Thursday, August 28, 2008

Scope of FTC's Unfair Competition Authority Under Sec. 5 to Be Reviewed

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Earlier this year, the Federal Trade Commission announced a proposed consent order and complaint against Negotiated Data Solutions LLC (N-Data). In that matter, the agency alleged that the technology company engaged in unfair methods of competition and unfair acts or practices in violation of Sec. 5 of the FTC Act by enforcing certain patents against participants in a standard-setting organization employing Ethernet, a computer networking standard used in nearly every computer sold in the United States.

Violation of Sec. 5, Not Sherman Act

The FTC has faced some criticism for challenging the conduct as a stand-alone violation of Sec. 5 without alleging that it rose to the level of a Sherman Act violation. N-Data's conduct was not alleged to amount to an improper acquisition or maintenance of monopoly power.

In the past, the FTC has brought enforcement actions challenging conduct that could not be reached under the Sherman Act. For instance, the agency has challenged invitations to collude that fell short of an agreement required to state a Sherman Act, Sec. 1 violation. However, the FTC had been reluctant to broaden the scope of its authority under the FTC Act.

Public Workshop

Now, the FTC has announced a public workshop to examine the proper scope of the prohibition of unfair methods of competition under Sec. 5. According to the Commission, the workshop will consider the provision's scope in light of legal precedent, economic learning, and changing business practices in a global and high-tech economy.

The workshop will examine three topics: (1) the history of Sec. 5, including Congress's enactment, the FTC's enforcement, and the courts' response; (2) the range of possible interpretations of Sec.5; and (3) examples of business conduct that may be unfair methods of competition addressable by Sec. 5. The agency said that it was particularly interested in input from the business community on the last topic.

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.

Request for Comments

The agency is also seeking comments on the topic. Comments must be received on or before October 24, 2008. Comments should refer to “Section 5 Workshop, P083900” and should be delivered to: Federal Trade Commission/Office of the Secretary, Room H-135 (Annex C), 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Comments may also be filed in electronic form at: https://

1 comment:

Benjamin Wright said...

John: After hackers stole credit card data from retail merchant TJX, the FTC punished TJX. The FTC said TJX had engaged in "unfair practices" under Section 5 on the theory that it is unfair to collect a consumer's credit card data while lacking the computer security measures to prevent talented, determined hackers from stealing the data. The FTC was misguided here. If TJX was "unfair," then the whole credit card system is equally "unfair" because the system is rife with insecurity. The FTC needs to rethink its application of Section 5 to credit card data security. --Ben link to a more detailed argument