FEDERAL TRADE COMMISSION

FEDERAL TRADE COMMISSION. The Federal Trade Commission (FTC) emerged from Progressive Era reformers' search for better means to manage large-scale industrial capitalism and to combat monopoly. By 1912 reformers agreed on the need for a new government agency to regulate big business. They disagreed, however, over the purposes of such an agency. One faction, including Woodrow Wilson and Louis Brandeis, sought a trust-busting commission that would dismantle big business in order to promote a more competitive market of small firms. Another group, centered around Theodore Roosevelt, envisioned an agency that would cooperate with business to help plan economic behavior.

The Federal Trade Commission Act of 1914 fulfilled both visions. The act created a five-person commission to oversee and investigate all commerce but banking and common carriers, empowered this commission with subpoena powers and also to issue cease and desist orders against "unfair" competitive practices, and instructed the agency to report to Congress to assist in legislation. A complementary bill, the Clayton Antitrust Act of 1914, enumerated FTC jurisdiction by specifying unfair practices, among them anticompetitive mergers and acquisitions. Compromise between antitrust and cooperative reformers ensured passage of the Clayton and FTC acts, but it gave the new commission a contradictory mandate to serve as both adversary and advisor to big business. The two bills also bestowed the FTC with uncertain authority and independence by dividing antitrust enforcement between the commission and the Justice Department and by subjecting the FTC to review by the president, Congress, and the courts. In the face of ambiguities the agency proceeded with diffidence. At first the commission issued antitrust orders and prosecutions with hesitation, electing instead to hold information conferences with industry. Following America's entry into World War I the government, with the help of the FTC, suspended antitrust laws and encouraged business combination. When the FTC did seek to pursue antitrust enforcement, as in its investigation of the meatpacking industry for price-fixing and lack of competition, its congressional foes countered by weakening the commission's authority and jurisdiction.

External Search for Limits, 1919–1935

Congressional restriction of the FTC following the meat-packing investigation inaugurated an era in which the legislature, president, and courts would resolve the contradictions in the FTC's regulatory mandate by limiting the commission's antitrust activity. The Supreme Court presented the greatest challenge to the FTC. The Court's ruling in FTC v. Gratz 253 U.S. 421 (1920) restricted "unfair practices" to those understood at the time of the 1914 legislation, a standard that prevented the commission from innovating its tactics and resulted in a string of legal defeats for the agency. The appointment by Republican presidents Harding and Coolidge of commissioners hostile to antitrust enforcement and amenable to business interests also restrained the FTC's regulatory activities.

Responding to these limits, FTC policy became cautious and reactive during the 1920s. The commission's number of cease and desist orders and antitrust cases dropped, and the agency instead turned to fostering consensus between government and industry, and association between firms within an industry, through trade practice conferences, which promoted the planning of production costs and prices.

In the depression years prior to 1935, the Hoover and Roosevelt administrations continued the associationalist and consensual model of regulation and furthered external limits on FTC action. New Deal policies undermined the commission's antitrust efforts and codified associationalism and restraint of competition as federal policy. At the same time, the Supreme Court continued to undermine FTC jurisdiction and enforcement powers. In FTC v. Raladam, 283 U.S. 643 (1931), the Court raised the commission's burden of proof by requiring it to show that real injury to competitors had occurred from a suspect trade practice.

Expansion and Consolidation, 1935–1969

Shifts in court opinion sparked an expansion in the powers of the FTC. A series of Supreme Court rulings overturned restrictions placed on the agency and allowed the commission an active role in regulation. In FTC v. Keppel & Brothers, Inc., 291 U.S. 304 (1934), the Court reversed Gratz and enabled the FTC to broadly interpret the meaning of "unfair practices." The Court's ruling in Humphery's Executor v. United States, 295 U.S. 602 (1935), reinforced the commission's independence from presidential coercion. And the Schechter Poultry Corporation v. United States, 295 U.S. 495 (1935), decision declared unconstitutional the New Deal programs that had advocated anticompetitive policies.

The FTC also benefited from a resurgence of antitrust and procompetition ideas among New Deal policymakers that favored extending the FTC's authority and oversight. The Robinson-Patman Act of 1936 increased the commission's powers over price discrimination by retailers and suppliers. The Wheeler-Lea Act of 1938 reversed the burden of proof standards established in Raladam and broadened the FTC's mandate to include the protection of consumers against deceptive and unfair practices. The commission's investigations now found a receptive audience in congress and spurred new regulatory legislation like the Securities Exchange Act of 1934 and the Public Utility Holding Company Act of 1935.

