On November 10, 2022, the Federal Trade Commission (FTC) issued a policy statement (the “Policy Statement”) radically expanding the FTC’s interpretation of prohibited “unfair methods of competition” under Section 5 of the FTC Act. According to the Policy Statement, in determining whether something is unfair, the FTC will consider (1) whether the conduct is “coercive, exploitative, collusive, abusive, deceptive, predatory, or involve[s] the use of economic power of a similar nature” and (2) whether the conduct impairs competition. Notably, the FTC is abandoning the longstanding “rule of reason” previously employed by the FTC and by courts in antitrust cases. Instead, the Policy Statement states that the FTC may bring Section 5 cases without alleging a relevant product market and may not allow companies to justify allegedly unfair conduct with procompetitive or business justifications. Although this interpretation will no doubt be tested in the courts in the coming years, the Policy Statement creates significant uncertainty for companies now, both in their day-to-day activities and in the M&A context.
Congress enacted the FTC Act in 1914. Section 5 of the FTC Act prohibits “[u]nfair methods of competition in or affecting commerce.” In large part, Congress designed Section 5 to supplement the Sherman and Clayton Acts. Although the FTC often alleges a Section 5 violation with violations of the Sherman and/or Clayton Acts, it has rarely brought standalone actions enforcing Section 5. As a result, there has been little jurisprudence interpreting Section 5, and the Supreme Court has never identified Section 5’s outer bounds (or even the standard for identifying a violation).
“The standard of ‘unfairness’ under the FTC Act is, by necessity, an elusive one, encompassing not only practices that violate the Sherman Act and the other antitrust laws, but also practices that the [FTC] determines are against public policy for other reasons.” Although the Supreme Court has acknowledged that Section 5 is “a broad delegation of power” leaving the “development of the term ‘unfair’ to the [FTC],” the Supreme Court’s willingness to defer to the FTC’s determination of what is “unfair” has waned.
For decades, in determining whether something was an unfair method of competition, the FTC used a framework similar to that employed in Sherman Act and Clayton Act cases. Specifically, (1) the FTC took the view that Section 5’s goal was to maximize consumer welfare, (2) would usually only bring a standalone challenge if the Sherman and Clayton Acts were insufficient, and (3) would evaluate “unfairness” by considering whether the conduct was likely to harm the competitive process, accounting for any offsetting procompetitive effects or business justifications, consistent with the longstanding rule-of-reason framework. This approach was codified in a 2015 bipartisan policy statement (the “2015 Statement”).
Last year, the FTC rescinded the 2015 Statement. And on November 10, the FTC issued the Policy Statement, radically departing from its prior practice, untethering Section 5 from the rule of reason, and raising more questions than it answers. The Policy Statement takes an expansive view of Section 5’s scope but provides little concrete guidance as to what is “unfair.”
The Policy Statement offers the following framework and guidance for determining whether something is an unfair method of competition.
Section 5 only applies to methods of competition, meaning that it only prohibits conduct, not conditions. For example, anticompetitive conditions (high barriers to entry, concentrated market share, etc.) that are outside of a firm’s control would not fall within the FTC’s view of Section 5. Moreover, the conduct “must implicate competition,” although it “can be indirect.” For example, indirect competitive conduct like the “misuse of regulatory processes” (the patent process, for example) could qualify if it impedes competition.
The conduct must be “unfair.” Competition on the merits, which includes superior products, superior business acumen, truthful advertising, innovation, or better employment terms, is not considered unfair. In determining whether something is not “on the merits” and thus “unfair,” the FTC will consider two key factors on “a sliding scale,” meaning that a strong showing on one factor excuses a weak showing on the other.
First, the FTC will consider whether the conduct is “coercive, exploitative, collusive, abusive, deceptive, predatory, or involve[s] the use of economic power of a similar nature.” Notably, this is not a quantitative evaluation but a qualitative one. For this factor, it is not just about whether conduct increases prices, for example, but whether that conduct is unethical, unreasonable, or wrong.
