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27.4 Remedies
Learning Objectives
- Describe the various remedies the Federal Trade Commission has used against unfair and deceptive acts and practices.
- Understand that the states also have power to regulate unfair and deceptive trade practices and often do.
The Federal Trade Commission (FTC) has a host of weapons in its remedial arsenal. It may issue cease and desist orders against unfair and deceptive acts and practices and let the punishment fit the crime. For instance, the FTC can order a company to remove or modify a deceptive trade name. It may order companies to substantiate their advertising. Or if a company fails to disclose facts about a product, the commission may order the company to affirmatively disclose the facts in future advertising. In the J. B.Williams case (Section 27.5.2 "Product Comparisons"), the court upheld the commission’s order that the company tell consumers in future advertising that the condition Geritol is supposed to treat—iron-poor blood—is only rarely the cause of symptoms of tiredness that Geritol would help cure.
The FTC has often exercised its power to order affirmative disclosures during the past decade, but its power to correct advertising deceptions is even broader. In Warner Lambert Co. v. Federal Trade Commission, the US court of appeals in Washington, using corrective advertisingA rarely used power of the FTC to require a company to correct previously misleading advertising. It does so by requiring the company to pay for further advertising that admits to the deception and makes corrected statements that are not misleading., approved the commission’s power to order a company to correct in future advertisements its former misleading and deceptive statements regarding Listerine mouthwash should it choose to continue to advertise the product.Warner Lambert Co. v. Federal Trade Commission, 562 F.2d 749 (D.C. Cir. 1977), cert. denied, 435 U.S. 950 (1978). The court also approved the FTC’s formula for determining how much the company must spend: an amount equal to the average annual expenditure on advertising the mouthwash during the ten years preceding the case.
In addition to its injunctive powers, the FTC may seek civil penalties of $10,000 for violation of final cease and desist orders, and if the violation is a continuing one—an advertising campaign that lasts for weeks or months—each day is considered a separate violation. The commission may also sue for up to $10,000 per violation, as just described, for violations of its trade regulation rules (TRRs). Under the FTC Improvement Act of 1975, the commission is authorized to seek injunctions and collect monetary damages on behalf of injured consumers in cases involving violations of TRRs. It may also seek restitution for consumers in cases involving cease and desist orders if the party continuing to commit the unfair or deceptive practice should have known that it would be dishonest or fraudulent to continue doing so. The exact reach of this power to seek restitution, which generally had not been available before 1975, remains to be tested in the courts. As for private parties, though they have rights under the antitrust statutes, they have no right to sue under Section 5 of the FTC Act.
Little FTC Acts
Even when consumers have no direct remedy under federal law for unfair or deceptive acts and practices, they may have recourse under state laws modeled on the FTC Act, known as little FTC acts. All states have some sort of consumer protection act, and these acts are often more liberal than the federal unfair trade rules; they permit consumers—and in several states, even aggrieved businesses—to sue when injured by a host of “immoral, unethical, oppressive, or unscrupulous” commercial acts. Often, a successful plaintiff can recover treble damages and attorneys’ fees.
The acts are helpful to consumers because common-law fraud is difficult to prove. Its elements are rigorous and unyielding: an intentional misrepresentation of material facts, reliance by the recipient, causation, and damages. Many of these elements are omitted from consumer fraud statutes. While most statutes require some aspect of willfulness, some do not. In fact, many states relax or even eliminate the element of reliance, and some states do not even require a showing of causation or injury.
Key Takeaway
The FTC has many weapons to remedy unfair and deceptive trade practices. These include civil penalties, cease and desist orders, restitution for consumers, and corrective advertising. States have supplemented common law with their own consumer protection acts, known as little FTC acts. Remedies are similar for state statutes, and private parties may bring lawsuits directly.
Exercise
- Doan’s Pills are an over-the-counter medicine for low back pain. Using the Internet, find out what claims Doan’s was making and why the FTC thought corrective advertising was necessary.