Unfair Methods of Competition Under Section 5 of the FTC Act: Does the U.S. Need Rules "Above and Beyond Antitrust"?

September - 2009

Introduction

It is often asserted that the prohibition on "unfair methods of competition" contained in Section 5 of the Federal Trade Commission Act provides the FTC with flexibility to attack competitive conduct that is proper when examined under the federal antitrust laws. Although the FTC brought some early cases relying on this expansive view of Section 5, aggressive efforts to apply Section 5 during the late 1970's and early 1980's were consistently rejected by the courts. Although these courts acknowledged the FTC's broad authority in concept, they faulted the FTC for failing to define the improper conduct according to acceptable criteria. Following these unsuccessful cases the FTC's enthusiasm for extending Section 5 beyond established antitrust-law boundaries appeared to wane.

With recent changes in leadership taking hold at the FTC and throughout the federal government, there are renewed calls for efforts to extend Section 5 to additional forms of competitive conduct beyond the limits of established antitrust law. The FTC is being invited—from within and without—to use Section 5 to attack diverse categories of conduct otherwise outside the scope of antitrust law. These range from "invitations to collude," to policing commitments made by members of standard-setting organizations, to conforming U.S. rules on single-firm conduct to European standards.

The character of many of these proposals, as well as their scope and diversity, highlights key disadvantages of extending Section 5 beyond the range of the existing antitrust laws. It is extremely difficult to identify conduct that seems both: a) deserving of condemnation based on sound, mainstream analysis and policy, and b) capable of being defined with sufficient consistency and objectivity that businesses will be able to understand the definition and rely upon it to develop practical standards for real-world conduct.

A policy of adding new restrictions on marketplace conduct enjoys little margin for error due to the fact that it can easily be counterproductive. The Chamber opposes any use of Section 5 beyond the current antitrust laws without clear standards that bound the use of Section 5 narrowly to types of conduct that are obviously not proper business behavior and could distort the competitive process.

We acknowledge that there are certain, limited forms of anti-competitive conduct that may not be covered by the antitrust laws, and thus may warrant scrutiny under Section 5. We believe "invitations to collude" are the most prominent and very well may be the only type of conduct that reaches this threshold. However, there is real danger if Section 5 is used to attack conduct that the FTC and others at any other point in time have viewed as fair. Section 5 should be informed by the same principles of "protecting competition not competitors" and "maximizing consumer welfare" that inform the antitrust laws. Additionally, the FTC must also provide significant notice and guidance to the business community (including hearings) before embarking on cases that are uniquely covered by Section 5.