THE LAW OF DECEPTION: THE PAST
AS PROLOGUE
PATRICIA
P. BAILEY*
MICHAEL PERTSCHUK**
TABLE OF CONTENTS
Introduction ....................................................
I. Evolution of the New Standard ...........................
A. Genesis and Adoption of the New Standard ..........
B. Analysis of the New Standard .........................
1. Act or practice likely to mislead ...................
2. Reasonable consumer .............................
3. Materiality and detriment .........................
4. Effect on states ....................................
C. Relationship Between the Standards ..................
II. Historical Perspective .....................................
A. FTC Authority and Common Law ...................
B. Early FTC Practice ...................................
III. Analysis of Deceptive Acts or Practices ....................
A. Act or Practice That Has a Tendency or Capacity to
M islead ...............................................
B. Substantial Number of Consumers ....................
C. M ateriality ...........................................
Conclusion ......................................................
849
851
851
855
855
857
859
861
864
866
866
870
874
875
883
892
896
INTRODUCTION
The Federal Trade Commission (FTC or Commission) received authority to regulate deceptive trade practices through an amendment to
* Commissioner, Federal Trade Commission. B.A., 1959, Lindenwood College; M.A., 1960,
Fletcher School of Law and Diplomacy, Tufts University; J.D., 1976, Washington College of Law,
The American University.
** Commissioner, Federal Trade Commission. B.A., 1954, Yale College; LL.B., 1959, Yale
Law School.
The authors wish gratefully to acknowledge the considerable assistance of their attorney-advisors,
Marilyn Holmes and Cynthia Ingersoll, in preparing this Article, and William Bloss for his assistance in researching this Article.
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section 5 of the Federal Trade Commission Act' (the Act or the FTC
Act) forty-six years ago. 2 Congress granted the Commission the power
to regulate "unfair or deceptive acts or practices," 3 but did not define
the terms "unfair" or "deceptive" in the Act. The Commission and the
federal courts responded to Congress' broad grant of authority by forging an extensive body of case law. This body of law is based on the
Commission's definition of the term "deceptive," which provides that an
act or practice is deceptive if (1) it has the tendency or capacity to mis4
lead (2) a substantial number of consumers (3) in a material way.
Over the past four decades, the Commission's deception authority has
weathered many criticisms and suggestions for reform. A majority of
the Commission's members currently believe that Congress has granted
too much authority to the Commission and that judicial interpretation
of the term "deception" has been unclear. 5 These members urged Congress to adopt a narrower and more precise definition of "deceptive acts
or practices."'6 But Congress declined in this instance, as it had for fortysix years, to alter or limit the Commission's authority to protect against
deceptive acts or practices.
In a recent case 7 a majority of the FTC declined to apply the traditional test for deception and, instead, adopted a standard reminiscent of
the narrower definition proposed to Congress. The majority asserted
that an act or practice is deceptive if it (1) is likely to mislead consumers
(2) acting reasonably in the circumstances (3) to their detriment. 8 The
novel phrasing of this standard constitutes a departure from nearly fifty
1. 15 U.S.C. §§ 41-58 (1982).
2. Congress provided the Commission with specific authority to regulate deceptive trade
practices in the Wheeler-Lea Act of 1938, ch. 49, § 3, 52 Stat. 111, 111-14 (codified at 15 U.S.C.
§ 45 (1982)). See infra note 96 and accompanying text (discussing origins of FTC authority over
deceptive practices).
3. 15 U.S.C. § 45(a)(1) (1982).
4. Letter from Patricia P. Bailey and Michael Pertschuk, FTC Commissioners, to John D.
Dingell, Chairman, House Comm. on Energy and Commerce (Feb. 24, 1984) (providing statement
of law of deception). A substantial portion of this Article is based on the statement provided Rep.
Dingell on Feb. 24, 1984. See infra notes 114-235 and accompanying text (providing analysis of
current law of deception).
5. Chairman Miller specifically recommended that Congress define deception because "Congress, not an agency of unelected officials, is the proper body to determine the appropriate legal
standards." Letter from James C. Miller III, Chairman, FTC, to John D. Dingell, Chairman,
House Comm. on Energy and Commerce (Oct. 14, 1983), reprntedin 5 TRADE REG. REP. (CCH) 1
50,455, at 56,071 n.3 (1983) [hereinafter cited as Policy Statement]. [Ed. note: Commissioners Bailey and Pertschuk dissented from the issuance of the Policy Statement. Their dissenting statements
are reprinted in 5 TRADE REG. REP. (CCH) 1 50,455, at 56,079-86.] Chairman Miller stated that
the definition, should be "incorporated into our enabling legislation." Id
6. See infra notes 9-37 and accompanying text (tracing FTC efforts to adopt new standard).
7. Cliffdale Assocs., 3 TRADE REG. REP. (CCH) 22,137, at 22,949 (F.T.C. Mar. 28, 1984).
For a discussion of the standard the majority applied in CliJdaleAssos., see infra notes 38-62 and
accompanying text.
8. Cliffdale Assocs., 3 TRADE REG. REP. (CCH) 22,137, at 22,949 (F.T.C. Mar. 28, 1984);
see also Policy Statement, supra note 5, at 56,071-72.
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years of essentially consistent federal jurisprudence and raises many
questions and much uncertainty about the Commission's ability to prevent certain 'deceptive" trade practices. It also raises questions about
the ability of state law enforcement officials to enforce state deception
laws, many of which refer to the FTC Act and the Commission's
decisions.
This Article examines the new deception standard from two perspectives: as a device designed to narrow the FTC's traditional deception
authority (which appears to have been its initial purpose), and as a clarification of the traditional legal standard (which now appears to be its
goal). First, we review the genesis of the proposal to adopt a new standard of deception based on common-law principles and demonstrate
how the standard, as it is currently phrased, is unsupported by case law
and represents poor public policy. We also consider the adverse effects
that a reversion to the common law would have on the states. Because
the wording of the new standard may not reflect its proponents' intentions, we then examine the conceptual similarities between the new and
the traditional elements of deception law. The Article then presents an
overview of the law of deception as it developed at common law, as
Congress intended it to operate at the FTC, and as the Commission
interpreted it in early decisions. Finally, the Article presents an analysis
of the law of deception as the FTC has traditionally defined it.
To the extent that the new standard departs from existing law, it is
unsupported by either case precedent or legislative intent and, we believe, represents bad law and bad policy. If, instead, the new standard
attempts to rearticulate traditional law, its contradictory phrasing requires clarification to establish precisely what the law is. The new standard's novel wording may inhibit the Commissioners' common goal of
bringing consistency and predictability to the enforcement of the law
against deceptive practices. The purpose of this Article is to reduce the
confusion and uncertainty resulting from the majority's adoption of new
language to describe deception. Accordingly, we offer this analysis as a
comprehensive statement of the law of deception.
I.
EVOLUTION OF THE NEW STANDARD
A.
Genesis and Adoption of the New Standard
When the FTC's Chairman first proposed to change section 5 of the
Act by defining "deception," he offered the definition to "reduce the
uncertainty that attends the present broad discretion in the Commission's statute." 9 The proposed definition of deception was "an act or
9.
Federal Trade Comm'n Reauthorization,Hearings Before the Subcomm. on Commerce, Transportation,
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practice [that] would deceive a reasonable person to their [sic] detriment
or a statement that the perpetrator knew or should have known was
misleading."' 0
An FTC staff memorandum that accompanied the 1982 proposal
analysed the proposal at length." According to the memorandum, the
"reasonableness" requirement represented a policy determination 12 that
the FTC should return to the common-law rule that "unreasonable interpretations would not be actionable"' 3 because the Commission
"should allocate.
resources only to cases in which consumers have
been hurt-by spending money, or using time .... ,,14 Relying heavily
.
.
on common-law concepts,' 5 the staff memorandum rejected the "sweeping" interpretation of section 5 that the Commission was following
and Tourism of the House Comm.on Energy and Commerce, 97th Cong., 2d Sess. 8 (1982) (statement of
James C. Miller III, Chairman, FTC) [hereinafter cited as 1982 House Hearings]. In support of his
proposed amendment to § 5, Chairman Miller noted that currently the Commission need not interpret an advertisement's claim the same way that a reasonable person would nor accept extrinsic
evidence of an advertisement's meaning. Chairman Miller also suggested that the Commission's
standard-that an act have the "tendency or capacity to deceive"-is circular. Within this broad
standard an act is deceptive if the Commission, in its own judgment, merely believes the act has a
tendency or capacity to deceive. Id;see also 1982 House Hearings,supra, at 32, 35 (reprinting Memorandum from Timothy J. Muris, Director, Bureau of Consumer Protection, to Chairman James C.
Miller III (Mar. 25, 1982)) ("under long-established doctrine" Commission need only prove tendency or capacity to deceive); Miller, Why FTC Curbs Needed,ADVERTISING AGE, Mar. 22, 1982, at
3, 83 (tendency or capacity standard too broad). The Chairman's written testimony asserted that
under current law "[s]omething is deceptive if three Commissioners, acting on their own judgment,
without any extrinsic evidence of an ad's meaning, believe that it has a tendency [or] capacity to
deceive." 1982 House Hearings, supra, at 25 (written statement of James C. Miller III, Chairman,
FTC). The majority has frequently criticized the traditional test as "circular," but has never clarified why the standard "tendency to mislead" is more "circular" than "likely to mislead."
10. 1982 House Hearings,supra note 9, at 8 (statement of James C. Miller III, Chairman, FTC);
see also id at 12-13, 26 (written statement of James C. Miller III, Chairman, FTC) ("We propose
that an act or practice is deceptive--as a legal standard-if it would mislead consumers, acting
reasonably in the circumstances, to their detriment.").
11. Id. at 32-60 (reprinting Memorandum from Timothy J. Muris to Chairman James C.
Miller III (Mar. 25, 1982)).
12. Id at 9 (written statement of James C. Miller III, Chairman, FTC) (reasonableness standard is "sound public policy").
13. Id; see also infra notes 84-94 and accompanying text (discussing standard at common law).
14. 1982 House Hearings, supranote 9, at 30 (written statement of James C. Miller III, Chairman, FTC). In hearings before the Senate Committee on Commerce, Science, and Transportation
in March 1982, Chairman Miller distinguished between the materiality requirement in FTC practice and the injury requirement under the common law:
[Tihe Commission has pursued claims that lead to no significant injury. While the Commission must find that an advertising claim is material before it can find the claim deceptive, a claim is material if it affects any behavior. The Commission can find that there is
an effect on behavior on the basis of its own expertise without any evidence at all.
The result is that the Commission brings cases where the injury to consumers, if any, is
trivial.
Reauthorizationofthe FTC.- HearingsBefore the Senate Comm. on Commerce, Science, and Transportation, 97th
Cong., 2d Sess. 12 (1982) (statement of James C. Miller III, Chairman, FTC). Chairman Miller
noted that he saw "no reason to spend taxpayers' dollars unless consumers will be injured." Id at 8.
15. 1982 House Hearings,supranote 9, at 40 (reprinting Memorandum of Timothy J. Muris to
Chairman James C. Miller III (Mar. 25, 1982)). Several of the memorandum's proposals were
based on the requirements of common-law misrepresentation actions. For example, the memorandum stated that "[a]t common law, a claim for deception would lie only for reasonable interpreta-
1984]
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under the traditional standard.' 6 Congress did not accept the 1982
proposal.
