The Federal Trade Commission Celebrates 100 Years

FTC Building, Washington, DC.

In order to establish and maintain capitalistic markets which consumers trust enough to operate within, a set of effective rules regarding those markets must be enforced to encourage fair play. The federal government of the United States has enacted many laws and created agencies to ensure that consumer’s rights are respected and to prevent or prosecute entities for deceptive practices. Perhaps the most important of the agencies is the Federal Trade Commission, which recently hit a major milestone: on September 26, 2014, the consumer protection agency celebrated its 100th birthday.

On the morning of Friday, November 7, the FTC will officially recognize the occasion with a 100th Anniversary Symposium at the Constitution Center in Washington, D.C. The event will feature a day-long schedule of panel discussions involving current commissioners, current FTC chairwoman Edith Ramirez and a long list of experts in business and law.

It’s easy to conflate the protection of consumer rights in America with the idea of snake oil salesmen and quack cures from the 1800s. Although that makes for a good story, it would be wrong to think that there aren’t a myriad of concerns that still affect consumer and business markets. For example, the FTC recently investigated allegations that AT&T “crammed” customers with costly add-on services; by the middle of October, AT&T had agreed to pay a $105 million settlement, $80 million of which will be refunded to customers.

Americans greatly benefit from the wide breadth of governmental institutions which have been established to protect our various rights. Just in the past two years, the Federal Trade Commission brought lawsuits for deceptive claims against 24 different companies which have resulted in consumer refunds. From time to time we publish news stories about the FTC not only because false and deceptive advertising is an important piece of U.S. intellectual property laws, but also because the FTC has been taking stands against reverse pharmaceutical payments that have at its core a patent dispute. The FTC has also recently been investigating patent monetization companies and the industry.

Although the FTC is not the primary agency we follow here at IPWatchdog.com, with the FTC hitting the century mark this year we wanted to take a few moments to look at some important aspects of the history of this important and influential governmental agency.

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The Early Days of Federal Consumer and Business Protections

The United States government has a long and proud history of regulating the unchecked growth of unscrupulous businesspersons. Many readers will remember hearing about the Sherman Antitrust Act at some point in their studies of U.S. history. In July 1890, this law was passed, giving Congress the right to prohibit and dismantle trusts based upon its power to regulate interstate commerce.

The way trusts were used in the 1800s, they became corporate structures in which the stockholders of several companies would transfer all shares to a small set of trustees for a share of the consolidated earnings of the trust. This destroyed competition within entire industries as a few people came to control all of the activities in an industry, from manufacture to sales. The Standard Oil Company, a trust formed by John D. Rockefeller, consolidated the control of 99 percent of America’s oil industry and gave that power to nine men in the 1880s, for example. Even Grover Cleveland, a U.S. president known to support pro-business causes like lowering tariffs, cautioned the country in his 1888 State of the Union address that “Corporations, which should be the carefully restrained creatures of the law and the servants of the people, are fast becoming the people’s masters.” Two years later, the country enacted the toughest corporate laws up to that point by passing Sherman Antitrust.

Other pieces of legislation were enacted to improve upon the protections offered through Sherman, but perhaps the most important of these which are relevant to the FTC is its direct predecessor, the Bureau of Corporations. Established in 1903 by Theodore Roosevelt during his presidency, the agency helped to lend credence to his reputation as a “trust buster” by investigating and reporting on monopolistic business practices. Supporting the creation of the bureau was one of Roosevelt’s early projects while in office.

 

Woodrow Wilson and the Federal Trade Commission Act

By the second decade of the 20th Century, it was becoming clearer to the American public that the protections afforded by Sherman Antitrust were no longer robust enough to stop the abuse of economic power by companies. In this atmosphere, Woodrow Wilson ascended to the U.S. presidency on a platform that included a strong message for curbing the excesses of corporations and trusts. Wilson’s push for tighter regulations on the activities of industry giants led to the passage of the Federal Trade Commission Act in September 1914.

