Office of the Chairman
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
June 6, 2003
United States Department of Transportation
400 7th St., S.W.
Washington, D.C. 20590
Re: Federal Trade Commission Comments to be filed
in Dockets OST-97-2881, OST-97-3014, and OST-98-4775
The Department of Transportation ("DOT" or "Department") has requested comment on its
rules governing airline computer reservations systems ("CRSs" or "systems"). The Federal Trade
Commission ("FTC" or "Commission") offers the following comments to assist DOT
in its rulemaking. Although the interpretation of the Department's legal authority
is not within the FTC's purview, the
Commission offers its comments to address and clarify some of the references
to FTC doctrine
discussed and relied upon in DOT's rulemaking proceeding.
The FTC is charged by statute with enforcing laws prohibiting unfair methods of competition
and unfair or deceptive acts or practices in or affecting commerce.(1) Pursuant to this statutory mandate,
the Commission is responsible for protecting consumers and maintaining competition through, inter
alia, the enforcement of the antitrust laws, including the development and articulation of the legal
principles underlying such laws.
To the extent that the proposed DOT regulations rely
by analogy(2) upon the scope of the
Commission's unfairness authority as expressed in FTC v. Sperry & Hutchinson
Co., 405 U.S. 233,
244-45 n.5 (1972), the Department should be aware that the FTC's use of its unfairness
substantially evolved since Sperry. Confronted by concerns about the
proper scope of the unfairness
standard, the Commission in 1980 issued its "Unfairness Statement" in
response to an inquiry from a congressional subcommittee.(3) In setting out the applicable standard, the
Commission noted, among other things:
The present understanding of the unfairness standard is a result of an
evolutionary process. The statute was deliberately framed in general terms since
Congress recognized the impossibility of drafting a complete list of unfair trade practices
that would not quickly become outdated or leave loopholes for easy evasions. The
task of identifying unfair trade practices was therefore assigned to the Commission,
subject to judicial review, in the expectation that the underlying criteria would evolve
and develop over time.
Unfairness Statement at 2, 104 F.T.C. at 1072.
The Commission also noted that "[u]njustified
consumer injury is the primary focus of the FTC Act" (id. at 1073) and stated that to justify a finding of
unfairness, any consumer injury must satisfy three tests: (1) the injury must be substantial; (2) it must be
not outweighed by any offsetting benefits to consumers or competition; and (3) the injury must be one
that consumers could not reasonably have avoided. Id. at 1073-74.
The Commission further observed
that, "[a]lthough public policy" has been listed "as a separate consideration,
it is used most frequently by the Commission as a means of providing additional
evidence on the degree of consumer injury caused
by specific practices." Id. at 1075.(4) Subsequently, in 1984, the Commission applied and formally
adopted its 1980 Unfairness Statement as the standard that would govern adjudications in
proceedings that challenge specific acts or practices as unfair. International Harvester Co., 104
F.T.C. 949, 1060-62 (1984).
Most recently, in 1994, Congress amended the FTC Act(5) by effectively codifying the
Commission's modern definition of unfairness in Section 5(n):
The Commission shall have no authority under this section or section 18 to declare unlawful an
act or practice on the grounds that such act or practice is unfair unless the act or practice
causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by
consumers themselves and not outweighed by countervailing benefits to consumers or to
competition. In determining whether an act or practice is unfair, the Commission may consider
established public policies as evidence to be considered with all other evidence. Such public
policy considerations may not serve as a primary basis for such determination.
15 U.S.C. § 45(n).
Thus, to pursue a cause of action successfully under the FTC's current unfairness standard, the
Commission must establish that: (1) the respondent/defendant has engaged in an act or practice that
caused, or is likely to cause, substantial injury to consumers; (2) the injury is not reasonably avoidable
by consumers; and (3) the injury to consumers is not outweighed by countervailing benefits to
consumers or to competition.