Although the federal government suspended antitrust enforcement during World War II, the trend of FTC expansion and consolidation continued into the postwar era. The agency won a major victory against price-fixing in the cement industry in 1948 and again in 1950 when a presidential veto defeated the industry's congressional allies. A 1949 review of the commission, chaired by former President Hoover, recommended increasing the FTC chairman's authority and restructuring the agency to facilitate enforcement efforts; Congress institutionalized these recommendations in the FTC Reorganization Act of 1950. That same year the Celler-Kefauver Act broadened the commission's jurisdiction over mergers and combined assets. In the early 1960s the FTC began issuing trade rules to entire industries and increasingly scrutinized advertisements for their effect on competition and consumer interests. FTC activity during the period of expansion reflected the commission's responsiveness to evolving economic realities and its increasing attention to structural barriers to competition.

Reform, Activism, and Reaction, 1969–1990

The consolidation and expansion of the FTC raised concern during the 1960s that the agency had become complacent and ineffective. In 1969 a report issued by consumer advocate Ralph Nader criticized the FTC for failing to fulfill its antitrust and consumer protection duties. When an American Bar Association report of that same year agreed, the Nixon administration responded by reorganizing and reorienting the commission towards more energetic regulation.

These reforms inaugurated the FTC's greatest period of activism. The commission's caseload boomed in the 1970s and included ambitious prosecutions of anti-competitive practices in the breakfast cereal and petroleum industries. Congress widened the commission's jurisdiction and enforcement powers with the Magnuson-Moss Warranty/FTC Improvement Act of 1975, which empowered the commission to issue consumer protection rules for entire industries, and the Hart-Scott-Rodino Antitrust Improvement Act of 1976, which enhanced the FTC's ability to scrutinize mergers by requiring advance notice of such action.

Support for FTC activism began to wane by the late 1970s and fell precipitously following the commission's efforts in 1978 to regulate television advertisements aimed at children. Critics of the FTC argued that the commission had become too independent, too powerful, and heedless of the public good. Congressional critics sought new limits on FTC activity, and in 1979 they temporarily shut off FTC appropriations. The FTC Improvement Act of 1980 restored the agency's funding but enacted new congressional restrictions.

The Reagan administration further targeted the FTC. Executive Order 12291, issued 17 February 1981, placed the reform of regulatory commissions under the control of the president, and the FTC's actions soon turned from aggressive regulation to cooperation with business interests. The agency abandoned cases with sweeping structural implications, emphasized consumer fraud over antitrust enforcement, and liberalized its merger guidelines. The commission's Competition Advocacy Program, for example, championed promarket, probusiness regulatory policies before other state and federal agencies.

The 1990s and Beyond

During the 1990s the FTC increased its enforcement activities in consumer protection and antitrust while attempting to recast regulation to meet the challenge of an increasingly global and technology-driven economy. Adapting quickly to the development of the Internet and computer industry, the commission tackled consumer protection issues such as online privacy, e-commerce, and intellectual property rights, and issued guidelines for advertisements on the Internet. The agency launched fact-finding studies to formulate a regulatory policy for the high-tech sector and held hearings to educate consumers and industry about new enforcement standards. The FTC also adapted its antitrust activities to the new economy: in 1997 the commission launched an investigation of Intel for anticompetitive practices, and in 2000 it arbitrated the merger of America Online with Time Warner.

The FTC's efforts outside the technology economy also displayed innovation and renewed assertiveness. The commission successfully sued the tobacco industry to end cigarette advertisements that appealed to children. And in the face of the decade's merger wave, the FTC either blocked or negotiated a number of high-profile mergers, including the successful mergers of Boeing and McDonnell Douglas in 1997 and Exxon and Mobil in 1999.

Beginning with the appointment of a new chairman in 2001, the FTC retreated from the enforcement pattern of the 1990s. The commission announced its intent to tailor antitrust enforcement to the interests of the economy by exploring the benefits, especially to the consumer, of mergers and by promoting market solutions to problems of competition.

BIBLIOGRAPHY

Davis, G. Cullom. "The Transformation of the Federal Trade Commission, 1914–1929." Mississippi Valley Historical Review 49 (1962): 437–455.

Hawley, Ellis W. The New Deal and the Problem of Monopoly: A Study in Economic Ambivalence. Princeton, N.J.: Princeton University Press, 1966.

Jaenicke, Douglas Walter. "Herbert Croly, Progressive Ideology, and the FTC Act." Political Science Quarterly 93 (1978): 471–493.

McCraw, Thomas K. Prophets of Regulation: Charles Francis Adams, Louis D. Brandeis, James M. Landis, Alfred E. Kahn. Cambridge, Mass.: Harvard University Press, Belknap Press, 1984.

Murphy, Patrick E., and William L. Wilkie, eds. Marketing and Advertising Regulation: The Federal Trade Commission in the 1990s. Notre Dame, Ind.: University of Notre Dame Press, 1990. Contains several noteworthy essays on the history and development of the FTC.

Wagner, Susan. The Federal Trade Commission. New York: Praeger, 1971.

JamesTejani