In the 1983 congressional hearings concerning reauthorization of the
FTC, the Commission's Chairman again urged Congress to define "deception," stating that, despite forty-five years of interpretation, the definition of deception had remained unclear.' 7 The new proposal would
have defined "[d]eception [as] a material misrepresentation that is likely
to mislead consumers acting reasonably in the circumstances to their
detriment or that the misrepresentor knew or should have known would
be misleading."' 8 The 1982 proposal emphasized that "there should be
evidence that consumers are indeed injured"' 9 before a practice is challenged, and the proposal renewed the request for a requirement that
consumers have acted reasonably in order to gain FTC protection. 20
The conflict within the FTC over the definition of "deception" led the
House Committee on Energy and Commerce to request a statement of
the FTC's deception law as it had been historically applied. 2' In response, the new standard was enunciated in a letter to the House Committee ("Policy Statement") released in October 1983.22 The Policy
Statement set out three elements that purportedly "undergird" deception cases:2 3 "First, there must be a representation, omission, or practice
that is likely to mislead the consumer. . . second,. . . the practice [must
be examined] from the perspective of a consumer acting reasonably in
tions of the seller's claims." Furthermore, the memorandum recognized that reasonableness was
not the standard under FTC practice. Id
Other unfavorable comparisons between the common law and trade regulation law were made in
the memorandum. See, e.g., id at 49 ("although a puffery defense exists at the FTC, as applied itis
much more limited than the common law fact/opinion distinction."); id at 53 (comparing materiality and injury concept at common law and in FTC practice).
16. Id at 34. The memorandum's objection to the FTC's broad authority apparently reflects
the FTC staff's view that the Commission's discretion is too broad and does not reflect a perception
that the Commission has actually abused its authority in any particular decision. Id at 34-37
(discussing -recent examples of the expansive sweep" of deception but citing no adjudicated cases).
17. Federal Trade Comm "nReauthornzatzon-1983,HearingsBefore the Subcomm. on Commerce, Transportation, and Tourism ofthe House Comm. on Energy and Commerce, 98th Cong., 1st Sess. 16 (1983) (state-
ment of James C. Miller III, Chairman, FTC).
18. Id at 6. Chairman Miller called this proposal "the same definition I recommended last
year." Id
19. See id at 16; see also id at 84 (statement of George W. Douglas, Commissioner, FTC) (FTC
Act should require Commission "to find economic injury to consumers before proceeding").
20. Id at 16 (statement of James C. Miller III, Chairman, FTC). Commissioner Clanton's
testimony highlighted the difference between the traditional test and the Chairman's proposal. Id
at 83 (statement of David A. Clanton, Commissioner, FTC). Commissioner Clanton stated that
"the standard today in the law is [that the] interpretation [must] be reasonable" in order to find a
violation of § 5. Id Chairman Miller's proposed amendment, which Commissioner Clanton
termed "fairly close to what the standard is in existing case law," refers to whether "consumers [are]
acting reasonably in the circumstances." Id
21. H.R. RE'. No. 156, 98th Cong., IstSess. 6 (1983); see also S. REP. No. 451, 97th Cong., 2d
Sess. 16 (1982).
22.
23.
Policy Statement, supra note 5.
Id at 56,071.
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the circumstances . . . third, the representation, omission, or practice
must be a 'material' one. ....*24
Chairman John D. Dingell of the House Committee rejected the
statement, claiming that it was "not responsive" to the Committee's request. 25 In the 1984 congressional oversight hearings, 26 however, supporters of the new standard continued to adhere to it and defend it as a
clarification of the traditional FTC standard. 27 The Commission's
Chairman testified in support of the new standard, stating that the
"likely to mislead" language is "more informative" than-but no different from-the "tendency or capacity to deceive" standard. 2 The "reasonable consumer standard" was characterized as only a requirement
that the Commission interpret advertisements as ordinary consumers
do. 29 Finally, the Chairman asserted that "if there is a finding of materiality, no futher showing of injury, or detriment, is required. '30 Despite
24. Id at 56,071-72. The majority, synthesizing the test, stated that "the Commission will
find deception if there is a representation, omission or practice that is likely to mislead the consumer acting reasonably in the circumstances, to the consumer's detriment." Id at 56,072. This
language is virtually identical to that of the legislative proposals previously offered to Congress.
25. Letter from Chairman John D. Dingell to Chairman James C. Miller III (Oct. 25, 1983),
repnnted in 5 TRADE REG. REP. (CCH) 50,455, at 56,086. The letter stated in part:
We requested a disciplined, in-depth review of what decades of case law stand for, and of
the nature and amount of evidence of deception considered by the Commission during
fifty years of litigation in the public interest. What you delivered is a document that
addresses not what the Commission's deception jurisdiction is, but what some now at the
agency want it to be.
Id Consequently, Chairman Dingell requested a more responsive analysis of FTC practice. The
full Commission declined to provide one; however, Commissioners Bailey and Pertschuk responded
with a comprehensive analysis of the law of deception. See supra note 4.
26. The Subcommittee on Oversight and Investigations of the House Comm. on Energy and
Commerce conducted the hearings on March 26, 1984. See 130 CONG. RE. D366 (daily ed. Mar.
26, 1984) (transcript of testimony unavailable at time of publication).
27. Heanngs Before the Subcomm. on Oversight and Investigations of the House Comm. on Energy and
Commerce, 98th Cong., 2d Sess. 2 (1984) (statement of James C. Miller III, Chairman, FTC).
28. Id at 8-9. Chairman Miller criticized the "tendency or capacity" test as "no more than a
tautology." Id at 9. He also objected to the tendency or capacity test because it "is so broad it
permits the Commission to challenge virtually every commercial practice-even practices we all
now agree are entirely proper." Id at 13. These accusations fail to recognize that the "tendency or
capacity" element does not operate independently but works in conjunction with the limitations
contained in the remaining elements.
29. Id at 9. Chairman Miller also criticized the substantial numbers test, claiming that "such
a test would prevent the Commission from bringing some important cases we are now permitted to
bring." Id at 11. Chairman Miller argued that the substantial numbers test would allow "the most
blatant fraud . . . as long as the perpetrator only exploits a few people at a time." Id This criticism misperceives the substantial numbers requirement, which states only that a substantial
number of consumers must be capable of being misled by the practice if they were exposed to it. If
someone defrauds only a few people, but his or her actions could deceive more had the actions been
more widespread, the substantial numbers element is satisfied. On the other hand, the requirement
that the FTC must act in the public interest may prevent the Commission from enforcing essentially private rights as when only a few individuals have been deceived.
30. Id at 12. Chairman Miller testified that the third element of the new standard, materiality, was identical to the phrase "to the consumer's detrimental reliance" in the Policy Statement.
Id Under the new standard "the Commission need not wait until consumers have suffered actual
injury before it acts." Id
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the new standard's similarity to the previously rejected legislative proposals, proponents denied that they were attempting to accomplish by
administrative fiat what Congress had declined to do.3 '
In a recent section 5 case, Clftdale Associates, Inc.,32 a majority of the
current Commissioners applied the newly phrased deception standard
that had been proposed in the Policy Statement. 33 In so doing, the majority seemingly rejected the established rule that an act or practice is
deceptive if it has a tendency or capacity to deceive a substantial
number of consumers in a material way. 34 The explanations offered for
the new language, however, correspond closely to the concepts underlying the traditional standard: actual deception need not be shown, 35
misled, 36 and materialmore than a few consumers potentially must 3be
7
ity does not require that actual injury occur.
B. Analysis of the New Standard
1. Act or practice likely to mislead
The majority in Clifdale stated that the "likely to mislead" language
of the new standard was based on the traditional principle that a viola38
tion of section 5 need not be premised on a finding of actual deception.
It is true that actual deception of consumers is not required to find a
31. Id at 6-7. Chairman Miller advanced the following argument:
Mr. Chairman [Rep. John D. Dingell], some have argued that the policy statement represents an attempt to change the law of deception because the summary language included
in the statement is so similar to the statutory definition of deception I proposed in early
1982. But why should anyone take this argument seriously? Should it come as any surprise that the statutory definition I proposed tracked reasonably closely with the current
law of deception?
Id The statement added that an "evolutionary process" was the cause of the similarity of the
standards. Id at 7.
32. 3 TRADE REG. REP. (CCH) 1 22,137, at 22, 947 (F.T.C. Mar. 28, 1984) (Bailey, Comm.,
and Pertschuk, Comm., concurring in part and dissenting in part).
33. Id (majority opinion). Chairman Miller wrote the opinion in Cliffdale and was joined in
the opinion by Commissioners Douglas and Calvani. The standard set out in Clt dale is somewhat
different from the standard set out in the Policy Statement. In Cliffdale, the majority stated: "[Tihe
Commission will find an act or practice deceptive if, first, there is a representation, omission, or
practice that, second, is likely to mislead consumers acting reasonably under the circumstances, and
third, the representation, omission, or practice is material." Id at 22,949. The test established in
ClffTdal¢e combined the first and second prong of the test enunciated in the Policy Statement, see
supra text accompanying note 24, and established the additional requirement that there must be a
representation. This Article will concentrate on the analysis advanced in the Policy Statement,
which the majority appended to the decision in Cliffdal, and which is the majority's most complete
articulation of the new standard.
34. Cliffdale Assocs., 3 TRADE REG. REP. (CCH) 1 22,137, at 22,949 (F.T.C. Mar. 28, 1984).
The majority in Chiftale criticized the traditional standard: "We find this approach to deception
. . . to be circular and therefore inadequate to provide guidance on how a deception claim should
be analyzed." Id
35. Id at 22,949-50.
36. Id at 22,950.
37. Id at 22,950 & n.ll.
38. Id at 22,949-50.
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violation of section 5.39 The Policy Statement's use of the phrase "likely
to mislead," however, is not supported by the majority of cases interpreting section 5. To buttress its conclusion that "likely to mislead" is
the proper legal standard, the Policy Statement cited only one authority 4Q-a case that used the "likely to mislead" and "tendency or capacity to deceive" standards interchangeably with no indication that it was
abandoning the traditional standard for deception. 41 In most cases
where the "likely to mislead" language is used, it appears to be no more
than an alternate articulation of the traditional requirement.
Neither the new standard nor the traditional FTC standard requires
proof of actual consumer deception. Reviewing courts and businesses
may, however, perceive a difference between the two standards because
an act might be found "capable" of misleading consumers even though
deception was not "more likely than not" or the "probable result" of the
act. The fine distinctions between "capable of misleading" and "likely
to mislead" are problematic: reviewing courts and companies defending
against FTC action could easily interpret the new standard as limiting
the Commission's authority over deceptive practices. In addition, the
"likely to mislead" standard, as used in the proposed new definition, is
similar to the common-law standard 42 under which no violation would
be found unless deception was at least "probable." This interpretation
of the new definition runs contrary to congressional intent that the
Commission be free of common-law restrictions in enforcing the law
39. See :iranotes 117-20 and accompanying text (discussing tendency or capacity to mislead
standard).
40. Policy Statement, supra note 5, at 56,072 n.6. The Policy Statement relied on Beneficial
Corp. v. FTC, 542 F.2d 611 (3d Cir. 1976), cert. denied, 430 U.S. 983 (1977).
