Distribution, Competition, and Antitrust / Intellectual Property (IP) Law

FTC Commissioner Urges Clear and Rational Definition of “Unfair Competition”

On June 19, FTC Commissioner Joshua Wright gave a speech proposing a policy statement regarding “unfair methods of competition” under Section 5 of the FTC Act.

Determining whether a company’s conduct violates Section 5 has in the past been difficult, given the substantial uncertainty about the test for “unfairness.”

Commissioner Wright’s proposal would, among other things, clarify that conduct challenged under Section 5 must have an anticompetitive effect (or is likely to cause such an effect).  “That is, it must harm the competitive process and thereby harm consumers.” In contrast, “harm to one or more competitors will not suffice.” Further, “[c]onduct that results in harm to competition, and in turn, in harm to consumer welfare, typically does so through increased prices, reduced output, diminished quality, or weakened incentives to innovate.”

Invitations to collude (prior to agreement being reached) and unfair methods to acquire market power (prior to acquisition) are examples of conduct that are “likely” to harm competition.  Such actions may not violate the Sherman Act, but under Commissioner Wright’s approach would still be subject to the FTC Act.  And so Commissioner Wright’s proposal would not make the FTC Act a mere redundancy, something that some opponents of clarifying Section 5 sometimes fear.

This rather simple-sounding clarification, if taken up by the FTC, would be most welcome.  If Congress and/or the FTC want to outlaw specific forms of unfair practices, they have the ability to enumerate them.  But leaving businesses to guess which practices are “unfair” is, well, . . . unfair.

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