ICYMI: FTC’s Changes To Section 5 Guidance Could Undermine Years Of Legal Precedent
Following its 2021 withdrawal of 2015 Obama-era guidance on ‘unfair methods of competition,’ late last year, the FTC issued new enforcement principles under Section 5. The FTC has now claimed the authority to issue rules based on conduct it deems an unfair method of competition. Experts have raised concerns over its legal overreach and harm to consumers.
Here’s what experts have said about the FTC’s erosion of legal precedent surrounding Section 5:
Expanded Section 5 enforcement rests on shaky legal ground
FTC Commissioner Christine Wilson questioned “whether the Commission possesses the requisite authority” to expand Section 5. “As I have said elsewhere, I question whether the Commission possesses the requisite authority to promulgate substantive rules on ‘unfair methods of competition.’ Moreover, I question the wisdom of doing so.”
— In a separate dissent, Wilson noted that the FTC lacks “substantive rulemaking authority.” “For decades, consistent with the statements in the FTC Act’s legislative history, Commission leadership testified before Congress that the Commission lacked substantive competition rulemaking authority”
Professor Jonathan Barnett of USC Gould Law School criticized the “thin veneer of legality” used by the FTC to justify expanded enforcement. “[The guidance is] presented with a thin veneer of legality derived from a medley of dormant judicial decisions, incomplete characterizations of precedent, and truncated descriptions of legislative history. Under the agency’s dubious understanding of Section 5, Congress in 1914 elected to provide the FTC with the authority to declare any business practice ‘unfair’ subject to no principle other than the agency’s subjective understanding of that term.”
Former DOJ Senior Economic Counsel Gregory Werden explained that the new guidance departs from “the usual antitrust standard.” “Notably, the policy statement rejects the usual antitrust standard — the “rule of reason,” which distinguishes between reasonable and unreasonable business practices. The Supreme Court recently described the rule of reason as a ‘fact-specific assessment’ designed to determine a practice’s ‘actual effect on competition.'”
— Werden explained further: “The policy statement does indicate that the FTC is prepared to depart from the rule of reason in two fundamental ways: The FTC plans to condemn practices based on a fear that they could harm competition, rather than on concrete evidence that they have harmed competition, or are likely to do so. And the FTC plans to condemn practices on bases other than harm to competition.”
According to the American Bar Association, the details of the FTC Act suggest that “Congress did not intend to give the agency substantive rulemaking powers.” “The Commission’s [6(g)] rulemaking authority is buried within an enumerated list of investigative powers, such as the power to require reports from corporations and partnerships, for example. Furthermore, the [FTC] Act fails to provide any sanctions for violating any rule adopted pursuant to Section 6(g). These two features strongly suggest that Congress did not intend to give the agency substantive rulemaking powers when it passed the Federal Trade Commission Act.”
The withdrawal of 2015 guidance set the stage for the FTC to encroach on Congress’s powers
In response to the withdrawal of prior guidance, then-Commissioner Noah Phillips remarked that it “unleashes unchecked regulatory authority on businesses.” “I am deeply concerned that the Commission’s action today unleashes unchecked regulatory authority on businesses subject to Section 5 while keeping those businesses in the dark about which conduct is lawful and which is unlawful. And, we are undertaking it with virtually no input from the public. The need for certainty and predictability are basic tenets of good government.”
— Phillips added that the FTC’s Section 5 overreach was “never intended by Congress.” “The Majority’s decision today to rescind the Commission’s bipartisan 2015 Section 5 Policy Statement reduces clarity in the application of the law and augurs an attempt to arrogate terrific regulatory power never intended by Congress to a handful of unelected individuals on the FTC.”
Following the withdrawal of the 2015 guidance, the U.S. Chamber of Commerce warned that the FTC’s concentration of power is “ripe for abuse.” “Congress, instinctively, has understood the problem of extending rulemaking powers to the agency allowing the agency to write the rules it is empowered to enforce. Such a super concentration of power is ripe for abuse, as an agency empowered to write the rules it enforces severely limits the scope of judicial review.”
The FTC’s pivot on Section 5 guidance could raise prices and hurt consumers
Sean Heather, SVP at the U.S. Chamber of Commerce explained that the new guidance will threaten business practices that are “good for competition.” “The FTC seeks to bar a slew of common business practices that have long been viewed on a bipartisan basis as good for competition, good for consumers, good for lowering prices, and good for a healthy dynamic economy.”
— Heather added that consumers can expect higher prices as a result: “If the FTC is allowed to implement this policy statement, consumers should expect higher prices, fewer choices, and less innovation.”
Following the withdrawal of the 2015 guidance, Jennifer Huddleston of the American Action Forum raised concerns that FTC overreach could raise prices and impede access to important products. “The result of such unnecessary enforcement could be to raise costs or eliminate products, preventing consumers from having access to products they enjoy or face higher prices, not because of unfair or anti-competitive behavior but because of political animus against a particular industry.”
The Mercatus Center’s Alden Abbott and Andrew Mercado warned that the withdrawal of 2015 guidance “spells bad news for consumers” and innovation. “This high degree of uncertainty spells bad news for consumers. Companies large and small will start to think twice about innovating or introducing new products to the marketplace.”