Overview
As discussed previously, the FTC under Chair Khan has adopted an aggressive posture toward antitrust enforcement. Although the current FTC agenda draws on some powerful enforcement weapons, the leadership of the FTC believes that additional ammunition is required to reach the full extent of potential anticompetitive behavior and the harms associated with it. To challenge other forms of anticompetitive behavior, the FTC is considering bringing back two long disused arrows in its quiver: Section 5 of the FTC Act and the Robinson-Patman Act.
Two recent speeches by Chair Khan and Commissioner Bedoya outline the potential for the revival of these provisions. Both speeches share a theme: the belief that the purpose of the antitrust laws is to prevent unfair methods of competition, not just to promote efficient ones. Chair Khan and Commissioner Bedoya are arguing that both the courts and the agency have gone down the wrong track for antitrust enforcement since the 1980s. Accordingly, the FTC appears to be returning to older schools of thought about antitrust enforcement and using statutory provisions that have been relatively dormant in recent decades; the implications of that return will be seen soon.
Section 5. Section 5 of the FTC Act prohibits “unfair methods of competition” and “unfair or deceptive acts or practices” in or affecting commerce. Enacted in 1914, Section 5 was intended to cover gaps in the Sherman Act by reaching other conduct that threatens open and competitive markets but is not captured by the language of the Sherman Act. In an earlier era, the FTC had frequently used Section 5 to bring standalone actions against conduct including invitations to collude, price discrimination, de facto bundling, and tying and exclusive dealing. But starting in the 1980s the FTC began to use Section 5 more sparingly. In 2015, this reached its apotheosis when the FTC issued a policy statement that an act or practice in question would be challenged on a standalone basis under Section 5 only if it caused or was likely to cause “harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications.” In the five years after the 2015 statement, the FTC brought only one standalone Section 5 complaint. Even in that action, a complaint against Qualcomm for its alleged “no license-no chips” practice, the FTC still relied primarily on Sherman Act theories of harm, rather than focusing on any notion of “unfairness.” Chair Khan, though, now plans to reverse that trend, as one of her first actions after taking office was to withdraw the 2015 policy statement.
In a recent speech, Chair Khan made clear her view that Section 5 should be used by the FTC more expansively. To that end, she promised that the FTC would soon issue a policy statement that “reflects the statutory text, our institutional structure, the history of the statute, and the case law.” Given that Chair Khan believes Section 5 gives the FTC considerable power to address unfair practices, the policy statement may foreshadow another major expansion of the FTC’s enforcement efforts.
Robinson-Patman Act. The Robinson-Patman Act arose out of a similar concern to Section 5: there were behaviors that harmed competition but were not captured by the Sherman Act’s prohibitions. Originally enacted in 1936 to protect small retailers from the growing strength of chain stores, the Robinson-Patman Act prohibits “discriminat[ing] in price between different purchasers of commodities of like grade and quality” when the effect would be to harm competition. The prohibition applies to competing purchasers who intend to resell the commodity, meaning that it does not apply to direct sales to consumers. Although it has a broad reach, the need to demonstrate injury to competition, as well as to overcome the defenses to such discrimination, such as cost justification and meeting competition, have made Robinson-Patman cases notoriously difficult for plaintiffs to prove.
Despite the lofty goals of the Robinson-Patman Act, the FTC has not brought an action under the statute in more than 20 years. The statute’s concern for small retailers found itself out of step with the emphasis on efficiency and consumer welfare prompted by the free market turn antitrust enforcement took in the 1980s. Recently, though, Commissioner Bedoya has called for the FTC to embrace the historical purpose of antitrust enforcement – to protect small businesses from unfairness. In this regard, Commissioner Bedoya suggests that Robinson-Patman enforcement has not been shown to be correlated with higher prices, and he points out that the FTC is charged with stopping unfair methods of competition, not inefficient ones. His speech echoes a similar statement by Commissioner Slaughter that the FTC should revive its use of the Robinson-Patman Act. And Chair Khan advocated for the use of the Robinson-Patman Act in writing prior to her appointment. All three believe that the FTC should focus on protecting small competitors and the “competitive process,” an emphasis that may be interpreted to include keeping small competitors on a level playing field with larger retailers.
Implications. The immediate effect of the revival of these tools may be limited. For Section 5, Chair Khan admits that the agency’s last aggressive enforcement actions in the 1980s, such as Boise Cascade in the Ninth Circuit or Ethyl in the Second Circuit, foundered, although she blames their problems on evidentiary issues, not in the legal theories. Of course, the FTC would also face a judiciary that may be more conservative overall, and generally more receptive to economic and efficiency arguments than arguments about unfairness.
Similarly, as mentioned above, for Robinson-Patman, the FTC will need to overcome sophisticated defenses based on cost-justifications and other arguments. Courts valuing efficiency and cost-savings may continue to find such arguments persuasive to the extent consumers benefit from large retailers passing their lower prices along to customers.
It seems clear the FTC’s revival of these old tools demonstrates a desire to return to the initial purposes of the antitrust laws and to push the boundaries of recent antitrust enforcement. Even if it only brings a few cases or does not have much success, the threat of new enforcement may discipline businesses and require a re-examination of current business practices.
