The Federal Trade Commission (FTC) was established in 1914 for the purpose of enforcing the provisions of the Federal Trade Commission Act, also of 1914. The Federal Trade Commission Act prohibits unfair or deceptive acts or practices in commerce. The FTC is thus empowered to prevent occurrences of unfair methods of competition and any unfair or deceptive acts or practices that would affect commerce; to seek monetary compensation from those who through such conduct injure consumers; to propose regulations, rules, and procedures that specifically define unfair or deceptive trade practices; to conduct investigations into such unfair or deceptive practices; and to provide Congress with reports and legislative proposals. The FTC is considered to be an independent administrative agency with quasi-judicial and quasi-legislative powers. Banks, savings and loan associations, federal credit unions, and common carriers, however, do not fall under the purview of the FTC.

The FTC was created amidst public outcry against the abuses of the monopolistic trusts of the middle and late 19th century. The Sherman Antitrust Act of 1890 proved inadequate in limiting trusts, and the issue of misuse of economic power was a factor in the election of President Woodrow Wilson in 1912. Wilson's 1913 State of the Union Address called for antitrust laws, leading to the passage of two pieces of legislation. The first was the Federal Trade Commission Act. The second was the Clayton Antitrust Act. The Clayton Antitrust Act charged the FTC with "preventing and eliminating unlawful tying contracts, corporate mergers and acquisitions, and interlocking directorates." The FTC is thus empowered to investigate and outlaw specifically defined monopolistic practices such as mergers that would lead to a monopoly. The Clayton Antitrust Act was subsequently amended by the Robinson-Patman Act empowering the FTC to prevent prescribed practices that would lead to discriminatory pricing and product promotion. The FTC began operating in 1915 and the U.S. Bureau of Operations, which had previously monitored corporate activity for the federal government, was folded into the FTC.

The FTC also operates under the authority of numerous other pieces of legislation including: the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which requires companies to file premerger notifications with the FTC; the Deepwater Port Act of 1974, which enables the FTC to assess competitive effects of proposed licenses for deepwater ports; the Defense Production Act of 1950, which relates to voluntary agreements of oil companies relating to emergency domestic oil shortages; and the International Antitrust Enforcement Assistance Act of 1994, which allows the FTC to join in mutual assistance accords with foreign antitrust authorities.

The FTC enforces provisions of these acts following specific guidelines. The offense must fall under the jurisdiction of the various acts and must affect interstate commerce. The offense must also affect the common good; the FTC does not intervene in disputes between private parties.

Even though the FTC is considered to be a law enforcement agency it lacks punitive authority. It cannot punish violators but it can issue cease and desist orders and argue cases in federal and administrative courts. If an FTC ruling—such as a cease and desist order—is ignored, however, the FTC can seek civil penalties in federal court and seek compensation for those harmed by the unfair or deceptive practice. The real function of the FTC is not to punish but rather to prevent those abuses to federal trade regulations and laws. The FTC's chief legal officer is the general counsel. The Counsel has the responsibility of representing the FTC in court as well as providing legal counsel.

The FTC is gravely concerned about the deleterious affect the Internet and various online services are having on the consumer. Under the general phrase "online scams" the FTC is warning Internet users to be especially wary of cyber-solicitations for "business opportunities," "work-at-home" schemes, and such offers as "use your home PC to make money fast in your spare time." The FTC has found on the Internet fraudulent offers for stock deals, credit repair plans, questionable weight loss and nutritional supplement connivances, and high-tech investment schemes. The FTC is also concerned with privacy issues as they relate to the Web. Commission chairman Bob Pitofsky told Advertising Age in a 1998 interview that the FTC is concerned with Internet marketers soliciting information from children without parental consent. He also feels that industry self-regulatory controls are not sufficient to guard the privacy of children and adults alike.

Three bureaus of the FTC interpret and enforce jurisdictional legislation. The Bureau of Consumer Protection protects the consumer from unfair, deceptive, and fraudulent practices. It enforces congressional consumer protection laws and regulations issued by the FTC. The Bureau of Competition is responsible for antitrust activity and investigations involving restraint of trade. This bureau works closely with the Antitrust Division of the U.S. Justice Department, but while the Justice Department concentrates on criminal violations, the Bureau of Competition deals with the technical and civil aspects of marketplace competition. The Bureau of Economics predicts and analyzes the economic impact of FTC activities, especially as these activities relate to competition, interstate commerce, and consumer welfare. The Bureau of Competition provides Congress and the executive branch with the results of its investigations and undertakes special studies on their behalf when requested.

The FTC becomes aware of alleged unfair or deceptive trade practices as a result of its own investigations or complaints from consumers, businesspeople, trade associations, other federal agencies, or local and state governmental agencies. These complaints become known as "applications for complaints" and are reviewed to determine whether or not they fall under FTC jurisdiction. If the application does fall under FTC jurisdiction, the case can be immediately settled if the violator agrees to a consent order. This is a document issued by the FTC after a formal private or public hearing after which the offending party agrees to discontinue or correct the challenged practice. If an agreement is not reached via a consent order, the case is litigated before an FTC administrative law judge. Following a decision either the FTC counsel or the respondent can appeal to the commission. The commission may either dismiss the case or issue a cease and desist order. If a cease-and-desist order is issued, the respondent has 60 days to accede or begin an appeal process through the federal court system.

[ Michael Knes ]


Federal Trade Commission. "Federal Trade Commission: Working for Consumer Protection and a Competitive Marketplace." Washington: Federal Trade Commission, 1998. Available from www.ftc.gov .

——. Online Scams: Potholes on the Information Highway. Washington: Federal Trade Commission, 1996.

——. Your Federal Trade Commission: What It Is and What It Does. Washington: Federal Trade Commission, 1975.

Teinowitz, Ira. "FTC Chief Asks Congress to Insure Privacy on the Web." Advertising Age, 8 June 1998, 53.

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