What About Green Stamps? A Comment on the FTC’s Section 5 Authority

Harry First, Sep 16, 2013

Commissioner Joshua Wright has started his tenure as Commissioner by stepping into the long-running debate over the scope of the Commission’s authority. Section 5 of the FTC Act gives the Commission the power to prevent “unfair methods of competition in commerce, and unfair or deceptive acts or practices.” The FTC and the courts have been arguing over the scope of that power since the Act’s passage in 1914, but the argument has attained new vitality in recent years as the Commission has made an effort to resuscitate its ability to move beyond straight antitrust in carrying out its competition mission. Commentators have pushed back; the courts and Congress have yet to weigh in.

The legal lure for the revival of a Section 5 approach to competition issues is a 1972 Supreme Court decision, FTC v. Sperry & Hutchinson Co. In S&H the Court wrote: “[T]he Federal Trade Commission does not arrogate excessive power to itself if, in measuring a practice against the elusive, but congressionally mandated standard of fairness, it, like a court of equity, considers public values beyond simply those enshrined in the letter or encompassed in the spirit of the antitrust laws.”

The Court’s language is broad, bounded only by a footnoted reference to a Commission statement of basis and purpose in support of a cigarette health labeling rule that provides a slightly elaborated view of unfairness. The Commission has been gagging on the Court’s language ever since.

Commissioner Wright recognizes that S&H is the most recent Supreme Court decision defining the breadth of Section 5, but he sets the Court’s language aside by invoking some of the bête-noirs from the Warren Court. “No serious antitrust scholar,” Commissioner Wright says, “argues that merger law would better serve consumers by relying exclusively upon the language in Brown Shoe, Von’s Grocery, and Pabst Brewingrather than the updated economic thinking provided by the Horizontal Merger Guidelines.” Why, then, he implies, should we bother with S&H? Instead, he puts forward an interpretation of Section 5 of his own devising: “[A]n unfair method of competition is an act or practice that (1) harms or is likely to harm competition significantly and (2) lacks cognizable efficiencies.”

But before we abandon S&H (along with other Supreme Court cases that at least pay some attention to what Congress intended when enacting the antitrust laws) for the embrace of the latest “updated” thinking from today’s economists, it might be helpful to take another look at the S&H case itself. A better understanding of the case, and what the Court was saying about the Commission’s Section 5 authority, might even put the Commission on the right path for carrying out its competition mission.

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