FTC Announces "Enforcement Principles" Governing Section 5 Competition Authority

Alerts / August 17, 2015

This week, FTC Chairwoman Edith Ramirez announced that the FTC had voted to issue a formal statement setting forth three “Enforcement Principles” governing its authority over “unfair methods of competition.” As Ramirez explained them, the principles that guide the FTC, when determining what conduct constitutes a “standalone” Section 5 violation, are as follows:

  1. The FTC will act with the goal of promoting consumer welfare, as that term is understood in established antitrust jurisprudence;
  2. The FTC will consider whether conduct harms competition or the competitive process, factoring in any pro-competitive efficiencies or legitimate business justifications; and
  3. The FTC will be less likely to invoke its standalone Section 5 authority when its powers to enforce the Sherman Act and/or Clayton Act would be sufficient.

The statement issued by the FTC offers only “principles” but lists no examples of conduct that would – or would not – be considered a standalone Section 5 violation. During her speech, however, Ramirez mentioned three types of conduct that she claimed illustrated the application of these principles: (1) invitations to collude; (2) the exchange, by competitors, of competitively sensitive information not related to pricing; and (3) patent holders’ breaches of their commitments to license certain patents on fair and reasonable terms. In each of these cases, Ramirez said, the conduct at issue diminished consumer welfare and lacked pro-competitive justifications, but would not have violated the Sherman or Clayton Act.

Ramirez made clear that she continued to believe that the FTC’s Section 5 authority should develop according to a common law, case-by-case approach rather than through rules proscribing particular acts or conduct. She explained that Congress intended Section 5 to be flexible to give the agency the ability to adapt to changing markets and new, unforeseen types of anticompetitive conduct.

The chairwoman acknowledged that some might find the statement “too general” to provide any concrete guidance for the business community, but explained that it was “concise” because it uses well-understood antitrust terms that derive their content from 125 years of interpretation of the Sherman and Clayton Acts. She acknowledged that the statement did not include a detailed list of proscribed conduct, but stated that this was consistent with the common law approach generally taken in antitrust law, an approach she believed was also appropriate in the Section 5 context.

Chairwoman Ramirez emphasized repeatedly her belief that the statement signaled no change in the agency’s priorities or its approach to its standalone Section 5 authority, but merely made explicit the principles that have long guided the agency in this area. These principles, she believes, were already apparent from the FTC’s standalone Section 5 enforcement activity in recent years.

Authorship Credit: Carl W. Hittinger

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