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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