In 1914, Congress passed the Federal Trade Commission Act (FTCA), thereby creating the Federal Trade Commission (FTC). The commission was given the mission of preventing "unfair methods of competition" (Pub. L. No. 203, 1914), and was designed to complement the antitrust laws. As such, the FTC originally was conceived as a protector of business and competition, with no direct responsibility to protect consumers.

In some of its first decisions, however, the commission found that the two interests were not mutually exclusive, since it was possible to steal business from a competitor by deceiving consumers. In fact, the FTC used this justification to protect consumers during its first 15 years of operation. But in 1931 the Supreme Court announced that the FTCA did not permit the commission to protect consumers, except where protection was a mere byproduct of protecting competitors (FTC v. Raladam, 283 U.S. 643). Consequently, in 1938, Congress amended the FTCA to enable the commission to protect both competitors and consumers, by adding power over "unfair or deceptive acts or practices" to the FTC's authority (Pub. L. No. 447).

Today, the FTC is the primary federal agency responsible for preventing citizens from being deceived, or otherwise injured, through advertising and other marketing practices. This responsibility applies to broadcast and print media, as well as any other means of communicating information from seller to buyer. In accord with its original mission, it also protects businesses from the unfair practices of competitors and, along with the Justice Department, enforces the antitrust laws. Each of these areas of commission jurisdiction touch the broadcast industry.

In the realm Antitrust Actions FTC activity is broad, but shared with the Antitrust Division of the Justice Department. The two agencies have an agreement to inform one another about their investigations and expected litigation, to avoid duplication of effort. The general mission for both is to preserve the competitive process, so that it functions in the most economically efficient manner possible and best serves the interest of the public.

The phrase "unfair methods of competition" is not defined in the FTCA, because it was designed to allow the FTC to adapt to an ever-changing marketplace. And courts have determined this power to be quite extensive. Consequently, the commission's oversight of competition generally involves enforcement of the Sherman and Clayton Acts, as well as the Robinson-Patman Act.

Thus, FTC antitrust actions can arise in cases of vertical restraints, entailing agreements between companies and their suppliers that might harm competition, and in cases of horizontal restraints, where direct competitors enter into a competition-limiting agreement. Those agreements can be subject to regulation whether their primary impact is on prices or on some non-price aspect of competition. This means that the FTC may intervene in situations intentionally designed to reduce competition, such as mergers and buy-outs, or in circumstances where competition may be unintentionally affected, as where a professional association adopts a "code of ethics" agreement.

During the 1970s the FTC was perceived as being particularly aggressive at enforcing the antitrust laws. Some critics felt it also was somewhat inconsistent in its decisions. But under the Reagan Administration, in the early 1980s, the agency's regulatory philosophy changed. At President Reagan's direction, the agency experienced an infusion of "Chicago School" economists committed to deregulation and the belief that some of the commission's previous actions were actually injurious to consumer welfare.

Since that time, while their involvement is less pronounced than during the Reagan era, those "Chicago School" economists have continued to influence FTC antitrust regulatory activity. The result has been less regulation of vertical restraints and price restrictions, and a greater focus on the benefits and costs to society in regulating horizontal restraints. Any contract or other agreement between competing businesses, even through a trade association, may be subject to FTC scrutiny. However, no regulation is likely unless the agency believes the harms to competition will outweigh the benefits.

With regard to television, the FTC's role in antitrust activity has focused on the flurry round of mergers and acquisitions taking place in the 1980s and 1990s. Most recently, the commission paid close attention to the purchase of Capital Cities/ABC television network by the Disney company and to the merger of Time-Warner and Turner Broadcasting Systems.

In the realm of advertising regulation the FTC has authority over both "deceptive" and "unfair" advertising and other marketing practices. For television, the commission's focus is on the content and presentation of commercials.

The "unfairness" power never was used extensively and, as a response to criticism that the power was too broad and subjective, it was somewhat limited by Congress between 1980 and 1994. But in 1994 Congress amended the FTCA to define "unfairness," and thereby circumscribe the commission's authority in that area.

The new definition of "unfairness" permits the commission to regulate marketing practices that (1) cause or are likely to cause substantial injury to consumers, (2) are not reasonably avoidable by consumers, and (3) are not outweighed by countervailing benefits to consumers or to competition. The implications of this definition are not yet known, but it is unlikely that the agency will make extensive use of its "unfairness" power in the near future.

By far, most regulation of advertising and marketing practices is based on the commission's "deceptiveness" power. As in the antitrust arena, advertising regulation experienced a shift in FTC philosophy during the Reagan presidency. The flow of "Chicago School" economists into the agency at that time led to a widespread perception that the FTC was engaged in less advertising regulation than it had been in earlier years. And in 1983, when the commission re-defined the term "deceptive" (Cliffdale Associates, 103 F.T.C. 110), many observers felt the new definition greatly diminished protection for consumers.

Under that new definition, the FTC will find a practice deceptive if (1) there is a representation, omission or practice that (2) is likely to mislead consumers acting reasonably under the circumstances, and (3) it is likely to affect the consumer's choice of, or conduct regarding, a product. The first requirement is obvious, and the FTC generally assumes that the last requirement is met. The second requirement, therefore, is the essence of this definition. The issue is not whether an advertising claim is "false." The issue is whether the claim is likely to lead consumers to develop a false belief.

The previous definition required only a "capacity or tendency" to mislead, rather than a "likelihood" and allowed protection of consumers who were not "acting reasonably." These changes were what bothered critics. But after a few years criticism virtually disappeared, and today this definition continues to be FTC policy.

-Jef Richards