Deceptive and Unfair Practices

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CHAPTER I

DECEPTIVE AND UNFAIR PRACTICES

A. Introduction

Fundamental principles of American consumer protection law start

with the Federal Trade Commission Act (FTC Act)1 and its

jurisprudence. Although there is also an older, common-law tradition

rooted in the tort of fraud, most modern state laws either explicitly model

themselves after the FTC Act or generally are interpreted consistently

with its jurisprudence. The Federal Trade Commission (FTC or

Commission) itself has been the most consistent and influential source of

thought and policy on American consumer protection law through its

rulemaking and advocacy efforts, as described in Chapter 4. Differences

between other consumer protection laws and the FTC Act are discussed

throughout this chapter and in the chapters of this volume that address

those laws in greater detail.

B. Deceptive Acts and Practices

As originally enacted in 1914, Section 5 of the FTC Act proscribed

only “unfair methods of competition.”2 Nevertheless, courts

subsequently authorized the FTC to proceed against a broad variety of

deceptive marketing practices on the theory that a deceptive marketer

placed its honest competitors at an unfair competitive disadvantage.3

Still, courts required some predictable impact on competitors. In 1931,

the Supreme Court affirmed the reversal of an order prohibiting a

deceptive practice in FTC v. Raladam Co.4 because the FTC had failed to

demonstrate any adverse impact on competition or on a competitor.

Raladam was legislatively overruled by the 1938 Wheeler-Lea

Amendments to the FTC Act.5 These amendments extended the FTC’s

1. 15 U.S.C. § 41 et seq.

2. Act of Sept. 26, 1914, ch. 3 311, § 5(a), 38 Stat. 717, 719 (codified at 15

U.S.C. § 45(a)).

3. See, e.g., FTC v. Winsted Hosiery Co., 258 U.S. 483, 493 (1922).

4. 283 U.S. 643 (1931).

5. Act of Mar. 21, 1938, ch. 49, § 3, 52 Stat. 111 (codified at 15 U.S.C.

§ 45(a)). The Wheeler-Lea Amendments also gave the FTC explicit

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jurisdiction to “unfair or deceptive acts or practices,” even if they did not

amount to “unfair methods of competition.”6 Thus, the agency gained

authority to challenge both “unfair” and “deceptive” acts or practices.

Until the 1960s, the FTC and the courts generally treated “unfair or

deceptive” as a single substantive standard.7 Beginning in 1964,

however, the FTC began to attribute independent significance to each

term.

Today, the deception standard is used to address a wide variety of

circumstances, products, services, and technologies. Part B.1 of this

chapter explains the deception standard. Part B.2 presents a variety of

examples of how and when the deception standard is applied. The

unfairness standard, which the FTC uses less frequently, is discussed in

part C of this chapter.

1. Definition of Deceptive Acts and Practices

The Wheeler-Lea Amendments declared that “deceptive acts or

practices” are unlawful, but it did not define those terms. Over the years,

numerous FTC and judicial decisions have developed standards for

determining whether an act or practice is deceptive. According to early

cases, a practice was deceptive under Section 5 if it had the “tendency

and capacity” to mislead.8 In FTC v. Colgate-Palmolive Co.,9 for

example, the Supreme Court held that “the misrepresentation of any fact,

so long as it materially induces a purchaser’s decision to buy, is a

deception prohibited by §5.”10

statutory authority to proceed against false advertising of foods, drugs,

and cosmetics, and it authorized the federal district courts to issue

preliminary injunctions against such advertisements. Id. §§ 4, 5, 52 Stat.

at 114 (codified at 15 U.S.C. §§ 52-57).

6. See Pep Boys—Manny, Moe & Jack, Inc. v. FTC, 122 F.2d 158, 161 (3d

Cir. 1941).

7. See, e.g., FTC v. Sterling Drug, 317 F.2d 669 (2d Cir. 1963).

8. See, e.g., U.S. Retail Credit Ass’n v. FTC, 300 F.2d 212, 221-22 (4th Cir.

1962); Charles of the Ritz Distribs. Corp. v. FTC, 143 F.2d 676, 679-80

(2d Cir. 1944).

9. 380 U.S. 374.

10. Id. at 386-87 (emphasis in original). In the case, the Supreme Court

upheld a Commission decision that a television advertisement for a

shaving product was deceptive because the advertisement did not disclose

the use of a plexiglass substitute for real sandpaper. Id. at 390-91.

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DECEPTIVE AND UNFAIR PRACTICES 3

The modern view of the law of deception was enunciated by the FTC

in its 1983 Policy Statement on Deception (Deception Statement).11

According to the Deception Statement, the FTC will find deception “if

there is a misrepresentation, omission, or other practice, that misleads the

consumer acting reasonably in the circumstances, to the consumer’s

detriment.”12 This test includes three elements:

First, there must be a representation, omission or practice that is likely

to mislead the consumer. . . . Second, we examine the practice from the

perspective of a consumer acting reasonably in the circumstances. . . .

Third, the representation, omission, or practice must be a “material”

one. The basic question is whether the act or practice is likely to affect

the consumer’s conduct or decision with regard to a product or service.

If so, the practice is material, and consumer injury is likely, because

consumers are likely to have chosen differently but for the deception.13

The Deception Statement elaborated that the Commission “considers

certain categories of information presumptively material,”14 though

parties may rebut the presumption.15 The presumptively material claims

include any express claim, any intended implied claim, and any claim or

omission significantly involving health, safety, or objects of likely

concern to reasonable consumers—such as a product’s central

characteristics.16

Subsequent agency decisions reinforce the Deception Statement as

the starting point for the FTC’s analysis of deceptive advertising and

trade practices.17 A number of courts have similarly looked to the

Deception Statement for guidance.18

11. FTC, Policy Statement on Deception (1983) [hereinafter Deception

Statement], reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,205, appended to

Cliffdale Assocs., 103 F.T.C. 110, 174 (1984). The Commission issued

the Deception Statement because there was no “single definitive

statement of the Commission’s view of its authority.” Deception

Statement, 103 F.T.C. at 174. As such, the Commission reviewed

relevant case law in order to “synthesize the most important principles of

general applicability.” Id. at 175.

12. Deception Statement, 103 F.T.C. at 183.

13. Id. at 175.

14. Id. at 182.

15. Id. at 182 & n.47.

16. Id. at 182-83.

17. The Commission continues to quote the Deception Statement in most of

its formal opinions. See, e.g., Telebrands Corp., 140 F.T.C. 278 (2005),

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