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November 14, 2022
On November 10, 2022, the Federal Commerce Fee launched a brand new coverage Assertion setting forth its view of its enforcement authority underneath Part 5 of the FTC Act, 15 U.S.C. § 45, and saying it should now not give attention to the “rule of cause” framework generally utilized in Sherman and Clayton Act enforcement to find out legal responsibility. As an alternative, the FTC intends to broaden its enforcement of Part 5 to focus “on stopping unfair strategies of competitors of their incipiency based mostly on their tendency to hurt aggressive situations.”[1] This new Assertion displays a major departure from the FTC’s earlier place and displays a common development inside the Biden Administration towards broadening the scope of its perceived authority and pursuing novel antitrust enforcement efforts.[2] Whereas it stays to be seen how aggressively the FTC invokes this new strategy to analyze and probably problem enterprise practices not in any other case lined by the antitrust legal guidelines underneath Part 5, this growth at a minimal provides uncertainty for companies that heightens the necessity for vigilance in how they function.[3]
Background: Part 5 of the FTC Act
In 1914, Congress handed the FTC Act, establishing the Fee and granting it authority to implement honest competitors legislation.[4] The FTC largely derives its enforcement authority from Part 5 of the FTC Act, which has two prongs: the primary addresses shopper safety, based mostly on the “unfair or misleading acts or practices” statutory language, and the second addresses primarily antitrust, based mostly on the “unfair strategies of competitors” (“UMC”) statutory language.[5] This new Assertion addresses Part 5’s second prong, and explains the FTC’s view on how the scope of Part 5 pertains to the FTC’s authority to implement different antitrust legal guidelines, most notably the Sherman and Clayton Acts.
The Evolution of the FTC’s Prior Views on Part 5’s Scope
In 2015, the FTC launched a one-page coverage assertion about ideas of its UMC authority, explaining that it might (1) comply with the buyer welfare commonplace, (2) consider acts underneath “a framework much like the rule of cause,” and (3) align FTC Act Part 5 enforcement with the scope of the Sherman and Clayton Acts.[6] Beneath new management, on July 1, 2021, the FTC rescinded this 2015 coverage assertion.[7] On November 10, 2022, in a sixteen-page assertion, the FTC introduced its newly broadened view of the scope of Part 5.[8]
The FTC’s New Broader Place on Part 5’s Scope
This new Coverage Assertion is hardly a mannequin of readability. It begins by explaining the FTC’s view that “Part 5 reaches past the Sherman and Clayton Acts to embody numerous kinds of unfair conduct that are inclined to negatively have an effect on aggressive situations.”[9] The Assertion offers the FTC’s justification of this view from its studying of judicial precedents,[10] the FTC Act’s legislative historical past,[11] and congressional function[12]. Then, it turns to the FTC’s studying of Part 5’s UMC language,[13] its evaluation of potential cognizable justifications,[14] and closes with an extended record of historic examples of unfair strategies of competitors.[15]
Analyzing the statutory language, the Assertion explains that conduct have to be a technique of competitors, i.e., “conduct undertaken by an actor within the market [that] implicate[s] competitors.”[16] This consists of not directly implicating competitors, and the FTC offers an instance: “misuse of regulatory processes that may create or exploit impediments to competitors (reminiscent of these associated to licensing, patents, or commonplace setting).”[17]
Addressing what “unfair” means, the Assertion explains that there are two standards to find out if conduct goes past competitors on the deserves if the conduct is (1) “coercive, exploitative, collusive, abusive, misleading, predatory, or contain[s] using financial energy of an identical nature . . . [, or is] in any other case restrictive or exclusionary, relying on the circumstances” and (2) if the conduct “have a tendency[s] to negatively have an effect on aggressive situations.”[18] The Assertion emphasised that as a result of “Part 5 evaluation is purposely targeted on incipient threats to aggressive situations, this inquiry doesn’t flip as to whether the conduct instantly precipitated precise hurt within the particular occasion at concern.”[19] Somewhat, the main focus is on “whether or not the respondent’s conduct tends to generate adverse penalties; for example, elevating costs, decreasing output, limiting selection, reducing high quality, decreasing innovation, impairing different market individuals, or decreasing the probability of potential or nascent competitors.”[20]
In concluding its evaluation of the statutory language, the Assertion emphasised that Part 5, not like nearly all different antitrust statutes, “doesn’t require a separate displaying of market energy or market definition” when proof signifies an inclination of anticompetitive results.[21] Lastly, the FTC famous that it might not make the most of a rule of cause framework of study in its Part 5 enforcement.[22]
In all, this newly introduced interpretation of Part 5 is far broader than the earlier administration’s and is notable for its repetitious emphasis on “stopping unfair strategies of competitors of their incipiency.” This angle implies that the FTC might launch investigations of practices earlier than any anticompetitive hurt or impression has arisen in any respect, a lot much less one which instances market-wide harm. Moreover, the Assertion solely frivolously touches on what might represent a possible defensive justification, however suggests it intends to circumscribe corporations’ skills to justify their enterprise practices. For instance, the FTC notes that “it might be opposite to the textual content, that means, and case legislation of Part 5 to justify facially unfair conduct on the grounds that the conduct offers the respondent with some pecuniary advantages.”[23] Equally, the Assertion rejects a “numerical cost-benefit evaluation” that might present the advantages of a observe outpace any potential hurt, noting that the UMC framework “explicitly contemplates quite a lot of non-quantifiable harms.”[24] Thus, the FTC contemplates broader legal responsibility underneath Part 5 together with narrower accessible defenses.
