[Federal Register Volume 73, Number 168 (Thursday, August 28, 2008)]
[Pages 50818-50819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-20008]

[[Page 50818]]



Public Workshop Concerning the Prohibition of Unfair Methods of 
Competition In Section 5 of the Federal Trade Commission Act

AGENCY: Federal Trade Commission.

ACTION: Notice of Public Workshop


SUMMARY: The Federal Trade Commission will hold a public workshop on 
October 17, 2008, in Washington, D.C., to explore the scope of the 
prohibition of ``unfair methods of competition'' in Section 5 of the 
FTC Act, 15 U.S.C. Sec.  45. In particular, the workshop will consider 
the appropriate scope of Section 5 in light of legal precedent, 
economic learning and changing business practices in a global and hi-
tech economy. The Commission seeks the views of the legal, academic, 
and business communities on the issues to be explored at the workshop. 
This notice poses a series of questions relevant to those issues for 
which the Commission seeks comment. The agency will consider these 
comments as it prepares for the workshop. Prior to the workshop, the 
Commission will publish an agenda on its website.

DATES: The workshop will be held October 17, 2008, in the Conference 
Center of the FTC office building at 601 New Jersey Avenue, N.W., 
Washington, D.C. Comments must be received on or before October 24, 

ADDRESSES: Any interested person may submit written comments responsive 
to any of the topics identified in this Federal Register notice or in 
any subsequent announcement. Respondents are encouraged to provide 
comments as soon as possible, but no later than October 24, 2008. 
Comments should refer to ``Section 5 Workshop, P083900'' to facilitate 
the organization of comments. Comments containing material for which 
confidential treatment is requested must be filed in paper form, must 
be clearly labeled ``Confidential,'' and must comply with Commission 
Rule 4.9(c).\1\ Because paper mail in the Washington area, and 
specifically to the Federal Trade Commission, is subject to delay due 
to heightened security screening, please consider submitting your 
comments in electronic form. Comments filed in electronic form should 
be submitted by using the following weblink: (https://secure.commentworks.com/ftc-Section5workshop) (and following the 
instructions on the web-based form). To ensure that the Commission 
considers an electronic comment, you must file it on that web-based 
form. If this notice appears at http://www.regulations.gov, you may 
also file an electronic comment through that Web site. The Commission 
will consider all comments that www.regulations.gov forwards to it. A 
comment filed in paper form should include the ``Section 5 Workshop, 
P083900'' reference both on the first page of the text and on the 
envelope, and should be mailed or delivered to the following address: 
Federal Trade Commission/Office of the Secretary, Room H-135 (Annex C), 
600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The Commission 
requests that any comment filed in paper form be sent by courier or 
overnight service, if possible, because, as noted above, postal mail in 
the Washington area and at the Commission is subject to delay due to 
heightened security precautions.

    \1\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See Commission Rule 4.9(c), 
16 CFR 4.9(c).

    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. The Commission will consider all timely and responsive 
public comments that it receives, whether filed in paper or electronic 
form. Comments received will be available to the public on the FTC 
website, to the extent practicable, at http://www.ftc.gov. The workshop 
will be transcribed; the transcript will be placed on the public 
record; and any written comments received will also be placed on the 
public record. The Commission will consider whether to issue a report 
following the conclusion of the workshop. As a matter of discretion, 
the FTC makes every effort to remove home contact information for 
individuals from the public comments it receives before placing those 
comments on the FTC website. More information, including routine uses 
permitted by the Privacy Act, may be found in the FTC's privacy policy, 
at (http://www.ftc.gov/ftc/privacy.shtm.)

FOR FURTHER INFORMATION CONTACT: Neil Averitt, Office of Policy and 
Coordination, Bureau of Competition, 600 Pennsylvania Avenue, N.W., 
Washington, D.C. 20580; telephone 202-326-2885; e-mail, 
[email protected]. A detailed agenda and schedule for the 
workshop will be available on the FTC website (http://www.ftc.gov), and 
can be located through the website's search function.

SUPPLEMENTARY INFORMATION: When Congress created the FTC in 1914, it 
empowered the agency to prevent ``unfair methods of competition'' 
through Section 5 of the FTC Act, 15 U.S.C. Sec.  45. Under Section 5, 
the Commission may condemn conduct that violates the Sherman Act, 15 
U.S.C. Sec.  1-7.\2\ But based on its review of the FTC Act's 
legislative history, the Supreme Court has stated that Section 5 also 
reaches beyond violations of the Sherman Act to broader categories of 

    \2\ See, e.g., FTC v. Motion Picture Advertising Service Co., 
344 U.S. 392, 395 (1953).
    \3\ See, e.g., FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 
239, 244 (1972) (``section 5 empower[s] the Commission to define and 
proscribe an unfair competitive practice, even though the practice 
does not infringe either the letter or the spirit of the antitrust 
laws.''); FTC v. Motion Picture Advertising Service Co., 344 U.S. 
392, 395 (1953) (``The `unfair methods of competition,' which are 
condemned by Sec.  5(a) of the Act, are not confined to those that 
were illegal at common law or that were condemned by the Sherman 

    The precise reach of Section 5 and its relationship to other 
antitrust statutes has long been a matter of debate. The Supreme Court 
has observed that the ``standard of `unfairness' under the FTC Act is, 
by necessity, an elusive one, encompassing not only practices that 
violate the Sherman Act and the other antitrust laws but also practices 
that the Commission determines are against public policy for other 
reasons.''\4\ In the early 1980s, however, lower courts were critical 
of efforts by the FTC to enforce a reading of Section 5 that captured 
conduct falling outside the Sherman Act. In striking down the FTC's 
orders, those courts expressed a concern that the Commission's theory 
of liability failed ``to discriminate between normally acceptable 
business behavior and conduct that is unreasonable or 