41. The court in Benefxial stated that "the likelihood or propensity of deception is the criterion by which advertising is measured." Beneficial Corp. v. FTC, 542 F.2d 611, 617 (3d Cir. 1976),
cert. denied, 430 U.S. 983 (1977). A careful reading of Benefxia, however, indicates that the court was
using the "likelihood" standard interchangeably with the "tendency or capacity" standard, perhaps
to avoid repetition. See id For example, directly after stating that "likelihood or propensity" was
the "criterion," the court stated that "[w]hether particular advertising has a tendency to deceive or
mislead is obviously an impressionistic determination more closely akin to a finding of fact than to
a conclusion of law." Id (emphasis added). The court also stated that "the Commission's finding
that even the later advertising had a tendency to deceive or mislead has a sufficient evidentiary
support in the record as a whole." Id at 618.
Moreover, the four cases on which the court in Beneftialrelied did not apply a "likely to deceive"
standard. See Resort Car Rental Sys., Inc. v. FTC, 518 F.2d 962, 964 (9th Cir.) (FTC "has the
expertise to determine whether advertisements have the capact, to deceive or mislead the public")
(emphasis added), cert. denied,423 U.S. 827 (1975); Montgomery Ward & Co. v. FTC, 379 F.2d 666,
670 (7th Cir. 1967) ("the likelihood of deception or the capacity to deceive is the criterion by which
the advertising isjudged") (emphasis added); Bankers Sec. Corp. v. FTC, 297 F.2d 403, 404-05 (3d
Cir. 1961) (applied neither "likelihood" nor "tendency or capacity" standard in affirming Commission finding of deception); Feil v. FTC, 285 F.2d 879, 897 (9th Cir. 1960) (court did not question
FTC's use of the tendency or capacity to deceive standard).
42. See infra notes 85-94 and accompanying text (discussing common law standard).
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against deception.4 3 Because these issues create confusion about the
meaning of the new language, the standard could further complicate
rather than clarify the law.
2. Reasonable consumer
Under the new standard, section 5 would not be violated unless a
consumer's interpretation of an advertiser's claim were "reasonable"
under the circumstances. 44 This element also misstates the law. Although the Commission may decline to find a violation of section 5 if consumers were acting unreasonably, 45 there is no authority for the new
standard's proposition that the Commission may not find a violation of
section 5 unless consumers were acting reasonably. 46 Existing case law
almost universally focuses on the reasonableness of the Commzsion s interpretation of an act or practice.
Although some cases have described how consumers could reasonably
have interpreted an advertisement as making a misleading claim, these
cases have done so only to illustrate the deceptive nature of the claim
and not to suggest that such a showing is necessary to a finding of deception. 4 7 Other cases cited in the Policy Statement to support a "reason48
able consumer" requirement are equally inapposite.
43. See infa notes 81-83 and accompanying text (discussing congressional intent in granting
Commission broad powers).
44. Policy Statement, supra note 5, at 56,074.
45. In several recent cases the Commission has based determinations of § 5 violations on findings that reasonableconsumers could be misled by the challenged practice. See, e.g., American Home
Prods. Corp., 98 F.T.C. 136, 372, 386 & n.52 (1981), afd,695 F.2d 681 (3d Cir. 1982); Bristol-Myers
Co., 102 F.T.C. 21, 320 (1983), afld, 738 F.2d 554 (2d Cir. 1984); Sterling Drug, Inc., 3 TRADE REG.
REP. (CCH) 22,124, at 22,910, 22,914 (F.T.C. July 5, 1983), appealdocketed, No. 83-7700 (9th Cir.
Sept. 12, 1983). These cases do not, however, stand for the proposition that a consumer must act
reasonably to be protected by the FTC Act.
46. Under current law, the Commission reasonably interprets whether an advertisement is
capable of deceiving a substantial number of consumers. See infra
notes 150-88 and accompanying
text. Under neither standard do the misunderstandings of fewer than a substantial number of
consumers trigger § 5 liability.
47. For example, the Policy Statement cites National Dynamics Corp., 82 F.T.C. 488 (1973),
afd, 492 F.2d 1333 (2d Cir.), cerL denied, 419 U.S. 993 (1974), reissued, 85 F.T.C. 391 (1976), and
quotes the following sentence from the opinion: "The test applied by the Commission is whether
the interpretation is reasonable in light of the claims made in the advertisement." Policy Statement,
supra note 5, at 56,074 n.23 (citing National Dynamics Corp., 82 F.T.C. at 548). The quoted sentence, however, is part of a three-sentence paragraph under the heading "Commission Expertise,"
and refers to the requirement that the Commission act reasonably in interpreting an advertisement
without consumer testimony. National Dynamics Corp., 82 F.T.C. at 548. The Policy Statement
cites to but does not quote the initial decision in National Dynami Corp. Policy Statement, supra
note 5, at 56,074 n.23 (citing National Dynamics Corp., 82 F.T.C. at 524). The initial decision
stated that "[t]he inference drawn [by the Commission] must be one that is reasonably implied; it
may not be arbitrary." National Dynamics Corp., 82 F.T.C. at 524. Reference to the initial decision makes clear that the court in National Dynamics Corp. held that the Commission, not the consumers, must make a reasonable interpretation of advertisements to find a § 5 violation.
48. The Policy Statement claims, for example, that Chrysler Corp., 87 F.T.C. 719 (1976), aff'd,
561 F.2d 357 (D.C. Cir.), reissued,90 F.T.C. 606 (1977), stands for the proposition that "[w]hen a
seller's representation conveys more than one meaning to reasonable consumers, one of which is
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The principal danger of a "reasonable consumer" requirement lies in
its potential to inhibit the FTC's enforcement of the law to protect those
most in need of protection. For example, if this element were to require
the Commission to find that consumers acting "reasonably" were misled, as it clearly states, it could undermine the Commission's ability to
protect vulnerable or unsophisticated consumers whose conduct was arguably not reasonable. 49 It is rarely reasonable, for example, to buy
undeveloped land sight unseen, regardless of the representations that are
made. 50 In addition, "reasonable persons" are unlikely to spend money
on "miracle" products that promise of quick weight loss or baldness
cures. The Commission would be substantially limited in its ability to
protect the public if it were precluded from action in circumstances
where buyers were not wary.
Despite the clear "reasonable consumer action" language of this element, recent commentaries by the new standard's proponents have explained this language to mean only that consumers must act reasonably
in interpretinga particular representation and not in deciding whether to
act in reliance on the representation. This explanation appears to igfalse, the seller is liable for the misleading interpretation." Policy Statement, supranote 5, at 56,074
(citing Chrysler Corp., 87 F.T.C. at 749). In fact, the reasonableness of consumers' actions was not
the standard applied in Chrysler Corp. Rather, the Commission found that the advertisements might
deceive a "substantial number of consumers." Chrysler Corp., 87 F.T.C. at 749. The Commission
in Choysler Corp. applied the traditional standard and stated that "[i]t is a well settled principle that
advertisements may be deceptive if they have a tendency and capacity to convey misleading impressions to consumers even though nonmisleading interpretations may also be possible." Id at
749-50 n.36.
The Policy Statement cites Litton Indus., Inc., 97 F.T.C. 1, 71 n.6 (1981), modiftd, 676 F.2d 364
(9th Cir. 1982) for the proposition that "accurate information in the text may not remedy a false
headline because reasonable consumers may glance only at the headline." Policy Statement, supra
note 5, at 56,075-76, 56,076 n.33. In fact, the Commission did not discuss whether "reasonable"
consumers would be deceived. See Litton Indus.,-Inc., 97 F.T.C. at 70-72. The administrative law
judge in Litton found that the challenged representations could deceive "some readers" or "a substantial number of readers." Id at 40, 47.
49. Recent formulations of the new standard suggest that the reasonableness issue applies
only to consumers' interpretations of a representation. Although under the traditional standard or
the most recent version of the new standard the consumer-and the Commission-must interpret
an advertisement reasonably, see infla notes 72-80 and accompanying text, only under the traditional standard may the consumer be trusting and not act reasonably or carefully in making the
purchase. Compare infra notes 114-235 and accompanying text (traditional standard) with supra
notes 44-46 and accompanying text (new standard).
50. See, e.g., AMREP Corp., 102 F.T.C. 1362 (1983), appealft/ed,No. 84-1434 (10th Cir. Apr. 2,
1984); Horizon Corp., 97 F.T.C. 464 (1981). In AMREP Corp., the seller offered undeveloped land
in New Mexico and other states as investment property, and made numerous misrepresentations
about the investment value of the land. AMREP Corp., 102 F.T.C. 1362, 1640-46. Over 75,000
lots were sold in one development alone, for average prices of $3232 to $4899. Id at 1644. Most
consumers purchased the properties sight unseen, after a "carefully staged sales presentation [that]
generated such excitement that many consumers would sign contracts to buy lots .. " Id at
1622. Similarly, in Horizon Corp., consumers bought land in Texas and other states based on sales
presentations at dinner parties and in-home solicitation. Horizon Corp., 97 F.T.C. at 807.
In the future, companies may be expected to argue that a reasonab/e person would not have
bought the product, een as misrepresented This approach could leave a substantial segment of the
populace-those who are not careful and reasonable---"fair game" for misrepresentations.
1984]
THE LAW OF DECEPTION
nore the Commission's traditional expertise to determine whether advertising practices are deceptive 51 and, besides running the risk that the
Commission will fail to meet this altered burden of proof, portends some
adverse practical results. For example, shifting the focus from the reasonableness of Commission action to the reasonableness of consumers
raises the formidable challenge of defining the attributes of a "reasonable consumer." Because no precise definition exists, the term may be
subject to scrutiny on a case-by-case basis, thereby providing an open
invitation to defendants to further complicate Commission proceedings
by litigating the issue of whether consumers' actions were "reasonable,"
52
through the use of expert testimony and surveys of consumer beliefs.
As litigation focuses more on the details, methodology, and results of
consumer surveys, discovery and hearings could become excessively protracted. Clarity and certainty may very well become the victims in this
circumstance.
3. Materiality and detriment
With respect to the third element of deception, the Policy Statement
states that the Commission will not find that a representation violates
section 5 unless the representation is "material. '5 3 Under both the Policy Statement and the traditional standard, a misrepresentation is material if it "is likely to affect a consumer's choice of or conduct regarding a
product. In other words, information that is important to consumers is
54
material."
The Policy Statement, however, uses the terms "injury" and "detri51. See incfa
notes 143-49 and accompanying text (discussing FTC expertise over deceptive
practices).
52. In Cliffdale Assocs., 3 TADE REG. REP. (CCH) 22,137, at 22,947 (F.T.C. Mar. 28,
1984), the majority applied the reasonable consumer test and observed that "[e]vidence as to how
consumers actually interpreted these advertisements was not introduced into the record." Id at
22,951 n.17. Extrinsic evidence of consumers' beliefs, however, has never been a requirement of
finding § 5 liability. Se infra
notes 143-49 and accompanying text. Cliffdale Assocs. was an uncomplicated § 5 action concerning the misrepresentation of an automobile engine device represented to
save fuel. Despite the simplicity of the claim, the majority stated that extrinsic evidence of consumers' interpretations "would have been useful." Cliffdale Assoc., 3 TRADE REG. REP. (CCH) 22,
137 at 22,951 n.17. If the Commission requires extrinsic evidence even in uncomplicated § 5 cases
involving simple "false" claims, id at 22,952, delayed adjudications and more costly proceedings
can be expected.
Also, the Policy Statement does not indicate how many consumers must be deceived for their
actions to be considered reasonable: if a survey indicated that one-third of the consuming public
misinterpreted the challenged advertisement, but two-thirds did not, the reasonableness of the minority's interpretation would presumably be a material issue of fact.
