With its December 2009 issuance of a complaint against Intel (In the Matter of Intel Corp., Dkt. No. 9341), the Federal Trade Commission has re-opened a multi-decade debate about its use of Section 5 of the FTC Act to challenge antitrust-type conduct that cannot be reached by application of the antitrust laws.
This issue has had a rollercoaster ride, starting with the Supreme Court decision of FTC v. Sperry & Hutchinson, 405 U.S. 233, 244 (1972), where the Court stated that the FTC had authority to “consider [] public values beyond simply those enshrined in the letter or encompassed in the spirit of the antitrust laws.” Since then, the application of Section 5 as a stand-alone claim for conduct outside of the antitrust laws suffered setbacks with decisions rendered by the Second and Ninth Circuits in the 1980’s and then by the FTC itself in its General Foods Co. case, 103 F.T.C. 204 (1984) where it rejected an attempt by complaint counsel to apply Section 5 to predatory pricing practices that did not violate Sec. 2 of the Sherman Act.
Section 5 was somewhat revived in the 1990’s when the FTC applied it to obtain consent decrees in several “attempt to collude” cases not reachable by the Sherman Act Sec. 1. Despite this attention by the FTC, the weight of scholarly comment remained against such application of Sec. 5.
Despite the well-reasoned commentary, the FTC’s attempt to use Section 5 for claims not reachable by the antitrust laws did not cease. In its settlement in the Negotiated Data Solutions case (”N-Data“) in January 2008 (File No. 051-0094), statements by the commissioners acknowledged that the FTC was applying Sec. 5 but not the Sherman Act to antitrust-type conduct that harmed consumers by undermining the standard-setting process. Two commissioners dissented, including Chairman Majoras who warned that the majority’s failure to “identif[y] a meaningful limiting principle” threatened to take the Commission “down a slippery slope” in its application of Section 5.
The N-Data case led to much speculation about the Commission’s view and use of Section 5 stand-alone claims in the future. Chairman Jon Leibowitz addressed the issue in September 2009 by acknowledging that N-Data “was not an antitrust case because the bad behavior did not cause or increase the firm’s monopoly power” and forecasting: “you are likely to see us try to protect consumers by expanding the use of our authority to prohibit unfair methods of competition.” Remarks of Chairman Jon Leibowitz, 36th Annual Conference on International Antitrust Law & Policy, Fordham Competition Law Institute at Fordham Law School, September 24, 2009.
Over the past two years, statements by the Commissioners have fueled the speculation over the Commission’s approach to Section 5’s reach and shined a light on a number of vexing issues. In March 2009, Commissioner Rosch addressed these matters but declined to make any firm predictions, providing instead “tentative views.” See The FTC’s Section 5 Hearings: New Standards for Unilateral Conduct? Remarks of J. Thomas Rosch, Commissioner, Federal Trade Commission, ABA Antitrust Section, Spring Meeting, Washington, D.C., March 25, 2009. Chairman Leibowitz has expressed his view that Section 5 is not confined by Sherman Act standards: “So everyone can agree (I’ve decided) that the FTC Act goes beyond the metes and bounds of the Sherman Act. The more important question is: how far beyond should we go.” See “Tales from the Crypt.” Episodes ‘08 and ‘09: The Return of Section 5 (”Unfair Methods of Competition in Commerce are Hereby Declared Unlawful”). Remarks of Commissioner Leibowitz, Section 5 Workshop, October 17, 2008. Commissioner Rosch and Chairman Leibowitz have noted that Section 5 would be used as a “gap filler.” Id. Chairman Leibowitz has also expressed reluctance to use Section 5 in the merger context. And Commissioner Rosch has repeatedly discussed application of Section 5 using “appropriate limiting principles.” Id.
