Unfair Methods of Competition: The Courts Revive Proof of Injury to Competition in Antitrust cases under Section 5 of the FTC Act

• Date: 01 September 1984
• Author: Clark R. Silcox
• DOI: 10.1177/0003603X8402900301
• Published date: 01 September 1984
• Subject Matter: Article

The Antitrust Bulletin/Fall 1984

Unfair methods

of

competition:

the courts revive proof

of

injury

to competition in antitrust cases

under section 5

of

the FTC act

BY CLARK R. SILCOX*

423

By legislative design, the Federal Trade Commission Act's prohi-

bition

of

"unfair methods

of

competition" is not confined to a

precise definition.' Although the Supreme Court has made clear

that

unfair methods

of

competition include conduct which vio-

lates the antitrust laws, including the Sherman and Clayton Acts,'

it is equally clear

that

"unfair methods

of

competition" embraces

•McKean, Maclntyre, Wilson &Richardson, P'C., Washington,

D.C. Member, District

of

Columbia and California Bars.

AUTHOR'S

NOTE: The author acknowledges the helpful comments

of

former FTC Commissioner, A. Everette MacIntyre, and Professor Glen

Weston

of

The George Washington University Law School, who com-

mented on a previous draft

of

this article.

I15

U.S.c.

§45(a)(I) (1982):

"Unfair

methods

of

competition in

or affecting commerce,

and

unfair or deceptive trade practices in or

affecting commerce are hereby declared unlawful."

2See FTC v.

R.E

Keppel &Bros., Inc., 291 U.S. 304, 310-11

n.I

(1934).

3

FTC

v. Cement Institute, 333 U.S. 683, 690 (1947) (price-fixing

conspiracy).

©1984 by Federal Legal Publications, Inc.

424

The antitrust bulletin

conduct outside the letter of the antitrust laws.' Most recently the

Court

has stated in

FTC

v. Sperry &Hutchinson Co.: "[D]oes §5

empower the Commission to define and proscribe an unfair

competitive practice, even though the practice does not infringe

either the letter or spirit of the antitrust laws? . . . We think the

statute, its legislative history, and prior cases compel an affirma-

tive answer. . . ."5

Implicit in the

Court's

"affirmative answer" to its interrog-

atory is a judicial recognition

of

three categories

of

unfair

methods of competition. First,

that

which violates the "letter"

of

the Sherman or Clayton Act; second, that which violates the

"spirit"

of

the Sherman or Clayton Act because the challenged

behavior resembles violations

of

those laws, but does not techni-

cally violate them; and third,

that

which does not resemble an

antitrust violation at all but is capable

of

being characterized as

an "unfair method

of

competition." The first two categories

embrace the Commission's antitrust jurisdiction, and the third

category embraces the Commission's non-antitrust jurisdiction

over the unfair competition and other unscrupulous conduct.

Lurking behind these three categories

of

unfair methods

of

competition is the concept

of

"incipient" trade restraints em-

bodied in the legislative histories

of

the Federal Trade Commis-

sion Act and the Clayton Antitrust Act, both

of

which were

enacted in 1914. Incipiency as an antitrust concept refers to a

status before an actual injury to competition has occurred.

Without doubt, the FTC Act enjoys a general prophylactic

purpose to prevent the emergence

of

monopoly and unreasonable

restraints

of

trade in their incipiency. Yet an analysis

of

the FTC

Act cases decided by the Commission reveals little experience

with incipient trade restraints in cases decided under section 5

of

the FTC Act.

Over the past 12 years, the FTC antitrust enforcement

staff

adopted a very broad view of the Commission's jurisdiction to

4Atlantic Rfg. Co. v . FTC, 381 U.S. 357, 369-70 (1965) (arrange-

ment which operated like unlawful tying agreement).

405 U.S. 233, 239 (1972).

Proof

of

injury :425

define

and

prohibit unfair methods

of

competition." Their expan-

sionary interpretation

of

the Commission's powers led to the

filing

of

a series

of

administrative complaints which attempted to

define the outer boundaries

of

the Commission's antitrust en-

forcement mission.' By and large, these cases were aimed at

bringing within the

FTC's

fold jurisdiction over antitrust prob-

lems which the Sherman

and

Clayton Acts had proven

too

limited

to control. Thus the "shared monopoly" cases against the cereal

and

oil industries" tested the Commission's power to control

6The best description

of

the expansionary view

of

section 5

of

the

FTC

Act by a

staff

member is found in Averitt, The Meaning

of

Unfair

Methods

of

Competition in Section 5

of

the FTC Act, 21 B.C.L.

REV.

227 (1980). See also Kruse, Deconcentration and Section 5

of

the

Federal

Trade

Commission Act, 46

GEO.

WASH.

L.

REV.

200, 206-09

(1978).

For

aprecursor

of

the expansionary view by a member

of

the

Commission, see MacIntyre &Volhard, The Federal

Trade

Commission

and Incipient Unfairness, 41

GEO.

WASH.

L.

REV.

407 (1973).

7Chronologically, in the order they were filed, these cases are:

Kellogg

Co.,

99 ET.C. 8 (1982) (shared monopoly); Exxon

Corp.,

98

ET.C. 453 (1981) (shared monopoly); Boise Cascade

Corp.,

91 ET.C. 1

(1978), rev'd, Boise Cascade Corp. v. FTC, 637

E2d

573 (9th Cir. 1980)

(parallel pricing formula);

E.!.

Du

Pont

de Nemours, 96 ET.C. 653

(1980) (expansion

of

plant capacity as attempt to monopolize); Reuben

H. Donnelley

Corp.,

95 ET.C. 1 (1980), rev'd sub nom. Official Airline

Guides, Inc. v. FTC, 630

E2d

920 (2d Cir. 1980), cert. denied, 450 U.S.

917 (1981) (refusal to deal by non-vertically integrated monopolist);

Ethyl

Corp.,

[1979-83 Transfer Binder]

TRADE

REG.

REP.

(CCH)

, 22,003 (1983), rev'd sub nom.

E.!.

Du

Pont

de Nemours &Co. v.

FTC,

729

E2d

128 (2d Cir. 1984) (price signaling

and

delivered pricing).

The

FTC

staff's

expansionary view

of

the

FTC

Act is plainly evident in

the administrative law

judge's

denial of the cereal companies' motion

for summary judgment in the shared monopoly case. Kellogg

Co.,

[1973-76 Transfer Binder]

TRADE

REG.

REP.

(CCH)

120,529,

at 20,461-

62 (1974).

8Kellogg

Co.,

99 ET.C. at 8; Exxon, 98 ET.C. at 453. See

generally Kruse, supra note 6

(Cereals

case); Wilson, The FTC's

Deconcentration Case Against the Breakfast Cereal Industry, 4

ANTI-

TRUST

L. &Ecox.

REV.

57 (1971); Note, Oligopolies,

Cereals,

and

Section 5

of

the Federal

Trade

Commission Act, 61

GEO.

L.J.

1145

(1973); Note, Structural Shared Monopoly Under FTC §5: The Impli-