July 09, 2021

The FTC Expands Section 5 Enforcement Efforts With Potentially Broad Implications

Highlights

  • The Federal Trade Commission (FTC) recently updated its interpretation of its authority to challenge “unfair methods of competition” under Section 5 of the FTC Act. It will no longer limit enforcement actions under Section 5 to conduct that violates the consumer welfare standard. This may significantly expand the sorts of business activities the FTC investigates and challenges.

     

  • Although this adjustment, in conjunction with other recent developments at the FTC, is widely interpreted to signal increased scrutiny of Big Tech companies, the FTC’s pivot on its Section 5 authority may have broader implications. Companies should monitor the FTC’s next steps closely for further insights on conduct it may challenge in the future.

On July 1, the FTC voted to expand its enforcement efforts under Section 5 of the FTC Act. Section 5 authorizes the FTC to investigate and challenge “unfair methods of competition in or affecting commerce” (15 U.S.C. § 45(a)(1)) — language that is seemingly open-ended. Courts have not precisely defined the outer-bounds of the FTC’s Section 5 authority.

Previously, according to a 2015 policy statement, the FTC was “guided by” the consumer welfare standard when using its Section 5 authority, and focused on whether the conduct in question artificially raised prices. This hewed closely to how courts have interpreted the other main federal antitrust statutes, the Sherman Act and the Clayton Act. In fact, in that same 2015 policy statement the FTC clarified that it would be “less likely to challenge an act or practice as an unfair method of competition on a standalone basis if enforcement of the Sherman Act or Clayton Act is sufficient to address the competitive harm arising from the act or practice.” And even where the Sherman Act or Clayton Act may not have prohibited certain conduct, the FTC’s record of enforcement has tended to focus on “incipient” conduct that could in the future lead to clear violations of those statutes, such as invitations to collude or exchanges of competitively sensitive information.

The FTC’s move on July 1 constitutes a meaningful departure from its prior interpretation of Section 5, and signals that the FTC may now interpret “unfair methods of competition” more expansively than in the past. Indeed, in a statement released in conjunction with the move, new FTC Chair Lina Khan stated that the 2015 policy statement “contravene[d] the text, structure, and history of Section 5 and largely wr[ote] the FTC’s standalone authority out of existence.” The move also harkens to previous advocacy by Chair Khan that the consumer welfare standard is an inadequate tool for challenging Big Tech companies.

Importantly, however, nothing limits the FTC’s newly expansive understanding of its Section 5 authority only to Big Tech companies. In fact, prior statements by those commissioners who voted with Chair Khan to expand the FTC’s authority under Section 5 seem to indicate just the opposite. To take but one example, two years ago FTC Commissioner Rohit Chopra released a statement, joined by fellow Commissioner Rebecca Kelly Slaughter, criticizing an FTC settlement with online cosmetics company Sunday Riley Modern Skincare LLC. The company had posted false reviews of its products online in order to drive traffic. Commissioner Chopra argued this “false advertising [was] an unfair method of competition,” and thereby criticized the FTC’s action for failing to address the conduct as an antitrust violation and not simply a consumer protection violation.

The FTC’s vote on July 1 opens the door to such an approach in future cases. All companies – not just Big Tech companies – will have to watch the FTC’s next steps carefully and determine how they might affect their own legal and business strategies. It will also be important to monitor how courts may respond to future challenges the FTC brings under its Section 5 authority, as courts may not necessarily agree with the FTC’s newly expansive view.

For More Information

Faegre Drinker’s Antitrust team will continue monitoring these developments. For additional information or questions regarding this change in the FTC’s approach to its Section 5 authority, or any other antitrust-related matters, please contact the author or other members of Faegre Drinker’s Antitrust team.

The FTC Act is nuanced and complex, and its application to particular business situations is a fact-specific inquiry. Businesses concerned about how recent developments will impact their risk of violating Section 5 of the FTC Act are strongly advised to consult with legal counsel.

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