Second, the FTC will consider whether the conduct impairs competition by, for example, impairing the opportunities of market participants, reducing competition, limiting choice, or otherwise harming consumers. The FTC takes the position that no actual harm to competition is required, so long as the conduct “has a tendency to generate negative consequences.” Its “focus” is “on stopping unfair methods of competition in their incipiency.” Notably, the FTC does not believe that a market definition or a showing of market power is required to demonstrate an impairment of competition.
Further, the FTC will not only consider the impact of the respondent’s conduct or one specific form of conduct. The second factor may be met “when the conduct is examined in the aggregate along with the conduct of others engaging in the same or similar conduct” or “when the conduct is examined as part of the cumulative effect of a variety of different practices by the respondent.”
Typically, in antitrust cases, courts take care to balance anticompetitive effects against procompetitive justifications. And for good reason. “[M]istaken condemnations of legitimate business arrangements are especially costly, because they chill the very procompetitive conduct the antitrust laws are designed to protect.”
The Policy Statement takes the opposite tack, suggesting that it may be impossible to justify conduct that, prima facie, violates Section 5. If the FTC does consider a company’s justification:
The Policy Statement offers a lengthy list of conduct that may violate Section 5. Some notable instances include: practices that facilitate tacit coordination, parallel exclusionary conduct that may cause aggregate harm, fraudulent and inequitable practices that undermine the standard-setting process or that interfere with the Patent Office, knowingly inducing and receiving disproportionate promotional allowances, loyalty rebates (and similar practices) that entrench market power, acquiring a nascent competitor, utilizing technological incompatibilities to harm an adjacent market, interlocking directorates not strictly prohibited by the Clayton Act, commercial bribery that creates or maintains market power, false or deceptive advertising that creates or maintains market power, and refusals to deal that create or maintain market power.
The FTC may launch administrative proceedings against a company if it believes that it has violated Section 5., If it determines that a company has violated Section 5, the FTC can issue a cease-and-desist order, which may be appealed to any court of appeals “where the method of competition . . . was used” or where the company “resides or carries on business.” Judicial review is somewhat limited: courts give some deference to the FTC’s determination that something is an unfair method of competition and will only overturn the FTC’s factual findings if they are not supported by substantial evidence.
Generally, in enforcing Section 5, the FTC is limited to injunctive relief preventing the challenged conduct. And unlike the Sherman and Clayton Acts, there is no private cause of action for a Section 5 violation. But given the overlap between Section 5 and the Sherman and Clayton Acts, there is some potential for so-called “follow-on” litigation by private entities, with the possibility of treble damages, following a finding of Section 5 liability. Moreover, even without a finding of liability, the FTC’s investigation into a potential Section 5 violation can itself be extremely lengthy and burdensome.
At the end of the day, the FTC’s Policy Statement is just that. Whether something qualifies as an “unfair method of competition” violating Section 5 is ultimately a question for the federal courts. And there is good reason to question whether federal courts would agree with the FTC’s broad view of Section 5 liability.
Still, the Policy Statement offers important insight into the FTC’s current view of Section 5 and signals that the FTC intends to pursue aggressive enforcement actions on novel legal theories. Even if those enforcement actions fall short of liability, they could involve lengthy and expensive investigations.
Special thanks to associate Tina Asgharian (New York–Antitrust) who co-authored this publication.
 15 U.S.C. § 45(a)(1). Section 5 also prohibits “unfair or deceptive acts or practices in or affecting commerce.” Id. But the Policy Statement is limited to “unfair methods.”
 E.I. du Pont de Nemours & Co. v. FTC, 729 F.2d 128, 136 (2d Cir. 1984).
 FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 454 (1986) (citation omitted).
 Atl. Refining Co. v. FTC, 381 U.S. 357, 367 (1965).
 Compare Atl. Refining, 381 U.S. at 368 (“[W]e give great weight to the Commission’s conclusion.”), with Ind. Fed’n of Dentists, 476 U.S. at 454 (“[C]ourts are to give some deference to the Commission’s informed judgment that a particular commercial practice is to be condemned as ‘unfair.’” (emphasis added)).
 FTC, “Statement of Enforcement Principles Regarding ’Unfair Methods of Competition’ Under Section 5 of the FTC Act” (Aug. 13, 2015).
 Policy Statement at 4 (claiming that Section 5 hinges on “the common sense of fairness and right dealing which indicates plainly the distinction between close bargaining and oppression”).
