Opinion ID: 455766
Heading Depth: 2
Heading Rank: 1

Heading: Evolution of the FTC's Authority to Identify and Proscribe Unfair Practices

Text: 28 Congress created the FTC in 1914 and delegated to it the power to determine and prevent unfair methods of competition in commerce. Federal Trade Commission Act, ch. 311, Sec. 5, 38 Stat. 719 (1914) (current version at 15 U.S.C. Sec. 45(a)(1)). At the time of this original delegation, Congress explicitly rejected enacting a statutory definition of the term unfair methods of competition. See S.Rep. No. 597, 63d Cong., 2d Sess. 13 (1914) (The committee gave careful consideration to ... whether it would attempt to define the many and variable unfair practices which prevail in commerce ... or whether it would ... leave it to the commission to determine what practices were unfair. It concluded that the latter course would be better....). Congress' rationale is clearly articulated in the House Conference Report:It is impossible to frame definitions which embrace all unfair practices. There is no limit to human inventiveness in this field. Even if all known unfair practices were specifically defined and prohibited, it would be at once necessary to begin over again. If Congress were to adopt the method of definition, it would undertake an endless task. It is also practically impossible to define unfair practices so that the definition will fit business of every sort in every part of this country. Whether competition is unfair or not generally depends upon the surrounding circumstances of the particular case. What is harmful under certain circumstances may be beneficial under different circumstances. 29 H.R.Conf.Rep. No. 1142, 63d Cong., 2d Sess. 19 (1914). 30 This broad grant of discretionary authority led to two early judicial attempts to cabin the FTC's authority to define unfair practices by limiting the covered practices to those which unduly hinder competition or tend to create monopolies. See, e.g., FTC v. Raladam Co., 283 U.S. 643, 51 S.Ct. 587, 75 L.Ed. 1324 (1931); FTC v. Gratz, 253 U.S. 421, 40 S.Ct. 572, 64 L.Ed. 993 (1920). Subsequent judicial and congressional action, however, overturned these attempts to narrowly circumscribe the FTC's authority. 31 In FTC v. R.F. Keppel & Bro., Inc., 291 U.S. 304, 54 S.Ct. 423, 78 L.Ed. 814 (1934), the FTC issued a cease and desist order under section 5 to prevent a manufacturer from selling candy using a marketing method which tempted children to gamble even though the marketing scheme involved no fraud or deception and could be adopted by competing manufacturers. In finding the practice contrary to public policy and thus unfair within the meaning of section 5, the Supreme Court stated: 32 [W]e cannot say that the Commission's jurisdiction extends only to those types of practices which happen to have been litigated before this court. 33 Neither the language nor the history of the Act suggests that Congress intended to confine the forbidden methods to fixed and unyielding categories. 34 Id. at 309-10, 54 S.Ct. at 425. 35 Congress confirmed the Supreme Court's view of the FTC's authority by enacting the Wheeler-Lee Amendment in 1938. Ch. 49, Sec. 3, 52 Stat. 111 (1938) (codified at 15 U.S.C. Sec. 45(a)). This amendment broadened the language of section 5 to read: 36 The Commission is empowered and directed to prevent persons, partnerships, or corporations ... from using unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce. 37 15 U.S.C. Sec. 45(a)(6) (emphasis added to indicate amended language). One of the primary purposes of this amendment was to broaden the powers of the Federal Trade Commission over unfair methods of competition by extending its jurisdiction to cover unfair or deceptive acts or practices in commerce. H.R.Rep. No. 1613, 75th Cong., 1st Sess. 1 (1937). The amendment was engendered in large measure by judicial decisions limiting the FTC's authority to practices unfairly inhibiting competition. Id. at 3 (discussing Raladam decision); 83 Cong.Rec. 395 (1938) (The trouble arises, and is continually increasing from court decisions construing the language of the existing law. These accumulated decisions over a period of years have so hedged in the Commission that there is great need for amendments of an enlarging character if the full effectiveness of the objects sought are to be attained.). Congress' intent was affirmatively to grant the Commission authority to protect consumers as well as competitors. 38 By the proposed amendment to section 5, the Commission can prevent such acts or practices which injuriously affect the general public as well as those which are unfair to competitors. In other words, this amendment makes the consumer, who may be injured by an unfair trade practice, of equal concern, before the law, with the merchant or manufacturer injured by the unfair methods of a dishonest competitor. 39 H.R.Rep. No. 1613, 75th Cong., 1st Sess. 3 (1937). 40 Despite the passage of the Wheeler-Lee Amendment in 1938, Congress found that the FTC continued to be hampered as an effective force in promoting fair and free competition and safeguarding the consumer public against unfair or deceptive acts or practices by the scope of its authority being limited to matters 'in commerce' and by being made to rely solely on the cease and desist order procedure for enforcement. H.R.Rep. No. 1107, 93d Cong., 2d Sess. 29 (1974) U.S.Code Cong. & Admin.News 1974, pp. 7702, 7712. House Report No. 1107 noted the growing consumer consciousness which had developed during the sixties and cited two oversight studies of the FTC which were extremely critical of the FTC's lack of effectiveness in carrying out its consumer protection responsibilities. Id. at 33-34 (citing American Bar Association, Report of the Commission to Study the Federal Trade Commission (1969); E. Cox, R. Felimuth & J. Schulz, The Nader Report on the Federal Trade Commission (1969)). Both reports noted the need for additional statutory authority to permit the FTC to carry out its consumer protection responsibilities. Id. at 34, U.S.Code Cong. & Admin.News 1974, p. 7716. Congress thus enacted the Magnuson-Moss Warranty--Federal Trade Commission Improvement Act to codify the Commission's authority to make substantive rules for unfair or deceptive acts or practices in or affecting commerce. 7 H.R.Conf.Rep. No. 1606, 93d Cong., 2d Sess. 31 (1974). The conferees regarded this as an important power by which the Commission can fairly and efficiently pursue its important statutory mission. Id. The Magnuson-Moss Act added section 18 to the FTC Act, 15 U.S.C. Sec. 57a, which provides: 41 (1) ... [T]he Commission may prescribe-- 42 (A) interpretive rules and general statements of policy with respect to unfair or deceptive acts or practices in or affecting commerce (within the meaning of section 45(a)(1) of this title), and 43 (B) rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce (within the meaning of section 45(a)(1) of this title).... Rules under this subparagraph may include requirements prescribed for the purpose of preventing such acts or practices. 8 44 15 U.S.C. Sec. 57a(a)(1)(A), (B). 45