53. Policy Statement, supra note 5, at 56,072 ("representation, omission or practice must be a
material one for deception to occur").
54. Id. at 56,077-78; see infra notes 190-235 and accompanying text (discussing traditional
standard).
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[Vol. 33:849
ment" to amplify the concept of materiality. 55 These terms are similar to
the requirement for a finding of deceit at common law.56 In FTC prac-
tice the actual injury requirement has been eliminated. The Commission has never required a showing that consumers suffered injury or
detriment, or were likely to do so, in order to find a violation of section
5.57 Moreover, such a showing would be difficult to make in many
58
cases.
The Policy Statement cites no legal authority for its contention that
"injury and materiality are different names for the same concept. '59 In
55.
Policy Statement, supranote 5, at 56,078. The Policy Statement contains a curious para-
graph, seemingly unconnected with the rest of the discussion on materiality, that states in full:
A finding of materiality is also a finding that injury is likely to exist because of the representation, omission, sales practice, or marketing technique. Injury to consumers can take
many forms. Injury exists if consumers would have chosen differently but for the deception. If different choices are likely, the claim is material, and injury is likely as well. Thus,
injury and materiality are different names for the same concept.
[d at 56,079. No legal authorities are cited. The relevance of the equation of materiality and
injury is not apparent until the conclusion of the Policy Statement, which states that an act is not
deceptive unless it "misleads the consumer acting reasonably in the circumstances to the consumer's
detriment." Id Apparently, the Policy Statement links the concepts of materiality, injury, and
detriment. The reason for this may not be obvious without an examination of earlier proposals for
a limitation on the Commission's § 5 authority. See supra notes 14-19 and accompanying text (suggesting that showing of actual consumer injury, in tort law sense, required for finding of violation).
56. See infra note 85 (listing elements of common law deceit action).
57. See Resort Car Rental Sys., Inc. v. FTC, 518 F.2d 962, 964 (9th Cir.) (need not show
actual damage or actual deception), cert. denied,423 U.S. 827 (1975); in/a notes 117-20 and accompanying text (discussing tendency or likely to deceive standard).
An FTC staff memorandum stated that "[tihe key element of likely injury has been largely eliminated from FTC law." 1982 House Hearings,supra note 9, at 53 (reprinting Memorandum from
Timothy J. Muris to Chairman James C. Miller III, Mar. 25, 1982).
58. Many acts or practices that the Commission challenges cause clear and concrete injury to
consumers. See, e.g., AMREP Corp., 102 F.T.C. 1362, 1638 (1983) (land sold by misrepresentations
for price four times market value), appealfed,No. 84-1434 (10th Cir. Apr. 2, 1984); Horizon Corp.,
97 F.T.C. 484, 819 (1981) (sale of undeveloped land as investment property had no short-term
value); Travel King, Inc., 86 F.T.C. 715, 760 (1975) (psychic surgery hoax led seriously ill individuals to travel great distances and to pay up to $1200); Leon A. Tashof, 74 F.T.C. 1361, 1406-07, 1407
n.37 (1968) (buyers paid up to 700% over prevailing market prices after misrepresentations of easy
credit terms), af'd, 437 F.2d 707 (D.C. Cir. 1970).
Other acts and practices, however, may involve consumer injury that is less apparent, difficult to
prove, or not yet present. For example, an advertiser must have substantiation for product performance claims. See in/a note 223 and accompanying text. If an advertiser has made an unsubstantiated claim, but the product is in fact as advertised, then the advertiser has violated the
traditional § 5 standard. Under the new standard, liability might be uncertain because the consumer does not necessarily suffer economic loss from unsubstantiated claims. Similarly, misrepresentations employed to sell products may not be considered to cause injury or detriment if the
products are actually worth the price paid. Such misrepresentations, if they are material, would
violate the existing standard.
59. Policy Statement, supra note 5, at 56,079. Much of the Policy Statement's discussion on
the materiality issue reflects actual Commission standards, notably that the Commission considers
express claims presumptively material. Id at 56,078. The lack of authority for the Policy Statement's conclusion that injury and materiality are identical in Commission cases is obvious: "The
key element of likely injury has been largely eliminated from FTC law." 1982 House Hearings,supra
note 9, at 53 (reprinting Memorandum from Timothy J. Muris to Chairman James C. Miller III,
Mar. 25, 1982).
The concept of "materiality" in FTC practice is not identical to the concept of "injury" under
the common law. A practice is material under FTC law if it is "important" to consumers. Se supra
1984]
THE LAW OF DECEPTION
fact, the concepts of injury and materiality were not identical either at
common law or in prior FTC practice. A common law deceit action
required both that a material fact be misrepresented 6" and that the consumer sustain actual economic injury. 61 These are entirely separate requirements, and their equation in the Policy Statement raises
uncertainty with respect to the FTC's authority to enter cease and desist
orders without having to prove consumer injury. A requirement of actual or likely injury could preclude the Commission from preventing
injury before it occurs. Moreover, such a requirement casts doubt on
the Commission's ability to bring certain actions and ensures confusion
62
and complication in those cases litigated under the new standard.
4. Efect on states
The development of the federal law of deception has been accompanied in recent years by extensive consumer protection activity in the
states. 63 All fifty states and the District of Columbia have enacted some
note 54 and accompanying text. A party is liable for common law deceit, however, only when the
representation is "material" and the complaining party has suffered "actual damage." In other
words, "unless the plaintiff can show an actual pecuniary loss, he can recover nothing." 1 F.
HARPER & F. JAMES, THE LAw OF TORTS § 7.15, at 590 (1956). Materiality and injury are also
not synonymous in FTC practice or under the common law. See generall id §§ 7.9 (materiality
required in deceit actions), 7.15 (actual injury or damages required in deceit action).
60. See I F. HARPER & F. JAMES, supranote 59, §§ 7.8-.9, 7.15 (fraudulent misrepresentation
not actionable if misrepresented fact not material); see also W. PROSSER, LAW OF TORTS § 108, at
718-19 (4th ed. 1971) (fact represented must be material for deceit action to be maintained so as to
promote stability in commercial transactions).
61. As Prosser explained, "the modem action of deceit is a descendant of the older action on
the case, [therefore) it carries over the requirement that the plaintiff must have suffered substantial
damage before the cause of action can arise." W. PROSSER, supra note 60, § 110, at 731. Actual
economic damage or injury is an element of common law deceit and, therefore, nominal damages
cannot be awarded in a deceit action because the elements of the cause of action require injury. I
F. HARPER & F. JAMES, supra note 59, § 7.15, at 590-91.
62. Seesupranotes 49 & 50 and accompanying text (discussing effect of new standard on FTC
practice).
63. State laws to prevent deceptive advertising were first enacted in the early 1900's. A model
statute drafted in 1911 led to the adoption in various states of "Printers Ink Laws" which outlawed
false, deceptive, and misleading advertisements. BLAcK's LAW DIcarIONARY 1074 (5th ed. 1979).
In the early 1960's increased interest in consumer affairs encouraged many states to enact "Little
FTC Acts" patterned on the FTC Act. The state acts were necessary because at that time § 5 of the
FTC Act applied only to "unfair or deceptive acts or practices in commerce ... " 15 U.S.C.
§ 45(a)(1) (1971) (amended 1975). Because of the "in commerce" requirement of the FTC Act, the
Commission did not have the power to regulate intrastate transactions even when interstate competitors were affected. See FTC v. Bunte Bros., Inc., 312 U.S. 349, 351-53 (1941) (Commission limited to acts in interstate commerce). But see Guziak v. FTC, 361 F.2d 700, 703 (8th Cir. 1966)
(minimal level of interstate activity subjects party to FTC Act). Section 5(a)(1) of the FTC Act
currently reaches "unfair or deceptive acts or practices in or afecting commerce," 15 U.S.C.
§ 45(a)(1) (1982)(emphasis added). In 1966 the Commission attempted to encourage states to enact
uniform deceptive advertising laws modeled on § 5 of the FTC Act. The Commission acted in
response to the urging of business organizations faced with possible variations in standards from
state to state, and consumer organizations that recognized the FTC's inability to reach trade practices not "incommerce." See News Release, FTC Proposes that States Enact Laws to Prevent Consumer Deception and Unfair Competitive Practices, Also to Regulate Hearing Aid Dealers and
Correspondence Schools (July 7, 1966) [hereinafter cited as 1966 News Release].
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THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 33:849
form of statute regulating deceptive acts and practices. 64 Many of these
state statutes parallel the FTC Act, and many state courts have drawn
on federal jurisprudence in deciding lawsuits brought pursuant to these
statutes. 6 5 Indeed, many states adopted provisions at the Commission's
urging6 6 that direct the state courts to the Commission's decisions and
policies for guidance6 7 or exempt from state regulation practices found
unlawful under the FTC Act. 68 This has resulted in the integration of
64. SeeJ. SHELDON & G. ZWEIBEL, SURVEY OF CONSUMER FRAUD LAW 121-22 (1978) (summarizing provisions in 49 states and District of Columbia). In 1981 Alabama became the 50th state
to enact a "Little FTC Act." See ALA. CODE §§ 8-19-1 to -15 (Supp. 1983).
65. See Leaffer & Lipson, ConsumerActions Against Unfairor Deceptive Acts or Practices: The Private
Uses of Federal Trade CommissionJurisprudence,48 GEO. WASH. L. REV. 521, 533 (1980).
66. Letter from Paul Rand Dixon, Chairman, FTC, to William D. Carey, Executive Assistant
Director, Bureau of the Budget (April 14, 1966) (FTC proposal appended) [hereinafter cited as
1966 Proposal]. Section 3 of the proposed uniform law provided that "[i]t is the intent of the
legislature that in construing Section 2 of this Act [preventing deceptive practices] the courts will be
guided by the interpretations given by the Federal Trade Commission and the federal courts to
Section 5(a)(1) of the Federal Trade Commission Act (15 U.S.C. § 45(a)(1))." Id.at 6. The Commission's asserted justification for the proposed section was that it would allow states to "draw upon
the Commission's 50 years of experience and the 800-plus court decisions interpreting the Federal
Trade Commission Act which declares such [unfair and deceptive trade] practices to be unlawful."
1966 News Release, supra note 63, at 1.
In addition to § 3 of the model legislation, the Commission urged states to adopt a provision
exempting practices that other state or federal regulatory agencies permitted from regulation under
the Little FTC Acts. Section 4 of the model act provided that: "Nothing in this Act shall apply to
actions or transactions permitted under laws administered by the State public service commission
or other regulatory body or officer acting under a statutory authority of this State or the United
States." 1966 Proposal, supra, at 6. Therefore, in addition to receiving "guidance" from the Commission, states were urged not to declare unlawful practices that the FTC permitted under federal
law.
67. The Commission's efforts to have states adopt a uniform law on the issue of the impact of
Commission and federal court precedent met with limited success. Eight states' laws provide that
state courts should give "weight" or "due consideration and great weight" to both the Commission's and federal courts' interpretations of § 5. See ALA. CODE § 8-19-6 (Supp. 1983); ALASKA
STAT. § 45.50.545 (1980); FLA. STAT. ANN. § 501.204 (West 1979); IDAHO CODE § 48.604 (1977);
ILL. ANN. STAT. ch. 121 1/2 261, § 2 (Smith-Hurd Supp. 1983-84); MD. Bus. REG. CODE ANN.
§ 13-105 (1983); MONT.CODE ANN. § 30-14-104 (1983); R.I. GEN. LAWS § 6-13.1-3 (1970). Seven
state statutes provide that state courts "shall," "will", or "may" be guided by Commission and
federal court interpretations of § 5. See CONN. GEN. STAT. ANN. § 42-1106(b) (West Supp. 1984);
ME. REV. STAT. ANN. tit. 5, § 207 (1979); MASS. ANN. LAWS ch. 93A § 2(b) (Michie/Law. Co-op.
