The FTC Will Be the Judge

As the father of a 10-year-old, I hear plenty about unfairness. Sometimes, my daughter is playing my tune. To her credit, she notices and objects when people, whether friends or people she hears about in the news, suffer real injustice. So when she says that it's unfair that someone was treated badly, she and I are working from the same page. Other times, though, what she calls unfairness involves just a disappointing outcome. It could be a tough loss for a team that tried hard, or it could be her bedtime. At that point, her notion of unfairness and mine diverge; what's too bad may not really be unfair, at least not to me. She may be right sometimes--though not about bedtime--but the point is that unfairness is in the eye of the beholder. And even the same eye may see things differently at different times. I doubt that I'm as consistent as I'd like to think.

But this column's on antitrust law, not child-rearing. And the antitrust news here is that businesses that every once in awhile disappoint their customers or, heaven forbid, their competitors, are now facing antitrust liability for "unfair" conduct. Until recently, the Federal Trade Commission's antitrust cases alleged "unfair methods of competition" in violation of FTC Act Section 5 based on violations of Section 1 or Section 2 of the Sherman Act--conduct was "unfair" because it was an agreement in unreasonable restraint of trade or monopolization. That meant that the FTC's antitrust suits were subject to the same rules that applied to suits brought by the Justice Department or private plaintiffs--in particular, the need to show anti-competitive effects (other than in per se cases). But there's always been the potential for the FTC to bring Section 5 suits untethered to the Sherman Act; the Supreme Court has said clearly (if not recently) that Section 5 reaches further than the Sherman Act. So the FTC could always allege that conduct is "unfair" not because it violates the Sherman Act but because it's simply unfair. In fact, one of the D.C. Circuit judges who handed the FTC a stinging loss in Rambus paused during the oral argument to ask why FTC hadn't done just that.

Now, the FTC has taken the hint: Faced with the courts' increasing skepticism toward Sherman Act attacks on tough competitive conduct, it's begun bringing "pure" Section 5 cases that it frankly acknowledges would not make the grade under the Sherman Act. Most recently, as I mentioned in my last column, the FTC went after what looked like some pretty hard-to-defend entreaties by U-Haul's owner to competitors to raise prices. We all can probably agree that the alleged conduct was "unfair" by most standards, and the fact that it didn't succeed in causing any anticompetitive impact doesn't redeem it. But what else has struck the FTC as "unfair?" In Negotiated Data Solutions, it was a patentee enforcing its patent and licensing on tougher terms than its predecessor had offered--terms that most everyone in the industry had ignored. In Intel, it was a range of Intel's aggressive competitive tactics, even including volume discounts. Tough? Sure. Anticompetitive? Evidently not by Sherman Act standards.

And unfair? In whose view? You can bet that N-Data's enforcement program seemed unfair to the firms that hadn't bothered taking a license under the prior owner's terms. And maybe some of Intel's customers would have liked the same discounts without having to buy so many Intel chips. Advanced Micro Devices couldn't have been happy that Intel took away sales. But should their gripes drive an FTC case? It's hard to argue with the FTC's claim that it can bring cases like this. But should it? Cases like these make FTC more of a business-ethics monitor than a competition-law enforcer. More importantly, when it imposes its own sense of what's "unfair" to prohibit conduct that doesn't harm competition, the FTC not only strays from the mission of the antitrust laws, but adds a new degree of subjectivity and unpredictability for firms that want to compete hard. Eventually, maybe the courts will give meaning to "unfair." But in the meantime, as defendants settle instead of putting the FTC to the test, firms that compete hard and enforce their IP rights will be left to guess what might buy them an FTC suit of their own. That seems not only counterproductive, but also--in my own view--unfair.

Christopher Kelly is an antitrust litigator and partner in the Washington, D.C., office of Mayer Brown.

Chris Kelly

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