Statutory Authority and Laws Enforced

• Pages: 11-56

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CHAPTER II

STATUTORY AUTHORITY AND

LAWS ENFORCED

The Federal Trade Commission (FTC or Commission) enforces the

Federal Trade Commission Act. Section 5 of the act provides:

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

deceptive acts or practices in or affecting commerce, are hereby

declared unlawful.1

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 brought

by the Commission in 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.

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 laws.”2 In FTC v. Sperry &

Hutchinson Co.,3 the Supreme Court further noted that to proscribe

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.”4

As one subsequent court has noted, Congress’s aim in drafting

Section 5 was “to protect society against oppressive anti-competitive

1. 15 U.S.C. § 45(a).

2. 405 U.S. 233 (1972).

3. Id. at 244.

4. Id. at 239.

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

Clayton Acts would be supplemented as necessary and any interstices

filled.”5

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,6 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 recently 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.”7 In his recent concurrence

opinion in Rambus, Commissioner Leibowitz noted, however, that “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.”8 Commissioner Leibowitz went on to explain that the

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

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

antitrust laws.”9

a. Relationship to Section 1

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.10 Section 1 makes unlawful

5. E.I. DuPont de Nemours & Co. v. FTC, 729 F.2d 128, 136 (2d Cir. 1984).

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

7. J. Thomas Rosch, Perspectives on Three Recent Votes: the Closing of

the Adelphia Communications Investigation, the Issuance of the Valassis

Complaint & the Weyerhaeuser Amicus Brief (July 6, 2006),

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

8. Rambus Inc., Dkt. No. 9302, at 2 (July 31, 2006) (Leibowitz concurring),

http://www.ftc.gov/os/adjpro/d9302/060802rambusconcurringopinionof

commissionerleibowitz.pdf.

9. Id. at 5.

10. 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).

Statutory Authority and Laws Enforced 13

“every contract, combination . . . , or conspiracy, in restraint of trade.”11

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

restraints that are unreasonably restrictive of competitive conditions are

illegal under Section 1.12 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 a 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 scope of

Section 5. In Boise Cascade Corp. v. FTC,13 the Commission found that

plywood manufacturers, who individually adopted a freight pricing

scheme that resulted in uniform industry pricing, violated Section 5.14

The Ninth Circuit reversed, holding that absent a showing of collusion,

the Commission must demonstrate competitive effects to show a

violation of Section 5.15

Four years later, in E.I. DuPont de Nemours & Co. v. FTC,16 the

Second Circuit set aside a Commission order that had found that

manufacturers of gasoline additives violated Section 5 of the FTC Act by

independently and unilaterally adopting uniform delivered pricing

standards, most-favored nations clauses, notices for price changes, and

announcements of price increases in the press. The Commission held

that these practices violated Section 5 since they reduced uncertainties

about price determination, facilitated price parallelism at noncompetitive

levels, and prevented competitive pricing that might have otherwise

existed.17 The Second Circuit, which was charged with deciding whether

the price parallelism violated Section 5, concluded that noncollusive,

nonpredatory and independent conduct of a nonartificial nature was not

an unfair method of competition:

In our view, before business conduct in an oligopolistic industry may

be labeled “unfair” within the meaning of § 5 a minimum standard

demands that, absent a tacit agreement, at least some indicia of

11. 15 U.S.C. § 1.

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

13. 637 F.2d 573 (9th Cir. 1980).

14. Id. at 573-75.

15. Id. at 581-82.

16. 729 F.2d 128 (2d Cir. 1984).

17. Id. at 130.