Supp. 1984); N.H. REV. STAT. ANN. § 358-A:13 (Supp. 1981); N.M. STAT. ANN. § 57-12-4 (1978);
S.C. CODE ANN. § 39-5-20(b) (Law. Co-op. 1976); VT. STAT. ANN. tit. 9, § 2453(b) (1971). Utah
requires that its act shall be interpreted "not inconsistent with the policies of the Federal Trade
Commission relating to consumer protection." UTAH CODE ANN. § 13-11-2(4) (Supp. 1983). Arizona law suggests that courts use federal interpretations of § 5 as a guide. ARIZ. REV. STAT. ANN.
§ 44-1522 B (1967). Texas states that courts should be guided by federal interpretations to the
extent possible. TEx. Bus. & COM. CODE ANN. § 17.46(c)(1) (Vernon Supp. 1983-84). Two states
require their courts to "be guided by" federal interpretations of corresponding federal consumer
protection laws. See WASH. REV. CODE ANN. § 19:86.920 (1978) (adopted in 1961, before FTC
proposed law); W. VA. CODE § 46A-6-101(I) (1980). Georgia and Tennessee state that their laws
"shall be interpreted and construed consistently with" federal interpretations of § 5. GA. CODE
ANN. § 10-1-391(b) (1982); TENN. CODE ANN. § 47-18-115 (1979). The law of the U.S. Virgin Islands states that the provisions of its statute shall be construed to supplement the rules, regulations
and decisions of the Federal Trade Commission and judicial interpretations of§ 5(a)(1) of the FTC
Act. V.I. CODE ANN. tit. 12A, § 103(b) (1982).
68. Twenty-eight states exempt from regulation under their Little FTC Acts trade practices
that are "regulated by or under," "required by," "in compliance with," "pursuant to," "otherwise
1984]
THE LAW OF DECEPTION
Commission precedent with state law. 69
In all fifty states and the District of Columbia, the Attorney General's
office or a similar executive agency has primary responsibility for enforcing the laws against deceptive acts and practices. Many state statutes
also include a private right of action to enable aggrieved consumers to
seek remedies for deceptive commercial practices through the institution
of private lawsuits. Enforcement actions brought by the states or their
citizens are frequently based on state statutes, the enactment of which
has been guided by Commission precedent. Commission decisions consequently have important precedential value at various levels of law enforcement throughout the nation.
When Congress first considered proposals to codify specific language
defining the FTC's authority over deceptive trade practices in 1982, the
Executive Committee of the National Association of Attorneys General
(NAAG) passed a resolution opposing codification. 70 The NAAG repermitted by," or "regulated by" another state or federal agency or law. See ALA. CODE § 8-19-7
(Supp. 1983); ALAsKA STAT. § 45.50.481 (1980); CONN. GEN. STAT. ANN. § 42-1 10c(a)(1) (West
Supp. 1984); DEL. CODE ANN. tit. 6, § 2534(a)(1) (1975); FLA. STAT. ANN. § 501.212(1) (West
1979); GA. CODE ANN. § 10-1-396(1) (1982); HAwAII REV. STAT. § 481A-5(a)(1) (1976); ILL. ANN.
STAT. ch. 121 1/2,1 314, § (4)(1) (Smith-Hurd Supp. 1983-84); IND. CODE ANN. § 24-5-0.5-6 (Burns
1982); Ky.REV. STAT. ANN. § 367.176 (1983); MAss. ANN. LAWS ch. 93A, § 3 (Michie/Law. Coop. Supp. 1984); MICH. STAT. ANN. § 19.418(4)(1)(a) (Callaghan 1981); MINN. STAT. ANN.
§ 325D.46(1) (West 1981); NEBs. REV. STAT. § 59-1617 (Cum. Supp. 1982); NEV. REV. STAT.
§ 598A.040(3) (1983); N.H. REV. STAT. ANN. § 358-A:3(III) (Supp. 1981); N.M. STAT. ANN. § 5712-7 (1978); N.Y. GEN. Bus. LAW § 349(d) (McKinney Supp. 1983-84); OKLA. STAT. ANN. tit. 78,
§ 55(a)(1) (West 1976); OR. REV. STAT. § 646.612(1) (1983); R.I. GEN. LAWS § 6-13.1-4 (1970);
S.C. CODE ANN. § 39-5-40(a) (Law. Co-op. 1976); S.D. CODIFIED LAWS ANN. § 37-24-10 (1977);
TENN. CODE ANN. § 47-18-11 l(a) (1979); UTAH CODE ANN. § 13-11-22(a) (Supp. 1983); VA. CODE
§ 59.1-199(A) (1982); WASH. REV. CODE ANN. § 19.86.170 (1978); WYo. STAT. § 40-12-110(a)(i)
(1977).
Seven states exempt from regulation trade practices that comply with rules of the FTC and
Commission interpretations of§ 5. See ARIz. REV. STAT. ANN. § 44-1523 (1967); ARK. STAT. ANN.
§ 70-913(a) (1979); DEL. CODE ANN. tit. 6, § 2534(a)(1) (1975); LA. REV. STAT. ANN. 51:1406(4)
(West Supp. 1984); Mo. ANN. STAT. § 407.020(1) (Vernon 1979); S.C. CODE ANN. § 39-5-40(d)
(Law. Co-op. 1976); TEX. Bus. & COM. CODE ANN. § 17.49(b) (Vernon Supp. 1984).
Three states exempt from state control certain acts or transactions permitted under federal law or
administered by the FTC or a federal regulatory agency. Set IDAHO CODE § 48-605(I) (1977); N.Y.
GEN. Bus. LAw § 349(d) (McKinney Supp. 1983-84); OHIO REV. CODE ANN. § 4165.04(A) (Page
1973).
69. See, eg., Marshall v. Miller, 302 N.C. 539, 542, 276 S.E.2d 397, 399 (1981) (federal court
interpretations of FTC Act are guide to interpreting state statute); State v. Master Distribs., Inc.,
101 Idaho 447, 453, 615 P.2d 116, 122 (1980) (federal case law persuasive in application of state
consumer protection statute); Royal Globe Ins. Co. v. Bar Consultants, Inc., 577 S.W.2d 688, 694
(Tex. 1979) (following federal court interpretation in § 5 action of agency law issue). See generall.y
Leaffer & Lipson, supra note 65, at 538-40 (state decisions relying on FTC Act jurisprudence) (citing
Thomas v. Sun Furniture & Appliance Co., 61 Ohio App. 2d 78, 82-83, 399 N.E.2d 567, 570 (1978);
Williams v. Bruno Appliance & Furniture Mart, Inc., 62 Ill.
App. 3d 219, 223, 379 N.E.2d 52, 55
(1978); Slaney v. Westwood Auto, Inc., 366 Mass. 688, 703, 322 N.E.2d 768, 773 (1975)).
70. The NAAG's 1982 resolution stated:
Now, therefore be it resolved that the National Association of Attorneys General:
1. Opposes any amendments to Section 5(a) of the FTC Act that would circumscribe
the scope of consumer protection statutes at the state level and would undermine
the ability of states to protect their citizens; and
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THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 33:849
peated its opposition to changes in section 5's deception standard and
objected to.its exclusion from participation in the Commission's deliberative process on the Policy Statement. 7' Because of the influence of FTC
practice on state law enforcement standards, state attorneys general
have a clear interest in the Commission's action. Their objections to the
changed language in the deception standard reflect continuing concerns
that this new confusion and uncertainty in state deception law will prevent law enforcement officials from using the full range of state law enforcement mechanisms.
C
Relationshz Between the Standards
The differences in language between the elements of the new and the
traditional definitions of deception suggest that the standards also differ
in substance. Proponents of the new standard, however, have recently
denied that the new definition changes the law, despite earlier state72
ments to the contrary.
One indication that proponents of the new standard did not intend to
change the law is their continued insistence that the new definition is
derived from established legal principles. The Policy Statement, for example, states that the new definition "synthesize[s] the most important
principles of general applicability" from decided cases. 73 Other public
2.
Urges the Congress that if it wishes to amend the FTC Act in such a way that
will impact on state law, these changes should be subject to extensive study and
consultation with state governors, legislators, and Attorneys General prior to
enactment.
1982 House Hearings,supranote 9, at 157 (reprinting NAAG Executive Comm. Meeting, Resolution
on FTC Authorization (Mar. 28-30, 1982)). The NAAG Committee passed the resolution in part
because "20 state statutes explicitly say state courts should follow Commission and federal court
interpretations of the FTC Act and where statutes don't contain this explicit directive, most state
courts have interpreted state statutes consistently with the FTC Act. ... Id.
71. The 1983 resolution adopted by the entire membership of the NAAG was a response to
the Policy Statement, which had been submitted to Congress two months earlier. The NAAG
stated that "this FTC policy statement describes 'deception' in a manner substantially different
from the existing case law, . . . depart[s] from the principles developed over decades of Federal
Trade Commission enforcement and seeks to adopt administratively the restrictive definition not
enacted by Congress." NAT'L ASS'N OF ATT'Ys. GEN. FiTCDeception StandardandDefniton,in RESOLUTIONS: WINTER MEETING 10 (Dec. 5-9, 1983). The NAAG added that it opposes "administrative
changes to the definition of deception." Id
72. Proponents of a new deception definition first approached Congress in 1982 with a proposal to "correct three problems" in the law. See Reauthorizationof the FTC Heanngs Before the Senate
Comm. on Commerce, Science, and Transportation,97th Cong., 2d Sess. 8 (1982) (statement of James C.
Miller III, Chairman, FTC); 1982 House Hearings,supra note 9, at 68 (statement of James C. Miller
III, Chairman, FTC). A lengthy memorandum from the Director of the FTC's Bureau of Consumer
Protection, released with Chairman Miller's April testimony, amplified the intent of the statutory
proposal. See id (reprinting Memorandum from TimothyJ. Muris to Chairman James C. Miller III
(March 25, 1982)). That memorandum attempted to make the case for a statutory change by
pointing out deficiencies in the traditional standard and explaining how the new definition would
correct them.
73. Policy Statement, supra note 5, at 56,071. The statement also cites extensively-though
selectively-to Commission and federal case law that embody the traditional elements of deception.
1984]
THE LAW OF DECEPTION
pronouncements have attempted to show that the standard evolved
from case law. 74 Significantly, a recent defense of the new definition
characterizes it as merely a "clarification" of existing law and explicitly
75
denies that it changes the law.
Proponents of the new definition have also emphasized the conceptual similarities between the elements of both standards. For example,
proponents have noted that a "likely to mislead" standard, like a "tendency or capacity to mislead" standard, does not require the Commission to prove "actual" deception, and that the two phrases represent the
same concept. 76 Similarly, the Policy Statement equates materiality
and injury, 77 and its proponents have admitted that materiality alonenot injury or detriment-is all that must be shown.78 Although the elements of "reasonable consumers" and "substantial numbers of consumers" lack similar parallels, recent statements have attempted to bring the
'reasonable consumer" standard into compliance with traditional legal
79
requirements.
