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United States: Federal Trade Commission Expanding Scope of Unfair Competition under § 5 of the FTC Act & More Trending News

 

In transient

On November 10, 2022, following a 3-1 vote, the Federal Trade Commission (“FTC”) issued a coverage assertion increasing its interpretation of the scope of unfair strategies of competitors under part 5 of the Federal Trade Commission Act.1 Commissioner Christine S. Wilson voted towards the coverage assertion and issued an unforgiving 20-page dissent, referring to the coverage change as a “radical” departure from the company’s latest enforcement efforts.2 Commissioner Wilson states that the coverage “adopts an ‘I know it when I see it’ approach premised on a list of nefarious-sounding adjectives, many of which have no antitrust or economic meaning.”

Section 5 of the FTC Act prohibits “unfair methods of competition,” which covers conduct that violates antitrust legal guidelines or Section 5 itself. It “empower[s]” the FTC to “prevent persons, partnerships, or corporations . . . from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.”3

The FTC has just lately tried to broaden its enforcement powers via numerous avenues. This coverage assertion is the newest iteration of these efforts. In the FTC’s personal phrases, the assertion establishes a “rigorous” enforcement coverage of legal guidelines banning unfair strategies of competitors. The FTC acknowledged that it plans to prosecute numerous areas of conduct, together with “incipient violations” of antitrust legal guidelines and conduct that violates the “spirit” of antitrust legal guidelines.

  • The FTC plans to prosecute and punish much more “unfair” conduct than it ever has earlier than.
  • According to the FTC, Section 5 reaches past the Sherman and Clayton Acts to embody numerous varieties of unfair conduct that are likely to negatively have an effect on aggressive situations.
  • New actionable conduct might embrace “incipient violation[s] of the antitrust laws,” corresponding to acquisitions which have the “tendency to ripen” into precise violations; and conduct that violates the “spirit of antitrust laws,” corresponding to conduct that in the combination “may tend to undermine competitive conditions,” and a sequence of acquisitions “that tend to bring about the harms that the antitrust laws were designed to prevent, but individually may not have violated the antitrust laws.”

Under the FTC’s new coverage, even conduct that’s not independently actionable, could also be actionable in the combination, at the FTC’s discretion.

In depth

In July of 2021, the FTC rescinded its 2015 Statement of Enforcement Principles Regarding “Unfair Methods of Competition” under Section 5 of the FTC Act. On November 10, 2022, it issued a brand new assertion, which “supersedes all prior FTC policy statements and advisory guidance on the scope and meaning of unfair methods of competition under Section 5 of the FTC Act.”

The assertion explains the FTC’s view of the legislative historical past of Section 5. It states that Congress clearly supposed for the FTC to have the ability to prosecute “unfair” conduct extra broadly than what’s allowed for under the Sherman and Clayton Acts. The FTC states that Congress supposed for Section 5 of the FTC Act to increase past the attain of antitrust legal guidelines; Congress needed to extra usually shield society towards oppressive anti-competitive conduct. As such, Congress needed to present the FTC flexibility to adapt to altering circumstances over time. Essentially, the FTC’s place is that its authority extends not solely to the letter of antitrust legal guidelines, but additionally the spirit.

The FTC goes on to clarify, broadly, what’s actionable as an “unfair method of competition.” First, the conduct have to be a “method of competition,” that means that it’s conduct undertaken by an actor in the market, which straight or not directly implicates competitors. Second, the methodology of competitors have to be “unfair.” Unfair conduct is that which “goes beyond competition on the merits.” The FTC explains that this implies the conduct (1) is “coercive, exploitative, collusive, abusive, deceptive, predatory, or involve[s] the use of economic power of a similar nature;” and (2) “tend[s] to negatively affect competitive conditions.” These standards are evaluated on a sliding scale—the place the first is especially clear, much less is required of the second, for instance.

The coverage assertion identifies some areas of conduct the FTC views as actionable under Section 5. Conduct that satisfies the FTC’s definition of “unfair method of competition” shall be analyzed under the “per se” customary, that means the conduct is robotically thought of unlawful regardless of any procompetitive justifications. Below are some excerpts of the FTC’s “non-exhaustive” listing of conduct that violates Section 5.