    \4\ FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 454 (1986) 
(dicta) (upholding a violation of Sherman Act Section 1).
    \5\ E.I duPont de Nemours & Co. v. FTC (``Ethyl''), 729 F.2d 
128, 138 (2nd Cir. 1984); see also, Boise Cascade Corp. v. FTC, 637 
F.2d 573 (9th Cir. 1980) (FTC theory ``blur[red] the distinction 
between guilty and innocent commercial behavior''); Official Airline 
Guides v. FTC, 630 F.2d 920, 927 (2nd Cir. 1980) (``enforcement of 
the FTC's order here would give the FTC too much power to substitute 
its own business judgment for that of the monopolist in any decision 
that arguably affects competition in another industry'').

    The great majority of FTC non-merger cases enforce the Sherman Act. 
Beginning in the early 1990s, however, the Commission reached a number 
of consent agreements in matters involving invitations to collude;\6\ 
practices that

[[Page 50819]]

facilitate collusion or collusion-like results in the absence of an 
agreement;\7\ and misconduct relating to standard setting.\8\ Because 
the complaints in these matters did not allege all the elements of a 
Sherman Act violation, the Commission's theory of liability rested on a 
broader reach of Section 5. As consents, none of these matters have 
been reviewed by a court.

    \6\ See, e.g.,Valassis Communications, Docket No. C-4160 (April 
28, 2006); FMC Corp., 133 F.T.C. 815 (2002); Stone Container Corp., 
125 F.T.C. 853 (1998); Precision Moulding Co., 122 F.T.C. 104 
(1997); YKK (U.S.A.) Inc.,116 F.T.C. 628 (1993); AE Clevite, Inc., 
116 F.T.C. 389 (1993); Quality Trailer Products,115 F.T.C. 944 
(1992); FTC v. Mead Johnson & Co., Civ. No. 92-1366 (D.D.C. June 11, 
1992), press release available at (http://www.ftc.gov/opa/predawn/F93/mead-ahp24.htm.)
    \7\ This category is illustrated by the cases involving minimum 
advertised prices for CDs. See BMG Music, Docket No. C-3973 (Aug. 
30, 2000); Capital Records, Docket No. C-3975 (Aug. 30, 2000); Sony 
Music Entertainment, Docket No. C-3971 (Aug. 30, 2000); Time-Warner, 
Inc., Docket No. C-3972 (Aug. 30, 2000); Universal Music and Video 
Distribution, Docket No. C- 3974 (Aug. 30, 2000). See also FTC v. 
Mead Johnson & Co., supra.
    \8\ Dell Computer Corp., 121 F.T.C. 616 (1996) 
(misrepresentation of patent rights to a standard-setting body); 
Negotiated Data Solutions (``N-Data''), File No. 051-0094 (press 
release Jan. 23, 2008) (provisionally accepting consent subject to 
public comments) (reneging on prior commitment made to a standard 
setting body).

    The workshop will examine three topics: (1) the history of Section 
5, including Congress's enactment, the FTC's enforcement, and the 
courts' response; (2) the range of possible interpretations of Section 
5; and (3) examples of business conduct that may be unfair methods of 
competition addressable by Section 5. The Commission particularly seeks 
the input of the business community in preparing this last topic.
    The Commission invites public comment on questions relevant to 
these topics, including:
    1. What principles concerning the scope of Section 5 can be 
garnered from Supreme Court and appellate court decisions?
    2. What legal, economic, and policy concerns are important when 
interpreting Section 5's prohibition against ``unfair methods of 
competition?'' What is the role of Section 5 in protecting nonprice 
    3. Is Section 5 coterminous with the Sherman Act? How has the 
courts' development of the Sherman Act over time altered its 
relationship to Section 5? Does the Sherman Act encompass all conduct 
that is truly harmful to competition?
    4. Does Section 5 authorize the FTC to fill technical gaps in the 
coverage of the other antitrust statutes?
    5. Can Section 5 reach externally-defined business torts where they 
threaten to bring about a future lessening of competition?
    6. Should Section 5 be interpreted to reach practices that pose at 
least a moderate threat to competition and few offsetting benefits to 
consumers, (e.g., reduced costs, improved products, or other 
efficiencies), where enforcement is limited to the FTC and relief is 
limited to an injunction prohibiting or undoing the challenged 

    \9\ II P. Areeda & H. Hovenkamp, Antitrust Law ] 302h (2\nd\ ed. 
2000 Supp. 2007) (proposing this interpretation of Section 5).

    7. Does the FTC's use of Section 5, independent of the Sherman Act, 
make it less likely that treble damages could be assessed in follow-on 
actions? If so, should that fact influence the interpretation of 
Section 5's scope, or its application?
    8. What limiting principles should be applied to the definition of 
``unfair methods of competition?'' 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?
    9. If Section 5 captures conduct falling outside the Sherman Act, 
what economic evidence and analysis would be useful in identifying 
violations? What economic evidence and analysis would be useful in 
identifying the proper limiting principles for the enforcement of 
Section 5?
    10. Was the Commission's use during the last two decades of Section 
5 claims in settled complaints that did not allege all the elements of 
a Sherman Act violation beneficial and principled or harmful and 
unbounded? How might courts have evaluated these claims?
    11. What are examples of business conduct that may be unfair 
methods of competition addressable by Section 5? How does that conduct 
harm competition and consumers?
    By direction of the Commission.

Richard C. Donohue,
Acting Secretary.
[FR Doc. E8-20008 Filed 8-27-08: 8:45 am]