The Federal Trade Commission's unique power under FTC Act Section 5 to prohibit "unfair methods of competition" seems broader than other antitrust statutes — but how much broader? The answer to that question has varied wildly over the years. Recently, companies like U-Haul and Bosch found their actions covered by it. For years, the commissioners have publicly debated the wisdom of clarifying and limiting their Section 5 power for the benefit of businesses.

Finally on August 13, 2015, the FTC, by 4-1 vote, issued guidance on the issue. The guidance does provide businesses some guideposts to follow when planning their competitive actions although, because of its brevity and qualifications, it also raises new questions. (The guidance can be found here.)

Section 5 “unfair methods of competition” matters are rare but not unheard of. If the FTC adheres to this newly-issued guidance, any such matters are now more likely to be considered under principles familiar to antitrust lawyers. Those principles themselves still allow room for debate and interpretation. The qualifiers in the FTC’s guidance only add to the uncertainty. As a result, the guidance provides only limited clarity and restrictions on the FTC’s use of its unique powers.

The interpretation of Section 5's prohibition of "unfair methods of competition" has changed with the makeup of the FTC. Decades ago, one commissioner thought it should be used to prevent "social and environmental harms produced as byproducts of the marketplace." More recently, one commissioner suggested its use to challenge "actions that are collusive, coercive... or otherwise oppressive.” A 2008 workshop at the FTC generated more opinions but little clarity.

Instead, businesses have been forced to interpret recent FTC actions in the area, but even those signals were not always clear. Some recent Section 5 actions have been non-controversial, such as the penalties imposed on U-Haul for unsuccessfully inviting its main competitor to collude on prices. Others have generated negative commentary. Still others were enacted by a divided FTC, like the requirement that Bosch provide a free license for some standard-essential patents to parties that did not want to pay Bosch’s proposed rates.

Whether the FTC should clarify and limit its powers – and if so, how – has produced debate among the commissioners in recent years. Commissioner Josh Wright offered his own version of the guidance that would have the FTC find “unfair competition” only if the action would harm competition, create no efficiencies, and not be reached by other antitrust laws. Commissioner Maureen Ohlhausen offered a similar version that would have the FTC step in only if the harm to competition would be disproportionately more serious than the efficiencies. Chairwoman Edith Ramirez did not see the need to issue guidance, saying that businesses could discern “enforcement principles” from the cases that balanced potential benefits and harms to competition.

On August 13, those debates changed when the FTC issued guidance on how it will interpret its “unfair methods of competition” power under Section 5. That guidance can be summarized in three principles. First, the FTC will “be guided by the public policy underlying the antitrust laws, namely, the promotion of consumer welfare” that has become the standard goal of all antitrust laws over the last several decades. Thus, any return to use of Section 5 for “social or environmental harms” appears unlikely.

Second, Section 5 will be judged under “a framework similar to” antitrust’s rule of reason. The rule of reason, whereby harms and benefits to competition are balanced, is the usual standard under the antitrust laws. While the standard is familiar to all antitrust practitioners, its application to any particular set of facts can be difficult and time-consuming. Chief Justice Roberts has referred to the rule of reason as “amorphous” and calling for an “unbounded inquiry.” Also, the importance, if any, of the “framework similar to” qualifier is unclear, especially when the accompanying statement of the majority refers only to the traditional rule of reason.

Third, the FTC “is less likely to” use Section 5 in cases where “the Sherman or Clayton Act is sufficient to address the competitive harm.” Here, the FTC appears to be responding to commentary that it has used Section 5, not Sherman Act Section 2, because the requirements of the latter were more difficult to meet. The majority’s statement adds even more qualifiers, saying the Sherman and Clayton Acts will continue to be the FTC’s “primary enforcement tools…when sufficient and appropriate.”

The focus on consumer welfare and rule of reason responds to the loudest criticism of past FTC actions but does not provide the clarity or limitation suggested by Commissioners Wright, Ohlhausen, and some commentators. While the intent of the FTC seems to be to limit use of Section 5 to matters not reached by other antitrust laws, the qualifiers on that intent only muddy the guidance.

These compromises were too much for Commissioner Ohlhausen. In her dissenting statement, she takes issue with the brevity of the statement and its issuance without public comment. On the substance, she criticizes the qualifiers described above as causing the guidance to raise more questions than it answers. She also thinks the guidance’s introductory comment (Section 5 covers matters “that contravene the spirit of the antitrust laws and those that, if allowed to mature or complete, could violate” the other antitrust laws) detracts from any limited clarity the rest of the statement might provide.

Prior to this guidance, businesses had to interpret a limited number of old cases; now, businesses must keep an eye on how the FTC interprets its own guidance.