The second aspect of DOT's rationale that the Commission wishes to address is the suggestion
that, under Commission law, a monopolist can be held liable for engaging in unfair methods of
competition by virtue of the impact of its business practices on an adjacent market in which the
monopolist does not operate. In making this point, DOT relies upon two Commission cases that are
more than two decades old, LaPeyre v. FTC, 366 F.2d 117 (5th Cir. 1966), and Official Airline
Guides, Inc. v. FTC, 630 F.2d 920 (2d Cir. 1980) ("OAG"). In LaPeyre, the Commission majority
found that the monopolist also did compete in the adjacent market, and that its establishment of a price
differential was an attempt to protect its own interests in the adjacent market by limiting competition in
that market. 366 F.2d at 120. Although the Fifth Circuit decided the case on broader grounds, the
Second Circuit subsequently criticized that expansion in OAG. 630 F.2d at 926. In contrast to
LaPeyre, OAG was clearly a case in which the Commission sought
to challenge a monopolist's behavior that impacted an adjacent market in which
the monopolist did not participate. However, the
Second Circuit expressly rejected this rationale, ruling that "even a monopolist, as long as he has no
purpose to restrain competition or to enhance or expand his monopoly, and does not act coercively,
retains [the right unilaterally to decide with whom he will deal]." 630 F.2d
Shortly after OAG, the Commission indicated in dicta that
it believed the Second Circuit's decision was erroneous and that it continued
to believe that "arbitrary" refusals to deal by monopolists
were actionable. See General Motors Corp., 99 F.T.C. 464, 580 (1982). Since OAG, however, the
Commission has not issued a decision holding that a monopolist violated the FTC Act by using unfair
methods of competition that affected customers in an adjacent market in which the monopolist did not
operate. The Commission's single-firm conduct cases have focused on the alleged monopolist's
conduct in markets in which it operated. See, e.g., Intel Corp.,
http://www.ftc.gov/os/1999/03/d09288intelanalysis.htm. Moreover, in light of subsequent legal
developments,(6) as well as scholarly criticism of the more expansive theory espoused by the FTC in the
OAG litigation,(7) the agency would not take such a position today.
DOT's NPR also refers to the doctrines of "monopoly leveraging" and "essential facilities." As
the Commission and the United States have recently argued in a joint amicus curiae brief filed in the
United States Supreme Court, neither of these doctrines provides an independent basis for liability
under Section 2 of the Sherman Act.(8) Rather,
unilateral conduct should be condemned under the
Sherman Act only if it "reasonably appear[s] capable of making a significant
contribution to creating or
maintaining monopoly power"(9) and is "exclusionary," in that it "not only (1) tends to impair the
opportunities of rivals, but also (2) either does not further competition
on the merits or does so in an
unnecessarily restrictive way."(10) DOT should
carefully consider whether the conduct it addresses in its proposed rule would
be likely, in the absence
of regulation, to meet that standard.
If we can be of further assistance, please do not hesitate to contact our General Counsel,
By direction of the Commission.
Timothy J. Muris
1. Federal Trade
Commission Act, 15 U.S.C. § 45.
2. See Notice
of Proposed Rulemaking ("NPR") at 35.
3. Letter from the Federal Trade Commission to Hon. Wendell Ford and Hon. John Danforth,
Committee on Commerce, Science and Transportation (Dec. 17, 1980), reprinted in International
Harvester Co., 104 F.T.C. 1070 (1984). For a discussion of the policy developments that led to the
preparation of the Commission's 1980 Unfairness Statement, see Neil
W. Averitt, "The Meaning of
'Unfair Acts or Practices' in Section 5 of the Federal Trade Commission Act," 70 Geo. L.J. 225
(1981); Timothy J. Muris and J. Howard Beales, III, "The Limits of Unfairness under the Federal
Trade Commission Act," Association of National Advertisers Publication, 1991
(also discussing the
Commission's use of unfairness subsequent to 1980).
4. The Commission clarified
that the use of public policy is not an independent basis for finding unfairness,
but rather that it "may provide additional evidence" of unfairness, in a
March 5, 1982 letter to Senators Packwood and Kasten. The reduced role of
public policy is also evident in the Credit
Practices Rule, as adopted by the Commission in 1984:
Earlier articulations of the consumer unfairness
doctrine have also
focused on whether "public policy" condemned the practice in question.
In its December 1980 statement, the Commission stated that it relies on
public policy to help it assess whether a particular form of conduct does
in fact tend to harm consumers. We have thus considered established
public policy "as a means of providing additional evidence on the
degree of consumer injury caused by specific practices."
Credit Practices Rule, Statement of Basis and Purpose and Regulatory Analysis, 49 Fed. Reg. 7740,
7743 (Mar. 1, 1984). Congress subsequently codified this reduced role in 1994.
5. Federal Trade Commission Act Amendments of 1994 (H.R. 2243).
6. See, e.g., Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993); Aquatherm
Indus., Inc. v. Florida Power & Light Co., 145 F.3d 1258, 1262 (11th Cir. 1998).
7. See, e.g. K.
Glazer & A.
Lipsky, Jr., Unilateral Refusals to Deal Under Section 2 of the
Sherman Act, 63 Antitrust L.J. 749, 783-85 (1995); P. Areeda & H. Hovenkamp, Antitrust Law
¶¶ 652b.2, 774d (2d. ed. 2002).
8. Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP (Sup. Ct. May
2003) (No. 02-682), http://www.usdoj.gov/atr/cases/f201000/201048.pdf.
9. P. Areeda & H. Hovenkamp, Antitrust Law ¶ 651f,
at 83-84 (2d ed. 2002); see
Spectrum Sports, supra, 506 U.S. at 458-59.
10. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 602, 605 n.32 (1985).