Examples of Unfair Strategies of Competitors that the FTC Highlighted
The Assertion offers a “non-exclusive” record of examples that might represent a Part 5 violation, together with practices that (1) violate the Sherman and Clayton Act, (2) are “incipient violation[s] of the antitrust legal guidelines,” and (3) violate “the spirit of the antitrust legal guidelines.”[25] The record follows:
- Practices deemed to violate Sections 1 and a couple of of the Sherman Act or the provisions of the Clayton Act, as amended (the antitrust legal guidelines).
- Conduct deemed to be an incipient violation of the antitrust legal guidelines. In response to the FTC, incipient violations embrace conduct by respondents who haven’t gained full-fledged monopoly or market energy, or by conduct that has the tendency to ripen into violations of the antitrust legal guidelines. Previous examples of such use of Part 5 of the FTC Act embrace:
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- invites to collude that haven’t resulted into an settlement between rivals,
- mergers, acquisitions, or joint ventures which have the tendency to ripen into violations of the antitrust legal guidelines,
- “serial” mergers, acquisitions, or joint ventures that are inclined to deliver concerning the harms that the antitrust legal guidelines had been designed to stop, however individually might not have violated the antitrust legal guidelines, and
- loyalty rebates, tying, bundling, and unique dealing preparations which have the tendency to ripen into violations of the antitrust legal guidelines by advantage of trade situations and the respondent’s place inside the trade.
- Conduct that violates “the spirit of the antitrust legal guidelines.” This consists of conduct that tends to trigger potential hurt much like an antitrust violation, however which will or is probably not lined by the literal language of the antitrust legal guidelines or which will or might not fall right into a “hole” in these legal guidelines. As such, the evaluation might depart from prior precedent based mostly on the provisions of the Sherman and Clayton Acts. Examples of such violations recognized within the new Coverage, to the extent not lined by the antitrust legal guidelines, embrace:
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- practices that facilitate tacit coordination,
- parallel exclusionary conduct which will trigger combination hurt,
- conduct by a respondent that’s undertaken with different acts and practices that cumulatively might are inclined to undermine aggressive situations out there,
- fraudulent and inequitable practices that undermine the standard-setting course of or that intervene with the Patent Workplace’s full examination of patent functions,
- value discrimination claims reminiscent of knowingly inducing and receiving disproportionate promotional allowances in opposition to consumers not lined by the Clayton Act,
- de facto tying, bundling, unique dealing, or loyalty rebates that use market energy in a single market to entrench that energy or impede competitors in the identical or a associated market,
- a collection of mergers or acquisitions that are inclined to deliver concerning the harms that the antitrust legal guidelines had been designed to stop, however individually might not have violated the antitrust legal guidelines,
- mergers or acquisitions of a possible or nascent competitor which will have a tendency to minimize present or future competitors,
- utilizing market energy in a single market to achieve a aggressive benefit in an adjoining market by, for instance, using technological incompatibilities to negatively impression competitors in adjoining markets,
- conduct leading to direct proof of hurt, or possible hurt to competitors, that doesn’t rely on market definition,
- interlocking administrators and officers of competing companies not lined by the literal language of the Clayton Act,
- business bribery and company espionage that tends to create or keep market energy,
- false or misleading promoting or advertising and marketing which tends to create or keep market energy, or
- discriminatory refusals to deal which are inclined to create or keep market energy.[26]
Commissioner Statements and Dissents
The Fee vote to approve the assertion was 3-1, alongside celebration traces.
