Defining Section 5 of the FTC Act: The Failure of the Common Law Method and the Case for Formal Agency Guidelines

Abstract

As the Federal Trade Commission ("FTC" or the "Commission") celebrates its 100th anniversary, it does so amid a renewed interest in finally defining what constitutes a standalone "unfair method of competition" under Section 5 of the FTC Act. For a century, the business community and agency staff have been without any meaningful guidance about what conduct violates the Commission's signature competition statute. As consensus begins to build about the appropriate parameters of Section 5, some commentators have opposed articulating a principled standard for the application of the FTC's authority to prosecute standalone unfair methods of competition for fear that doing so would too severely restrict the agency's enforcement agenda. These commentators prefer for Section 5 to develop through the common law method, and point to the successful development of the traditional antitrust laws as evidence that the common law approach is the standard and preferred means for developing competition law. This Article discusses why, after a century-long natural experiment, it is clear that the common law method cannot be expected to define the scope of the FTC's unfair methods of competition authority. This Article explains that the failure of the common law process in the Section 5 context is due to fundamental differences between the inputs and outputs associated with traditional litigation and those associated with Section 5 enforcement actions. In particular, this Article explains that Section 5 disputes have almost always been resolved through settlements and, unlike reasoned judicial decisions, that such settlements do not help the public distinguish between what conduct is lawful and unlawful and generally are not treated as binding precedent by the FTC. As a result, this Article argues that the Commission should issue formal agency guidelines to serve as a superior analytical starting point and finally give meaning and purpose to Section 5.