FTC Settles Section 5 Claim Against Horizontal Competitors that Attempted (and Failed) to Collude
On July 21, 2014, the Federal Trade Commission unanimously approved a settlement with two internet UPC barcode resale companies that had discussed raising prices via emails and instant messaging and invited a competitor to agree to raise the prices charged for online barcode sales. Although the two companies did not actually raise prices because they could not get other competitors to participate, the FTC asserted that the act of communicating on the subject is sufficient to trigger FTC enforcement under Section 5 of the FTC Act, which provides the FTC with ammunition to go beyond the scope of the Sherman Act in order to curtail “unfair methods of competition.” The companies agreed to forgo communicating with competitors about barcode prices, entering or participating in price fixing or customer allocation schemes, and urging competitors to either raise prices, divide customers or lower their output.
The Commission’s unanimous approval of the settlement demonstrates that there is strong agreement within the Commission to use Section 5 to pursue invitations to collude. Aside from invitations to collude, however, there does not seem to be much consensus among the Commissioners on when the Commission will use its Section 5 “unfair methods of competition” authority to pursue conduct that does not rise to a Sherman Act violation. (The FTC uses Section 5 frequently in the consumer protection context under its authority to go after “unfair or deceptive acts or practices in or affecting commerce.”)
Asserting that business needs more guidance with respect to what actions might invite FTC unfair competition enforcement under Section 5, Commissioner Joshua D. Wright offered proposed guidelines on June 19, 2013. Under the proposed approach, the FTC would pursue traditional antitrust violations through the courts, while reserving harm to competition that does not produce cognizable efficiencies for the FTC’s administrative review. This would limit Section 5’s reach, and the administrative review process, to violations that harm competition and do not provide any benefit for consumers.
Commissioner Wright’s proposed guidelines identified two specific categories of conduct that would be subject to enforcement under Section 5: (1) invitations to collude, as discussed above, and (2) the unfair acquisition by a firm of market power that harms competition, but does not rise to monopoly power necessary to violate the Sherman Act. After Commissioner Wright offered his proposed Section 5 guidelines, three additional Commissioners have made public statements concerning unfair competition under Section 5. Commissioner Ohlhausen proposed at a Chamber of Commerce meeting to use Section 5 to go after substantial harms to competition where there is no procompetitive justification for the conduct, or where the harm is disproportionate to the conduct’s benefit. Chairwoman Edith Ramirez indicated in a speech that, rather than issuing guidelines, she favors using the Commission’s enforcement efforts to evolve Section 5 through a traditional antitrust rule of reason analysis that balances procompetitive effects and anticompetitive harm. Commissioner Julie Brill similarly indicated during a speech that she does not believe the FTC should coral its Section 5 authority, and that it should be evolved through the traditional “common law” system. Given the Commissioner’s divergent views, businesses should not expect any official guidance from the current Commission on what conduct will constitute an “unfair method of competition” under Section 5.
Apple E-books Settlement with the Attorneys General and Class Plaintiffs Approved by Judge Cote
On Friday, August 1, 2014, Judge Denise L. Cote of the Southern District of New York approved the e-books antitrust settlement between Apple, Inc. and the attorneys general and class plaintiffs for $400 million to be distributed to customers, with an additional $20 million going to the states. Apple’s payment is contingent on Judge Cote’s liability decision being affirmed on appeal to the Second Circuit; if the government loses the appeal, Apple will only have to pay $50 million to consumers.
The case arose from Apple’s conduct while launching its iBooks store in 2010 encouraging publishers to move from a flat-fee reimbursement arrangement (like the publishers then had with Amazon), to an agency model where the publisher is compensated a percentage of the sales price. The Department of Justice also sued Apple, but did not pursue damages and therefore was not party to the settlement. The DOJ instead sought and obtained conduct relief from the court in 2013, including: (1) a prohibition on Apple enforcing or entering into most-favored nations clauses with e-book publishers; (2) a prohibition on Apple communicating with publishers to raise e-book prices; (3) a requirement that Apple allow competing e-book sellers to provide links from their iPad e-book apps to their e-bookstores; and (4) the appointment of an external monitor to monitor Apple’s antitrust compliance and conduct an annual antitrust compliance audit.