FTC Commissioner Wright Issues Statement on Unfair Methods of Competition | Practical Law

FTC Commissioner Wright Issues Statement on Unfair Methods of Competition | Practical Law

FTC Commissioner Joshua D. Wright issued a proposed policy statement on the scope of the FTC's enforcement of Section 5 of the Federal Trade Commission Act.

FTC Commissioner Wright Issues Statement on Unfair Methods of Competition

Practical Law Legal Update 4-532-3583 (Approx. 3 pages)

FTC Commissioner Wright Issues Statement on Unfair Methods of Competition

by PLC Antitrust
Published on 21 Jun 2013 • USA (National/Federal)
FTC Commissioner Joshua D. Wright issued a proposed policy statement on the scope of the FTC's enforcement of Section 5 of the Federal Trade Commission Act.
On June 19, 2013, FTC Commissioner Joshua D. Wright released a proposed policy statement on unfair methods of competition under Section 5 of the FTC Act (Section 5). That same day, he also gave a speech to the Executive Committee of the New York State Bar Association's Antitrust Section explaining that the scope of the FTC's enforcement of Section 5 needed to be clarified to:
  • Better inform the business community of the types of conduct that may be unlawful under Section 5.
  • Limit chilling legitimate, procompetitive business behavior.

Elements Necessary to Prove Unfair Methods of Competition

Commissioner Wright proposed two elements that the FTC must prove to bring a successful unfair method of competition claim under Section 5. The FTC must show that the conduct in question:
  • Results in, or is likely to result in, significant harm to competition.
  • Lacks any cognizable efficiencies.

Competitive Harm

The conduct in question must have an anticompetitive effect, meaning it must harm the competitive process and consumers. Competitive harm is typically shown through:
  • Increased prices.
  • Reduced output.
  • Diminished quality.
  • Weakened incentives to innovate.
Conduct that is likely to bring about competitive harm is also captured in this proposed element of Section 5. In this way, Commissioner Wright allows Section 5 to cover behavior that does not violate the Sherman Act, but is likely to, if left unresolved, such as:
  • Invitations to collude where no agreement is reached.
  • Attempts to acquire market power (that does not rise to the level of monopoly power) through unfair methods of competition.

Cognizable Efficiencies

Commissioner Wright stated that by prohibiting enforcement of conduct that results in cognizable efficiencies (which he referred to as an efficiency screen), the FTC would be able to focus on conduct most likely to harm consumers. He added that the efficiency screen provides additional benefits, including:
  • Establishing a clear and predictable standard to guide businesses.
  • Promoting consumer welfare-enhancing business conduct that may have been chilled in the absence of a clear standard.
As an element of a Section 5 claim, Commissioner Wright intends for the FTC to have the burden of proving that the conduct in question lacks cognizable efficiencies. To be cognizable, efficiencies must:
  • Be conduct-specific.
  • Be verifiable.
  • Not arise from anticompetitive decreases in output or service.
In his speech, Commissioner Wright suggested that the efficiency screen allows the FTC to leverage its expertise in identifying cognizable efficiencies in the merger context. Similar to the analysis set out in the Horizontal Merger Guidelines, Commissioner Wright states that efficiencies should only be credited when they are:
  • Accomplished because of the conduct in question.
  • Unlikely to be accomplished in the absence of the conduct in question.
  • Unattainable by practical alternatives that mitigate competitive concerns.
  • Verifiable by reasonable means and not vague and speculative; articulable efficiencies alone are insufficient.
Because efficiency information is typically in the possession of the firm being investigated, Commissioner Wright encouraged businesses claiming efficiencies to offer them immediately upon learning of a potential FTC investigation into unfair methods of competition.
Commissioner Wright acknowledged that the proposed policy statement represented only his views and not those of his fellow Commissioners. His stated hope is that the statement will serve as a starting point for meaningful discussion about the scope of the FTC's Section 5 enforcement among private antitrust attorneys and, more importantly, among the FTC Commissioners. The business community cannot yet rely on the proposed elements set out by Commissioner Wright and must wait to see how the rest of the FTC Commissioners respond to the proposal.