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FTC targets unfair methods of competition in policy statement

Policy change expands the Agency’s oversight under Section 5 of the FTC Act and abandons the application of the “Rule of Reason.”


On November 10, in a significant development, the Federal Trade Commission (FTC) approved by a 3-1 vote a Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act. The statement represents a major shift in the FTC’s view of its authority to police “unfair methods of competition.” The new policy abandons the Agency’s previous, narrow construction of its Section 5 authority which limited the interpretation of “unfair methods of competition” to well-defined boundaries of federal antitrust law and judicial precedent. With the announcement of the new policy, the Agency embraces an expansive view of behaviors that might be considered “unfair methods of competition,” opening up the possibility of FTC enforcement in situations previously considered beyond the scope of the Agency’s oversight.

The 16-page statement, which supersedes all earlier Section 5 policy statements, cites legislative history and legal precedent to support the majority’s position that Section 5 reaches beyond the parameters of the Sherman Act and Clayton Act to encompass various types of unfair conduct that tend to negatively affect competitive conditions.

According to an accompanying press release, the new policy statement is aimed at restoring a policy of “rigorously enforcing the federal ban on unfair methods of competition.”

The policy change significantly expands the scope of corporate behavior that FTC might scrutinize and seek to challenge under its Section 5 authority. The statement adopts a more stringent “per se” approach to conduct that is “facially unfair,” an unprecedented approach to reviews under the FTC’s Section 5 authority. It also limits the ability of companies to offer procompetitive justifications for the challenged behavior.

Meanwhile, Republican-appointed Commissioner Wilson, writing alone in dissent, strongly criticized the policy statement for abandoning established principles and creating major uncertainty for businesses.

Unfair Methods of Competition

According to the FTC policy statement, in order for behavior to be considered an “unfair method of competition,” the conduct must be “a method of competition,” that is, conduct that implicates competition, not merely a market condition. In addition, the method of competition must be “unfair,” defined as conduct “beyond competition on the merits.”

The policy statement lists three categories of “unfair” conduct targeted under Section 5:

  1. actual violations of the antitrust laws,
  2. “incipient” violations of the antitrust laws, and
  3. conduct that violates “the spirit of the antitrust laws.”

Actual Violations of the Antitrust Laws

Category one, “actual violations” of the antitrust laws, is well-defined and understood under current precedent. Categories two and three, however, are much less understood from precedent. The statement does attempt to provide some clarity, and the FTC promises additional exposition through enforcement and rulemaking.

Incipient Violations of the Antitrust Laws

Category two, incipient violations of the antitrust laws, is described as conduct by persons who have not gained full-fledged monopoly or market power (and so this necessary component for an actual violation is absent), or conduct that tends to lead to violations of the antitrust laws.

Examples of Incipient Violations of the Antitrust Laws

  • invitations to collude,
  • mergers, acquisitions, or joint ventures that “have the tendency to ripen into violations of the antitrust laws,”
  • a series of transactions (mergers, acquisitions, or joint ventures) that “tend to bring about the harms that the antitrust laws were designed to prevent, but which individually may not have violated the antitrust laws,” and
  • loyalty rebates, tying, bundling, and exclusive dealing arrangements that “have the tendency to ripen into violations of the antitrust laws by virtue of industry conditions and the respondent’s position within the industry.”

These examples appear to reflect concerns voiced by the FTC’s majority in recent public comments by commissioners about the role of private equity firms in roll-up acquisitions and the use of bundling and loyalty programs by pharmaceutical companies.

Conduct that Violates the “Spirit” of the Antitrust Laws

The statement provides examples of conduct falling into category three, conduct that violates the “spirit” of the antitrust laws.

Examples of Conduct that Violates the “Spirit” of the Antitrust Laws

  • practices that facilitate tacit coordination,
  • parallel exclusionary conduct that may cause aggregate harm,
  • conduct by a respondent that is undertaken with other acts and practices that cumulatively may tend to undermine competitive conditions in the market,
  • fraudulent and inequitable practices that undermine the standard-setting process or that interfere with the Patent Office’s full examination of patent applications,
  • price discrimination claims such as knowingly inducing and receiving disproportionate promotional allowances against buyers not covered by Clayton Act,
  • de facto tying, bundling, exclusive dealing, or loyalty rebates that use market power in one market to entrench that power or impede competition in the same or a related market,
  • a series of mergers or acquisitions that tend to bring about the harms that the antitrust laws were designed to prevent, but which individually may not have violated the antitrust laws,
  • mergers or acquisitions of a potential or nascent competitor that may tend to lessen current or future competition,
  • using market power in one market to gain a competitive advantage in an adjacent market by, for example, utilizing technological incompatibilities to negatively impact competition in adjacent markets,
  • conduct resulting in direct evidence of harm, or likely harm to competition, that does not rely upon market definition,
  • interlocking directors and officers of competing firms not covered by the literal language of the Clayton Act,
  • commercial bribery and corporate espionage that tends to create or maintain market power,
  • false or deceptive advertising or marketing which tends to create or maintain market power, and
  • discriminatory refusals to deal which tend to create or maintain market power.

Procompetitive Justifications

The statement also abandons the previous “rule of reason” approach which considered justifications for the allegedly unfair conduct. The new policy statement adopts a “per se” approach to conduct that is deemed “facially unfair.” For conduct that is not “facially unfair” the Commission will, similar to the conventional rule of reason analysis, consider the effects of conduct on consumers, labor, rivals, and potentially others, but there will not be “a net efficiencies test or a numerical cost-benefit analysis.” This is not further defined.

Dissenting Statement

In a 20-page dissenting statement, Commissioner Wilson criticizes the majority’s approach on multiple fronts. Commissioner Wilson cites specifically the statement’s departure from past practice – replacing the rule of reason, rejecting the consumer welfare standard, and ignoring precedent. The dissent also takes issue with the practical implications of the new policy, arguing that it fails to provide a predictable, credible enforcement approach for unfair methods of competition, allowing the majority to make enforcement decisions on an “I know it when I see it” basis. Finally, Commissioner Wilson also takes issue with the academic underpinnings of the policy statement, arguing that the majority ignores inconvenient history and precedent.


While the policy statement appears to dramatically expand the scope of the FTC’s enforcement authority, some believe that the FTC under the current progressive Biden administration was already operating under this broader standard. Others, however, believe this policy statement will give the FTC even more authority to go after potentially anti-competitive conduct.

Allen & Overy will continue to monitor developments in the application of the new framework.


Key points

  • FTC policy statement expands enforcement of the law against “unfair methods of competition,” subjecting a broad range of behavior to antitrust scrutiny.