Appendix 1 - Laws Enforced by the FTC
The Federal Trade Commission ("FTC") is an independent agency established by Congress in 1914 to enforce the Federal Trade Commission Act ("FTC Act").(1) Section 5 of the FTC Act prohibits "unfair methods of competition," and was amended in 1938 also to prohibit "unfair or deceptive acts or practices."(2) The Commission enforces a variety of other antitrust and consumer protection laws as well.
Although the nation's first antitrust law, the Sherman Act, was enacted in 1890, the history of the Commission may be said to begin with the Supreme Court's landmark 1911 decision in the Standard Oil case,(3) in which the Court declared that Section 1 of the Sherman Act prohibited only unreasonable restraints on trade that have a direct effect on interstate commerce. In the aftermath of that decision, the Senate passed a resolution calling for a study of its impact,(4) and two years later the Senate Commerce Committee produced a report calling for the establishment of an administrative agency to consider antitrust issues.(5) After receiving the Senate report, the House Commerce Committee reported out a bill to create a new agency with broader powers than those proposed by the Senate. The House and Senate bills would have given the new agency the duties of the Bureau of Corporations of the Department of Commerce, which were principally to collect and study data and to issue reports on antitrust and related economic issues. The House bill, however, went much further, including provisions to prohibit "unfair methods of competition," create an expert body to give definition to that general prohibition, and grant the new agency quasi-judicial powers to enforce that prohibition.(6) The final version of the Federal Trade Commission Act followed this approach.
The FTC Act provides a comprehensive framework for carrying out the Commission's law enforcement initiatives. In executing its consumer protection law enforcement responsibilities, the Commission can rely both upon Section 5 of the FTC Act -- which prohibits unfair or deceptive acts or practices -- and upon a number of more specific consumer protection statutes. Under Section 5, the Commission has determined that a representation, omission, or practice is deceptive if: (1) it is likely to mislead consumers acting reasonably under the circumstances; and (2) it is material, that is, likely to affect consumers' conduct or decisions with respect to the product at issue.(7) In August 1994, Congress amended Section 5 of the FTC Act to provide that an act or practice is unfair if the injury it causes or is likely to cause to consumers is: (1) substantial; (2) not outweighed by countervailing benefits to consumers or to competition; and (3) not reasonably avoidable by consumers themselves.(8)
Congress has also enacted, over time, a number of other statutes prescribing additional consumer protection enforcement responsibilities. Thus, for example, the Wheeler-Lea Act of 1938 gave the Commission specific authority to prevent false advertising of foods, drugs, and cosmetics, and Title II of the Magnuson-Moss Warranty - Federal Trade Commission Improvements Act (Magnuson-Moss Act)(effective in 1976) enlarged the Commission's jurisdiction to cover activities "affecting commerce" as well as "in commerce."(9) In addition, in the late 1960s and early 1970s, for example, a number of statutes substantially strengthened the Commission's enforcement presence in the credit area. These statutes include the Truth in Lending Act (effective in 1969), as amended by the Fair Credit Billing Act (effective in 1975); the Fair Credit Reporting Act (effective in 1971); the Equal Credit Opportunity Act (effective in 1975, and amended in 1977); the Fair Debt Collection Practices Act (effective in 1978); and the Consumer Leasing Act (effective in 1977).(10) With respect to tobacco products, the Public Health Cigarette Smoking Act of 1969, as amended in 1984, requires cigarette packages to bear one of four rotated health-related warnings, and requires the Commission to submit annual reports to Congress concerning the effectiveness of cigarette labeling, current practices and methods of cigarette advertising and promotion, and recommendations for legislation. The Comprehensive Smokeless Tobacco Health Education Act of 1986 further requires manufacturers, packagers, and importers of smokeless tobacco products to place one of three statutorily prescribed health warning labels on their product packages and in advertisements, on a rotating basis; prohibits them from advertising smokeless tobacco products on radio and television; and empowers the Commission to enforce these provisions. In addition, the Wool Products Labeling Act, the Fur Products Labeling Act, and the Textile Fiber Products Identification Act -- all enacted in 1939 -- address different aspects of textile fiber product labeling.
In executing its antitrust law enforcement responsibilities, the Commission relies upon both Section 5 of the FTC Act -- which prohibits unfair methods of competition -- and a number of other antitrust statutes. As a general proposition, practices that constitute unfair methods of competition include at least practices that violate the Sherman Act and the Clayton Act. Thus, for example, although the Commission cannot directly enforce the Sherman Act, it can prohibit -- as unfair methods of competition -- practices that (1) violate Section 1 of the Sherman Act because they constitute a "contract, combination . . . , or conspiracy, in restraint of trade or commerce;" or (2) violate Section 2 of the Sherman Act because they constitute monopolization of, an attempt to monopolize, or a conspiracy to monopolize a particular market.(11)
In addition, the Commission can directly enforce the Clayton Act. Thus, for example, Section 7 of the Clayton Act authorizes the Commission and the Justice Department to prevent acquisitions that may substantially lessen competition or tend to create a monopoly, and therefore threaten competition and consumer welfare. To assist with that effort, Section 7A of the Clayton Act requires companies to file premerger notifications with the Commission and the Antitrust Division for transactions satisfying certain threshold requirements, and to wait specified periods of time before consummating such transactions. The Commission also has authority to enforce Section 2 of the Clayton Act, as amended by the Robinson-Patman Act, which prohibits certain forms of price discrimination that may substantially lessen competition or tend to create a monopoly, and therefore threaten competition and consumer welfare; Section 3 of the Clayton Act, which proscribes certain types of tying and exclusive dealing arrangements; and Section 8 of the Clayton Act, which proscribes interlocking directorates and officers, with certain exceptions.
