The FTC will consider rulemaking related to practices that are prohibited under Section 5 of the FTC Act, including “non-compete clauses, surveillance, the right to repair, pay-for-delay pharmaceutical agreements, unfair competition in online marketplaces, occupational licensing, real-estate listing and brokerage, and industry-specific practices that substantially inhibit competition.” This statement follows a July 2021 Executive Order that the Biden administration issued, encouraging the FTC to consider competition rulemaking on the aforementioned topics. The FTC signaled that it will explore the benefits and costs of this and other competition rulemaking under Section 5 authority. This section gives the FTC broad authority to investigate allegations of unfair or deceptive practices in addition to unfair methods of competition.
Additional guidance on disgorgement may also follow. On April 22, 2021, the Supreme Court of the United States issued an opinion finding that the FTC does not have the authority to order disgorgement, or monetary relief, under Section 13(b) of the FTC Act (Reed Smith provides analysis on the decision in our previous client alert). Under this ruling, the FTC can only seek injunctive relief when the agency has “reason to believe” that a party “is violating, or is about to violate,” a law enforced by the FTC. As a result of the FTC losing its disgorgement power, it is possible that the agency will explore other bases to seek monetary relief. Companies should monitor whether the FTC issues guidance on this ability to seek restitution under Section 5 and Section 19 of the FTC Act in the coming months.
The process that was used to vote on the FTC’s new policy agenda has been a source of debate. GOP lawmakers criticized Khan’s use of votes banked by former Commissioner Rohit Chopra (Chopra) before his departure from the agency in October 2021. Khan defended the practice, noting that under a 1984 FTC policy, a number of commissioners have used banked votes over the years. The 1984 policy requires the departing commissioner to cast his or her votes before leaving the agency, while he or she is still serving as an FTC commissioner. In a letter responding to concerns raised about the use of banked votes, Khan indicated that voting has closed on all matters that Chopra cast a vote on before his departure.
Additional rules regarding Section 5 will likely be issued by the FTC in the coming months. The FTC’s recent statement emphasized that “in the coming year [the FTC] will consider developing both unfair-methods-of-competition rulemakings as well as rulemakings to define with specificity unfair or deceptive acts or practices.” Companies should expect new rules over the coming months, and once the rules are released, they should carefully review these rules together with counsel to ensure compliance with the new FTC policies.
Client Alert 2021-339