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FTC Commissioner Wright’s Policy Statement Proposes Section 5 Limitations

by Michelle Lowery

On June 19, 2013, Commissioner Joshua Wright of the Federal Trade Commission (FTC) proposed a Policy Statement on the FTC’s enforcement authority under Section 5 of the FTC Act, which prohibits unfair methods of competition.  According to Commissioner Wright, the intent of his proposed Policy Statement is to initiate a discussion on the appropriate parameters of the FTC’s authority under Section 5.  Commissioner Wright expects that the proposed Policy Statement will end years of ambiguous Section 5 enforcement by articulating a clear standard of what types of conduct constitute an unfair method of competition.  The Policy Statement defines an unfair method of competition as “an act or practice that (1) harms or is likely to harm competition significantly and that (2) lacks cognizable efficiencies.”  Commissioner Wright explained that the definition as a whole allows the Commission to reach conduct not covered by the Sherman and Clayton Acts, is tied to modern jurisprudence on harm to competition as well as to the Horizontal Merger Guideline’s efficiencies standards, focuses on conduct that is most likely to harm consumers and reduces the risk of prosecuting pro-competitive behavior.

Commissioner Wright remarked that before the FTC will exercise its Section 5 authority, the conduct at issue must be outside the bounds of well-defined antitrust case law.  He further stated that the FTC should exercise this authority in areas where the Commission finds business practices that harm consumers through activities not yet reviewed by the courts.  Commissioner Wright foresees two broad areas of enforcement under Section 5: invitations to collude, and using unfair competition to acquire market power (where monopoly power might not exist).  According to Wright, before the Commission brings a case, it should examine both the magnitude and the probability of harm to competition to determine whether the conduct constitutes an unfair method of competition.  Even if the Commission concludes that conduct harms competition, the second prong of Wright’s proposed policy would restrict the Commission’s ability to prosecute if a cognizable efficiency exists.

For Commissioner Wright’s full discussion of the proposed Policy Statement, see: http://www.ftc.gov/speeches/wright/130619section5recast.pdf

FTC Wins NC Dental State Action Case

by Daniel Powers

On May 31, the Federal Trade Commission (FTC) recorded yet another victory in its continuing efforts to limit the scope and application of antitrust immunity under the state action doctrine.  The Fourth Circuit ruled that the North Carolina State Board of Dental Examiners’ efforts to block non-dentists from providing teeth-whitening services was not entitled to antitrust immunity because the Board’s activities were not actively supervised by the state.  North Carolina State Board of Dental Examiners v. Federal Trade Commission, Case No. 12-1172 (4th Cir. May 31, 2013).

The case focused on the activities of the North Carolina state agency, which is composed of several practicing dentists, a dental hygienist and a consumer representative.  The Board licenses dentists in the state and is otherwise empowered to take disciplinary measures against licensees.  Beginning in approximately 2003, in response to complaints from dentists practicing in the state, the Board opened numerous investigations into teeth-whitening services provided by non-dentists.  As a result of these investigations, the Board issued dozens of cease-and-desist letters to such service providers and sought to restrict the market to licensed dentists by other means.

The Board’s activity attracted the attention of the FTC, which issued an administrative complaint in 2010 charging that the Board violated the FTC Act by acting to exclude non-dentist teeth whiteners from the market in North Carolina.  A trial on the merits before an administrative law judge found the Board had violated the Act.  On appeal, the FTC affirmed and entered a final order enjoining the Board from, among other things, continuing to unilaterally issue extra-judicial orders to teeth-whitening services in North Carolina.  The Fourth Circuit’s decision came in response to the Board’s petition for review of the FTC’s order.

The Board maintained that it was a state entity created to regulate the practice of dentistry, which encompassed the teeth-whitening services.  Under the state action doctrine, private parties may claim immunity from the antitrust laws if they act according to a “clearly articulated and affirmatively expresses state policy,” and their behavior is “actively supervised by the State itself.”  California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc. (445 U.S. 97, 105 (1980).  Municipalities and sub-state entities benefit from a less restrictive test.  Such entities must act pursuant to a “state policy to displace competition with regulation or monopoly public service.”  FTC v. Phoebe Putney Health System, Inc., 133 S. Ct. 1003, 1010 (2013).  These entities are not required to demonstrate the “active state supervision” required under the two-prong Midcal test because with such entities there is little danger that their activities involve a private anti-competitive activities. Town of Hallie v. City of Eau Claire, 471 U.S. 34, 47 (1985).

Relying on its status as a state entity, the Board maintained that it was not subject to the “active supervision” prong required under Midcal.  The FTC countered that entities like the Board, regulatory bodies made up of market participants, were subject to the stricter Midcal test.  The FTC focused on the need to [...]

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FTC Issues Preliminary Privacy Report, Seeks Comment from Stakeholders

by Heather Egan Sussman and Carla A. R. Hine

The U.S. Federal Trade Commission’s recently proposed framework for offline and online businesses and policymakers may have a significant impact on entities that collect, maintain and use consumer data.  The deadline for public comment is January 31, 2011.

To read the full article, please visit: http://www.mwe.com/info/news/ots1210e.htm.