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FTC Announces New Guidance on Section 5 Unfair Competition Enforcement

Chairwoman Edith Ramirez has announced the FTC’s new policy concerning its enforcement authority under Section 5 of the Federal Trade Commission Act, in particular Section 5’s prohibition of “unfair methods of competition.”

The text of Section 5 prohibits “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce.”  The FTC uses Section 5 to reach acts that may not be covered by other antitrust laws.  For example, we noted that the FTC challenged Actavis’s 2014 acquisition of Forest Laboratories in part as a Section 5 violation.  But while the FTC has previously released guidance regarding its authority to challenge unfair or deceptive acts or practices, this new guidance marks the first time that the FTC has announced a policy regarding the “unfair methods of competition” clause of Section 5.

The one-page policy seems intended to strike a balance between retaining the “flexible case-by-case” approach the FTC has heretofore enjoyed, while also providing some guidelines to companies and counsel about the types of practices the Commission may challenge.  In particular, the policy states that the FTC will use “a framework similar to the rule of reason, that is, an act or practice challenged by the Commission must cause, or be likely to cause, harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications.”  It also confirms that the FTC will be “less likely to challenge an act or practice as an unfair method of competition on a standalone basis if enforcement of the Sherman or Clayton Act is sufficient to address the competitive harm arising from the act or practice.”

The Commissioners’ vote on the new policy was 4-1.  In a six-page statement, dissenting Commissioner Maureen K. Ohlhausen stated that while she agreed with the stated goal of bringing increased clarity to Section 5 enforcement, the new policy was not detailed or substantive enough to actually offer any guidance.  She also criticized the lack of internal deliberation and public comment, and raised questions about whether the FTC might now use Section 5 to bring challenges even in the absence of substantial harm to competition.

The full text of the FTC statement may be found here.