Academic journal article Columbia Journal of Law and Social Problems

Operationalizing the Third Prong of the Federal Trade Commission)s 2015 Statement regarding "Unfair Methods of Competition"

Academic journal article Columbia Journal of Law and Social Problems

Operationalizing the Third Prong of the Federal Trade Commission)s 2015 Statement regarding "Unfair Methods of Competition"

Article excerpt

I.INTRODUCTION

Section 5 of the Federal Trade Commission Act of 1914 (the "FTC Act" or "Act") authorizes the Federal Trade Commission (the "FTC" or "Commission") to investigate and challenge "unfair methods of competition" (UMCs).1 Commentators, courts, and FTC commissioners have widely agreed that the Commission's Section 5 authority enables it to challenge violations of the Sherman2 and Clayton3 Acts. The Commission may also proscribe and enjoin conduct on a "standalone" basis - that is, on the grounds that the conduct constitutes a form of unfair competition even if it does not violate the letter of either the Sherman or Clayton Acts.4 In alleging a standalone violation of Section 5, the Commission need not prove a Sherman or Clayton Act violation, and thus need not satisfy all of the evidentiary burdens the government bears in other antitrust cases.5

For over a century after the FTC Act's passage, the Commission did not explain under what circumstances it would bring enforcement actions on a standalone basis.6 Then, in August 2015, the Commission issued a "Statement of Enforcement Principles Regarding 'Unfair Methods of Competition' Under Section 5 of the FTC Act" (the "UMC Statement" or "Statement").7 The Statement announced that, in enforcing the UMC prohibition, the Commission would follow three principles, which are set forth in the Statement's three "prongs."8 First, "the Commission will be guided by the public policy underlying the antitrust laws, namely, the promotion of consumer welfare."9 Second, "the act or practice will be evaluated under a framework similar to the rule of reason, that is, an act or practice challenged by the Commission must cause, or be likely to cause, harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications."10 Finally, the third prong, which is the subject of this Note, provides that the Commission will be "less likely to challenge an act or practice as an unfair method of competition on a standalone basis if enforcement of the Sherman or Clayton Act is sufficient to address the competitive harm arising from the act or practice."11

Commentators concerned about the unpredictability of the Commission's use or potential use of standalone authority have argued that, because the Commission enjoys greater deference in identifying "unfairness" than it does in asserting a Sherman Act violation, the Commission has incentives to bring standalone actions against practices that are properly putative Sherman Act violations.12 On this view, unrestrained use of standalone enforcement cheats defendants of the benefit of the Sherman Act's more demanding standards of proof,13 and deprives the "traditional"14 antitrust jurisprudence of opportunities to further develop.15 Proponents of wider standalone enforcement, on the other hand, have argued that because standalone action entails more limited and potentially better tailored remedies, the Commission may and should rely on it to challenge certain instances of bad faith conduct that require more subtle intervention than the Sherman Act would allow, even if the Commission could plausibly argue a Sherman Act violation.16 This Note proposes an approach to resolving the tension between the need to attack gaps in the traditional antitrust regime and the fear that the Commission might also use standalone enforcement to lower the bar for proving Sherman Act violations. In interpreting the third prong of the Statement, the Commission should distinguish scenarios that are weak Sherman Act cases for case-specific reasons from practices that are typically beyond the traditional antitrust regime for structural reasons. In addition, consistent with its mission and expertise, the Commission should judiciously use standalone authority to cure competitive ills in situations where a non-standalone action might reduce competition or be disproportionately punitive.

Part II of this Note introduces the Sherman, Clayton, and FTC Acts and explains that the Commission may enforce the prohibitions of the Sherman and Clayton Acts under Section 5 of the FTC Act. …

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