The Past: The Scope of Section 5 before the 2022 Statement
The term "unfair methods of competition" is not explicitly defined under Section 5, raising the question of whether Section 5 encompasses conduct beyond what is prohibited by the Sherman Act and the Clayton Act.
Dan Graulich mentioned that, historically, one concern about pursuing standalone Section 5 claims has been the risk that an overly aggressive approach by the FTC could backfire, potentially leading to court rulings that restrict the scope of the agency’s Section 5 authority. However, the FTC has relied on its standalone Section 5 authority, particularly through its administrative processes and consent decrees in various scenarios, such as alleged invitations to collude in the absence of an agreement and to address certain patent-related issues.
The interpretation of Section 5 prior to the 2022 Statement was issued during the Obama administration through the Statement of Enforcement Principles Regarding “Unfair Methods of Competition” Under Section 5 of the FTC Act (the “2015 Statement”). The 2015 Statement provided a framework for the FTC to exercise its “standalone” Section 5 authority. Dan highlighted two principles from the 2015 Statement for determining whether to pursue a standalone Section 5 claim:
- The FTC would apply a framework similar to the rule of reason, requiring full economic analysis of the conduct to determine its harm to competition considering associated cognization efficiencies and business justifications.
- The FTC is less likely to challenge the conduct on a standalone basis if already sufficiently addressed under the Clayton Act or the Sherman Act.
In July 2021, the FTC formally rescinded the 2015 Statement. The Commission argued that the 2015 Statement restricted the scope of Section 5 in a way that hampered enforcement. Specifically, the FTC believed that Section 5 reaches beyond the Sherman Act and the Clayton Act, and a full economic analysis as required under the “rule of reason” is not required in order to fall within the scope of Section 5.
The Present: The 2022 Statement and Four Key Actions Since the Issuance
On November 10, 2022, the FTC released a new Policy Statement regarding the Scope of Unfair Methods of Competition under Section 5 of the FTC Act. FTC Chair Lena Khan, joined by Commissioners Slaughter and Bedoya, emphasized that, “the Commission has allowed this Section 5 authority to lay dormant” in recent decades and declared, “we rededicate ourselves to executing the full set of duties Congress tasked us with more than a century ago.”
Dan highlighted four key points from the 2022 Statement, which the FTC viewed as essential to restoring the full scope of its enforcement authority under Section 5:
- The statement affirmatively states that unfair methods under Section 5 reach beyond the Sherman Act and the Clayton Act.
- The FTC is not bound to apply the rule of reason.
- Section 5 can be used to address incipient violations, which refers to conduct that has not yet actually materialized but poses risks to competition.
- The statement casts doubt that “cognizable efficiencies” can be relied on as a defense to a Section 5 challenge and asserts that the burden of proof to quantify any efficiencies lie with the defendant.
Dan pointed out that the statement is light on specific cases where Section 5 applies as the FTC seeks to ensure the standard is flexible and evolves over time. He then highlighted four areas where the FTC has taken steps to push the antitrust law forward.
Non-Compete Rulemaking
In 2024, citing Section 5 as the basis for its authority, the FTC issued a nationwide rule banning noncompete agreements, particularly in employment and licensing contexts, with narrow exceptions, such as for bona fide sales of businesses. This rule led to legal challenges in three separate courts—in Texas, Florida, and Pennsylvania. The outcomes of these cases have been mixed. The Texas court ruled against the FTC, asserting that the agency lacks the authority to issue substantive rules altogether. The Florida court also ruled against the FTC, stating that while Section 5 grants the agency some authority to issue substantive rules, this particular rule exceeded its authority. The Pennsylvania court ruled in favor of the FTC, concluding that the agency does have the authority to issue substantive rules. However, the plaintiff voluntarily dismissed the case in Pennsylvania. The decisions in the Texas and Florida cases are currently under appeal in the Fifth and Eleventh Circuits, respectively. Dan concluded that it remains to be seen how those cases will be decided, though it is expected that the district courts’ decisions will likely be upheld.
Standalone Section 5 Claims and Litigations
When asked about the potential effects of courts' negative responses on the FTC’s ability or willingness to use Section 5 aggressively, Dan highlighted that the Commission has had notable success in standalone enforcement cases. He specifically discussed cases involving Amazon and the largest prescription drug benefit managers (PBMs).
In the case against Amazon, as a violation of Section 5, the FTC alleged that Amazon used an algorithm to monitor whether other companies match their pricing on previously discounted products. Amazon argued in response that its use of an algorithm to track competitors’ pricing and its unilateral pricing decisions—regardless of competitors’ actions—should not fall under standalone Section 5. Amazon contended that there was no agreement alleged, and competitors' reactions were not an antitrust issue. The court ruled that the FTC's standalone Section 5 claim could survive a motion to dismiss. Dan noted, however, that the court’s decision was brief and lacked detailed reasoning, making it difficult to interpret. He suggested that a summary judgment might provide greater clarity on the court’s perspective regarding the scope of standalone Section 5 enforcement.