  • Conduct deemed to be an incipient violation of the antitrust legal guidelines. Incipient violations embrace conduct by respondents who haven’t gained full-fledged monopoly or market energy, or by conduct that has the tendency to ripen into violations of the antitrust legal guidelines. Examples embrace:
    • mergers, acquisitions, or joint ventures which have the tendency to ripen into violations of the antitrust legal guidelines,
    • a sequence of mergers, acquisitions, or joint ventures that are likely to result in the harms that the antitrust legal guidelines had been designed to forestall, however individually might not have violated the antitrust legal guidelines, and
    • loyalty rebates, tying, bundling, and unique dealing preparations which have the tendency to ripen into violations of the antitrust legal guidelines by advantage of business situations and the respondent’s place inside the business.
  • Conduct that violates the spirit of the antitrust legal guidelines. This contains conduct that tends to trigger potential hurt much like an antitrust violation, however that will or might not be coated by the literal language of the antitrust legal guidelines or that will or might not fall right into a “gap” in these legal guidelines. Examples of such violations embrace:
    • parallel exclusionary conduct that will trigger combination hurt,
    • conduct by a respondent that’s undertaken with different acts and practices that cumulatively might are likely to undermine aggressive situations in the market,
    • de facto tying, bundling, unique dealing, or loyalty rebates that use market energy in a single market to entrench that energy or impede competitors in the similar or a associated market,
    • a sequence of mergers or acquisitions that are likely to result in the harms that the antitrust legal guidelines had been designed to forestall, however individually might not have violated the antitrust legal guidelines,
    • mergers or acquisitions of a possible or nascent competitor that will have a tendency to reduce present or future competitors,
    • utilizing market energy in a single market to achieve a aggressive benefit in an adjoining market by, for instance, using technological incompatibilities to negatively impression competitors in adjoining markets,
    • false or misleading promoting or advertising that tends to create or preserve market energy, or
    • discriminatory refusals to deal which are likely to create or preserve market energy.

According to the FTC, the assertion was supposed as a information to the public, enterprise neighborhood, and antitrust practitioners by laying out rules defining whether or not enterprise practices represent unfair strategies of competitors under Section 5 of the FTC Act. In actuality, nonetheless, the assertion merely advises the public that the FTC has interpreted Section 5 in a way that expands the scope of its powers by punishing further conduct. It doesn’t provide a lot in the approach of sensible steering.

The coverage assertion has already been extensively criticized, together with by Commissioner Wilson. In her dissenting assertion, Commissioner Wilson factors out some of the assertion’s sensible shortcomings.4 It doesn’t (1) “provide clear guidance to businesses seeking to comply with the law,” (2) “provide a framework that will result in credible enforcement,” or (3) “address the legislative history [of Section 5] that . . . cautions against an expansive approach to enforcing Section 5.”5 Commissioner Wilson argues that the assertion “announces that the Commission has the authority summarily to condemn essentially any business conduct it finds distasteful.”6 Chair Khan responded, calling Commissioner Wilson’s issues “misplaced” as a result of the FTC intends solely to implement the regulation, and since the coverage assertion “identifies the framework and factors the Commission will consider when determining whether a business practice constitutes an “unfair method of competition.”7

The U.S. Chamber of Commerce additionally critiqued the coverage assertion, referring to it as “a pure political power grab designed to give Chair Khan carte blanche control over when, where, and how companies compete.”8 The Chamber of Commerce went on to say that the “FTC’s decision to reject decades of bipartisan consensus and declare itself the nation’s economic czar will discourage healthy competition and damage America’s competitiveness.” Other organizations—Demand Progress, the American Economic Liberties Project, and the Open Markets Institute—have celebrated the FTC’s transfer, stating that the FTC will now be higher geared up to fight anticompetitive practices.9

In sum, the FTC has additional delineated what it perceives to be actionable conduct, as half of its efforts to prosecute any and every kind of anticompetitive conduct. The scope of the FTC’s skill to safe judgments towards corporations under this new Section 5 coverage will turn into clearer over time as corporations problem the FTC’s actions. In the meantime, corporations needs to be notably aware of methods during which they will curb anticompetitive conduct and mitigate Section 5 legal responsibility, together with by conducting antitrust compliance evaluations or well being checks. Companies can and may seek the advice of counsel earlier than partaking in conduct that will fall under the FTC’s expanded interpretation of its enforcement powers. Please attain out to us if we may be of help in contemplating how the FTC’s Section 5 interpretation will have an effect on your organization’s antitrust insurance policies and procedures.

 

Content is offered for academic and informational functions solely and isn’t supposed and shouldn’t be construed as authorized recommendation. This might qualify as “Attorney Advertising” requiring discover in some jurisdictions. Prior outcomes don’t assure related outcomes. For extra info, please go to: www.bakermckenzie.com/en/client-resource-disclaimer.

United States: Federal Trade Commission Expanding Scope of Unfair Competition under § 5 of the FTC Act

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