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<h5>Key Takeaways</h5>
<ul>
 	<li>The Federal Trade Commission (FTC) issued a historic statement, setting out a new framework for assessing “standalone” claims of “unfair methods of competition” that can be brought by the FTC alone under Section 5 of the FTC Act and that do not independently violate the Sherman, Clayton or Robinson-Patman acts.</li>
 	<li>Although the FTC’s new interpretation of Section 5 is far broader and more aggressive than it has been in the past, it is unclear what conduct the FTC will deem “unfair” going forward and what criteria it will use to make that determination.</li>
 	<li>One commissioner dissented from the FTC’s statement, fearing that its unclear framework will create uncertainty for businesses, undermine consumer welfare and competition, and delegitimize the FTC’s enforcement efforts.</li>
</ul>
<h5>Introduction</h5>
Following its repudiation of its prior enforcement regime in July 2021, the FTC on Nov. 10 issued a Statement Regarding the Scope of “Unfair Methods of Competition” Under Section 5 of the Federal Trade Commission Act (Statement). The Statement, however, creates significant uncertainty for businesses seeking to predict (1) what conduct will be deemed by the FTC to run afoul of Section 5 and (2) what analytical structure the FTC will use to make that determination. We have considerable experience analyzing<a title="" href="#_ftn1" name="_ftnref1">[1]</a> and successfully litigating<a title="" href="#_ftn2" name="_ftnref2">[2]</a> the FTC’s authority under Section 5. We will continue to monitor this significant development as it unfolds and provide additional client alerts along with our analysis.
<h5>Background</h5>
Congress passed the FTC Act in 1914 to supplement the Sherman and Clayton acts. Section 5 allows the FTC to investigate and prosecute, among other things, “unfair methods of competition,” which includes a broader range of conduct than the conduct prohibited by the Sherman and Clayton acts, such as “incipient violations of those statutes” and “conduct which … is a close violation or is contrary to their spirit.”<a title="" href="#_ftn3" name="_ftnref3">[3]</a> Unlike criminal prosecutions and private civil actions for treble damages under the Sherman, Clayton and Robinson-Patman acts, however, claims under Section 5 of the FTC Act can be brought only by the FTC in an administrative proceeding and can seek only injunctive relief (if awarded by a federal court in a subsequent action).<a title="" href="#_ftn4" name="_ftnref4">[4]</a>

In August 2015, the FTC explained that in Section 5 actions alleging conduct “that fall[s] outside the scope of the Sherman and Clayton [a]cts,” the FTC is “guided by the public policy underlying the [other] antitrust laws, namely, the promotion of consumer welfare,” and applies “a framework similar to the rule of reason.”<a title="" href="#_ftn5" name="_ftnref5">[5]</a> The rule of reason was developed over time by courts in Sherman Act and Clayton Act cases and allows consideration of all the circumstances – including actual or likely harm to competition, market power, market definition and efficiency justifications – when deciding whether a defendant’s particular conduct is actually anticompetitive and thus illegal. Application of the rule of reason to determine whether conduct is an “unfair method of competition” is in line with the FTC’s decadeslong practice of prosecuting and adjudicating Section 5 actions on “a flexible case-by-case basis.”<a title="" href="#_ftn6" name="_ftnref6">[6]</a> The FTC also confirmed that it would continue to rely “on the Sherman and Clayton [a]cts as its primary enforcement tools.”<a title="" href="#_ftn7" name="_ftnref7">[7]</a>

In July 2021, however, the FTC stated that it would no longer apply that framework. Instead, it proclaimed, it would more aggressively “identify and combat unfair methods of competition [under Section 5] even if they do not violate a separate antitrust statute” and would “consider whether to issue new guidance or to propose rules that will further clarify the types of practices that warrant scrutiny under this provision.”<a title="" href="#_ftn8" name="_ftnref8">[8]</a> In its recent Statement, the FTC described “the most significant general principles” that will guide its interpretation of Section 5 going forward.
<h5>Analysis</h5>
To violate Section 5 under these new “principles,” conduct must be “a method of competition” that is “unfair, meaning that the conduct goes beyond competition on the merits.”<a title="" href="#_ftn9" name="_ftnref9">[9]</a> The FTC explained that whether conduct “goes beyond competition on the merits” depends on whether it (1) is “coercive, exploitative, collusive, abusive, deceptive, predatory[] or involve[s] the use of economic power of a similar nature”; and (2) “tend[s] to negatively affect competitive conditions.”<a title="" href="#_ftn10" name="_ftnref10">[10]</a> Significantly, however, these factors will be assessed on a “sliding scale,” such that “[w]hen the indicia of unfairness are clear, less may be necessary to show a tendency to negatively affect competitive conditions.”<a title="" href="#_ftn11" name="_ftnref11">[11]</a>

