult for me to see how that is possible, and even harder to see how it is likely.  We know what the downside is.  Remember Mike Pertschuck saying that Section 5 could possibly be used to enforce compliance with desirable energy policies or environmental requirements, or to attack actions that, in the opinion of the FTC majority, impeded desirable employment programs or were inconsistent with the nation’s “democratic, political and social ideals.”  The two speeches he delivered on this subject in 1977 were the beginning of the end for increased Section 5 enforcement in that era, since virtually everyone who heard or read them said:  “Whoa!  Is this really what we want the FTC to be doing?”

Oh, but you say:  this is unfair, since that was then and this is now.  No FTC Chair or Commissioner would take this position today.  Well, I refer you to Jon Leibowitz’s concurring opinion in Rambus, where he says that Section 5 is “a flexible and powerful Congressional mandate to protect competition from unreasonable restraints, whether long-since recognized or newly discovered, that violate the antitrust laws, constitute incipient violations of those laws, or contravene those laws’ fundamental policies.”  Of course, unlike Mike Pertschuck, he does recognize that there must be some constraints, so his version of Section 5 would “only” reach actions that are “collusive, coercive, predatory, restrictive or deceitful, or otherwise oppressive, and without a justification grounded in legitimate, independent self-interest.”  Does that make you feel better?

Let’s be honest.  Enforcement of Section 5, if it actually becomes a regular part of the FTC toolbox, will depend solely on the common sense, good faith, and modesty of the FTC Commissioners as a group.  For purposes of this discussion, we can even assume the former two traits, although history tells us that they are not universal in this sample, because modesty will surely be the toughest test to meet.  By and large, people become FTC Commissioners to do things, not to be modest.  The Rambus dissent quotes, apparently approvingly, a statement from one Senator at the time of the FTC Act debate that “five good men [a reflection of the times] could hardly make mistakes about whether a particular practice is contrary to good morals or not.”  Really?  Don’t we have irrefutable evidence over the years that this assumption about government is clearly wrong?  But even if you don’t agree with that perception, aren’t we well past the time that we are willing to let five men or women enforce their personal moral or social or even business views with the force of law?  As Leibowitz’s outline of “reasonable” criteria shows – and as in fact the Commission’s history clearly demonstrates — if Section 5 is in the toolbox, it will be impossible to resist stretching the language to meet the perceived ill of the day, especially if and when it is too hard – meaning not enough factual or economic evidence – to carry the burden of a Sherman Act challenge.  And who knows what tomorrow’s reverse payment issue will be?

So there is a lot of downside to increased utilization of Section 5.  What is the argument on the other side of the scale?  Is there any need  — literally, any need at all — for Section 5 enforcement today?  If we did not have this anachronistic vestige of the past already on the books, would there be a groundswell of support to pass a new law giving the FTC this authority?  Is there anyone participating in this symposium that is willing to argue that there is any chance that a statue as unhinged as this to any statement of need or standard of application could become law today?  (Dodd-Frank and Obamacare are not good answers, even if they meet this prescription; the policy support in this area is not anywhere near the level of financial manipulation or health care.)

I have yet to hear anyone answer this question persuasively.  To me, it is instructive that the best illustration – certainly the most common example — anyone can give for an actual “need” for Section 5 is to attack invitations to collude – which, in case anyone has not noticed, involves conduct that by definition has no effect on anyone.  So the best argument is that we need to accept all the risks of Section 5 enforcement in order to be able to attack potential anticompetitive agreements that never actually happened?  Would we prefer that people not seek to collude?  Sure.  Does it really matter to anyone if they try and fail?  No.  And this is the best argument anyone can think of after 100 years of trying?  It does not pass the laugh test.

Section 5 is like your appendix – harmless enough if ignored and unused, but very dangerous if aroused or active.  We have already exceeded the optimal number of Section 5 cases this century, and we are only in the 14th year.  Time to stop for at least the next eight decades.  Let’s renew the debate in 2100.

In Antitrust & Competition, Federal Trade Commission, International, International Trade, Section 5, Unfair Methods of Competition Symposium , , , , ,
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Welcome to the TOTM Blog Symposium: Regulating the Regulators–Guidance for the FTC’s Section 5 Unfair Methods of Competition Authority

Geoffrey Manne —  1 August 2013

Regulating the Regulators: Guidance for the FTC’s Section 5 Unfair Methods of Competition Authority

August 1, 2013

Truthonthemarket.com

Welcome!

We’re delighted to kick off our one-day blog symposium on the FTC’s unfair methods of competition (UMC) authority under Section 5 of the FTC Act.

Last month, FTC Commissioner Josh Wright began a much-needed conversation on the FTC’s UMC authority by issuing a proposed policy statement attempting to provide some meaningful guidance and limits to the FTC’s authority. Meanwhile, last week Commissioner Maureen Ohlhausen offered her own take on the issue, echoing many of Josh’s points and further extending the conversation. Considerable commentary—and even congressional attention—has been directed to the absence of UMC authority limits, the proper scope of that authority, and its significance for the businesses regulated by the Commission.