Commissioner Wilson, the lone at present seated Republican on the FTC, dissented, arguing that the brand new Assertion “abandons bedrock ideas of antitrust that lengthy have been accepted by the Fee, the courts, the enterprise neighborhood, and enforcers throughout the globe.”[27] Specifically, she famous that the Assertion didn’t: (1) present clear steering to the enterprise neighborhood on how you can adjust to the legislation, (2) set up an strategy of what “unfair” means “that matches the financial and analytical rigor . . . within the shopper safety context,” (3) present a framework that can lead to credible enforcement, or (4) tackle the legislative historical past “that each calls for financial content material for the time period ‘unfair’ and cautions in opposition to an expansive strategy to imposing Part 5.”[28]
Takeaways
This new coverage assertion is a component of a bigger development towards extra vigorous enforcement by the FTC and thus a broader threat of antitrust enforcement, as we’ve got famous in earlier Consumer Alerts addressing interlocking directorates, no-poach and non-solicit agreements, and criminal monopolization.
In mild of this more and more aggressive and unpredictable regulatory surroundings, it is crucial for corporations to evaluation their practices for any much like these flagged by this coverage assertion. Gibson Dunn attorneys are carefully monitoring these developments and can be found to debate these points as utilized to your explicit enterprise.
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[1] Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act, Fed. Commerce Comm’n (Nov. 10, 2022) (“UMC Coverage Assertion” or simply the “Assertion”). The Fee vote was 3-1 alongside celebration traces. Chair Khan and Commissioners Slaughter and Bedoya launched a joint assertion. See Joint Statement, Fed. Commerce Comm’n (Nov. 10, 2022). Commissioner Wilson dissented. See Dissenting Statement of Commissioner Christine S. Wilson, Fed. Commerce Comm’n (Nov. 10, 2022) (criticizing the brand new Assertion as threatening due course of and leaving “companies in the dead of night on how you can construction their conduct to keep away from a problem by the Fee”).
[2] The Democratic-appointed Commissioners have just lately made public statements about their views that the FTC has broader enforcement authority than it has historically presupposed to have. See e.g., Chair Lina Khan, Prepared Statement of the Federal Trade Commission Before the United States Senate Committee on the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, “Oversight of the Enforcement of the Antitrust Legal guidelines,” Sep. 20, 2022, at 1 (noting that the FTC’s focus is on “reactivating the total set of authorities” accessible to it); Commissioner Alvaro M. Bedoya, Prepared Remarks Before the Midwest Forum on Fair Markets, “Returning to Equity,” Sep. 22, 2022, at 8 (outlining Commissioner Bedoya’s want to see antitrust legislation transfer away from a give attention to “effectivity” and towards a give attention to “equity”). As for enforcement priorities, the Assertion’s language carefully displays that contained in earlier omnibus resolutions authorised by the FTC in a 3-2 vote. See FTC Authorizes Investigations into Key Enforcement Priorities, Fed. Commerce Comm’n (July 1, 2021) (“Particularly, the resolutions direct company employees to make use of ‘obligatory course of,’ reminiscent of subpoenas, to analyze seven particular enforcement priorities. Precedence targets embrace repeat offenders; expertise corporations and digital platforms; and healthcare companies reminiscent of pharmaceutical corporations, pharmacy advantages managers, and hospitals.”).
[3] Many states have their very own unfair competitors legal guidelines, and the development and scope of these legal guidelines is often a matter of particular person state legislation, so the impression of the FTC coverage assertion won’t essentially alter state unfair competitors enforcement.
[4] FTC Act of 1914, Pub. L. No. 63-203, 38 Stat. 717 (codified as amended at 15 U.S.C. § 41– 58).
[5] Id. See A Brief Overview of the Federal Trade Commission’s Investigative, Law Enforcement, and Rulemaking Authority, Fed. Commerce Comm’n (final revised Could 2021).
[6] Statement of Enforcement Principles Regarding “Unfair Methods of Competition” Under Section 5 of the FTC Act, Fed. Commerce Comm’n (Aug. 13, 2015).
[7] Statement on the Withdrawal of the Statement of Enforcement Principles Regarding “Unfair Methods of Competition” Under Section 5 of the FTC Act, Fed. Commerce Comm’n (July 9, 2021).
[8] UMC Coverage Assertion.
[9] Id. at 1.
[10] Id. at 1 n.3 (citing twelve Supreme Court docket opinions).
[11] Id. at 2–6 (“Congress needed to offer the Fee flexibility to adapt to altering circumstances.”)
[12] Id. at 6–8 (“Congress supposed for the FTC to be entitled to deference from the courts as an unbiased, professional company.”).
[13] Id. at 8–10.
