Commissioner Wright Delivers Remarks on Section 5 Formal Guidance

Practical Law Legal Update 2-602-4391 (Approx. 4 pages)

Commissioner Wright Delivers Remarks on Section 5 Formal Guidance

by Practical Law Antitrust

Current Section 5 Debate

Commissioner Wright identified two reasons that he believes the FTC’s Section 5 authority over unfair methods of competition is falling short, including:

A combination of:
- the FTC’s administrative process advantages, which lead the FTC to consistently rule in favor of FTC staff; and
- the vague nature of the unfair methods of competition authority, leading to inconsistent interpretation of the law and varied definitions of what constitutes unfair methods of competition.
Commissioner Wright noted that the FTC’s procedural advantages and ambiguity over the Section 5 definition allows the FTC to obtain a settlement in cases in which the conduct may not be anticompetitive, as parties typically choose to avoid costly Section 5 litigation that they would likely lose because of the FTC's procedural advantages.
The absence of any level of certainty for businesses. Commissioner Wright reasoned that a concrete definition of what constitutes unfair methods of competition would allow businesses to:
- avoid anticompetitive conduct; and
- encourage procompetitive conduct that may have been previously avoided for fear of potentially violating Section 5.

Commissioner Wright argued that the current case-by-case approach to define Section 5 authority threatens inconsistent enforcement and allows for outside authorities, such as courts and Congress, to define Section 5 instead of the FTC. Commissioner Wright further argued that because no federal appeals court has ever affirmed an FTC unfair methods of competition victory, case law has failed to affect antitrust law and policy regarding Section 5.

Commissioner Wright noted that the FTC’s enforcement agenda would not be harmed by issuing formal guidance on what constitutes unfair methods of competition. Commissioner Wright pointed to other guidance that the FTC has issued in the past, including the Horizontal Merger Guidelines and other Section 5 guidance that the FTC provided without issue.

The Next Logical Step

Commissioner Wright noted that over the past two years, many antitrust scholars, consumer advocates and businesspeople have commented on the reach of Section 5 authority and that the time is ripe to consider those comments and issue guidance. Commissioner Wright suggested the FTC vote on the three primary definitions of unfair methods of competition currently contemplated by FTC Commissioners, and adopt the majority’s choice. The three definitions have two common elements, including that each:

Requires unfair methods of competition to significantly harm or be likely to significantly harm competition.
Prohibits Section 5 from being used to challenge conduct subject to established case law under the federal antitrust laws.

Commissioner Wright explained that the three proposed definitions differ in how Section 5 treats efficiencies. The three different options allow for Section 5 to apply when either:

There are no cognizable efficiencies (Commissioner Wright’s view).
Antitrust harm is disproportionate to cognizable efficiencies (Commissioner Ohlhausen’s view).
The FTC can show that harms are not outweighed by cognizable efficiencies (Commissioner Ramirez’s view).

Commissioner Wright noted that the FTC Commissioners may choose to vote and adopt a proposed definition, vote to not adopt a definition or not vote at all, but that failing to adopt a definition would be an opportunity lost.

The Future of Section 5, Absent Guidance

Commissioner Wright warned that if the FTC fails to adopt and distribute formal guidance on the definition of unfair methods of competition, Congress may assign a definition that is more restrictive than the FTC would like. Commissioner Wright noted that members of the Senate and House Judiciary Committees have recently inquired about the status of Section 5 guidance, and seem poised to assign a definition through legislation. Commissioner Wright reasoned that Congress could adopt one of three possible options, including that:

Unfair methods of competition under Section 5 are anything that violates the Sherman Act or Clayton Act.
Unfair methods of competition under Section 5 are anything that violates the Sherman Act or Clayton Act and invitations to collude.
Federal courts would supervise the FTC’s Section 5 enforcement and define the boundaries of unfair methods of competition when necessary.

Commissioner Wright explained that Section 5 guidance is inevitable, and that he would like the FTC to provide that guidance instead of Congress.

For more information on Section 5, see Practice Note, FTC Act Section 5: Overview and FTC Act Section 5 Toolkit.

Commissioner Wright Delivers Remarks on Section 5 Formal Guidance | Practical Law