The act, which can be found in Title 15 of the United States Code, establishes the Federal Trade Commission with five presidential-appointed commissioners to serve term lengths varying from three to seven years. Its mission was to promote consumer protections and prevent business practices which were anticompetitive in nature. The FTC was further empowered to enforce the terms of the 1914 Clayton Antitrust Act, which regulated corporate activities which were deemed to not be in the interest of the public.

The Federal Trade Commission has contributed to a number of landmark court cases leading to the dismantling or reconfiguration of monopolistic corporations. Antitrust legislation laid the foundation of the suit filed by the United States government in U.S. v. Paramount Pictures, et. al., which ended the practice of block booking in movie theaters across the nation. Lawsuits brought by the federal government against Alcoa in 1937, Kodak, a company whose history we recently profiled here on IPWatchdog, in 1954 and AT&T in 1982 all had their foundations in U.S. antitrust law.

At the outset, the FTC was mainly responsible for checking the anticompetitive nature of monopolies. However, an American economy which grew incredibly varied throughout the 20th Century required a series of changes to the role played by this federal agency. For example, the Lanham Trademark Act of 1946 required companies to register trademarks which were becoming increasingly used in commerce. The ability to prohibit deceptive claims on product labeling and packaging was added to the regulatory power of the FTC through the Fair Packaging and Labeling Act of 1966. The Truth in Lending Act of 1969 and the Fair Credit Reporting Act of 1970 also increased the agency’s control of financial activities, especially those involving consumer credit.

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How the FTC Protects Consumer Rights

The mission statement of the Federal Trade Commission is three-fold: “To prevent business practices that are anticompetitive or deceptive or unfair to consumers; to enhance informed consumer choice and public understanding of the competitive process; and to accomplish this without unduly burdening legitimate business activity.” In the structure of today’s federal government, the FTC is the only agency that holds jurisdiction over both consumer protection and competition across many sectors of the economy. The FTC enforces that jurisdiction by bringing suit against parties that violate economic regulations. Both the Sherman Antitrust and the Clayton Antitrust acts still lay much of the foundation of the Federal Trade Commission’s regulatory powers.

In determining whether a business practice is actually unfair, the FTC applies criteria developed from the Supreme Court ruling made in the 1972 case Federal Trade Commission v. Sperry & Hutchinson Trading Stamp Co.. Foremost among these is the consideration of unjustified consumer injury which meets three points: the injury is substantial, it outweighs any consumer benefit and it was reasonably unavoidable on behalf of a consumer. The FTC then considers if the activity violated public policy and if the activity was unethical or immoral.

The Federal Trade Commission has its main activities split up among three separate bureaus. The Bureau of Consumer Protection enforces congressional laws regarding consumer protections and has divisions for investigating allegations regarding marketing practices, advertising and credit. The Bureau of Competition investigates complaints regarding the restraint of trade and works closely with the U.S. Justice Department’s Antitrust Division. When an investigation is complete, the Bureau of Economics analyzes the economic impact of FTC activities and presents those reports to Congress and the Executive Branch.

The Federal Trade Commission is still incredibly active in regulatory practices meant to keep the economic playing field level for all participants while maintaining a legal atmosphere which is cooperative with business interests. The past few weeks is filled with news reports on regulatory actions pursued by the FTC to keep everyone playing fair in the market. For instance, the agency brought suit against child foods manufacturer Gerber for false advertising claims that its Good Start Gentle formula can prevent children from developing allergies. The agency has also recently gone after British company JDI Dating, an operator of 18 dating websites, for using fake private messages from fictional dating website members to coerce free members to pay a subscription fee in order to respond. This particular regulatory action is one of the first brought about under the Restore Online Shoppers’ Confidence Act (ROSCA), a bill signed into law in 2010 to regulate online transactions.

The role of the Federal Trade Commission is ever changing, which has helped the governmental agency adapt to the great changes to the American economy experienced over the past century. The FTC’s history of addressing unfair business practices in an incredible array of economic sectors has helped to build a stronger economy that benefits many consumers. At 100 years old, the work of protecting America’s consumers against unethical businesses isn’t done, but the agency has scored many victories along the way which it can celebrate.

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