The lone dissenting commissioner, Christine S. Wilson, warned that the FTC’s new approach replaces case-by-case adjudications, which employ the well-understood structure of the rule of reason fleshed out by 125 years of case law under the Sherman Act and consider the anticompetitive impact of the conduct, with a “quick[-]look analysis that approximates per se condemnation.”<a title="" href="#_ftn12" name="_ftnref12">[12]</a> Specifically, Wilson noted that as to the first factor, the “Statement provides no content for the list of adjectives that may signal the presence of ‘unfair’ methods of competition” and thus provides no guidance to businesses.<a title="" href="#_ftn13" name="_ftnref13">[13]</a> Moreover, Wilson argued that the FTC’s sliding-scale approach could allow conduct to be condemned merely because it is “facially unfair” under the first factor or merely has a “tendency” to affect competition under the second, with no analysis of market conditions, market power, or actual or likely anticompetitive effects.<a title="" href="#_ftn14" name="_ftnref14">[14]</a> Significantly, Wilson also noted that the FTC “hedged” on whether and when businesses would be permitted to present evidence of legitimate efficiency and procompetitive effects that could justify conduct that is found “facially unfair.”<a title="" href="#_ftn15" name="_ftnref15">[15]</a> And even where the FTC does consider anticompetitive effects and procompetitive justifications under the second factor, its Statement indicates that it will consider not only the interests of consumers – the central tenet of antitrust law for the past 50 years – but also “labor, competitive rivals[] and unnamed others.”<a title="" href="#_ftn16" name="_ftnref16">[16]</a> In short, Wilson fears that the FTC’s new approach is based on poorly defined criteria that have little or nothing to do with whether the conduct actually or likely inhibits competition to the detriment of consumers and will give the FTC “the authority to summarily condemn essentially any business conduct it finds distasteful,” whether illegal or not under the Sherman, Clayton or Robinson-Patman acts.<a title="" href="#_ftn17" name="_ftnref17">[17]</a>

The “general principles” set out in the FTC’s historic Statement raise more questions than they answer. It is clear that the FTC intends (and in some cases has already begun) to investigate large swaths of conduct that previously did not fall under Section 5 or any other existing federal or state antitrust law. But the FTC provided only a “non-exhaustive” list of conduct that it believes constitutes “incipient violation[s]” or “violat[ions] of the spirit of the antitrust laws” under Section 5.<a title="" href="#_ftn18" name="_ftnref18">[18]</a> It remains to be seen what other conduct the FTC will decide falls under these umbrella phrases, how exactly the FTC will apply its new framework and what violations the courts will uphold on review. Stay tuned.
<div>

<hr />

<div id="ftn1">

<a title="" href="#_ftnref1" name="_ftn1">[1]</a> <em>See, e.g.</em>, “Symposium on Section 5 of the Federal Trade Commission Act,” bakerlaw.com (Feb. 26, 2015), Carl Hittinger &amp; Jeffry Duffy, <em>Symposium Advances Debate over FTC’s Section 5 Enforcement Powers</em>, The Legal Intelligencer 251:64 (Apr. 6, 2015) C. Hittinger &amp; M. Oates, “FTC Finally Offers ‘Principles’ Governing Section 5 Powers, but Specific Guidance to Businesses Still Lacking” (2015).

