By adding jurisdiction over “unfair or deceptive acts or practices in commerce” to section 5 of the 1914 Federal Trade Commission Act, the U.S. Congress broadened the Federal Trade Commission’s power over deceptive advertisers with the Wheeler-Lea Act.
The first decade of the twentieth century witnessed numerous investigations by the U.S. Department of Commerce into alleged monopolistic business practices in the farm equipment, petroleum, steel, and tobacco industries, among others. Two groups had evolved with differing viewpoints concerning antimonopoly and antitrust legislation. One group believed that all trusts should be abolished, whereas the other thought that Congress should instead establish mechanisms to regulate monopolistic practices. The latter thinking prevailed and led Congress to enact the Federal Trade Commission Act in 1914. The Federal Trade Commission (FTC) was activated the following year.
Many analysts trace the origins of the Federal Trade Commission to the advertising industry association known in the twenty-first century as the American Advertising Federation
The Federal Trade Commission Act focused on protecting businesses from unfair trade practices on the part of competitors. The act did not specifically define unfair competition, leaving that determination up to the FTC on a case-by-case basis. Legislators may not have intended the FTC to have strong punitive powers, but rather to serve as a barrier to protect weaker businesses from the predatory behavior of monopolies. The FTC grew to police the activities of business in general, not simply monopolistic practices, and developed strong punitive capabilities.
The power to regulate advertising was given to the FTC under section 5 of the 1914 act. The wording of this section originally prohibited only unfair methods of “competition.” This led to a 1931 U.S. Supreme Court decision that held that the commission was without jurisdiction unless actual injury to competitors could be proved. The case before the Court involved a questionable weight-reduction product that could have been dangerous for some consumers. The Court’s decision seriously limited the FTC’s power to intervene in cases in which consumers, but not competitors, were injured. Congress subsequently amended the FTC Act in 1938, thereby closing the loophole opened by this decision. This amending legislation is commonly known as the Wheeler-Lea Act, named for its two cosponsors, Senator Burton Kendall Wheeler and Congressman Clarence Frederick Lea.
At the federal level, the Wheeler-Lea Act gave the government its most important control over false and deceptive advertising. Section 5 of the FTC Act was amended to read, “Unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce are hereby declared unlawful.” The intent behind the Wheeler-Lea Act was twofold. First, Congress wanted to expand the FTC’s jurisdiction over unfair competition by extending it into commerce as well as industry. Second, Congress intended to give the commission more power to regulate false and deceptive advertising of food, drugs, therapeutic devices, and cosmetics. The first objective was accomplished through the modification of section 5 as previously discussed. The second goal was reached through section 12(a) of the amended act, which made it illegal to disseminate false information concerning foods, drugs, therapeutic devices, or cosmetics for the purpose of inducing their purchase. No matter how incidental a marketer’s behavior seems, the FTC has the authority to act if a false advertisement is sent through the U.S. mail or is concerned with commerce. False advertising that violates section 12(a) is by default unfair and deceptive under section 5.
The definition of false advertising in section 15 of the Wheeler-Lea Act was designed to be very inclusive. The intent to be false or deceptive was not specified as a necessary element; legislators wanted any materially misleading advertising to be subject to or cause for FTC action, regardless of the advertiser’s intent. Media and advertising agencies were exempted from liability if they cooperated with the agency’s investigation.
Aggrieved competitors who have, for example, been directly named in what they consider to be a false or deceptive comparative advertising campaign have several options for resolution of the problem. They can complain to industry arbitration organizations such as the Better Business Bureau’s National Advertising Division (NAD) and appeal an NAD decision to the National Advertising Review Board
Advertisers usually consent to stop running advertisements disputed by the FTC. If the FTC believes that an advertisement is false or deceptive but the sponsor refuses to sign a consent decree and stop using the ad, the commission can issue a cease-and-desist order requiring the advertiser to stop running the questionable campaign. Under section 5, cease-and-desist orders become final in sixty days unless the advertiser requests a court review. If the advertiser requests a hearing, the cease-and-desist order cannot become final until an administrative law judge has reviewed the case. If the order is upheld by the judge, the sponsor can appeal to the full commission. Advertisers who violate final cease-and-desist orders are subject to substantial fines.
The FTC can seek court remedies under sections 13 and 14 of the amended act. These include injunctions to stop the campaign in question as well as fines or imprisonment for sponsors of the advertisement in severe cases that involve blatant intent to defraud or reckless endangerment of consumers. In some cases, even though the FTC believed that section 12 had been violated, the courts have disagreed with the commission and denied requests for injunctions to stop ad campaigns.