As the foregoing discussion indicates, the history of the Commission since 1914 has followed a pattern of ever-increasing statutory responsibilities. The Commission has used its enforcement tools to enhance both the power and the efficiency with which it can prevent unfair competition and unfair or deceptive acts or practices.
With respect to its consumer protection enforcement, in recent years the Commission has relied more and more frequently on federal court actions not only to secure preliminary injunctions against unfair or deceptive acts or practices, but also to secure permanent injunctions providing a variety of ancillary equitable relief, including consumer redress, disgorgement, freezes of defendants' assets, and the appointment of receivers to preserve defendants' assets for later consumer redress and disgorgement efforts. The Commission has also used its enforcement tools to reach the assets of, and proscribe practices used by, fraudulent operators themselves, as well as entities that have aided and abetted fraudulent operators.
With respect to its competition enforcement, in recent years the Commission has relied on federal court actions, pending the completion of an administrative trial on the merits, to prevent the consummation of mergers and acquisitions that may substantially lessen competition. The Commission also has secured substantial civil penalties from firms that fail to comply with the premerger notification requirements of the Hart-Scott-Rodino Act.
1. Act of Sept. 26, 1914, ch. 311, § 5, 38 Stat. 717, 719 (codified as amended at 15 U.S.C. § § 41-58 (1994)).
2. Act of March 21, 1938, ch. 49, § 3, 52 Stat. 111 (codified at 15 U.S.C. § 45(a)(1) (1994)).
3. Standard Oil Company v. United States, 221 U.S. 1 (1911).
4. 47 Cong. Rec. 2695 (1911).
5. S. Rep. No. 1326, 62d Cong., 3d Sess. (1913).
6. ABA Antitrust Section, Monograph No. 5, "The FTC as an Antitrust Enforcement Agency: The Role of Section 5 of the FTC Act in Antitrust Law," vol. 1, p. 9 (1981).
7. Stouffer Foods Corporation, Docket No. 9250 (Sept. 26, 1994), slip op. at 3; Kraft, Inc., 114 F.T.C. 40, 120 (1991), aff'd and enforced, 970 F.2d 311 (7th Cir. 1992), cert. denied, 113 S. Ct. 1254 (1993); Removatron International Corporation, et al., 111 F.T.C. 206, 308-09 (1988) (citing, e.g., Southwest Sunsites, Inc. v. FTC, 785 F.2d 1431, 1436 (9th Cir.), cert. denied, 107 S. Ct. 109 (1986)); International Harvester Co., 104 F.T.C. 949, 1056 (1984); Cliffdale Associates, Inc.,103 F.T.C. 110, 164-65 (1984); see generally Federal Trade Commission Policy Statement on Deception, appended to Cliffdale Associates, Inc., 103 F.T.C. at 174 et seq.
8. See Section 5(n) of the FTC Act, 15 U.S.C. § 45(n), added by The Federal Trade Commission Act Amendments of 1994, Pub. L. No. 103-312. The Commission previously relied on similar criteria to define the scope of its authority to prohibit unfair acts or practices pursuant to Section 5(a) of the FTC Act. See, e.g., Orkin Exterminating Company, Inc., 108 F.T.C. 263, 362 (1986); International Harvester Co., 104 F.T.C. 949, 1061 (1984); see generally Federal Trade Commission Policy Statement on Unfairness, appended to International Harvester Co., 104 F.T.C. at 1070-76.
9. The Magnuson-Moss Act also created specified procedures for the Commission to prescribe substantive rules for unfair or deceptive acts or practices; increased the Commission's authority to represent itself, under certain conditions, in federal court actions and before the Supreme Court; authorized civil penalty actions for knowing violations of rules and cease and desist orders respecting unfair or deceptive practices; and authorized suits for consumer redress under certain conditions.
10. These statutes have been amended on a number of occasions; for example, all were amended in 1996.
11. See, e.g., United States v. American Airlines Inc., 743 F.2d 1114 (5th Cir. 1984); FTC v. Motion Picture Advertising Serv. Co., 344 U.S. 392, 394-95 (1953); FTC v. Cement Institute, 333 U.S. 683, 694 (1948); Fashion Originators' Guild v. FTC, 312 U.S. 457, 463-64 (1941).