FTC’s Wright Proposes Policy Statement on Unfair Methods of Competition Authority

The agency should not prosecute over practices that result in cognizable efficiencies, meaning “conduct-specific efficiencies that have been verified and do not arise from anticompetitive reductions in output or service,” Wright wrote. Because the commission’s authority enables it to “break new ground and challenge conduct based on theories not previously enshrined in Sherman Act or Clayton Act jurisprudence,” companies need “a clear and predictable standard” to guide their behavior, he said. The FTC would be creating “a clear safe harbor that provides firms with certainty that their conduct can be challenged as an unfair method of competition only in the absence of efficiencies,” he continued. “Anticompetitive conduct that lacks cognizable efficiencies is the most likely to harm consumers because it is without any redeeming consumer benefits.” When cases concerning cognizable efficiencies arise, “it is incumbent on the firm in the first instance to offer any efficiency claims the Commission should consider in determining whether to bring an enforcement action,” he said. “The Commission bears the ultimate burden in establishing that the act or practice lacks cognizable efficiencies."

The FTC can pursue cases against conduct that is likely to harm competition if the conduct “involves invitations to collude” or involves the use of “unfair methods of competition to acquire market power that does not yet rise to the level of monopoly power necessary for a violation of the Sherman Act,” Wright wrote. For example, the agency can pursue a firm that attempts to engage in price fixing, even if the firm is unable to recruit other firms to participate in the arrangement, he said. “An invitation to collude satisfies the harm to competition element of an unfair method of competition.” That is even if there are no evidentiary harms to competition, “because it creates a substantial risk of competitive harm,” wrote Wright.

The FTC should focus on harms to competition, not to competitors, and “will not consider non-economic factors, such as whether the practice harms small business or whether it violates public morals, in deciding whether to prosecute conduct as an unfair method of competition,” Wright said. Conduct that harms competition and consumers “typically does so through increased prices, reduced output, diminished quality, or weakened incentives to innovate,” he said. “Perhaps the most relevant evidence is evidence that the challenged conduct has a harmful impact on price or output."

FTC Chairwoman Edith Ramirez reiterated that Wright’s policy statement contains “his personal views and not the views of the agency as a whole.” The agency “is a collegial and consensus-based body,” she said in a statement. “Any commissioner is free to articulate his or her views on topics of interest to the agency."

Wright’s proposed policy statement “boils down to minimizing error costs,” said TechFreedom Senior Fellow Geoffrey Manne in a statement. “Antitrust regulators should err on the side of allowing competition to play out in all its messiness -- and intervene only where they can show that real harm will occur.” TechFreedom President Berin Szoka called the policy statement “long overdue.” It “recognizes that the costs of getting it wrong increase as technology accelerates” and demands “regulatory humility about deeming innovative modes of competition that are legal under antitrust to be unfair under Section 5,” he said.

American Antitrust Institute President Albert Foer is “dubious” that Wright’s statement will lead to a consensus at the FTC for interpreting Section 5 authority, he told us by email. “If there were a consensus that a clear framework for interpreting Sec. 5 is desirable or feasible, it probably would already have happened.” Wright’s discussion of cognizable efficiencies is “deeply problematic,” Foer said. “There are real difficulties in trying to nail down what types of efficiencies should be considered, what the appropriate time period should be, how to put a value on future predictions of efficiency, and what inefficiencies ought to be netted out against efficiency gains -- not to mention the problem of whether a small efficiency should outweigh a large anticompetitive harm.” Foer said Wright has “added significant new tinder to a long-smoldering controversy over the potential of Section 5.”