Despite the differences in language, if the two standards are conceptually similar and have the same or similar purposes, as the proponents
of the new standard contend, then apparently the law of deception remains unchanged. The seemingly new and different elements of the
new definition are merely a different method of expressing existing legal
principles. If this premise is accepted, past Commission and federal case
74. In a letter sent to Chairman Dingell shortly after the statement's release and rejection,
Chairman Miller explained how all three elements of the standard were drawn from existing case
law. Letter from James C. Miller III, Chairman, FTC, to John D. Dingell, Chairman, House
Comm. on Energy and Commerce (Oct. 26, 1983). Although the cases cited therein do not, in fact,
support the three elements of the definition, by citing the elements in this context proponents of the
new definition provide some understanding of their interpretation of the standard. See alo 130
CONG. Rwc. D366 (daily ed. Mar. 26, 1984) (testimony of James C. Miller III, Chairman, FTC
before Subcomm. on Oversight and Investigations, House Comm. on Energy and Commerce (Mar.
26, 1984)) (transcript of testimony unavailable at time of publication).
75. See 130 CONG. REC. D366 (daily ed. Mar. 26, 1984) (testimony of James C. Miller III,
Chairman, FTC before Subcomm. on Oversight and Investigations, House Comm. on Energy and
Commerce (Mar. 26, 1984) (transcript of testimony available at time of publication).
76.
77.
Id
Policy Statement, supra note 5, at 56,077-79. The statement suggests, however, that the
materiality component of deception law incorporates notions of consumer reliance and "but for"
injury that do not exist in the case law. See Letter from Patricia P. Bailey and Michael Pertschuk,
Commissioners, FTC, to John D. Dingell, Chairman, House Comm. on Energy and Commerce
(Feb. 24, 1984) 54-55 n.58 (providing statement of law of deception).
78. See 130 CONG. REc. D366 (daily ed. Mar. 26, 1984) (testimony of James C. Miller III,
Chairman, FTC before Subcomm. on Oversight and Investigations, House Comm. on Energy and
Commerce (Mar. 26, 1984)) (transcript of testimony unavailable at time of publication).
79.
Id at 11. Chairman Miller's testimony explained that the "reasonable consumer" element
required a showing only that acts or practices, including advertising claims, be interpretedreasonably, not that consumers' beliefs or actions be shown reasonable. This corresponds to the traditional legal requirement that the Commission reasonably interpret advertising claims. See Letter from
Patricia P. Bailey and Michael Pertschuk, Commissioners, FTC, to John D. Dingell, Chairman,
House Comm. on Energy and Commerce (Feb. 24, 1984) (providing statement of law of deception).
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[Vol. 33:849
law on deception remains valid and provides the basis for the restated
elements of the new deception definition.
We, therefore, offer the following exposition of the law of deception.
To the extent that the new definition varies from existing legal principles, our analysis demonstrates that extensive legislative history and precedent support our conclusions of the law's requirements and reject
alternative requirements. To the extent the new definition reflects but
does not alter existing law, our analysis should serve as a comprehensive
exposition of the law's requirements and limitations.
II.
A.
HISTORICAL PERSPECTIVE
FTCAuthoriy and Common Law
Though the common law of deception predates the Commission's
statutory deception authority, Commission law did not grow out of common-law principles. The legislative history of the FTC Act and the
Wheeler-Lea Act 8o demonstrate that Congress intended to extend the
scope of the Commission's law enforcement authority beyond the protection the common-law provided. Congress delegated to the Commission in 1914 and 1938 broad powers to protect consumers at least in part
as a response to the failure of existing law enforcement mechanisms and
common-law remedies to resolve consumer grievances satisfactorily. 8'
Courts recognized and gave effect to this purpose by quickly discarding
from FTC law the common-law principle of caveat emptor. 82 Moreover, the courts recognized the Commission's authority to prohibit deceptive acts or practices without having to find fraud or
83
misrepresentation.
Congress' reluctance to tie the FTC's authority to the common law
stemmed in part from the difficulty of attacking deception through ac80. Wheeler-Lea Act of 1938, ch. 49, 52 Stat. 111 (currently codified in scattered sections of 15
U.S.C. (1982)).
81. See FTC v. R.F. Keppel & Brother, Inc., 291 U.S. 304, 310-12 (1934) (FTC Act broad
because protection available at common law and other statutes too narrow); Royal Baking Powder
Co. v. FTC, 281 F. 744, 751-52 (2d Cir. 1922) (Congress empowered Commission to end unlawful
conduct that deceived public but not privately actionable); S. REP. No. 221, 75th Cong., Ist Sess. 2
(1937) (Commission may, without proving monetary damage, restrain unfair or deceptive acts and
practices); H.R. REP. NO. 1613, 75th Cong., Ist Sess. 2-3 (1937) (experience of Commission has
demonstrated need for broader powers and more effective procedural methods of protecting
consumer).
82. FTC v. Standard Educ. Soc'y, 302 U.S. 112, 116 (1937) (rule of caveat emptor should not
be relied upon to reward fraud and deception); FTC v. Sterling Drug, Inc., 317 F.2d 669, 674 (2d
Cir. 1963) (central purpose of FTC Act was to abolish rule of caveat emptor); Goodman v. FTC,
244 F.2d 584, 603 (9th Cir. 1957) (under both law of civil torts and FrC Act, rule of caveat emptor
abandoned).
83. Feil v. FTC, 285 F.2d 879, 897 (9th Cir. 1960) (upholding Commission order even though
respondent's acts not deemed fraudulent); D.D.D. Corp. v. FTC, 125 F.2d 679, 682 (7th Cir. 1942)
(deceptive acts, as defined in FTC Act, need not be sufficient to constitute fraud).
1984]
THE LAW OF DECEPTION
tions at common law. Common-law courts were reluctant to impose
tort liability for false advertising. False advertising was more successfully
attacked through the tort actions of unfair competition or deceit. 84 Deceit actions, however, were available only to consumers and were very
difficult to prove. In addition to showing the advertiser's fraudulent intent, the customer had to prove detrimental reliance on the
representation. 85
Unfair competition was a cause of action available to businesses
whose competitors were "passing off" goods as those of the complaining
company. 6 In unfair competition actions, courts normally did not require a showing of actual purchaser deception. 87 Furthermore, courts
often inferred the defendant's intent to deceive or dismissed the requirement completely. 8 The courts used various formulas to articulate their
84. See Developments in the Law. Competitive Torts, 77 HARv. L. REV. 888, 905 (1964). In the
leading case of American Washboard Co. v. Saginaw Mfg. Co., 103 F. 281 (6th Cir. 1900), the court
denied a motion for an injunction made by the honest competitor of a company that was falsely
advertising a product. The court noted that if it granted an injunction, "a person who undertook to
manufacture a genuine article could suppress the business of all untruthful dealers, although they
were in no way trying to pirate his trade." Id at 286. The court concluded that mere false advertising did not affect a property right of the complaining company even though the public might be
defrauded. Id at 284. The court stated that cases recognizing a cause of action in favor of a competing company were
not based upon fraud or imposition upon the public, but were maintained solely for the
protection of the property rights of complainant. It is true that in these cases it is an
important factor that the public are [sic] deceived, but it is only where this deception
induces the public to buy the goods as those of complainant that a private right of action
arises.
Id. at 285. See also Ely-Norris Safe Co. v. Mosler Safe Co., 7 F.2d 603 (2d Cir. 1925) ("the law does
not allow [the plaintiff] ... to sue as a vicarious avenger of the defendant's customers"), rev'don
othergrounds, 273 U.S. 132 (1927). Seegenerally Handler, FalseandMirleadingAdverting,39 YALE L.J.
22 (1929).
85. In general, common law deceit consisted of six elements: (1) false representations (2)
fraudulent intent (3) intent that others rely on false statements (4) actually induced reliance (5)
reliance induced is justified and (6) damage results. See I F. HARPER & F. JAMES, supra note 59, at
§ 7.1, at 528. See generally zd §§ 7.1-7.15; W. PROSSER, supra note 60, at §§ 105-110.
86. In an early English case, the court ruled that "no man has a right to sell his own goods as
the goods of another." Croft v. Day, 7 Beav. 84, 88, 49 Eng. Rep. 994, 996 (Ch. 1843) (quoted in
COMPETITIVE TORTS, supranote 84, at 908). The tort of "passing off," as it was called in England,
or "unfair competition," as it was called in the United States, "serves basically the same interests as
the torts of commercial disparagement and false advertising--the tortious conduct both injures the
competitor and misleads the consumer." COMPETITIVE TORTS, supra note 84, at 909; see also I R.
CALLMAN, UNFAIR COMPETITION, TRADEMARKS AND MONOPOUES §§ 2.01-2.03 (L. Altman rev.
4th ed. 1981) (discussing historical development of tort of unfair competition); Chafee, Unfair Competition, 53 HARV. L. REV. 1289, 1296-1301 (1940) (discussing development of unfair competition
cause of action under federal common law).
87. See Enterprise Mfg. Co. v. Landers, Frary & Clark, 131 F. 240, 241 (2d Cir. 1904) (proof of
actual deception not needed in case of identical copy); Fuller v. Huff, 104 F. 141, 145 (2d Cir. 1900)
(proof that purchaser had actually been deceived not necessary because manifest liability of deception exists); Von Mumm v. Frash, 56 F. 830, 837 (C.C.E.D.N.Y. 1893) (burden of proving actual
cases of consumer deception too great). But see United States Tobacco Co. v. McGreenery, 144 F.
531, 533-34 (C.C.D. Mass. 1906) (requiring consumer testimony to prove deception).
88. An FTC staff memorandum drafted in 1916 noted that "the courts are not uniform in
holding that it is necessary that fraudulent intent be proved in order to obtain an injunction against
unfair competition." FTC, Memorandum on Unfair Competition at the Common Law 236 (1916)
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[Vol. 33:849
conclusion that the complaining company need not prove that its customers actually were deceived. Some courts stated that the challenged
trade practices must have been "likely" 89 to deceive an "ordinary" purchaser exercising ordinary care under the circumstances 9 or that decep[hereinafter cited as Unfair Competition Memorandum]. Although the United States Supreme
Court held that fraudulent intent to "pass off" goods was necessary for unfair competition liability,
Lawrence Mfg. Co. v. Tennessee Mfg. Co., 138 U.S. 537, 549 (1891), lower federal courts and state
courts either ignored the Supreme Court's interpretation of unfair competition or readily inferred
fraudulent intent from the wrongdoer's actions. See, e.g., Trappey v. Mcllhenny Co., 281 F. 23, 27
(5th Cir. 1922) (actual intent to mislead purchasers need not be proved if result "probable"),
Scriven v. North, 134 F. 366, 374 (4th Cir. 1904) (intent to deceive inferred); Bissell Chilled Plow
Works v. T.M. Bissell Plow Co., 121 F. 357, 371-72 (C.C.W.D. Mich. 1902) (fraudulent intent need
not be proved when competitor injured); Enoch Morgan's Sons Co. v. Whittier-Coburn Co., 118 F.
657, 661 (C.C.N.D. Cal. 1902) (innocent practices may be enjoined as unfair); Von Mumm v.
