A Progressive Step Toward Defining Unfair Methods of Competition
The FTC Issues a Crucial New Policy Statement and Continues Advancing a Vigorous Enforcement Agenda
Hi Everyone,
Sorry for the somewhat long absence. I have a ton of work nearing completion. Lots of updates will be coming in the months ahead.
In this issue of Law & Power, I wanted to provide some insight into a recent action taken by the Federal Trade Commission. Enjoy.
One of the most significant recent events concerning antitrust enforcement took place a couple of weeks ago. After rescinding its 2015 statement in July 2021, on November 10 the Federal Trade Commission (FTC) issued a new policy statement detailing how the agency defines “unfair methods of competition” under its Section 5 authority and the kinds of conduct that will trigger a lawsuit from the agency. The new statement is yet another clear advancement of progressive antitrust that was ushered in at the FTC when President Biden appointed Lina Khan as the chair of the agency in June 2021. This brief post will explain the importance of the agency’s actions.
Like all policy statements, it does not have what is known as “the force of law,”1 meaning that legal actions brought under the agency’s definition do not automatically lead to a defendant’s liability and do not create formal legal “rights or obligations.”2 Despite this limitation, policy statements are very important and accomplish three primary goals. First, policy statements provide notice to the public about the kinds of conduct and under what conditions will trigger an enforcement action from the agency. Providing guidance allows businesses to more adequately structure and plan their business operations to stay within the confines of the law (as the agency interprets it) and instead engage in conduct that is socially beneficial. Second, policy statements serve as planning documents for agency staff by providing them with direction for the kinds of actions the commissioners are looking to bring. Third, and most critically, with so much discretion afforded to the leaders of an agency to reach just about any position they are looking to achieve, policy statements are inexorably political and philosophical documents that detail the enforcement values of the commissioners as to how they view their congressionally delegated mandate. Policy statements, therefore, influence the behavior of the employees of the agency and serve as an essential signal to stakeholders as to the direction of the agency.
Historically, the FTC has used policy statements to restrict the agency’s authority.3 The FTC’s previous statement on defining unfair methods of competition was published in 2015 and, among other aspects of the statement, was particularly notorious because it effectively dismissed Congress’s original intent of having “unfair methods of competition” be a separate, distinct, and broader violation of the conduct proscribed by the Sherman Act and the Clayton Act. Congress originally chose the phrase “unfair methods of competition” in order for the expert agency to not be tethered by the judiciary’s common law definition of “unfair competition.”4 By using the phrase “unfair methods of competition,” Congress chose a unique phrase that explicitly allowed the FTC to arrive at its own interpretation which would both optimally separate it from the judiciary and be flexible enough to tackle any business conduct within the spirit of the antitrust laws without the need for further legislative action. However, rather than interpret the phrase expansively to fulfill Congress's intent of the FTC “exercise[ing] a legislative function,”5 the agency’s 2015 statement asserted that enforcement actions would be explicitly guided by consumer welfare, violations would be judged under the highly deferential rule of reason, and the agency would almost never bring a standalone violation of its unfair methods of competition authority and instead almost exclusively rely on Sherman or Clayton Act violations.
The FTC’s new policy statement not only undoes the 2015 statement but also has several notable features that are worth highlighting. First, the agency goes into a lengthy and detailed historical analysis of Congress’s intent with the meaning of “unfair methods of competition” and the role of the FTC as well as the agency’s relationship with Congress and the federal judiciary. The goal of this part of the statement is simple – ground all of the agency’s actions to be fully compliant with the statutory text and Congress’s intent of delineating between fair and unfair competition as well as adhering to the controlling Supreme Court jurisprudence. Such a course of action is also done to prophylactically inhibit and thwart a typically hostile judiciary from overturning future enforcement actions initiated by the agency pursuant to its new statement.6
Second, the statement declares, as Congress intended, that violations of Section 5 go beyond the Sherman and Clayton Acts including conduct that are incipient violations of both of those laws that adversely afflicts businesses, workers, and consumers. This section of the statement, therefore, is a recognition that the consumer welfare standard is fundamentally wrong and the antitrust laws have a much broader social and moral purpose.7 Importantly, the agency’s statement explicitly repudiates the need for the agency to show the market power of the defendant or define a relevant market and will not use the rule of reason as the analysis for determining the illegality of the conduct at issue. Each of these declarations is critical to both facilitating enforcement of Section 5 and easing the agency’s legal burden. For example, since the 1980s, market definition and market power have been the most frequent avenues for cases getting dismissed by the judiciary.8 Avoiding the rule of reason – a four-step burden-shifting framework designed to assess the benefits and adverse effects of the conduct at issue – is also essential for robust enforcement of Section 5 because the analytical framework is effectively a denotation of per se legality for all conduct reviewed under it. A comprehensive analysis by Professor Michael Carrier and Professor Christopher Sagers found that nearly all cases reviewed under the rule of reason are dismissed at the first step of the analysis.9
Lastly, particularly when compared to the exceptionally brief one-page 2015 statement, the agency gives detailed guidance on what conduct violates its new interpretation of “unfair methods of competition.” The agency provides a copious number of examples that will help the public comply with the agency’s new enforcement schematic.
