Deceptive Trade Practices
| Author | Jeffrey Wilson |
| Pages | 317-324 |
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Federal legislation and statutes in every state prohibit employment of unfair or deceptive trade practices and unfair competition in business. The Federal Trade Commission regulates federal laws designed to prohibit a series of specific practices prohibited in interstate commerce. Several states have established consumer protection offices as part of the state attorney general offices.
The Federal Trade Commission Act (FTCA), originally passed in 1914 and amended several times thereafter, was the original statute in the United States prohibiting "unfair or deceptive trade acts or practices." Development of the federal law was related to federal antitrust and trademark infringement legislation. Prior to the enactment in the 1960s of state statutes prohibiting deceptive trade practices, the main focus of state law in this area was "unfair competition," which refers to the tort action for practices employed by businesses to confuse consumers as to the source of a product. The tort action for a business "passing off" its goods as those of another was based largely on the common law tort action for trademark infringement.
Because the law governing deceptive trade practices was undefined and unclear, the National Conference of Commissioners on Uniform State Laws in 1964 drafted the Uniform Deceptive Trade Practices Act. The NCCUSL revised this uniform law in 1966. The law was originally "designed to bring state law up to date by removing undue restrictions on the common law action for deceptive trade practices." Only eleven states have adopted this act, but it has had a significant effect on other states. Most state deceptive or unfair trade practices statutes were originally enacted between the mid-1960s and mid-1970s.
Deceptive trade practices statutes do not govern all situations where one party has deceived another party. Most states limit the scope of these statutes to commercial transactions involving a consumer purchasing or leasing goods or services for personal, household, or family purposes. The terms used in each statute to set forth the scope of the statute are
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often the subject of litigation. The majority of states requires a liberal interpretation of the terms of the deceptive trade practices statutes, including those describing the applicability of the statutes.
Several states limit the applicability of deceptive trade practices to transactions in trade or commerce. This requirement usually incorporates a broad range of profit-oriented transactions. But it generally excludes trade between non-merchants and similar transactions.
The appropriate plaintiff under most deceptive trade practices acts is a consumer, commonly defined as a person who will use a good or service for personal, family, or household purposes. The determination of whether a plaintiff is a consumer often requires use of one of two types of analysis, a subjective test and an objective test. The subjective analysis typically considers the intended use of the good or service at the time of the transaction. Thus, if a buyer of a good intends at the time of a purchase to use to good for a personal, family, or household purpose, the buyer will likely be considered a consumer under the relevant statute. The objective analysis considers whether the type of good or service involved in the transaction is ordinarily used for a personal, family, or household purpose.
Goods are defined under the Uniform Commercial Code as those items movable at the time of a purchase. Many deceptive trade practices statutes apply this definition to the requirement that goods are involved in a transaction for a deceptive trade practices statute to apply. Livestock are also usually included in the definition of a good. Statutes and courts usually define services broadly, including in the definition most activities conducted on behalf of another. Some states require that consumers seek to purchase merchandise, which incorporates goods, services, real property, commodities, and some intangibles.
Most state deceptive trade practices statutes include broad restrictions on "deceptive" or "unfair" trade practices. These states often include prohibitions against fraudulent practices and unconscionable practices. The Federal Trade Commission, when interpreting the FTCA, does not require that the person committing an act of deception have the intent to deceive. Moreover, the FTC does not require that actual deception occur. The FTC merely requires that a party have the capacity to deceive or commit an unfair trade practice. If a business or individual has this capacity or tendency to deceive, the FTC under the FTCA may order the company to cease and desist the deceptive or unfair practice. State statutes similarly do not require that a company specifically intends to deceive, nor must a company always have knowledge that a statement is false to be liable for misrepresentations made to a consumer.
A consumer who has been victimized by a potential deceptive or unfair trade practice should consult the deceptive trade practice statute in that state, plus consult case law applying this statute, to determine whether he or she has a cause of action. In addition to the broad prohibition against deception, most state statutes also include a list of practices that are defined as deceptive. Under the Uniform Deceptive Trade Practices Act, if a business or person engages in the following, the action constitutes a deceptive trade practice:
Passes off goods or services as those of another
Causes likelihood of confusion or of misunderstanding as to the source, sponsorship, approval, or certification of goods or services
Causes likelihood of confusion or of misunderstanding as to affiliation, connection, or association with, or certification by, another
Uses deceptive representations or designations of geographic origin in connection with goods or services
Represents that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or qualities that they do not have or that a person has a sponsorship, approval, status, affiliation, or connection that he does not have
Represents that goods are original or new if they are deteriorated, altered, reconditioned, reclaimed, used, or second-hand
Represents that goods or services are of particular standard, quality, or grade, or that goods are of particular style or model, if they are of another
Disparages the goods, services, or business of another by false or misleading misrepresentation of fact
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Advertises goods or services with intent not to sell them as advertised
Advertises goods or services with intent not to supply reasonably expected public demand, unless advertisement discloses a limitation of quantity
Makes false or misleading statements of fact concerning the reasons for, existence of, or amounts of price reductions
Engages in any other conduct which similarly creates the likelihood of confusion or of misunderstanding
Most states include similar items in their lists of deceptive trade practices violations, even if those states have not adopted the uniform act. In addition, the FTC and many states prohibit other unfair practices, including the following:
Unfair provisions in contracts of adhesion
Coercive or high-pressure tactics in sales and collection efforts
Illegal conduct
Taking advantage of bargaining power of vulnerable groups
Taking advantage of emergency situations
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