 Unlike the prior bipartisan policy statement, this one passed on purely partisan lines. The lone Republican Commissioner, Christine S. Wilson, dissented, lamenting that the Policy Statement is unmoored from economic principles, conflicts with settled precedent, and abandons an established legal framework for no framework at all. “Dissenting Statement of Commissioner Christine S. Wilson, Regarding the ‘Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act’” (Nov. 10, 2022).
 Policy Statement at 8.
 But see E. R.R. President’s Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961) (holding that efforts to petition the government are generally immune from antitrust liability); FTC v. Shire ViroPharma, Inc., 917 F.3d 147, 161 (3d Cir. 2019) (“The FTC’s improper use of Section 13(b) to pursue long-past petitioning has the potential to discourage lawful petitioning activity by interested citizens—activity that is protected by the First Amendment. . . . we need not address the issue further but suggest that the FTC be mindful of such First Amendment concerns.”).
 Policy Statement at 8–9.
 Id. at 9.
 Id. at 10.
 NCAA v. Alston, 141 S. Ct. 2141, 2161 (2021) (internal quotation marks omitted).
 Policy Statement at 11–12.
 Id. at 12.
 This is somewhat strange as the FTC also takes the position that it need not define a market.
 See, e.g., Shearman & Sterling, “DOJ’s First Large Scale Crackdown on Potentially Unlawful Interlocking Directorates Led to 7 Board Resignations Across 5 Tech Companies” (Oct. 24, 2022), (“[I]t remains to be seen if the FTC will seek enforcement actions against board observers under Section 5 of the FTC Act.”).
 Section 5 covers persons, partnerships, and for-profit businesses. See 15 U.S.C. § 44.
 The FTC may also skip administrative proceedings and seek an injunction in court to prevent an ongoing or anticipated violation.
 15 U.S.C. § 45(b).
 15 U.S.C. § 45(c)
 Ind. Fed’n of Dentists, 476 U.S. at 454; 15 U.S.C. § 45(c).
 The FTC may also seek $46,517 for each violation or in the case of continuing violation, per day. See 45 U.S.C. § 45(l); 87 Fed. Reg. 6 (Jan. 10, 2022) (adjusting the statutory penalty). The FTC may only impose civil penalties if it first issues a cease-and-desist order. AMG Cap. Mgmt., LLC v. FTC, 141 S. Ct. 1341 (2021).
 FTC v. Klesner, 280 U.S. 19, 25 (1929); Holloway v. Bristol-Myers Corp., 485 F.2d 986, 1002 (D.C. Cir. 1973).
 See, e.g., E.I. du Pont, 729 F.2d at 139 (“[T]he Commission owes a duty to define the conditions under which conduct . . . would be [considered] unfair so that businesses will have an inkling as to what they can lawfully do rather than be left in a state of complete unpredictability.”).
 Official Airline Guides, Inc. v. FTC, 630 F.2d 920, 927 (2d Cir. 1980) (“[W]e think enforcement of the FTC’s order here would give the FTC too much power to substitute its own business judgment for that of the monopolist in any decision that arguably affects competition in another industry. Such a decision would permit the FTC to delve into . . . ‘social, political, or personal reasons’ for a monopolist’s refusal to deal.”).
 See E.I. du Pont, 729 F.2d at 139 (rejecting theory of Section 5 liability that would require businesses to assess the conduct “of each of its competitors and the reaction of each to the other, which would be virtually impossible”); Boise Cascade Corp. v. FTC, 637 F.2d 573, 582 (9th Cir. 1980) (“[T]o allow a finding of a section 5 violation on the theory that the mere widespread use of the practice makes it an incipient threat to competition would be to blur the distinction between guilty and innocent commercial behavior.”).
 See Boise, 637 F.2d at 581; Official Airline Guides, 630 F.2d at 927–28; see also FTC v. Qualcomm Inc., 969 F.3d 974, 986 n.11 (9th Cir. 2020); Shire ViroPharma, 917 F.3d at 161.
 See, e.g., W. Virginia v. Env’t Prot. Agency, 142 S. Ct. 2587 (2022); Kisor v. Wilkie, 139 S. Ct. 2400 (2019).