Federal Trade Commission Act

THE FEDERAL Trade Commission Act of 1914 (FTCA) was passed to create the Federal Trade Commission (FTC), and to give the U.S. government a full salvo of ammunition to use against anticompetitive market behavior, as well as other forms of unlawful behaviors in the marketplace. Specifically, the FTCA provided for regulatory enforcement against individuals, corporations, and organizations that violated the Sherman Antitrust act of 1890, and the Clayton Antitrust Act of 1914.

In addition, the FTCA barred the use of deceptive or false advertising by individual, corporations, and organizations. Deceptive advertising occurs when an individual, corporation, or organization knowingly advertises a product or service, which does not exist, or is not what is truly advertised. One type of deceptive advertising is known as bait- and-switch advertising. In bait-and- switch advertising, an advertiser markets a product to draw a customer to their establishment, at which time a salesperson will either tell the consumer that the advertised product is not available, or that there is a better quality product available at a higher price. The FTCA allowed for bringing a regulatory action against any individual, corporation, or organization involved in interstate commerce with the exception of banking institutions, the transportation industry, and agricultural cooperatives.

The FTCA requires a lesser standard of proof than do the Sherman and Clayton Acts. Under the FTCA, the standard of proof is whether “the acts of practice causes or is likely to substantial injury to consumers which is not reasonably avoidable by consumers themselves …” The Sherman Antitrust Act of 1890 provided for criminal penalties for interstate violations of laws pertaining to business monopolies and other market restraints, which require[Page 314] a beyond reasonable doubt standard of proof. Likewise, the Clayton Antitrust Act of 1914 allowed for civil action against individuals, corporations, and organizations involved in anticompetitive behavior, requiring a preponderance of the evidence standard of proof. The FTCA was meant to give extra enforcement power to the government without the long tedious process of bringing a case to trial in either a criminal case or civil action, nor requiring the stricter burdens of proof to protect consumers.

Unlike the Sherman and Clayton Acts, the FTCA allowed accused parties to enter into a consent agreement with the FTC in which the party would not admit guilt, but would agree never to engage in the behavior in the future. The FTCA also gave the FTC the power to issue cease-and-desist orders, which would be enforceable by petition to the U.S. Circuit Court of Appeals. Failure by a defendant party to act in accordance with the consent decree or cease-and-desist order can result in the party being found in contempt and subject to other actions, including criminal referral to the U.S. Department of Justice (DOJ).

Additionally, the FTC may under some circumstances either make a criminal referral to the DOJ without first engaging in a regulatory action, or engage in a civil suit against the defendant party. This may occur if the FTC believes that the behavior is so grievous as to not warrant regulatory action, or if the defendant party chooses to not cooperate with the FTC.

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