Statutory Authority and Laws Enforced

• Pages: 13-65

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CHAPTER II

STATUTORY AUTHORITY AND

LAWS ENFORCED

The Federal Trade Commission (FTC or Commission) enforces the

Federal Trade Commission Act.

1

Section 5 of the Act provides:

Unfair methods of competition in or affecting commerce, and unfair or

deceptive ac ts o r practices in or af fecting co mmerce, are hereb y

declared unlawful.

2

This section provides the primary source of authority for the FTC’s

antitrust and consumer protection missions. As a purely civil statute that

is unenforceable by private litigants, the FTC Act is enforced through

administrative proceedings before the Commission and actions filed by

the Commission in federal district courts. If, after an administrative

hearing, the Commission finds that the Act has been violated, it will

issue a cease-and-desist order. These orders are subject to federal judicial

review. The Commission has also been assigned enforcement authority

under a number of other separate statutes, a list of which is available on

the FTC website.

3

A. Antitrust Violations

The Commission’s Bureau of Competition enforces the antitrust

laws. The two most important statutory provisions for its enforcement

efforts are Section 5 of the FTC Act and the Clayton Act.

1.

Section 5 of the FTC Act

Section 5 of the FTC Act “define[s] and proscribe[s] an unfair

competitive practice, even though the practice does not infringe either

the letter or the spirit of the antitrust l aws.”

4

In FTC v. Sperry &

Hutchinson Co.,

5

the Supreme Court further noted that to proscribe

1

. 15 U.S.C. §§ 41-58.

2

. 15 U.S.C. § 45(a).

3

. See http://www.ftc.gov/ogc/stats.shtm.

4

. 405 U.S. 233 (1972).

5

. Id. at 244.

14 FTC Practice and Procedure Manual

practices as unfair or deceptive in their effect on competition, the FTC

may consider public values beyond those in the spirit of the antitrust laws

in its determination of “unfairness.”

6

The Court later observed that the

Commission was entitled to “some deference” in its informed judgment

that a particular practice should be considered an unfair method of

competition.

7

As one court described, Congress’s aim in drafting Section

5 was “to protect society against oppressive anti-competitive conduct and

thus assure that the conduct prohibited by the Sherman and Clayton Acts

would be supplemented as necessary and any interstices filled.”

8

The broad language of the Act, coupled with the Supreme Court’s

language in Sperry & Hutchinson and other cases, makes clear that

Section 5 jurisdiction extends beyond the Sherman Act and Clayton Act.

A trio of cases,

9

however, overturned Commission orders that were based

on stand-alone findings of “unfair methods of competition,” and in

practice the Commission has since rarely challenged as unfair methods of

competition practices that would not also be violations of the Sherman

Act or Clayton Act. As one Commissioner has noted, this fact has “led

many commentators to suggest that the unfair methods of competition

prohibition was a dead letter and that the Commission would not

challenge conduct on that basis alone.”

10

In his concurring opinion in

Rambus, Inc. Commissioner Leibowitz noted, however, t hat “some

commentators have misperceived the Commission’s authority to

challenge ‘unfair methods of competition,’ incorrectly viewing it as

limited, with perhaps a few exceptions to violations of the Sherman and

Clayton Acts.”

11

Commissioner Leibowitz went on to explain that the

legislative history and a long line of Supreme Court cases make clear that

6

. Id. at 239.

7

. FTC v. Indiana Fed’n of Dentists, 476 U.S. 447, 454 (1986).

8

. E.I. du Pont d e Nemours & Co. v. FTC, 729 F.2d 128, 136 (2d Cir.

1984).

9

. For a discussion of these cases, see parts A.1.a-b of this chapter.

10

. J. T homas Rosc h, Former Co mm’r, FTC, Perspectives o n Three Recent

Votes: the Closing of the Adelphia Communications Investigation, the

Issuance of the Valassis Complaint & the Weyerhaeuser Amicus Brief,

Remarks before the National Economic Research Associates 2006

Antitrust & Trade Regulati on Seminar (July 6, 2006) , available at

http://www.ftc.gov/ speeches/rosch/Rosch -NERA-Speech-July6-2006.pdf

[hereinafter Rosch, Perspectives].

11

. Rambus Inc., Dkt. No. 9 302, at 2 (July 31, 2006) (Leibowitz concurring),

available at http://www.ftc.gov/os/adjpro/d9302/060802rambus

concurringopinionofcommissionerleibowitz.pdf.

Statutory Authority and Laws Enforced 15

Section 5’s authority reaches “a broader array of behavior than the

antitrust laws.”

12

Following the Rambus and N-Data

13

decisions, the Commission has

devoted significant attention to articulating the scope of Section 5 as a

stand-alone source of Commission authority. In October 2008, the

Commission sponsored a workshop on Section 5 of the FTC Act As A

Competition Statute.

14

Several Commissioners have made public

statements indicating their views on the subject, and one expressly called

for the issuance of a policy statement by the Commission outlining its

position,

15

but to date the Commission has not done so.

a. Relationship to Section 1 of the Sherman Act

Although the Commission may not directly enforce the Sherman

Act, it may use the broad scope of Section 5 of the FTC Act to challenge

conduct that violates the Sherman Act.

16

Section 1 makes unlawful

“every contract, combination . . . , or conspiracy, in restraint of trade.”

17

However, the Supreme Court has made clear that only those concerted

restraints that are unreasonably restrictive of competitive conditions are

illegal under Section 1.

18

Section 1 has been used to strike down

horizontal and vertical price fixing, horizontal allocation of territories,

vertical territorial restraints, boycotts, tying agreements, and exclusive

dealing arrangements. In order for any challenged conduct to be illegal

under Section 1, the conduct must be the result of concerted action and

not merely the result of unilateral behavior of separate actors.

Various courts have examined the relationship between the concerted

action requirement of Section 1 of the Sherman Act and the scope of

12

. Id. at 5.

13

. Negotiated Data Solutions LLC, FTC No. 0510094

(Jan. 23, 2008) (decision and order), available at http://www.ftc.gov/

os/caselist/0510094/080122do.pdf.

14

. See http://www.ftc.gov/bc/workshops/section5/index.shtml.

15

. Joshua D. Wright, Comm’r, FTC, Section 5 Recast: Defining the Federal

Trade Commission’s Unfair Methods of Competition Authority, Remarks

Before the Antitrust Section of the NYSBA Executive Committee

Meeting (June 19, 2013), ava ilable at http://www.ftc.gov/speeches/

wright/ 130619section5recast.pdf.

16

. See, e.g., FTC v. Motion Picture Adver. Serv. Co., 344 U.S. 392, 394-95

(1953); FTC v. Cement Inst., 333 U.S. 683, 694 (1948); Fashion

Originators’ Guild of Am. v. FTC, 312 U.S. 457, 463-64 (1941).

17

. 15 U.S.C. § 1.

18

. See Chicago Bd. of Trade v. United States, 246 U.S. 231, 238 (1918).