FTC Act Section 5 Unfairness Balancing Test

Should a company be allowed to harm some of its users if most of them benefit? That question sits at the center of how the Federal Trade Commission decides whether a business practice is unfair.

In this TalksOnLaw Brief, Neil Richards, the Koch Distinguished Professor in Law at Washington University in St. Louis School of Law and co-director of its Cordell Institute for Policy in Medicine & Law, explains the FTC Act's unfairness balancing test and makes the case for changing it.

The Section 5(n) Test

Section 5 of the FTC Act prohibits unfair or deceptive acts or practices, and subsection (n), added by Congress in 1994, defines when a practice is unfair. The FTC must show that the practice causes or is likely to cause substantial injury to consumers, that consumers cannot reasonably avoid the injury themselves, and that the injury is not outweighed by countervailing benefits to consumers or to competition. Professor Richards calls this a torturous balancing test. In his view, it tolerates substantial harm to individual consumers if consumers benefit in the aggregate, and substantial harm to all consumers if it enhances competition, which he believes gets the calculus the wrong way around.

A Hypothetical

To illustrate, Professor Richards offers a deliberately invented example, stressing that he is not accusing any company. Imagine a social media service that knows one third of its users will be made sad and suffer mental health problems, while two thirds will greatly enjoy it. Under the text of subsection (n), he says, that would not be an unfair practice because of the balancing. When Joel Cohen asks whether society would close public tennis courts because some players found the sport made them sad, Professor Richards points instead to a health club whose court surface needlessly causes 10% of players to slip and sprain their ankles. Requiring a safer surface is reasonable, he argues, and the same logic applies when an engagement-driven business model causes significant mental health harm to a meaningful share of users.

Targeting Manipulative Design

Professor Richards does not favor top-down limits on how long people may use technology, and he thinks a Chinese-style cap on video game time would be politically infeasible in the United States. He instead supports targeted safeguards, such as limits on notifications that nudge users back to a game and scrutiny of real-time timers that, in his view, make games more addictive through manipulation rather than better gameplay. Taking those tools away, he argues, would push companies to compete on game design, graphics, characters, and story.

What to Know Now

Section 5(n) reads today as it did when Professor Richards described it, and Congress has not adopted his proposal to scrap the balancing step. The courts have also shaped the FTC's tools: in AMG Capital Management v. FTC, the Supreme Court held that Section 13(b) of the Act does not authorize courts to award monetary relief such as restitution, and in Trump v. Slaughter (2026) the Court overruled Humphrey's Executor and held that the President may remove FTC commissioners at will. Even so, the FTC has used its existing unfairness and deception authority against manipulative design, including its 2022 settlements with Epic Games, maker of Fortnite, over default settings for young players and design tricks that led to unwanted purchases. Many states have passed laws aimed at addictive feeds and children's online safety, and several face First Amendment challenges. Supporters of the current test say cost-benefit balancing keeps the FTC from second-guessing products that many consumers value, while critics like Professor Richards argue it leaves serious harms unaddressed. The debate over how far unfairness should reach remains open.