Elsewhere, however, the FTC and its complaint counsel have been emphatic in opposing arguments that they sought to apply Sec. 5 to conduct not reachable by the antitrust laws. For example, in In the Matter of Polypore International, Inc., Docket No. 9327, Polypore challenged the FTC complaint for indefiniteness and for failure to state a claim of monopolization and attempted monopolization under Sherman Act standards. Complaint Counsel emphatically denied they were trying to create new law (”There is simply no express or implied attempt here to create new law.” Complaint Counsel’s Response to Respondent’ s Motion for a More Definite Statement, In the Matter of Polypore Int’l, Docket No. 9327 (emphasis in original)) and stated that the “Court need not address whether Section 5 reaches beyond the Sherman Act . . . because each claim in the Commission’s Complaint states a cause of action under traditional Sherman Act standards.” Complaint Counsel’s Response to Respondent’s Motion to Dismiss Counts II and III of the Complaint for Failure to State a Claim, p. 4, In the Matter of Polypore Int’l, Docket No. 9327.
Putting the reach of Section 5 to the side, there is also now vigorous debate regarding the standards, also known as “limiting principles,” that should be applied if Section 5 is used as a stand-alone antitrust statute. Commissioner Rosch himself raised many of these difficult questions in the Section 5 Workshop:
“All of this said, however, there exists a myriad of open questions in my mind. Most fundamentally, are my premises right? Put differently, should enforcement of Section 5 be confined to conduct that the Commission also finds does not violate the Sherman Act (or the Clayton Act)? If so, what kind of business conduct besides the conduct challenged in Valasis and N-Data should be covered by Section 5, and what kind of conduct should not be, either on legal or policy grounds? Should conduct that cannot be shown to injure the competitive process ever be considered an unfair method of competition, and, if so, when? How can the Commission avoid creating a rudderless, unbounded standard acceptable to whoever happens to be the majority of the FTC Commissioners at the time? What should be the practical, workable boundaries susceptible to coherent application? How can unfair methods of competition under Section 5 be defined to avoid capturing benign or procompetitive conduct while allowing for sufficient guidance and predictability for business? . . . Can we conclusively say that bringing the statute back to life outweighs any risks?” Welcoming Remarks, Commisioner, J. Thomas Rosch, FTC Section 5 Workshop, Washington, D.C., October 17, 2008.
Commissioner Kovacic also recently noted the unresolved concerns regarding the standards to be applied with a Section 5 claim. The Application of Section 5 of the Federal Trade Commission Act, William E. Kovacic, U.S. Federal Trade Commission, ABA Fall Forum, Washington, D.C. November 12, 2009.
With these issues still unresolved, the Commission has now marched forward with its Intel complaint, which asserts both Sherman Act Sec. 2 violations and stand-alone Section 5 claims regarding conduct not reachable by the Sherman Act. In an accompanying statement, Chairman Leibowitz and Commissioner Rosch argue the necessity of the Commission bringing a stand-alone Section 5 case because “some conduct harmful to consumers may be given a ‘free pass’ under antitrust jurisprudence.” Statement of Chairman Leibowitz and Commissioner Rosch, In the Matter of Intel Corp., Docket No. 9341. Yet, while later stating that “the Commission is well aware of its duty to enforce Section 5 responsibly,” the questions asked by Commissioner Rosch a year ago remain unanswered. Again, begging Commissioner Rosch’s prior questions, Chairman Leibowitz and Commissioner Rosch state: “Section 5 is clearly broader than antitrust laws, but it is not without boundaries, and the Commission will clearly describe and stay within those boundaries if this case comes before it for review.” Id.
Commissioner Rosch’s dissent is the more interesting document since he objects entirely on “public policy grounds” to the case being based even in part on Sec. 2 of the Sherman Act. He argues that it should have been grounded entirely on Section 5, stating, however, “the reach of Section 5, like any other statute, is not unlimited. I think the Commission can and should define those limitations as they apply to this case.” Concurring and Dissenting Statement of Commissioner J. Thomas Rosch, In the Matter of Intel Corporation, Docket No. 9341.
The Intel case will be very informative to the ongoing discussion over the reach and application of Section 5.
Parker Poe is counsel to Polypore International, Inc. in the FTC action and Eric Welsh was on the trial team.