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Federal Trade Commission Competition and Consumer Protection Authority

The U.S. Federal Trade Commission is given broad authority in the areas of competition and consumer protection law by Section 5 of the Federal Trade Commission Act, 15 U.S.C.S. § 45. Section 5 declares unlawful any “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce,” and Section 5 gives the Commission authority to prevent use of unfair methods of competition and deceptive acts or practices.

Competition Authority

No statutory definition is provided for “unfair methods of competition.” Case law suggests that antitrust laws such as the Sherman Act and the Clayton Act provide basic policies against practices such as price-fixing, monopolization, or anticompetitive mergers that may outline the meaning of unfair methods of competition.

However, the courts have held that the term “unfair methods of competition” covers more than the activities outlawed by other antitrust laws. Courts have stated that Section 5 is designed to allow for case-by-case development of competition law that responds to evolving business practices while having policies of other antitrust laws serve as a foundation. Decisional law thus provides that Section 5 authorizes the Commission to halt business practices likely to have anticompetitive effect even before those business practices develop into violations of other antitrust laws.

Consumer Protection Authority

The phrase “unfair or deceptive acts or practices” in Section 5 also is not defined in the statute. Under this authority, the Commission may seek a halt to a broad and evolving variety of business practices that may deceive consumers or may tend to treat consumers unfairly. Consumer deception and consumer unfairness have been treated as separate concepts by the courts and the Commission although any particular act or practice may be found both unfair and deceptive.

The Commission has determined that practices such as misleading health food claims, unsubstantiated product performance claims, untrue price claims, and failures to disclose material facts are “deceptive” and violate Section 5. According to a Commission policy release, a representation, omission, or practice with the following elements will be considered deceptive:

  • A likelihood to mislead a consumer (although actual deception need not be shown);
  • Characteristics considered objectionable to a consumer acting reasonably under the circumstances; and
  • Reliance by consumers on the representation, omission, or practice that indicates materiality of the representation, omission, or practice.

Unfairness also has been described in a policy release by the Commission. Practices considered unfair and in violation of Section 5 have included selling through inducements that suggest gambling, product claims made without a reasonable basis, and advertising to induce children to behave dangerously. The Commission’s policy release stated that a practice may be considered unfair within the meaning of Section 5 if injury to consumers may be expected, public policy is violated, or the practice is unethical or unscrupulous. Injury to consumers must be substantial, reasonably unavoidable by the consumers, and more significant than asserted benefits of the practice to consumers or competition.