Federal Trade Commission

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Federal Trade Commission

The Federal Trade Commission (FTC) is an independent federal regulatory agency charged with the responsibility of promoting fair competition among rivals in the marketplace by preventing unfair and deceptive trade practices and restraining the growth of monopolies that tend to lessen free trade.

The Federal Trade Commission was established on September 26, 1914, by the Federal Trade Commission Act (15 U.S.C. 41 et seq). Created by Congress at the urging of President woodrow wilson, the FTC was designed to regulate trusts and prevent Unfair Competition in interstate commerce. The FTC succeeded the Bureau of Corporations as the federal agency in charge of regulating unfair and non-competitive trade practices.

The FTC's creation was supported both by anti-monopolists seeking to halt "unfair competition" that resulted from the trust building actions of larger corporations and by businessmen seeking "fairness" as a basis for greater order and stability in the marketplace.

The FTC is composed of five commissioners appointed by the President of the United States, with the advice and consent of the Senate, for a term of seven years. Not more than three of the commissioners may be members of the same political party. One commissioner is designated by the president as chairman of the commission and is responsible for its administrative management.

Generally speaking, the FTC is bestowed with the power to oversee, issue, and enforce federal rules, regulations, and laws governing unfair competition among businesses in the United States. Under the sherman antitrust act (15 U.S.C. § 1) and clayton antitrust act (15 U.S.C. § 18), the FTC is charged with the duty of applying the so-called "Rule of Reason" to disputes of unfair competition. Under this rule, restraints of trade are deemed unlawful only to the extent they are "unreasonable."

Specifically, the FTC's functions include:(1) promoting competition through the prevention of general trade restraints such as price-fixing agreements, boycotts, illegal combinations of competitors, and other unfair methods of competition; (2) stopping corporate mergers, acquisitions, or joint ventures that substantially lessen competition or tend to create a Monopoly; (3) preventing interlocking directorates (an interlocking director is a director who simulaneously serves on the boards of two or more corporations that deal with each other or have allied interests.) that may restrain competition;(4) preventing the dissemination of false or deceptive advertisements of consumer products and services; (5) ensuring the truthful labeling of products; (6) promoting electronic commerce by stopping Fraud on the Internet and developing policies to safeguard online privacy of personal information; (7) stopping fraudulent telemarketing schemes and protecting consumers from abusive and deceptive telephone tactics; (8) requiring creditors to disclose in writing certain cost information, such as the annual percentage rate, before consumers enter into credit transactions; (9) protecting consumers against circulation of inaccurate or obsolete credit reports and ensuring that credit bureaus, consumer reporting agencies, credit grantors, and bill collectors exercise their responsibilities in a manner that is fair and equitable; (10) educating consumers and businesses about their rights and responsibilities under FTC rules and regulations; and (11) gathering factual data concerning economic and business conditions and making it available to the Congress, the president, and the public.

The FTC discharges many of these responsibilities by holding hearings, soliciting public and expert feedback, and conducting investigations in areas of concern to consumers. Based on the formal testimony and other informal information provided at these hearings and gathered during investigations, the FTC will issue a temporary or proposed rule, after which it will normally solicit more feedback either in writing or again through additional hearings. If a significant portion of the public disapproves of the temporary or proposed rule, the FTC may modify the rule to accommodate the public's concerns. Otherwise, the FTC will issue a subsequent order making the temporary or proposed rule a final regulation.

The commission ensures compliance with its rules and regulations by systematic and continuous review of business practices in the marketplace and by issuing cease-and-desist orders when violations are discovered. All respondents against whom such orders have been issued are required to file reports with the FTC to substantiate their compliance. In the event compliance is not obtained, or the order is subsequently violated, civil penalty proceedings may be instituted.

Compliance is also ensured through voluntary and cooperative action by private companies in response to miscellaneous FTC guidance procedures, including non-binding staff advice, formal advisory opinions, and policy statements delineating legal requirements as to particular business practices. Through these procedures, business and industry may obtain authoritative direction and a substantial measure of certainty as to what they may do under the laws administered by the FTC. As a result, smart businesses can plan ahead to prevent being found in violation of federal trade laws.

FTC investigations may originate through complaints made by a consumer or a competitor, the Congress, or from a federal, state, or municipal agency. The commission itself may also initiate an investigation into possible violations of the laws it administers. No formality is required in submitting a complaint. A letter giving the facts in detail, accompanied by all supporting evidence in possession of the complaining party, is sufficient.

As a last resort, the FTC will commence formal litigation. Formal litigation is instituted either by issuing an administrative complaint or by filing a federal district court complaint charging a person, partnership, or corporation with violating one or more of the laws administered by the commission. If the charges leveled in an administrative complaint are not contested or are found to be true after a contested case, the FTC may issue an order requiring discontinuance of the unlawful practices.

In addition to or in lieu of an administrative proceeding initiated by a formal complaint, the FTC may request that a U.S. district court issue a preliminary or permanent Injunction to halt the use of allegedly unfair or deceptive practices, to prevent an anticompetitive merger from taking place or to prevent violations of any statute enforced by the commission.

As with actions taken by most other federal agencies acting pursuant to federal administrative law, parties aggrieved by an FTC action may seek review in a U.S. district court. In evaluating the lawfulness of action taken by the FTC, federal district courts have alternatively applied various standards of review, including the abuse of discretion, arbitrary and capricious, and substantial evidence standards.

Further readings

Federal Trade Commission. Available online at <www.ftc.gov> (accessed November 20, 2003).

U.S. Government Manual Website. Available online at <www.gpoaccess.gov/gmanual> (accessed November 10,1993).

Young, Stephanie J. 2003. "Federal Trade Commission: Resources and Information." Legal Reference Services Quarterly 22 (winter).


Interstate Commerce Act; Interstate Commerce Commission; Monopoly; Sherman Anti-Trust Act; Trust.

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