Applying rule of reason aligns with familiar antitrust principles, but may also signal intent to stop conduct in early stages
The US Federal Trade Commission recently issued guidance on its enforcement efforts against ‘unfair methods of competition’, clarifying how the agency will use its authority under Section 5 of the FTC Act to deal with anti-trust and other anticompetitive practices when the Sherman Act and the Clayton Act may not apply.
In a statement, the Commission said it would use a modernized version of ‘the rule of reason’ as a framework for enforcement because it is ‘well understood by courts, competition agencies, the business community, and practitioners. These principles also retain for the Commission the flexibility to apply its authority in a manner similar to the case-by-case development of the other antitrust laws.’
The FTC also affirmed that it ‘will continue to rely, when sufficient and appropriate, on the Sherman and Clayton Acts as its primary enforcement tools for protecting competition and promoting consumer welfare.’
The Commission resisted calls to specifically define ‘anti-competitive practices’ and ‘unfair methods of competition.’ That prompted Maureen Ohlhausen, the lone commissioner to vote against the new guidance, to issue a statement warning, ‘Arming the FTC staff with this sweeping new policy statement is likely to embolden them to explore the limits of unfair competition.’
FTC chair Edith Ramirez countered that argument when announcing the guidance by emphasizing the need to maintain flexibility because ‘it would be nearly impossible to describe in advance all of the conduct that may threaten competition or the competitive process.’
Joel Chefitz, antitrust partner at McDermott Will & Emery, says the FTC’s guidance shows it is maintaining the consistency and effectiveness established through the current process, but is also warning companies that it will step in to protect the public if unforeseen anticompetitive practices surface.
‘The FTC’s Statement, by importing the rule of reason test from the Sherman Act and the public policy of promoting consumer welfare, reassures counselors and their clients by adhering to familiar antitrust principles,’ he notes. However Chefitz also says the FTC could be signaling that one of the chief goals of section 5 is to stop conduct in its early stages that might later violate the Sherman or Clayton Acts.’
‘Perhaps the FTC is aiming at things like the fraudulent manipulation of markets that interferes with the competitive process but falls short of a conspiracy or monopolization under the Sherman Act—akin to the anti-manipulation provision of the Commodity Exchange Act,’ he says. ‘If so, we might see more enforcement overlap between the FTC and the CFTC.’
Even with that possibility, Chefitz points out that the Commission has not focused on ‘unfairness’ claims in years, although it has brought cases under Section 5 against Intel and Google more recently. So it isn’t likely the Commission will go on an enforcement binge, although he acknowledges it could be possible to use Section 5 to prosecute blatant invitations to collude or to stop a merger that could create a threat to competition before it morphs into a full blown monopoly.
Overall, Chefitz says, ‘the FTC’s statement tightens up prospective enforcement of Section 5 rather than expanding it. For the most part, no new practices are likely to be investigated.’
