Franchisors should be aware of the “Statement of Enforcement Principles Regarding ‘Unfair Methods of Competition’ Under Section 5 of the FTC Act” that was issued in August, representing the first formal policy statement regarding the FTC’s standalone authority under the “[u]nfair methods of competition” prong of Section 5 of the FTC Act. Time will tell whether the policy statement merely reflects broadly accepted principles or whether it portends of an increased use of standalone Section 5 authority by the FTC.
Most in the franchise industry are aware that Section 5 of the FTC Act declares unlawful “unfair or deceptive acts or practices in or affecting commerce.” 15 U.S.C. §45(a)(1). Indeed, a violation of the Franchise Rule also constitutes a violation of Section 5(a)(1) of the FTC Act. 15 U.S.C. §57a(d)(3). More than 30 years ago, the FTC issued policy statements regarding the concepts of unfairness and deception under Section 5 of the FTC Act. See Fed. Trade Comm’n, Commission Statement of Policy on Scope of the Consumer Unfairness Jurisdiction, 104 F.T.C. 1070, 1071 (1984) (appended to In re Int’l Harvester Co., 104 F.T.C. 949 (1984)); Fed. Trade Comm’n, Policy Statement on Deception (appended to In re Cliffdale Assocs., Inc., 103 F.T.C. 110, 174 (1984)). Those policy statements set forth a detailed analysis of the concepts addressed.
Section 5 of the FTC Act also prohibits “[u]nfair methods of competition in or affecting commerce.” This phrase has been generally understood to reach conduct beyond conduct that violates the Sherman Act or the Clayton Act. However, the question has been—how much broader is the FTC’s authority under Section 5? With a dearth of cases over the past five decades interpreting this aspect of Section 5, and with an expanding use of Section 5 by the FTC in recent years, an increased interest in guidelines regarding the FTC’s application of Section 5 arose, including among some of the Commissioners themselves. For example, Commissioner Joshua Wright proposed a policy statement in 2013 that was not adopted.