In the administrative realm, the FTC filed a lawsuit against the three largest PBMs—Caremark Rx, Express Scripts (ESI), and OptumRx—for engaging in anticompetitive and unfair rebating practices that have artificially inflated the list prices of insulin drugs. Focusing on Section 5, the FTC alleged that the PBMs tie rebates primarily to the list price of insulin, favoring products with high list prices over those with lower list prices. This practice, according to the FTC, has excluded lower-priced products from PBM formularies. While the FTC alleges that the three PBM defendants collectively administer the majority of prescriptions in the United States, the complaint does not specify whether the PBMs entered into horizontal agreements or that the defendant individually or collectively monopolized a relevant market. Dan pointed out that this lawsuit sheds light on the concept of parallel exclusionary conduct and raises the question of whether such behavior could form a sufficient basis for a standalone Section 5 claim.
The Issuance of Policy Guidance
The third area of FTC action involves issuing additional policy guidance on specific conduct that the agency views as falling under Section 5. One notable example is the Orange Book Statement. On September 14, 2023, the FTC announced a policy statement classifying alleged improper Orange Book listings as an "unfair method of competition" under Section 5. The FTC argued that improper listings in the Orange Book could constitute antitrust violations, as such listings may exclude generic competitors and maintain high prices.
Despite this guidance, Dan noted that no standalone Section 5 cases have yet been brought in this context. He highlighted two potential challenges for the FTC. First, legitimate petitioning activity before a government agency, such as filing an Orange Book listing, is generally considered a form of protected speech and is immune from antitrust claims. Even if a listing is deemed improper, the FTC may be required to show that the company did not have a good-faith basis for seeking the listing. Second, the FTC would also be required to demonstrate that the listing excluded competitors or had anticompetitive effects.
The Use of Consent Decrees in Mergers
The fourth area Dan discussed was the use of consent decrees in merger contexts, particularly concerning interlocking directorates and conglomerate mergers.
Interlocking directorates occur when a member of one company’s board of directors also serves on another company’s board or within its management. This practice is addressed under Section 8 of the Clayton Act, but it applies only to corporations with competitive sales. Dan highlighted two cases where the FTC extended the scope of enforcement using Section 5.
QEP/EQT: In this case, Quantum’s acquisition of certain assets from EQT was subject to a consent decree barring Quantum from having any of its partners serve on EQT’s board. Dan commented that although Quantum is a limited partnership, rather than a corporation, the FTC applied Section 5 principles to a non-corporate entity, thereby extending beyond the scope of a traditional Section 8 claim.
ExxonMobil/Pioneer: In Exxon’s acquisition of Pioneer, the FTC required a consent order preventing Exxon from nominating or appointing Pioneer’s former CEO to its board. Dan noted that the consent decree covered nominations. Accordingly, the decree did not provide Exxon or Pioneer an opportunity to address the interlock issue or mitigate concerns about information sharing.
Dan also discussed the use of Section 5 in the context of conglomerate mergers, using the Horizon-Amgen case as an example. The FTC alleged that Amgen had a history of leveraging its portfolio of drugs to secure higher prices from insurers through advantageous formulary placements. While these actions were challenged as constituting a standalone antitrust violation, the FTC argued that this history, combined with the Horizon acquisition, constituted a violation of Section 5, as well as Section 7 of the Clayton Act. Dan commented that it remains unclear how the FTC’s theory would have played out in this instance as the parties settled.
The Future: What to Expect Under the Second Trump Administration
When asked about the future of Section 5 policy and enforcement under the second Trump administration, Dan anticipated a shift away from the current trajectory of Section 5 enforcement, with less emphasis on standalone cases and a greater focus on other antitrust priorities. He outlined several reasons for this expectation.
First, Dan noted that current Section 5 policies and enforcement actions lack Republican backing in the past. For instance, the 2022 Policy Statement elicited dissent from the Republican commissioner at the time, Christine Wilson. Republican commissioners also voted against the issuance of the noncompete rule and were not involved in some of the recent consent decrees.
Dan also pointed out during the prior Trump administration, the 2015 Statement remained in place, and there was no notable increase in standalone Section 5 claims compared to the preceding Obama administration. More broadly, the Trump administration emphasized regulatory certainty and efficiency in handling antitrust litigation and mergers—an approach that contrasts with the evolving, flexible view of Section 5 policy under the current framework. Practically, Section 5 enforcement is resource-intensive, particularly with initiatives like the noncompete rule. Dan suggested that this makes it more challenging to pursue other priorities that the administration is likely to focus on, such as continued enforcement under Section 2 of the Sherman Act.
