As we’ve discussed before, the FTC recently decided to dust off its Section 5 authority to go after “unfair methods of competition” in lieu of using its tradition antitrust authority (Section 2) to pursue some of its tougher cases. This has many antitrust experts concerned, most notably, Bob Litan, former Clinton administration. In a discussion of the FTC’s use of Section 5 authority in its Intel lawsuit, Litan argued that:

The FTC apparently seeks to avoid proving harm to competition under the established standards of Section 2 because the causal link between the conduct it challenges and any conceivable harm to competition is weak. At a minimum, therefore, the relief sought by the FTC should reflect the tenuous connection between the conduct it challenges and the potential for harm to competition.

Apparently, Senator Orrin Hatch (R-UT) is also concerned by the FTC’s use of Section 2

During June 9th Senate Judiciary Committee’s hearing on Antitrust, Senator Hatch asked FTC Chairman Jon Leibowitz some tough questions. Hatch asked (based on our unofficial but mostly accurate transcript of the event):

I have serious concerns about the FTC’s decision to bring what are essentially antitrust cases under Section 5 of the FTC Act rather than under the Sherman Act…My concern is that there is a breadth of case law under the Sherman Act that gives businesses clear guidance as to what types of conduct are lawful or unlawful… However, it does seem to me that, with the FTC’s decision to start bringing cases under Section 5 of the FTC Act, these companies may see themselves facing complaints for conduct that they had good reason to believe was allowable under the law…Should we not be concerned that the uncertainty inherent in the FTC’s use of Section 5 will prevent businesses from competing aggressively?

Leibowitz Does Little to Reassure Hatch and Others on Section 5 Use

Leibowitz explained that the “only purpose of Section 5” is “to make some things punishable, to prevent some things that cannot be punished or prevented under the antitrust law.” He then went on to suggest that the more rigorous economic analysis that has been required since then 1970’s means that the FTC needs to find a way around Section 2 restrictions.

And it’s extraordinarily important, and again, what the Chicago school did, I want to go back to this, because in the 1960s and 70s, there was no need to use our unfair methods of competition authority, or little reason to use it, because our antitrust authority was read so broadly. We’ve seen those laws circumscribed – I think for some very good reasons – and again, I think the Chicago school’s emphasis on efficiencies and rigorous economic analyses is a good thing. But, having said that, you want us to stop anticompetitive conduct that harms consumers. That’s what we’re trying to do, in an area in which antitrust has been limited, especially because of treble damages, which we’re not able to get. It’s appropriate, I believe, and I think a bipartisan majority of the Commission believes, to use this authority on occasion, not always.

It seems that Leibowitz is arguing that requiring actual economic analysis of alleged “harms to competition” is too high a bar for his agency. They need to be able to prevent business practices they believe are harmful to competition and consumers, even if the economic analysis suggests otherwise. And in this new regime, companies will have little guidance as to what the FTC will consider legal vs. illegal, and will only know what the actual “law” is once they go to court on an appeal.