</div>
<div id="ftn2">

<a title="" href="#_ftnref2" name="_ftn2">[2]</a> <em>See, e.g.</em>, “US Closes Antitrust Probe of Church &amp; Dwight,” reuters.com (July 13, 2012), https://www.reuters.com/article/churchdwight-ftc-idCNL2E8IDEMQ20120713; <em>see also</em> <em>Church &amp; Dwight v. Mayer Laboratories</em>, 2012 WL 1231801 (N.D. Cal. Apr. 12, 2012), available at <a href="https://geoffmanne.files.wordpress.com/2012/04/cd_msj_final.pdf">https://geoffmanne.files.wordpress.com/2012/04/cd_msj_final.pdf</a>.

</div>
<div id="ftn3">

<a title="" href="#_ftnref3" name="_ftn3">[3]</a> <em>E.I. du Pont de Nemours &amp; Co. v. F.T.C.</em>, 729 F.2d 128, 136–37 (2d Cir. 1984).

</div>
<div id="ftn4">

<a title="" href="#_ftnref4" name="_ftn4">[4]</a> 15 U.S.C. § 45(b).

</div>
<div id="ftn5">

<a title="" href="#_ftnref5" name="_ftn5">[5]</a> Statement of Enforcement Principles Regarding “Unfair Methods of Competition” Under Section 5 of the FTC Act, 80 Fed. Reg. 57056 (Sept. 21, 2015).

</div>
<div id="ftn6">

<a title="" href="#_ftnref6" name="_ftn6">[6]</a> <em>Id.</em>

</div>
<div id="ftn7">

<a title="" href="#_ftnref7" name="_ftn7">[7]</a> <em>Id.</em>

</div>
<div id="ftn8">

<a title="" href="#_ftnref8" name="_ftn8">[8]</a> Statement of the FTC on the Withdrawal of the Statement of Enforcement Principles Regarding “Unfair Methods of Competition” Under Section 5 of the FTC Act at 1, 7 (July 9, 2021), <a href="https://www.ftc.gov/system/files/documents/public_statements/1591706/p210100commnstmtwithdrawalsec5enforcement.pdf">https://www.ftc.gov/system/files/documents/public_statements/1591706/p210100commnstmtwithdrawalsec5enforcement.pdf</a>.

</div>
<div id="ftn9">

<a title="" href="#_ftnref9" name="_ftn9">[9]</a> Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the FTC Act at 8 (Nov. 10, 2022), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/P221202Section5PolicyStatement.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/P221202Section5PolicyStatement.pdf</a>.

</div>
<div id="ftn10">

<a title="" href="#_ftnref10" name="_ftn10">[10]</a> <em>Id.</em> at 9.

</div>
<div id="ftn11">

<a title="" href="#_ftnref11" name="_ftn11">[11]</a> <em>Id.</em>

</div>
<div id="ftn12">

<a title="" href="#_ftnref12" name="_ftn12">[12]</a> Dissenting Statement of Commissioner Christine S. Wilson (Dissenting Statement) at 6 (Nov. 10, 2022), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/P221202Section5PolicyWilsonDissentStmt.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/P221202Section5PolicyWilsonDissentStmt.pdf</a>.

</div>
<div id="ftn13">

<a title="" href="#_ftnref13" name="_ftn13">[13]</a> <em>Id. </em>at 6.

</div>
<div id="ftn14">

<a title="" href="#_ftnref14" name="_ftn14">[14]</a> <em>Id.</em> at 4; <em>see also</em> Nov. 10, 2022 Policy Statement at 9-10.

</div>
<div id="ftn15">

<a title="" href="#_ftnref15" name="_ftn15">[15]</a> Dissenting Statement at 6, 11.

</div>
<div id="ftn16">

<a title="" href="#_ftnref16" name="_ftn16">[16]</a> <em>Id.</em> at 6; <em>accord </em>Nov. 10, 2022 Policy Statement at 9.

</div>
<div id="ftn17">

<a title="" href="#_ftnref17" name="_ftn17">[17]</a> Dissenting Statement at 2.

</div>
<div id="ftn18">

<a title="" href="#_ftnref18" name="_ftn18">[18]</a> Nov. 10, 2022 Policy Statement at 12-16.

<em>By: Carl W. Hittinger, Jeffry W. Duffy, Tyson Y. Herrold and Justin M. Kadoura</em>

</div>
</div>

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