The following is a guest post by James C. Cooper of George Mason University School of Law.
What are the limits to the FTC’s Section 5 antitrust authority? The short answer is, who knows. The FTC has been on a 100-year quest to find the maleficence that it alone was meant to combat. Early in its history, the Supreme Court appeared to give the FTC license to challenge a wide range of conduct that had little to do with competition. A series of appellate setbacks in the 1980s – relating largely to claims that Section 5 could reach tacit collusion and oligopolistic interdependence – led the Commission to retrench. Since then, the FTC has avoided litigating a Section 5 case, focusing primarily on invitations to collude (ITCs), and breaches of agreements to disclose or to license standard essential patents. Of course since all of these cases have settled, no court has had to opportunity to weigh in on whether Congress meant Section 5 to cover this type of conduct.
In my new Mercatus Center working paper, The Perils of Excessive Discretion: The Elusive Meaning of Unfairness in Section 5 of the FTC Act, I argue that the undefined nature of Section 5 leaves the FTC with broad discretion to investigate and extract settlements from companies. Although the appellate rebukes of the 1980s provide some clear boundaries, given firms’ understandable aversion to litigation – especially when only injunctive relief is on the table, and when the risk of follow-on private suits is much lower than it would be under a Sherman Act settlement – there is still a relatively large zone in which the FTC can develop this quasi Section 5 common law with little fear of triggering litigation, which would lead to appellate review. (A similar problem exists with respect to the FTC’s use of its Section 5 authority to become the de facto national privacy and data security regulator, but that’s another post).