## Facts

- Orkin sold standardized “lifetime” termite protection contracts from 1966 to February 1, 1975, promising protection for the life of the structure conditioned on payment of an annual renewal fee specified in the contract.
- Orkin marketed the program as offering a “very modest” annual premium that “never increases.”
- The printed contracts provided no term allowing Orkin to unilaterally increase the renewal fee.
- In August 1980 Orkin notified more than 200,000 holders of pre-1975 lifetime contracts that it would raise the annual renewal fee by a minimum of $25 or by 40%, whichever was greater.
- Consumers and officials in at least 17 states complained about Orkin’s attempt to change fixed-fee lifetime contract terms.
- Orkin asserted the contracts were ambiguous and argued the increases were justified by inflation and rising costs, and that it acted on legal advice.

## Issues

1. Whether Orkin’s unilateral renewal-fee increase on more than 200,000 fixed-fee lifetime termite contracts constituted an “unfair act or practice” under § 5(a)(1) of the Federal Trade Commission Act.

## Decision

- The Eleventh Circuit denied Orkin’s petition for review and affirmed and enforced the FTC’s cease-and-desist order.
- The court agreed the contracts unambiguously set a fixed renewal fee and that Orkin’s uniform fee increase was a unilateral breach of more than 200,000 consumer contracts.
- The court upheld the FTC’s use of its unfairness framework, focusing on substantial consumer injury, lack of offsetting benefits, and consumers’ limited ability to avoid the harm.
- The court concluded the fee increase caused substantial economic injury and deprived consumers of the benefit of the bargain promised by the lifetime, fixed-fee arrangement.
- The court found Orkin did not show countervailing benefits to consumers or competition sufficient to outweigh the injury.
- The court held the injury was not reasonably avoidable because consumers had already relied on long-term, fixed-fee contracts and could not readily replicate the original bargain by switching providers.
- The court agreed that intent is not an element of unfairness under § 5; reliance on counsel did not bar an unfairness finding.

## Legal Principles

- The FTC may treat a widespread, deliberate, and uniform refusal to honor standardized consumer contract terms as an “unfair act or practice” under FTC Act § 5 when it causes substantial consumer injury.
- The unfairness analysis focuses on whether (1) consumer injury is substantial, (2) the injury is not outweighed by countervailing benefits to consumers or competition, and (3) the injury is not reasonably avoidable by consumers.
- Economic harm and loss of the contractual benefit of the bargain can constitute substantial consumer injury for § 5 unfairness purposes.
- Claimed business justifications such as increased costs do not defeat an unfairness finding absent demonstrated offsetting benefits to consumers or competition.
- Good faith, lack of wrongful intent, or reliance on legal advice does not preclude a finding of unfairness under § 5.

## Conclusion

The Eleventh Circuit upheld the FTC’s determination that Orkin’s unilateral, across-the-board renewal-fee increase on fixed-fee lifetime termite contracts was an unfair practice under § 5 because it inflicted substantial, unavoidable economic harm on consumers without offsetting benefits, and the FTC could address such systematic contract breaches through injunctive relief.


Orkin Exterminating Co., Inc. v. Fed. Trade Comm'n, 849 F.2d 1354 (11th Cir. 1988)