FTC to Clarify Its Powers to Police Unfair Competition

August 9, 2015

WASHINGTON—The Federal Trade Commission in its 100-year history has never agreed on formal principles for policing companies engaged in “unfair” competition. That looks set to change.

Members of the FTC are close to a bipartisan agreement to lay out for the first time how the commission views its authority to bring cases against businesses it believes compete unfairly, according to people familiar with the deliberations.

An accord would be a breakthrough for Democrat and Republican commissioners who have clashed over when and how the FTC should deploy the century-old Section 5 of the FTC Act in enforcement matters. The provision declares “unfair methods of competition in or affecting commerce” to be unlawful. But the agency has faced criticism that with no formal guidelines or parameters, it is hard for anyone—businesses as well as regulators—to know what may be considered unfair.

Democrats have worried that formal policy guidelines could limit enforcement flexibility to address evolving markets and business practices. Republicans generally have favored setting limits, believing an undefined power created the opportunity for government overreach and deprived the business community of clarity on what type of conduct was illegal.

The exact details of the proposed FTC policy statement couldn’t immediately be learned. But people familiar with the deliberations say it would emphasize a focus on consumer welfare and discuss how the FTC’s authority to police unfairness intersects with traditional antitrust laws prohibiting anticompetitive conduct. If commissioners vote for the agreement, it could be announced as soon as this week, these people said.

The FTC hasn’t exercised its “unfairness” powers frequently in recent years, though it has used the power in some high-profile cases. It cited the authority against Intel Corp. in 2009, alleging the company used its dominance to stifle competition from rival chip makers. The commission also brought claims against Google Inc. in 2013, alleging the company didn’t play fairly in bringing patent infringement claims against rivals instead of agreeing to license technology.

Both cases settled, with the companies denying wrongdoing but agreeing to refrain from certain practices.

An agreement on the policy would be a notable achievement by FTC Chairwoman Edith Ramirez, who previously has been lukewarm about adopting formal principles. Ms. Ramirez said in speeches and congressional testimony that she wasn’t opposed to guidance in theory, but didn’t want to prescribe future enforcement actions. She also said businesses could understand the FTC’s approach by looking at the past cases it has brought.

“I do understand that there is concern in the business community about whether the absence of more formal guidance by the commission chills pro-competitive conduct. In my view, I have not seen evidence to suggest that, nor have any companies come to visit me,” Ms. Ramirez told a House panel in May.

The accord could help her ease political pressure on the commission from the right.

Congressional Republicans have called on the FTC to issue clear standards. GOP lawmakers separately have been pursuing legislation that would require changes to how the FTC challenges proposed mergers, an effort that has sparked concern within the FTC.

The deal also would be a victory for conservative FTC commissioner Joshua Wright. In a February speech he promised to push for an internal vote on enforcement guidelines, even if the result were guidelines that weren’t as conservative as he would prefer.

“Without a stable definition of what constitutes an ‘unfair method of competition,’ businesses must make difficult decisions about whether the conduct they wish to engage in will trigger an investigation,” he said in the speech. Companies have felt pressure to settle such cases rather than litigate against the FTC in its in-house court system, he added.

The recent deliberations have prompted some internal disagreements and could create a split between the two Republicans on the five-member commission, people familiar with the matter said. Commissioner Maureen Ohlhausen is likely to vote against the policy statement, out of concern that it is short on detail and isn’t limiting enough to the FTC’s authority, these people said.

Most legal observers believe Congress meant to give FTC the power to address some types of business conduct that wouldn’t be a violation under traditional antitrust laws.

In the 1970s, the FTC aggressively sought to use its powers to address what it perceived as unfair competition, including in cases it brought against oil companies and cereal makers. It suffered several legal losses and faced a backlash from Congress, ushering in a dormant period for such cases.

Commissioners from both parties have criticized FTC lawsuits from that earlier era. Some, including President Barack Obama’s first FTC chairman, Jon Leibowitz, believed the pendulum has swung too far in the other direction. He argued the provision should be a tool in the FTC’s enforcement arsenal at a time when court rulings have taken traditional antitrust law in a more conservative direction.

Mr. Leibowitz was chairman for the Intel and Google settlements, but he didn’t fully litigate a Section 5 case. He stepped down in 2013.

(By Brent Kendall)