The policy statement is not a perfect document. For example, the FTC notably left out what actions, and under what conditions, it believes would constitute per se violations of Section 5. Nevertheless, the agency’s actions are a critical step to continue advancing a more vigorous enforcement antitrust regime and the agency’s efforts at discarding the demonstrably false consumer welfare standard. Moreover, in interpreting the agency’s mandate as expansively as Congress intended in 1914, the statement is an important effort to continue furthering an antitrust enforcement regime centered on fairness, economic democracy, and freedom from oligarchic control over our lives. In addition to pursuing formal rulemakings, which would provide even clearer guidance to the public and further restrict unfair business conduct,10 the agency should put its new policy statement to the test and bring enforcement actions as soon as possible.
Image Credit: Victoria Pickering via Flickr.
See generally United States. v. Mead Corp., 533 U.S. 218 (2001).
Ohio Forestry Ass’n v. Sierra Club, 523 U.S. 726, 733 (1998).
In this post, I mention just one example of how the FTC has used policy statements to restrict its enforcement capability. However, there are also other ways agencies can weaken their enforcement authority, see Kurt Walters, Reassessing the Mythology of Magnuson-Moss: A Call to Revive Section 18 Rulemaking at the FTC, 16 Harv. L. & Pol'y Rev. 519 (2022).
Sandeep Vaheesan, Resurrecting ‘A Comprehensive Charter of Economic Liberty’: The Latent Power of the Federal Trade Commission, 19 U. Pa. J. Bus. L. 645, 657 (2017).
A. Everette MacIntyre & Joachim J. Volhard, Federal Trade Commission and Incipient Unfairness, 41 Geo. Wash. L. Rev. 407, 416 (1973).
Guidance documents issued by administrative agencies typically do not receive any deference from reviewing courts. Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944). However, in the context of antitrust enforcement, guidance documents detailing the enforcement agency’s process and methodology have historically been given significant respect by the federal courts. See Hillary Greene, Guideline Institutionalization: The Role of Merger Guidelines in Antitrust Discourse, 48 Wm. & Mary L. Rev. 771, 802-09, 818-19 (2006) (detailing the role of the Department of Justice’s and Federal Trade Commission’s Merger Guidelines and the influence they have had on reviewing courts).
For additional reading detailing the broader social and moral goals and purpose of the antitrust laws see Sanjukta Paul, Recovering the Moral Economy Foundations of the Sherman Act, 131 Yale L.J. 175 (2021).
For additional reading detailing the false history and adverse consequences of the consumer welfare standard see Sandeep Vaheesan, The Profound Nonsense of Consumer Welfare Antitrust, 64 Antitrust Bull. 479 (2019).
See Jonathan B. Baker, Market Definition: An Analytical Overview, 74 Antitrust L.J. 129 (2007).
Michael A. Carrier & Christopher L. Sagers, The Alston Case: Why the NCAA Did Not Deserve Antitrust Immunity and Did Not Succeed Under a Rule-of-Reason Analysis, 28 Geo. Mason L. Rev. 1461, 1476, 1476 n.114 (2021).
An example of a formal rule the FTC should adopt includes proscribing exclusive dealing arrangements and tyings that foreclose 30% of a relevant market, are used by either a single firm or groups of firms exceeding 30% market share, or are used by firms with over $1 billion in revenue. See Daniel A. Hanley, Per Se Illegality of Exclusive Deals and Tyings as Fair Competition, Berkeley Tech. L.J. (forthcoming 2023), https://ssrn.com/abstract=4101909.