On June 19, 2013, Commissioner Joshua Wright of the Federal Trade Commission (FTC) proposed a Policy Statement on the FTC’s enforcement authority under Section 5 of the FTC Act, which prohibits unfair methods of competition.  According to Commissioner Wright, the intent of his proposed Policy Statement is to initiate a discussion on the appropriate parameters of the FTC’s authority under Section 5.  Commissioner Wright expects that the proposed Policy Statement will end years of ambiguous Section 5 enforcement by articulating a clear standard of what types of conduct constitute an unfair method of competition.  The Policy Statement defines an unfair method of competition as “an act or practice that (1) harms or is likely to harm competition significantly and that (2) lacks cognizable efficiencies.”  Commissioner Wright explained that the definition as a whole allows the Commission to reach conduct not covered by the Sherman and Clayton Acts, is tied to modern jurisprudence on harm to competition as well as to the Horizontal Merger Guideline’s efficiencies standards, focuses on conduct that is most likely to harm consumers and reduces the risk of prosecuting pro-competitive behavior.

Commissioner Wright remarked that before the FTC will exercise its Section 5 authority, the conduct at issue must be outside the bounds of well-defined antitrust case law.  He further stated that the FTC should exercise this authority in areas where the Commission finds business practices that harm consumers through activities not yet reviewed by the courts.  Commissioner Wright foresees two broad areas of enforcement under Section 5: invitations to collude, and using unfair competition to acquire market power (where monopoly power might not exist).  According to Wright, before the Commission brings a case, it should examine both the magnitude and the probability of harm to competition to determine whether the conduct constitutes an unfair method of competition.  Even if the Commission concludes that conduct harms competition, the second prong of Wright’s proposed policy would restrict the Commission’s ability to prosecute if a cognizable efficiency exists.

For Commissioner Wright’s full discussion of the proposed Policy Statement, see: http://www.ftc.gov/speeches/wright/130619section5recast.pdf