Defining Unfair Methods of Competition in the Federal Trade Commission Act

Section 5 of the Federal Trade Commission Act of 1914 declares “unfair methods of competition” to be unlawful, but the precise meaning of that phrase has long been contested. Both the FTC and courts have generally deemed Section 5 to be textually ambiguous, and they have hence interpreted the agency’s powers in light of the Act’s legislative history and the overall goals of competition policy. This article provides the missing piece to this interpretive puzzle by demonstrating that “unfair methods of competition” does in fact have a clear meaning based upon the substantive law of intentional torts as it had developed in the late nineteenth and early twentieth centuries. Rejecting the English view that only independently wrongful conduct could constitute harm to a competitor, American courts also condemned malicious acts that lacked any justification beyond self-interest. Through the influence of economists, treatise writers, and state legislatures, this type of intentional tort became known as “unfair competition” or, as the Supreme Court influentially deemed it in 1911, “unfair methods of competition.” By interpreting the text of the FTC Act, its legislative history, and the Commission’s modern objectives in light of this historic context, this article concludes that while Section 5 extends beyond the letter and spirit of statutory antitrust law, appreciation for this historic meaning suggests limitations on the Commission’s ability to develop substantive competition law based on its own determinations of public policy