FTC's Wright Wants Vote on Definition of Section 5
The FTC needs to clarify Section 5 of the FTC Act to provide a clear framework on what authority is given to the agency, said Republican FTC Commissioner Joshua Wright Thursday at a symposium on Section 5. Wright and several other panelists, including former FTC attorneys, backed clarification of the section, which prohibits ‘‘unfair or deceptive acts or practices in or affecting commerce.’’ Wright said it's the “most important challenge” facing the agency, because failure to have a clear definition allows varied interpretations among commissioners. He said he would seek a vote on adopting a proposed policy statement within the next week to remedy the issue before congressional action is taken. Though there was support at the symposium for Section 5 to be more clearly defined, some panelists, including the FTC Bureau of Consumer Protection Director Jessica Rich, applauded Section 5's flexibility, which she said allows the FTC to “keep up with the changing times and different harms" that emerge.
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“When Section 5 was enacted, no one could have imagined the digital explosion we see today,” Rich said. The FTC uses Section 5 in dealing with deceptive and misleading data security and privacy issues that have emerged in a world where data is collected on every person all day, every day, Rich said. Section 5 is used in every case the FTC brings and is done in a responsible manner, said FTC Bureau of Competition Director Deborah Feinstein. Section 5 is supposed to be broader than other antitrust law such as the Sherman Act and the Clayton Act, said Marc Winerman, aide to then-FTC Chairman William Kovacic.
Republicans largely favor guidelines, while Democrats prefer to act on a case-by-case basis, said former FTC attorney Robert Lande, a professor at University of Baltimore Law School and director of the American Antitrust Institute. “Just because Commissioner Wright supports guidelines, doesn’t mean [Democrats] should oppose them,” he said.
A stable definition gives businesses certainty on what is and isn’t lawful, Wright said, which is why he said he planned to put three definitions of what constitutes as an “unfair method of competition” before his colleagues for a vote next week. In order for a non-Commissioner to call a vote, Wright said a majority of Commissioners would have to agree. The FTC’s record on Section 5 is mixed, said former FTC attorney Neil Averitt. When do frequent-buyer reward programs become bribery? Or hacking attacks become industrial espionage? Do patent trolls have market power? he asked. It’s not clear, which is why a policy statement is needed, Averitt said. Section 5 can’t be narrowly defined, though, because in some cases having three ketchup manufacturers may be enough of a choice for consumers, Averitt said. But three book publishers or cancer research centers isn't enough choice.
The language in Section 5 is pretty simple and fair but is used to address many different types of violations, Rich said. Section 5 is the primary enforcement tool used to prevent fraud and deception in the marketplace and was drafted intentionally to give the commission flexibility needed to respond to changing times. Since 2001 the agency has settled with 53 companies or individuals, including Craig Brittain, who operated a revenge porn website (see 1501290058), and the agency has litigation pending against two other companies, including Wyndham Hotels (see 1407160030), Rich said.
Wright outlined the three policies that he would like to see put before fellow commissioners for a vote, in his speech: (1) The Efficiencies Screen, proposed by Wright, would define an unfair method of competition as an act that lacks cognizable efficiencies. (2) The Disproportionality Test, proposed by Republican Commissioner Maureen Ohlhausen, would change the definition to include harms that are disproportionate to the cognizable efficiencies. (3) The Rule of Reason, proposed by Democratic Chairwoman Edith Ramirez, would define Section 5 as applying to an act or practice where the harms aren't outweighed by the cognizable efficiencies.
Wright said he would vote for all three policies because the definitions are “better than the status quo,” and the FTC, not Congress, should create a solution. He said he doesn't know whether the majority of his fellow commissioners will agree to vote on these policies at all or vote in favor of one of the proposed policies. The Senate and House Judiciary Committees have sent letters to Ramirez asking for clarification and others have asked about Section 5’s ambiguity during congressional hearings, Wright said.