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FTC’s Competition Policy Shift Paves Enforcement ‘Shortcuts’

Nov. 11, 2022, 10:00 AM

The Federal Trade Commission is shedding some policy restraints, eager to evolve with the fast-changing economy.

Private equity firms and Big Tech companies pursuing acquisitions that may not automatically trigger antitrust concerns are seen as the main targets of the agency’s new competition policy statement.

The change to make wider use of Section 5 of the FTC Act, announced Thursday, also signals plans to exercise greater enforcement powers against industry practices—commercial bribery or price discrimination, for example—that can fall through the cracks when subjected solely to traditional antitrust laws.

The development is in keeping with the Biden administration’s aggressive stance on enforcing antitrust laws. But the new policy may run into skeptical judges if it becomes the subject of a legal dispute, attorneys say.

It is an “aggressive” attempt at revamping the commission’s authority, said Daniel Crane, a professor at the University of Michigan Law School.

Rereading the Law

The FTC’s new policy largely centers on reweighing traditional antitrust requirements for enforcement actions.

Congress, in passing the 1914 FTC Act, gave the agency authority to review competition violations that may not be covered by the main antitrust law, the Sherman Act. It also empowered the FTC to evolve with the market to crack down on unfair methods of competition, agency leadership said. The agency’s policy statement reaffirms these provisions.

Congress explicitly gave the FTC additional authority to enforce against “unfair methods of competition,” commission Chair Lina Khan told reporters Wednesday. A now-withdrawn 2015 policy statement from the commission incorrectly limited those powers only to what’s subject to the Sherman Act, she said.

The new policy effectively imparts a two-factor test for enforcing antitrust violations, Crane said. Once the agency shows corporate conduct is exploitative, collusive, deceptive, predatory, or coercive, it must demonstrate the conduct harmed competition. But because Section 5 is also intended to address harm to competition before it occurs, the FTC said in the new statement that, if the conduct in question is extreme enough, the agency only needs to demonstrate “a tendency to generate negative consequences” of that act.

That approach is effectively the same as treating the conduct as per-se illegal, or presumptively a violation with no pro-competitive justifications, Crane said. The per-se standard is more stringent against anticompetitive activity.

The new guidance reflects an “overall belief that the tendency of antitrust law in the last 40 years has made things complicated in ways that are obstacles and roadblocks for enforcement,” Crane said.

“Courts require what some commissioners see as bells and whistles, such as defining a relevant market, proving market power, proving the behavior causes anticompetitive effects, and proving the absence of an efficiency explanation for the behavior,” Crane said. “They’re trying to shortcut through all that to behavior that’s anticompetitive on its face.”

Targeting Big Tech

Future enforcement under the guidance is likely to scrutinize behavior the commission has previously spoken out against, such as the Big Tech and private equity strategy of buying and consolidating smaller companies before they can become full competitors, said Bill Kovacic, a former commissioner and a professor at George Washington University Law School.

Those “serial acquisitions” have long been concerning to enforcers, but they’re difficult to challenge, said Jennifer Sturiale, a professor at Delaware Law School. The deals often don’t technically violate the Sherman or Clayton acts because individual transactions are fairly small, she said.

The FTC has cited Facebook’s (now called Meta Platforms) acquisition of WhatsApp and Instagram as examples of the practice. The agency also invoked it recently in challenging Meta’s plan to buy virtual reality developer Within.

Section 5 is also likely to be deployed as a more expansive cause of action in areas the commission has expertise in, such as “pay for delay” practices in the pharmaceutical industry, non-compete clauses in employment contracts, or right to repair restrictions, Kovacic said.

‘Extraordinarily Weak’

The FTC could face obstacles as it tries to unfurl enforcement under the new guidance, attorneys said.

Courts and Congress have demonstrated repeatedly that they are unwilling to allow the commission to make significant expansions to its competition enforcement, Kovacic said.

The agency could invite unfriendly scrutiny by taking substantive action beyond issuing guidance documents, particularly if one or both houses of Congress are taken by Republicans in the midterm elections, he said.

“They’ll need sustained support to make this work, and the weather in Washington changes quickly,” Kovacic said. There have been painful examples in the past where after using this authority, Congress has turned on the agency.”

The commission’s statutory and legal authority to sue companies under its expanded interpretation of Section 5 is “extraordinarily weak,” said Richard Pierce, an administrative law and antitrust professor at George Washington University Law School.

The FTC would be inviting a challenge from whichever company it sues under the new guidance, he said.

The precedents commission staff cited to justify the guidance are mostly from cases so old they have little bearing on modern antitrust law, Crane said.

Few companies may be willing to take on a federal agency in an enforcement case, and the FTC may see some deterrent effect from its “shot across the bow,” Pierce said.

“But if they sue using weapons they say they’ll use, they’re in big trouble,” he said.

Lone Republican Commissioner Christine Wilson lambasted the guidance in a statement, criticizing its departure from previous FTC standards.

Her “statement is a blueprint to any judge who wants to invalidate the FTC’s effort at Section 5 enforcement,” Crane said.

To contact the reporter on this story: Dan Papscun in Washington at dpapscun@bloombergindustry.com

To contact the editor responsible for this story: Roger Yu at ryu@bloomberglaw.com