Federal Trade Commission Act

The Federal Trade Commission Act was passed by the US Congress in 1914 and resulted in the creation of the Federal Trade Commission (FTC), a federal agency that was tasked with the duty of investigating businesses for evidence of unfair business practices such as unfair competition or deceptive practices.

Before the FTC Act

The FTC Act is known as an ‘antitrust’ form of legislation. In the 19th and early 20th century giant corporations referred to as ‘trusts’ controlled many of the natural and basic resources of the US, such as railroads and oil, coal and gas resource. These trusts had almost total power in their respective industries and, due to the absence of competition, were able to control the market and therefore the prices which were charged.

In 1890 Congress passed the Sherman Act. This legislation made it illegal for competitors to make agreements with each other that would limit competition. The US Supreme Court cases of Standard Oil v US and American Tobacco v US held that the Sherman Act also made it illegal for a business to be a monopoly if that company is not competing fairly. The justification for this was that the Act “limited the freedom of contract by some to protect the contractual freedom of others.”

The Sherman Act resulted in the breakup of many of these huge trust organisations. However, to bypass the law many of the resulting competing companies merged to create a single conglomerate with similar control to the disbanded trusts. For example, the American Tobacco Company was a merger of 250 separate companies. To stop this practice, the Clayton Act was passed in 1914. This Act provided that such mergers were illegal if the result was that the resultant company would stifle competition.

Federal Trade Commission Act

Under the Act, the FTC was created to have five members. These members are appointed by the US President for seven-year terms.

Section 5 of the FTC

The most important section of the legislation in relation to enforcement is Section 5, which in 1914 stated that it proscribes unfair competition, and authorises the FTC to issue order prohibiting ‘unfair methods of competition.’ In 1938, the Wheeler-Lea Act expanded the authority of the FTC under Section 5 to include ‘unfair or deceptive acts or practices.’ Under Section 8 of the Act, the FTC Board has the authority to take appropriate action when unfair or deceptive acts or practices are discovered.

An act or practice is deemed to be unfair in the following circumstances:

-          The act or practice must cause or be likely to cause substantial injury to consumers;

-          The consumers must not reasonably be able to avoid the injury;

-          The injury must not be outweighed by other benefits to consumers or to corporate competition;

-          Public policy must be considered.

Whether a particular act or practice is considered to be unfair or deceptive will depend on the FTC’s analysis of the facts and circumstances of the case. Complaints received by the FTC may initially suggest that the violations were isolated incidents. However, investigations that consider that complaints, when considered in the context of additional information, including other violations or complaints, may raise concerns about unfair or deceptive acts or practices.


The FTC has expanded from the initial tasks set out by the Federal Trade Commission Act. For example, the FTC is also tasked with enforcing the provisions of the Children’s Online Privacy Protection Act 1998. However, much of the 1914 provisions have remained intact. The Commission is still authorised to issue orders in order prohibit unfair methods of competition. Also, the agency continues to combine formal investigation and prosecution powers with the informal authority to educate and work with companies in order to facilitate compliance with the law. The 1914 Act contained the foresight to ensure that the agency could adapt to changing conditions and shape its broad mandate to the needs of those times.

CIPP Exam Preparation

In preparation for the Certified Information Privacy Professional/United States (CIPP/US) exam,  a privacy professional should be comfortable with topics related to this post, including:

  • Federal Trade Commission Act (II.A.a.)

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