Section 5 of the FTC Act permits the agency to take enforcement actions against companies that use “unfair or deceptive acts or practices” or that employ “unfair methods of competition.” The Act doesn’t specify what these terms mean, instead leaving that determination to the FTC itself.  In the 1980s, under intense pressure from Congress, the Commission established limiting principles for its unfairness and deception authorities. But today, coming up on 100 years since the creation of the FTC, the agency still hasn’t defined the scope of its UMC authority, instead pursuing enforcement actions without any significant judicial, congressional or even self-imposed limits. And in recent years the Commission has seemingly expanded its interpretation of its UMC authority, bringing a string of standalone Section 5 cases (including against Intel, Rambus, N-Data, Google and others), alleging traditional antitrust injury but avoiding the difficulties of pursuing such actions under the Sherman Act (or, in a few cases, bringing separate claims under both Section 5 and Section 2).

We hope this symposium will provide important insights and stand as a useful resource for the ongoing discussion.

We’ve lined up an outstanding and diverse group of scholars and practitioners to participate in the symposium.  They include:

  • David Balto, Law Offices of David Balto [1] [2]
  • Terry Calvani, Freshfields [1]
  • James Cooper, GMU Law & Economics Center [1] [2]
  • Dan Crane, Michigan Law [1]
  • Paul Denis, Dechert [1]
  • Angela Diveley, Freshfields [1]
  • Gus Hurwitz, Nebraska Law [1] [2]
  • Thom Lambert, Missouri Law [1]
  • Marina Lao, Seton Hall Law [1]
  • Tad Lipsky, Latham & Watkins [1]
  • Geoffrey Manne, Lewis & Clark Law/ICLE [1]
  • Joe Sims, Jones Day [1]
  • Josh Wright, FTC [1]
  • Tim Wu, Columbia Law [1]

The first of the participants’ initial posts will appear momentarily, with additional posts appearing throughout the day. We hope to generate a lively discussion, and expect some of the participants to offer follow up posts as well as comments on their fellow participants’ posts—please be sure to check back throughout the day and be sure to check the comments. We hope our readers will join us in the comments, as well.

Once again, welcome!

In Antitrust & Competition, Federal Trade Commission, Google, Platforms, Section 5, Unfair Methods of Competition Symposium , , , , , ,
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TOTM Blog Symposium Thursday, Aug. 1: Regulating the Regulators–Guidance for the FTC’s Section 5 Unfair Methods of Competition Authority

Thom Lambert —  26 July 2013

Section 5 of the FTC Act permits the agency to take enforcement actions against companies that use “unfair or deceptive acts or practices” or that employ “unfair methods of competition.” The Act doesn’t specify what these terms mean, instead leaving that determination to the FTC itself.  In the 1980s, under intense pressure from Congress, the Commission established limiting principles for its unfairness and deception authorities. But today, coming up on 100 years since the creation of the FTC, the agency still hasn’t defined the scope of its unfair methods of competition (UMC) authority, instead pursuing enforcement actions without any significant judicial, congressional or even self-imposed limits. And in recent years the Commission has seemingly expanded its interpretation of its UMC authority, bringing a string of standalone Section 5 cases (including against Intel, Rambus, N-Data, Google and others), alleging traditional antitrust injury but avoiding the difficulties of pursuing such actions under the Sherman Act.

Considerable commentary — and even congressional attention — has been directed to the absence of UMC authority limits, the proper scope of that authority, and its significance for the businesses regulated by the Commission.

Last month, FTC Commissioner Josh Wright began a much-needed conversation on the matter by issuing a proposed policy statement to attempt to provide some meaningful limits to the FTC’s UMC authority.  And just yesterday, Commissioner Maureen Ohlhausen delivered a speech setting forth her own views about guidelines for UMC enforcement.

In light of the significance of this issue and the momentum created by Commissioner Wright’s proposed policy statement, Truth on the Market is hosting a blog symposium on the scope of the FTC’s UMC authority, Commissioner Wright’s proposed statement, and whether and how the Commission’s authority should be constrained.

We’ve lined up an outstanding and diverse group of scholars and practitioners to participate in the symposium.  They include:

  • David Balto, Law Offices of David Balto
  • Terry Calvani, Freshfields
  • James Cooper, GMU Law & Economics Center
  • Dan Crane, Michigan Law
  • Paul Denis, Dechert
  • Angela Diveley, Freshfields
  • Gus Hurwitz, Nebraska Law
  • Marina Lao, Seton Hall Law
  • Tad Lipsky, Latham & Watkins
  • Joe Sims, Jones Day (tentative)
  • Tim Wu, Columbia Law
  • Thom Lambert, Missouri Law
  • Geoff Manne, Lewis & Clark Law/ICLE

In addition, Commissioner Wright has agreed to offer a responsive post or two.

The symposium will take place next Thursday, August 1.  Posts will appear periodically throughout the morning, and we hope to generate a lively discussion in comments to participants’ posts.

We hope you will join us and add your voice to the comments.

In Antitrust & Competition, Federal Trade Commission, Google, Platforms, Section 5, Unfair Methods of Competition Symposium
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