Frash, 56 F. 830, 838 (C.C.E.D.N.Y. 1893) (intent to deceive proved by showing that deception was
"natural result" of challenged practice). Several state courts held that direct or inferential proof of
fraudulent intent was not required in unfair competition cases. See, e.g., Forster Mfg. Co. v. CutterTower Co., 211 Mass. 219, 222, 97 N.E. 749, 749-50 (1912) (need not show wrongdoer intended to
deceive public); Italian Swiss Colony v. Italian Vineyard Co., 158 Cal. 252, 256, 110 P. 913, 914
(1910) (plaintiff must show intent to deceive or acts reasonably likely to deceive); Wirtz v. Eagle
Bottling Co., 50 N.J. Eq. 164, 167, 24 A. 658, 659 (1892) (law does not attempt to penetrate secret
motive of wrongdoer in unfair competition action); see also Unfair Competition Memorandum,
supra, at 237 (state courts in Connecticut, Indiana, Iowa, Kansas, and Pennsylvania do not require
proof of intent to deceive in unfair competition cases).
89. See, e.g., Walter Baker & Co. v. Puritan Pure Food Co., 139 F. 680, 681, 683 (C.C.S.D.N.Y.
1905) (injunction granted on showing confusion likely to arise); Fuller v. Huff, 104 F. 141, 144 (2d
Cir. 1900) (test is whether challenged practice likely to deceive consumers); Hilson Co. v. Foster, 80
F. 896, 898 (C.C.S.D.N.Y. 1897) (similarities likely to deceive purchaser); N.K. Fairbank Co. v.
R.W. Bell Mfg. Co., 77 F. 869, 877 (2d Cir. 1896) (proof of actual deception not necessary when
likelihood of deception exists); Anheuser-Busch Brewing Ass'n v. Clarke, 26 F. 410, 410-11 (C.C.D.
Md. 1886) (similarity in packaging likely to deceive).
90. See H.E. Winterton Gum Co. v. Autosales Gum & Chocolate Co., 211 F. 612, 617 (6th Cir.
1914) (deception found when seller misled "ordinary and casual buyer"); Samson Cordage Works
v. Puritan Cordage Mills, 211 F. 603, 610 (6th Cir. 1914) (practice must be likely to deceive ordinary or usual buyer); Rathbone, Sard & Co. v. Champion Steel Range Co., 189 F. 26, 32 (6th Cir.
1911) (injunction denied on finding that "retail purchaser exercising reasonable care could not well
have been deceived"); N.K. Fairbank Co. v. R.W. Bell Mfg. Co., 77 F. 869, 876-77 (2d Cir. 1896)
(injunction granted on finding that "unsuspecting purchaser exercising the ordinary care which is
to be expected of buyers of soap powder for consumption" could be deceived, reversing trial court
finding that only "idiots" could be deceived); Hilson Co. v. Foster, 80 F. 896, 898 (C.C.S.D.N.Y.
1897) (practice must be likely to mislead ordinary purchaser); Anheuser-Busch Brewing Ass'n v.
Clarke, 26 F. 410, 410 (C.C.D. Md. 1886) (injunction entered on showing that "purchasers exercising the ordinary degree of caution which purchasers are in the habit of exercising with respect to
such goods" were likely to be deceived). But set Mumm v. Kirk, 40 F. 589, 589 (C.C.S.D.N.Y. 1889)
(injunction denied when "man" of average intelligence, exercising ordinary care, could readily ascertain the difference).
In Florence Mfg. Co. v. J.C. Dowd & Co., 178 F. 73, 75 (2d Cir. 1910), the court stated that the
unfair competition cause of action "is not made for the protection of experts, but for the publicthat vast multitude which includes the ignorant, the unthinking and the credulous, who, in making
purchases, do not stop to analyze, but are governed by appearances and general impressions." The
court in Von Mumm v. Frash, 56 F. 830 (C.C.E.D.N.Y. 1893), set out a similar interpretation of
what it viewed as the ordinary purchaser.
As I understand it, the law is intended for the protection of the ignorant, the weak, and
the unwary. The sharp and the shrewd take care of themselves without aid from the
courts. . . . At common law it is not necessary that the false token used be such that
ordinary care and common prudence were not sufficient to guard against the deception. . . . It is said by Lord Mansfield that frauds by means of false tokens cannot be
guarded against by common care and prudence.
1984]
THE LAW OF DECEPTION
869
tion of an ordinary purchaser must have been the "natural and
probable result" of the challenged practice. 9 1 Other courts issued injunctions on findings that practices had a "tendency" to deceive ordinary consumers, 92 or that the practices were "capable" of deceiving
ordinary consumers. 93 At times courts used these various terms
94
interchangeably.
The similarities in language between the new deception standard and
the common-law elements are apparent. But it would be a mistake to
argue that the Commission must follow or limit itself to the restrictive
Id at 839. Based on this definition of the ordinary purchaser, the court in Von Mumm enjoined the
use of champagne bottles and labels that were deceptively similar to those of the complaining
company. Id.; ser also Scriven v. North, 134 F. 366, 375 (4th Cir. 1904) (unfair competition law
protects "the ignorant and the unwary").
91. See, e.g.,
Notaseme Hosiery Co. v. Straus, 201 F. 99, 100 (2d Cir. 1912) (issue is whether
'natural and probable result" of tortious act is deception), af'd npart and rev
'dpar,
240 U.S. 179
(1916); Yale & Towne Mfg. Co. v. Worcester Mfg. Co., 205 F. 952, 956-57 (D. Mass. 1913) (proof of
actual deception not necessary when deception is natural and probable result of practice); United
States Tobacco Co. v. McGreenery, 144 F. 531, 534 (C.C.D. Mass. 1906) (plaintiff must show public "has been or will probably be misled" by tortious act); National Biscuit Co. v. Baker, 95 F. 135,
135 (C.C.S.D.N.Y. 1899) (court considers "probable experience of consumers" in unfair competition action); see also Unfair Competition Memorandum, supra note 88, at 238 ("While it is not
necessary to show that the defendant's acts have resulted in actual deception, it must be shown that
the natural and probable result is fraud."). The court in Mumm v. Kirk, 40 F. 589 (C.C.S.D.N.Y.
1889), found that deception "might be done" by a challenged practice, but it declined to enter an
injunction because "it is not probable" that deception resulted. Id
92. See, e.g., G. & C. Merriam Co. v. Ogilvie, 159 F. 638, 642 (1st Cir. 1908) ("manifest tendency" of challenged practice deceptive); Charles E. Hires Co. v. Consumers' Co.. 100 F. 809, 812
(7th Cir. 1900) (injunction entered on finding that practice "tended to deceive"); Enoch Morgan's
Sons Co. v. Wendover, 43 F. 420, 422 (C.C.D.N.J. 1890) (false representations "which tend to
mislead the public" enjoined); ef Florence Mfg. Co. v. J.C. Dowd & Co., 178 F. 73, 76 (2d Cir.
1910) (practices that "may" lead to deception enjoined); Jenkins Bros. v. Kelly & Jones Co., 212 F.
328, 331 (W.D. Pa. 1914) (injunction entered on finding that "some people are liable to be
deceived").
93. See Straus v. Notaseme Hosiery Co., 240 U.S. 179, 182 (1916) (defendants used label "that
might be held likely to deceive, and if it should have that tendency, [i.e., is capable of,] they would
be chargeable for what in contemplation of law was an intentional wrong").
The United States Court of Appeals for the Sixth Circuit in Rathbone, Sard & Co. v. Champion
Steel Range Co., 189 F. 26 (6th Cir. 1911), noted that the "rule is well settled that nothing less than
conduct tending to pass off one man's merchandise or business as that of another will constitute
unfair competition." Id at 30. The court declined to issue an injunction, holding that "where
neither such natural result [is deception] nor such actual intent exists, unfair competition is not
made out." Id at 33; see also H.E. Winterton Gum Co. v. Autosales Gum & Chocolate Co., 211 F.
612, 616-17 (6th Cir. 1914) (challenged practice "likely to mislead" and "tends to confuse" public);
Samson Cordage Works v. Puritan Cordage Mills, 211 F. 603, 610-11 (6th Cir. 1914) (challenged
practice "tending to mislead the public" and "likely to mislead the ordinary or usual buyer"). The
court in Garrett & Co. v. A. Schmidt, Jr. & Bros. Wine Co., 256 F. 943 (N.D. Ohio 1919), entered
an injunction on findings that a practice was "likely to deceive," would "naturally tend to produce
confusion," and that deception was "the natural and probable result" of the practice. Id at 946-48.
94. One court stated, for example, that "[challenged practices] will not be permitted, with
intent to mislead the public, to use such words, marks, or symbols in such a manner . . . as to
deceive or be capable of deceiving the public." Dennison Mfg. Co. v. Thomas Mfg. Co., 94 F. 651,
659 (C.C.D. Del. 1899). Similarly, in Von Mumm v. Frash, 56 F. 830 (C.C.E.D.N.Y. 1893), the
court enjoined a challenged practice on a finding that "persons not initiated [were] capable of being
deceived. . . ." Id at 836. The court in Von Afumm also noted that deception was the "natural
result" of the practice, but its use of the term "deception" was in connection with whether proof
was required of fraudulent intent. Id at 838.
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THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 33:849
elements of common-law causes of action. The inadequacy of this approach to consumer protection looms as large now as it did in 1938.
Moreover, the history of the FTC Act and its enforcement support the
Commission's authority-indeed its responsibility-to prohibit deceptive conduct before a private cause of action arises in tort or contract
95
law.
B.
Eary FTC Practice
Congress' enactment of the Wheeler-Lea Act in 1938 specifically conferred on the Commission jurisdiction to challenge "unfair or deceptive
acts or practices."'96 Even before this statutory amendment, the Commission had acted against deceptive commercial conduct under its original authority to prevent "unfair methods of competition. ' 97 Thus, in the
years immediately following passage of the FTC Act in 1914,98 the Commission entered cease and desist orders, under its unfair competition jurisdiction, on findings that deception was the likely or probable result of
particular trade practices. 99
95. For a discussion of the history of the common law and early enforcement procedures, see
supra notes 84-94 and accompanying text.
96. Wheeler-Lea Act of 1938, ch. 49, § 3, 52 Stat. 111, 111-14 (codified at 15 U.S.C. § 45
(1982)) (emphasis added). Congress' grant to the FTC of specific authority to prohibit unfair or
deceptive acts or practices was designed to mitigate the effects of an early Supreme Court ruling
holding such practices illegal under the original FTC Act. This authority was limited, however, to
the extent such practices were shown to injure competition by injuring competitors. See FTC v.
Raladam Co., 283 U.S. 643, 653 (1931); see also Pep Boys-Manny, Moe &Jack, Inc. v. FTC, 122
F.2d 158, 160-61 (3d Cir. 1941) (Wheeler-Lea Act intended to remove procedural requirement
imposed in Raladam and to allow Commission to focus "on the direct protection of the consumer where
formerly it could protect consumer only indirectly through the protection of the competitor" (emphasis in original)); 83 CONG. REc. 547 (1938) (statement of Rep. Lea) (removing "injury to commerce" requirement of Raladam will "afford protection to the consumers of this country that they
have not heretofore enjoyed"); id.at 552 (statement of Rep. Reece) (amendment "seeks to make the
consumer of equal concern under the law with the man who is engaged in commerce').
Representative Compton I. White of Idaho commented on the importance of the Commission
and the amendment to § 5 as follows: "[Tihis legislation involves one of the most important
problems confronting the people at the present time. I think outside of the money question, the
rules, regulations, and laws governing the Federal Trade Commission are the most important thing
for the protection of the American people." Id at 556 (statement of Rep. White). The legislative
history of the Wheeler-Lea Act is compiled in C. DUNN, WHEELER-LEA Acr (1938).
