Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Scope, application of FTC Act Section 5 enforcement discussed at Senate subcommittee hearing, (Apr 6, 2016)

By Linda O’Brien, J.D., LL.M.

Congressional lawmakers urged federal authorities to be assertive in their enforcement of antitrust law, at a hearing yesterday before the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights. However, they questioned whether Section 5 of the FTC Act was clear enough to provide businesses with guidance on compliance.

Chairman Chuck Grassley (R-Iowa) began the hearing—entitled “Section 5 and ‘Unfair Methods of Competition’: Protecting Competition or Increasing Uncertainty?”—by noting that the business community is having difficulty understanding what constitutes a violation of the “unfair methods of competition” under Section 5 of the FTC Act.

While acknowledging the FTC’s release of a Statement of Enforcement Principals regarding “unfair methods of competition” last August, Grassley observed that there is still a lot of uncertainty over what constitutes a violation. The hearing presented an opportunity to flesh out questions regarding the scope and application of Section 5 and what are “unfair methods of competition,” he noted.

The Committee heard from four witnesses, three of which are law professors, including Joshua Wright from George Mason University; A. Douglas Melamed from Stanford Law School; and Tim Wu from Columbia Law School. Amanda Reeves, partner at Latham & Watkins LLP, also testified at the hearing.

Wright testimony. Wright, a former FTC Commissioner, stated that there were two fundamental impediments to Section 5 contributing effectively to the FTC’s competition mission—the agency’s failure to define what would constitute an unfair method of competition and the procedural advantages that the FTC affords itself in enforcing the FTC Act. Congress, businesses, the antitrust bar, academics, and even Commissioners rightly demanded guidance from the FTC. The Commission answered the demand for greater guidance in August 2015, which was welcomed by members of the antitrust community.

The August 2015 statement defines an unfair method of competition in a well-understood manner and improves the issue of the FTC’s administrative and procedure advantages by limiting the agency’s reliance on a standalone Section 5 theory if the traditional antitrust laws are sufficient to address the competitive concern at issue, he said. Going forward, the FTC should focus Section 5 enforcement in areas where there is no antitrust doctrine. Congressional oversight of the FTC’s use of Section 5 is critical to ensure that the agency does not return to prior abuses, Wright added.

Melamed testimony. Melamed noted that the FTC should not use Section 5 of the FTC Act to prohibit conduct that is permitted by the Sherman Act and Clayton Act. The use of Section in that manner would create unavoidable ambiguity about the requirements of the antitrust laws and undermine the important deterrence function of those laws. Additionally, such use of Section 5 would detract from the FTC’s vital role in promoting the sound development of the Sherman Act and Clayton Act in response to new economic learning and marketplace changes, he stated.

While it is understandable that the FTC would preserve a broad discretionary tool that enables the agency to go after occasional bad conduct not proscribed by the antitrust laws, the FTC should focus on what legal regime will send the most useful signals to guide millions of business decisions and the agency can best further the development of that legal regime, he said.

Wu testimony. Wu observed that Section 5 has “grown to provide important protection for competition distinct from that provided by the Sherman and Clayton Acts.” However, Section 5 practice has narrowed over the last three decades, making the law among the most limited in antitrust. According to Wu, the “self-imposed limits on Section 5 enforcement are extensive enough” that the agency could be accused of under-enforcing the law or deviating too far from Congress’s original wide-ranging intent. Therefore, the idea that there is a crisis of Section 5 over-enforcement is exaggerated, Wu noted.

Reeves testimony. Reeves stated the FTC was given a powerful and undefined tool when Congress granted the agency authority to go after unfair methods of competition. In light of the FTC’s use of its free-standing Section 5 authority and continued efforts to provide guidance, its Statement of Enforcement Principals certainly did not do more “harm than good,” as claimed by critics. Reeves believes that the Statement does not have the effect of chilling procompetitive conduct because the combined infrequency with the Commission uses Section 5 and the limited available remedies does not lead businesses to alter their decisions based on concerns related to Section 5.

News: Antitrust FederalTradeCommissionNews