The Federal Trade Commission ("FTC" or "the agency") announced a new enforcement policy1 for the prohibition of unfair methods of competition under Section 5 of the FTC Act.2 The FTC's policy statement declares that the FTC will take an expansive view of its power under the FTC Act to investigate and prevent conduct that violates Section 5. The FTC's stated goal is to stop "unfair methods of competition in their incipiency based on their tendency to harm competitive conditions" and identify and police conduct that may fall beyond the reach of other antitrust laws. While the FTC has attempted to provide a framework to determine what constitutes an unfair method of competition, its guidance may leave businesses uncertain of what conduct runs afoul of Section 5.
I. Background
The FTC's enforcement of Section 5 has engendered much debate over many decades, with several policy adjustments by the agency. In the 1960s and 1970s, the FTC applied Section 5 broadly to challenge conduct on public policy grounds and suffered several court reversals.3 But subsequent criticism led the agency to adopt a more conservative approach to Section 5. In 2015, the FTC announced a policy statement providing that, when deciding whether to challenge conduct under Section 5 on a standalone basis, the FTC would evaluate the conduct under a "framework similar to the rule of reason," consider business efficiencies and justifications, and be guided by the consumer welfare standard.4 In July 2021, the agency rescinded the 2015 policy statement, stating that it was "short-sighted" and constrained the agency's authority, counter to its statutory obligations.5 The FTC's November 2022 statement, supported by three commissioners and opposed by one - is cast as an attempt to remedy analytical gaps, citing Section 5's text, legislative history, and case law to support the revised approach.
II. Guidance
On November 10, 2022, the FTC affirmed its intention to vigorously enforce Section 5 of the FTC Act. The FTC stated that Section 5 reaches beyond other antitrust laws and prohibits conduct that tends to negatively affect competition, including "incipient" violations and violations of the "spirit" of the antitrust laws. According to the FTC, conduct constitutes an unfair method of competition if (1) the conduct is "a method of competition" and (2) is "unfair." The FTC stated that conduct is a method of competition when it is undertaken by an individual or business in the marketplace and implicates competition, either directly or indirectly.6
The FTC may view a method of competition as unfair when the conduct goes beyond competition on the merits.7 Two key criteria are relevant:
- First, the conduct may be coercive, exploitative, collusive abusive, deceptive, predatory, or involve the use of economic power of a similar nature.
- Second, the conduct must tend to negatively affect competition...