[14] Id. at 10–12 (“Within the occasion that conduct prima facie constitutes an unfair methodology of competitors, legal responsibility usually ensues underneath Part 5 absent further proof. There’s restricted caselaw on what, if any, justifications could also be cognizable in a standalone Part 5 unfair strategies of competitors case, and a few courts have declined to think about justifications altogether.”) (citing Atlantic Refining Co. v. Fed. Commerce Comm’n, 381 U.S. 357, 371 (1965) and Fed. Commerce Comm’n v. Texaco, 393 U.S. 223, 230 (1968), and L.G. Balfour Co. v. Fed. Commerce Comm’n, 442 F.2nd 1, 15 (seventh Cir. 1971)).
[15] Id. at 12–16.
[16] Id. at 8.
[17] Id. at 8.
[18] Id. at 9–10.
[19] Id. at 10.
[20] Id.
[21] Id.
[22] Id.
[23] Id. at 11.
[24] Id.
[25] Id. at 12.
[26] Id. at 12–15 (edited for readability) (citing instances).
[27] See Dissenting Statement of Commissioner Christine S. Wilson, Fed. Commerce Comm’n (Nov. 10, 2022).
[28] Id. at 3.
The next Gibson Dunn legal professionals ready this shopper alert: Rachel Brass, Stephen Weissman, Cynthia Richman, Daniel Swanson, Svetlana S. Gans, Chris Wilson, David Reck, and Connor Leydecker*.
Gibson Dunn’s legal professionals can be found to help in addressing any questions you could have relating to the problems mentioned on this replace. Please contact the Gibson Dunn lawyer with whom you normally work, any member of the agency’s Antitrust and Competition, Privacy, Cybersecurity and Data Innovation, Mergers and Acquisitions, Private Equity, or Securities Regulation and Corporate Governance observe teams, or the next observe leaders and members:
Antitrust and Competitors Group:
Rachel S. Brass – San Francisco (+1 415-393-8293, rbrass@gibsondunn.com)
Svetlana S. Gans – Washington, D.C. (+1 202-955-8657, sgans@gibsondunn.com)
Cynthia Richman – Washington, D.C. (+1 202-955-8234, crichman@gibsondunn.com)
Daniel G. Swanson – Los Angeles (+1 213-229-7430, dswanson@gibsondunn.com)
Stephen Weissman – Washington, D.C. (+1 202-955-8678, sweissman@gibsondunn.com)
Ali Nikpay – London (+44 (0) 20 7071 4273, anikpay@gibsondunn.com)
Christian Riis-Madsen – Brussels (+32 2 554 72 05, criis@gibsondunn.com)
Privateness, Cybersecurity and Information Innovation Group:
Ahmed Baladi – Paris (+33 (0) 1 56 43 13 00, abaladi@gibsondunn.com)
S. Ashlie Beringer – Palo Alto (+1 650-849-5327, aberinger@gibsondunn.com)
Gustav W. Eyler – Washington, D.C. (+1 202-955-8610, geyler@gibsondunn.com)
Svetlana S. Gans – Washington, D.C. (+1 202-955-8657, sgans@gibsondunn.com)
Alexander H. Southwell – New York (+1 212-351-3981, asouthwell@gibsondunn.com)
Mergers and Acquisitions Group:
Robert B. Little – Dallas (+1 214-698-3260, rlittle@gibsondunn.com)
Saee Muzumdar – New York (+1 212-351-3966, smuzumdar@gibsondunn.com)
Non-public Fairness Group:
Richard J. Birns – New York (+1 212-351-4032, rbirns@gibsondunn.com)
Wim De Vlieger – London (+44 (0) 20 7071 4279, wdevlieger@gibsondunn.com)
Federico Fruhbeck – London (+44 (0) 20 7071 4230, ffruhbeck@gibsondunn.com)
Scott Jalowayski – Hong Kong (+852 2214 3727, sjalowayski@gibsondunn.com)
Ari Lanin – Los Angeles (+1 310-552-8581, alanin@gibsondunn.com)
Michael Piazza – Houston (+1 346-718-6670, mpiazza@gibsondunn.com)
Securities Regulation and Company Governance Group:
Elizabeth Ising – Washington, D.C. (+1 202-955-8287, eising@gibsondunn.com)
James J. Moloney – Orange County (+1 949-451-4343, jmoloney@gibsondunn.com)
Lori Zyskowski – New York (+1 212-351-2309, lzyskowski@gibsondunn.com)
*Connor Leydecker is a current legislation graduate practising within the agency’s Washington, D.C. workplace and never but admitted to observe legislation.
© 2022 Gibson, Dunn & Crutcher LLP
Legal professional Promoting: The enclosed supplies have been ready for common informational functions solely and are usually not supposed as authorized recommendation.
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