Largely because of the Wheeler-Lea Act, the core of the FTC’s regulatory mission became its efforts to end deceptive advertising, although antitrust concerns still influence FTC policy. The aggressiveness with which the FTC is able to carry out its mission depends heavily on the philosophy of the FTC chairperson as well as the presidential administration’s relationship with business. In some periods, such as the late 1960’s, the agency has been perceived as weak and ineffective. With the Wheeler-Lea Act as a foundation, the FTC underwent major reorganization and staffing changes during the 1970’s that resulted in a more powerful and effective regulatory force. In the 1980’s, President Ronald Reagan’s administration sought to disarm the FTC. In contrast, President George H. W. Bush indicated soon after his election in 1988 that the FTC’s inactivity concerning advertising practices would not continue under chairperson Janet Steiger. Steiger stated that the FTC would begin to hold both advertisers and their agencies responsible for false and deceptive advertising and that the commission would be especially interested in tobacco and alcohol advertising that encouraged underage persons to purchase those products as well as the practice of disguising commercial messages as thirty-minute or longer news or interview programs, commonly called infomercials.
In spite of these inconsistencies, the FTC developed into a more powerful regulator of advertising after the implementation of the Wheeler-Lea Act in 1938. Two areas in which this trend has been most apparent are the commission’s requirement for substantiation of claims made in ads and its use of forced corrective advertising to help counter false advertising claims. In the years since passage of the Wheeler-Lea Act, the FTC has asked that sponsors of numerous disputed claims offer proof that their claims were true, particularly since 1970. Product claims that are literally untrue (that is, cannot be proven in laboratory tests) are considered to be inherently deceptive. Claims are also judged according to how the average “rational” consumer will perceive them. The FTC often admits as evidence the results of consumer surveys designed to determine the perceptions of average consumers to the claims in question.
In a move considered to be much more drastic than requiring claim substantiation, the FTC also began to force sponsors of deceptive advertising to pay for corrective advertising disclaiming previously made false statements. For example, in one of the first corrective advertising cases, the FTC required the makers of Listerine mouthwash to include in a ten-million-dollar advertising campaign a disclaimer stating that the product does not kill germs that cause the common cold, as advertisements had previously claimed. The commission members believed that the false claim of cold prevention was a major reason consumers selected the Listerine brand and that the corrective advertising campaign was the best method for eliminating this misperception.
At first, the FTC required sponsors whose original campaigns had been ruled false and deceptive to disclose that fact. This generated criticism from those who believed the requirement was beyond the FTC’s scope of remedial authority. The FTC took heed and later required sponsors only to disclose that, contrary to what their previous advertising had stated, the claim in question was not true. In addition, the FTC’s original requirement that 25 percent of the advertisement’s space or time be devoted to the corrective message was changed to 25 percent of advertising expenditures during the same period when other advertisements were run.
The FTC’s call for corrective advertising is probably the single most controversial activity ultimately derived from the expanded power given to the agency through the Wheeler-Lea Act. Had the language of the original act not been modified, the commission would not have obtained the authority to require sponsors to run corrective advertising for the sake of consumers who had acquired false information.
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Clarkson, Kenneth W., and Timothy J. Muris, eds. The Federal Trade Commission Since 1970: Economic Regulation and Bureaucratic Behavior. New York: Cambridge University Press, 1981. Presents a comprehensive analysis of the FTC during the 1970’s. Very informative. -
Digges, Isaac W. The Modern Law of Advertising and Marketing. New York: Funk & Wagnalls/Printers’ Ink, 1948. Although dated, provides a useful description of the legal environment surrounding the practice of marketing and advertising in the United States prior to 1948. -
Dillon, Tom. “What Is Deceptive Advertising?” Journal of Advertising Research 13 (October, 1973): 9-12. Presents an interesting view that contrasts with criticisms that the FTC had been ineffective because of its focus on trivial issues and the unfair practices of small businesses instead of national advertisers. -
Garon, Philip A., ed. Advertising Law Anthology. Washington, D.C.: International Library, 1974. Collection of articles related to all aspects of advertising law. Of particular relevance are “The FTC Ad Substantiation Program,” by T. H. Hoppock, and “Corrective Advertising: Theory and Cases,” by G. J. Thain. -
Kintner, Earl W. A Primer on the Law of Deceptive Practices: A Guide for Business. 2d ed. New York: Macmillan, 1978. Discusses the foundations on which the U.S. laws concerning unfair and deceptive business practices are based. -
Lane, W. Ronald, Karen Whitehill King, and J. Thomas Russell. Kleppner’s Advertising Procedure. 16th ed. Upper Saddle River, N.J.: Prentice Hall, 2004. Well-established advertising textbook designed for undergraduate classes in the principles of advertising. Contains updated information concerning all aspects of advertising, including excellent coverage of legal and regulatory issues. -
Maronick, Thomas J. “Copy Tests in FTC Deception Cases: Guidelines for Researchers.” Journal of Advertising Research 31 (December, 1991): 9-17. Provides guidelines for research used in FTC deceptive advertising disputes, based on three decades of FTC case studies. -
Moore, Roy L., Ronald T. Farrar, and Erik L. Collins. Advertising and Public Relations Law. Mahwah, N.J.: Lawrence Erlbaum, 1998. Text intended for advertising students and practitioners includes chapters on the FTC and on deceptive advertising practices. Features useful appendixes and index. -
Ulanoff, Stanley M. Advertising in America. New York: Hastings House, 1977. Relatively strong historical orientation sets this book apart from others. Although somewhat dated, sections related to legal and regulatory issues will be of interest to historians.
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