Recently, I appeared on a panel that discussed the Commission’s recent Section 5 cases. While my colleague, BCP Director Jessica Rich, addressed the use of Section 5 to combat modern-day fraud, deception, and unfair business practices in critical areas such as data security and privacy, I spoke primarily about our use of Section 5 on a stand-alone basis to address unfair methods of competition, i.e., in those situations where the Sherman and Clayton Acts would not address the conduct at issue.
First, some background is important. The Commission relies on Section 5 for virtually all its competition conduct work. That means that any civil case brought by the Department of Justice under Sherman Act Sections 1 or 2 or the Clayton Act would be alleged as a violation of Section 5 if brought by the FTC. In fact, the overwhelming majority of FTC competition cases rely on the same standards as those used by the DOJ. Our challenges to trade association ethical practices, our reverse patent settlement cases, our exclusive dealing cases and the like are all traditional Sherman Act cases.
Yet there is no question that Congress intended Section 5 to cover conduct outside the boundaries of the Sherman and Clayton Acts. The Supreme Court has specifically said so, indicating that the FTC Act “was designed to supplement and bolster the Sherman Act and the Clayton Act—to stop in their incipiency acts and practices which, when full blown, would violate those Acts.” FTC v. Motion Picture Advertising Service Company, Inc., 344 U.S. 392, 394-95 (1953).
Some context also helps. Only a handful of cases in the past decade have relied on stand-alone Section 5 authority. As a group, they demonstrate that the use of Section 5 is evolutionary, not revolutionary. For instance, the largest group of recent stand-alone Section 5 cases involve allegations that a competitor improperly invited a rival to violate the antitrust laws. Invitation-to-collude cases have special resonance for me because I led the first investigation involving this type of conduct when I first worked at the Commission back in the late 1980s. The facts were clear, but at that time Section 5 had not been used in this way before. Two representatives of Quality Trailer Products, a manufacture of axles used to attach a boat to a car, visited a competitor and told the competitor it was pricing too low and urged the competitor to raise its prices, stating Quality Trailer would do the same. There was clear risk that the conduct could have had anticompetitive effects – but rather than agreeing with Quality Trailer, the competitor instead wrote a letter to the FTC. Because there was no actual agreement not to compete, there was no violation of Section 1 of the Sherman Act. Moreover, Quality Trailer lacked market power so we could not rely on Section 2, as DOJ did in its case against American Airlines. And there was no possibility of using the wire fraud or mail fraud statutes because the communication occurred in person.
To me and others at the Commission at that time, this was just the sort of conduct that should be stopped in its incipiency and the very type of conduct that motivated Congress to create an expert agency with a different statute and different tools than the Justice Department to deal with unforeseen threats to competition. The Commission considered carefully the implications of using Section 5 in this sort of case and then unanimously voted to approve a consent. Quality Trailer Products, 115 F.T.C. 922 (1992) And since then, the Commission has brought numerous invitation-to-collude cases based on a variety of fact patterns. To understand the continuing need for using Section 5 in this way, just look at the complaint in our most recent invitation-to-collude case, Barcode Resellers. The inappropriate nature of the conduct – and the complete lack of any plausible efficiencies -- could not be more clear. The Commission voted unanimously to accept a settlement in that case.
There of course are—and will be—stand-alone Section 5 cases that are not unanimous, just as there are FTC cases involving conduct that violates Section 1 or Section 2 that are not unanimous. But to me, the small number of such cases demonstrates that we are using our stand-alone Section 5 authority responsibly.
Finally, it is important to understand the consequences of the FTC bringing a stand-alone Section 5 challenge. The result of such a case is a cease-and-desist order, a remedy that is designed to stop the harmful conduct and prevent it from happening again. Not surprisingly, in recent years, virtually every stand-alone Section 5 case has resulted in a negotiated settlement. This suggests that parties are finding it in their interest to settle, even though the ultimate remedy we would likely achieve if we litigated and won would only be one to prevent reoccurrence of the harmful conduct.
I want to underscore that the Commission’s policy is not to seek disgorgement in stand-alone Section 5 cases, a point it made clearly in its 2012 withdrawal of the Commission’s Policy Statement on Monetary Equitable Remedies in Competition Cases. Without the threat of a monetary penalty (let alone treble damages), I find it hard to understand the claim that significant procompetitive conduct is chilled by the possibility that the FTC may use its stand-alone Section 5 authority in some unforeseen way.
As someone who has spent most of her professional career giving advice about what the Commission is likely to do, I offer this: look at what the Commission has done and the reason it gave for acting to stop the behavior. Read any FTC complaint, brief, analysis to aid public comment, speech, or testimony—not only those related to Section 5 cases, but ones related to any conduct case. The touchstone of every stand-alone Section 5 claim (indeed, every antitrust claim) is likely or actual harm to competition or to the competitive process. Our expertise has centered on preserving consumer welfare – and we protect consumer welfare best when we focus our enforcement activities on conduct that threatens the competitive process.
*The author’s views are her own, and do not necessarily represent the views of the Commission or any Commissioner.