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70 Geo. L. J. 225 (1981-1982)
The Meaning of Unfair Acts or Practices in Section 5 of the Federal Trade Commission Act

handle is hein.journals/glj70 and id is 235 raw text is: The Meaning of Unfair Acts or Practices in Section 5 of the Federal Trade Commission Act NEIL W. AVERITT* Responding to heavy criticism, the Federal Trade Commission recently sought to clarify the scope of its jurisdiction and enforcement powers over unfair or deceptive acts or practices. This clarfication came in theform of a Policy Statement that conveyed to members of the Sen- ate those criteria the Commission will consider when determining whether aparticular trade practice is unfair within thepurview of section 5 of the Federal Trade Commission Act. In this article Mr. Averitt ar- gues that the Commission-s recent Statement articulated for the first time a concept of consumer sovereignty--a right of consumers to be able to makefree andfully informed decisions in the marketlace-that has long been the unspoken basis of Commission decisions in this area. Mr. Averitt explores these decisions and examines in detail the Commis- sion's statement of unfairness criteria in the context of consumer sover- eignty He concludes by expounding a unified, market-oriented theory of section 5 that explains how the competition and consumer protection components combine to ensure that consumers have both a range of options from which to choose and also an ability to choose freely from among those options. The Federal Trade Commission is in the midst of a lively controversy over the proper scope of its consumer protection activities. The debate centers on section 5 of the Federal Trade Commission Act (FTC Act),I which authorizes the agency to correct unfair or deceptive acts or practices.'2 This statutory language gives the Commission substantial latitude in defining unfair con- sumer practic but the very breadth of the mandate has led to some uncer- tainty about its limits and its underlying principles. In recent years a number of critics have charged that the language was too broad to provide reasonably predictable legal standards or to confine the agency's activities within suitably narrow bounds.3 Last winter the Commission responded to this criticism by issuing a major policy statement that delineated the contours of its consumer * B.A., Harvard (1968); M.Sc., London School of Economics (1969); J.D., Harvard (1972). This article first appeared as an internal Federal Trade Commission staff paper in July 1980. The author is a member of the planning staff of the FTC's Bureau of Competition. He would like to express his thanks to Professors Teresa Schwartz and David Rice for their critical reviews, to Jim DeLong for his prior work in the area, to Nancy Warder for her analysis of the legislative history, to Robert Lande for many helpful insights on information disclosure in addition to his contribution to the final section, to Richard Craswell for carefully reading the early drafts, and to Tracy Westen for his overall guidance of the project. The opinions expressed in this article are solely the author's own, however, and do not neces- sarily reflect the view of the FTC or any individual Commissioner. 1. 15 U.S.C. §§ 41-58 (1976). 2. 15 U.S.C. § 45(a)(1) (1976). 3. See, e.g., Erxleben, The F C's Kaleidoscopic Unfairness Statute Section 5, 10 GONZ. L. REV. 333, 335 (1975) (FTC's unfairness power difficult to understand); Nelson, The Politicization of FTC Rulemaking, 8 CONN. L. REv. 413, 448 (1976) (FTC should follow stricter, more uniform rulemaking procedures); Schwartz, Regulating Unfair Practices Under the FTCAct: The Needjor a Legal Standard

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