FTC v. Standard Educ. Soc'y, 302 U.S. 112, 116-17 (1937)
97. 15 U.S.C. § 45 (1982). See, e.g.,
(deceptive pricing of encyclopedias); FTC v. Algoma Lumber Co., 291 U.S. 67, 81 (1934) (misrepresenting nature and quality of pine products); FTC v. Royal Milling Co., 288 U.S. 212, 216-17
(1933) (misrepresenting that companies ground wheat when they only processed wheat ground by
others); FTC v. Winsted Hosiery Co., 258 U.S. 483, 493 (1922) (marketing primarily cotton underwear as wool).
98. Federal Trade Commission Act of 1914, 38 Stat. 717 (current version at 15 U.S.C. § 41-58
(1982)). Section 5 of the FTC Act, as originally passed, prohibited "unfair methods of competition
in commerce .... " Id § 5 (current version at 15 U.S.C. § 45(a)(1) (1982)).
99. In Circle Cilk Co., 1 F.T.C. 13 (1916), the Commission entered a cease and desist order on
a finding that the challenged practice was "likely to deceive some persons in the trade, and has
...
Id at 15. In A. Theo. Abbott & Co., I F.T.C. 16
deceived some of the consuming public.
(1916), the complaint alleged that "the natural result of the [challenged practice] is to confuse,
mislead, or deceive purchasers ... ." Id at 18. The Commission apparently premised a cease and
1984]
THE LAW OF DECEPTION
In 1919, however, the Commission abandoned the likely to deceive or
probable result standard and issued orders on findings of a "tendency"
to deceive. In Gordon-Van Tine Co.,00 for example, the Commission
found that misrepresentations of the nature of legal actions against the
advertiser's competitors "were false, deceptive, and misleading and do
".
unfairly tend to, and do, deceive and mislead such purchasers ...
0
2
prohibited
In E.P.Janes (Ironclad Tire Co.),' deceptive advertising was
on a finding that it had a "tendency to mislead the purchasing
public ....
"o103
In Sears, Roebuck &Co. v. FTC,10 4 the first case to reach the courts from
the Commission, the United States Court of Appeals for the Seventh
Circuit set out a formulation of the Commission's authority to regulate
05
deceptive practices:
[T]he Commissioners, representing the government as parens patriae,
are to exercise their common sense, as informed by their knowledge of
the general idea of unfair trade at common law, and stop all those
to injure competitors
trade practices that have a capacity or lendency
06
directly or through deception of purchasers.'
The court's decision in Sears, Roebuck gave the Commission broad authority to prohibit unfair methods of competition before injury occurred. The Commission soon adopted the "tendency or capacity"
formulation of Sears, Roebuck in its own cases.' 0 7 Although some courts
were reluctant to accept the proposition that the Commission had authority over practices that were merely "capable" of misleading, 0 8 the
desist order on a finding of actual deception. Id at 19. In later decisions, the Commission entered
orders on a finding of an intent to deceive or actual deception. See Geographical Publishing Co., I
F.T.C. 235, 239 (1918) (finding intentional deception); Typewriter Emporium, 1 F.T.C. 105, 107-08
(1918) (complaint charged intent to deceive).
100. 1 F.T.C. 316 (1919).
101. Id at 323 (emphasis added).
102. 1 F.T.C. 380 (1919).
103. Id at 385.
104. 258 F. 307 (7th Cir. 1919).
105. See generally Thompson, h'ghlights in the Eolution of the Federal Trade Commission, 8 GEO.
WASH. L. REv. 257, 265-67 (1940) (discussing effect of court decisions on role of the Commission);
Note, Unfair Competition at Common Law and Under the Federal Trade Commission, 20 COLUM. L. REV.
328, 331-33 (1920) (describing effectiveness of Commission in handling unfair practices and federal
courts' reactions to Commission regulation).
106. Sears, Roebuck & Co. v. FTC, 258 F. 307, 311 (7th Cir. 1919) (emphasis added). The
Commission in Sears, Roebuck found that the challenged practices were intended to and actually did
mislead competitors and members of the public. 1 F.T.C. 163, 170-71, afd, 258 F. 307 (7th Cir.
1919).
107. SeeCole-Conrad Co., 2 F.T.C. 188, 192-93 (1919) (challenged advertisements had "capacity... Ito] mislead the purchasing public"). In Cole-Conrad Co., the Commission entered an order
prohibiting the seller from advertising "where such statements or representations have a tendency
... Id The
or capacity to discredit competitors. . . or are calculated or designed to mislead.
complaint in Cole-Conrad,which was filed before the court's opinion in Sears,Roebuck, alleged merely
that the challenged practices actually did "deceive and mislead the public. . . " Id at 190. The
final decision in Cole-Conradwas issued seven months after the court's decision in Sears, Roebuck.
108. See, e.g., Winsted Hosiery Co. v. FTC, 272 F. 957, 961 (2d Cir. 1921) (labels capable of
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THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 33:849
United States Supreme Court held in FTC v. W4nsted Hosiery Co.109 that
the Commission could exercise jurisdiction over practices that "tend to
aid and encourage" unfair practices.' 10 The Court reversed the United
States Court of Appeals for the Second Circuit's decision that had denied the Commission's authority to regulate acts that were only "capable" of deception. II
In the Wheeler-Lea Act of 1938, the Commission's powers to proscribe deceptive trade practices were defined in broad and flexible language. 112 Over the- past one-half century of Commission decisions,
misleading not within province of FTC), afd in part and rev'd in part, 258 U.S. 483 (1922). The
Second Circuit maintained the "natural and probable result" standard through the 1920's. See
Indiana Quartered Oak Co. v. FTC, 26 F.2d 340, 342 (2d Cir. 1928) (test of unfair competition
under FTC Act same as under common law and requires showing that deception of public was
"natural and probable result"); FTC v. Balme, 23 F.2d 615, 620 (2d Cir. 1928) (test of unfair
competition under FTC Act is whether "natural and probable result" of challenged practice
deceptive).
109. 258 U.S. 483 (1922).
110. Id at 492. But see Masland Duraleather Co. v. FTC, 34 F.2d 733, 737 (3d Cir. 1929)
("false trade-name or one that has both the capacity and tendency to deceive the ordinary purchaser will be enjoined"). Courts have not followed the requirement in Masland Durakatherthat an
act have both the tendency and capacity to deceive. For a discussion of cases brought by the FTC
in the 1920's to prohibit false advertising, see Handler, TheJurisdictton ofthe Federal Trade Commission
over False Advertising, 31 COLUM. L. REv. 527 (1931).
111. Winsted Hosiery Co. v. FTC, 272 F. 957, 961 (2d Cir. 1921), afd in part and rev'd in part,
258 U.S. 483 (1922).
112. The House and Senate reports on the Wheeler-Lea Act do not discuss why Congress chose
the broad term deception without either defining or cataloging what it considered to be deceptive
practices. See H.R. REP. No. 1613, 75th Cong., 1st Sess. 2-4 (1937); S. REP. No. 221, 75th Cong.,
1st Sess. 3-4 (1937). Although the reports did not contain a definition of deception, the issue of
whether the term should be defined was considered extensively in both the House and Senate hearings. The amendment to § 5 was passed by both the House and the Senate in the same form as it
was introduced in the Senate in 1936, S.3744, 74th Cong., 2d Sess., 80 CONG. REC. 553 (1936), as it
was reintroduced in the House in 1937, H.R. 3143, 75th Cong., 1st Sess., 81 CONG. REC. 289 (1937),
and reintroduced in the Senate in 1937, S. 1077, 75th Cong., 1st Sess., 81 CONG. REc. 337 (1937).
The Wheeler-Lea Act passed despite repeated objections by newspaper and industry representalives that giving the Commission authority over undefined deceptive trade practices would allow
too much discretion in the application of § 5. For example, the National Editorial Association, a
group of small daily and weekly newspapers, asked the Senate Committee to either list or define
what it considered to be deceptive acts because
[t]he amendment fails to define the meaning of 'deception' as used in law. . . . [W]hat
an official of the Commission may believe 'deceptive' may not be so considered by the
average consumer. . . . [Even if] your committee is inclined to sympathize with the
Commission's bid for unlimited power, perhaps it would be best to define particular acts
which constitute deception.
To Amend the Federal Trade Commission Act: Heanngs on S 3714 Before the Senate Comm. on Interstate
Commerce, 74th Cong., 2d Sess. 53 (1936) (statement of William L. Daley, Washington Manager,
National Editorial Association) [hereinafter cited as 1936 Senate Hearings]. The Committee did not
respond to the witness' assertion that Congress should take responsibility for defining deception. Id
At the Senate hearings, the National Association of Manufacturers asserted that the proposed
amendment to S.3744 was vague and ambiguous. See id at 92 (statement submitted by National
Association of Manufacturers). The American Pharmaceutical Manufacturers' Association also
found the revised § 5 "vague and ambiguous," but, nevertheless, believed that the amendment was
"in the public interest." Id at 101 (statement submitted by American Pharmaceutical Manufacturers' Association). The National Publishers' Association (NPA) believed it was necessary "to have a
clearer definition of terms than that contained in S.3744." Id at 67 (statement of C.B. Larrabee,
Legislative Committee, National Publishers' Association). The NPA urged "that the Commission
1984]
THE LAW OF DECEPTION
873
judicial review, and trade regulation rules and guidelines, the FTC has
in its meritorious desire to protect the consumer should welcome a more precise definition of 'deceptive' practices, a definition that would not only be of great aid to the honest advertiser but also
would assist the Commission immeasurably in defining its own powers." Id at 68. In response to
these arguments, Burton Wheeler, Chairman of the Committee and the principle sponsor of the
amendment, stated that the difficulty lay in specifically defining deception for both cases of deceptive advertisements and unfair acts or practices. Id at 71 (statement of Sen. Wheeler). A member
of the FTC added that defining unfair practices or deceptive acts would be impracticable because
such unfair methods and practices constantly change. Id at 79 (statement of R.E. Freer, Commissioner, FTC). Commissioner Freer also noted that "it is always possible for the human mind to
conceive a method of deception not covered by the limitation resulting from a definition." Id at 80.
The American Newspaper Publishers' Association favored the broad language, rather than a narrow definition under which acts would be judged by their class and not by their offensiveness. Id.at
62 (statement of Elisha Hanson, General Counsel, American Newspaper Publishers' Association).
The Committee declined to adopt any proposals to amend S.3744 that defined or catalogued
deceptive acts. The controversy was never mentioned in the Senate committee report in favor of the
bill. SeS. REP. No. 1705, 74th Cong., 2d Sess. 2-4 (1936); see alsoS. REP. No.221, 75th Cong., 1st
Sess. 3-4 (1937). In House hearings in 1937, Rep. William P. Cole, Jr. asked Commissioner Erwin
L. Davis whether the Commission could "recommend some definition in this act . . .instead of
waiting for the courts to do it." To Amend the Federal Trade Commission Act: Hearings on H.R. 3143
Before the House Comm. on Interstate and Foreign Commerce, 75th Cong., 1st Sess. 12 (1937) (testimony of
Enin L Davis, Commissioner, F7) /hereinafter cited as 1937 House Hearings]. Commissioner Davis
responded that "we could catalog a very substantial number of unfair or deceptive acts. . . but if
[Congress] cataloged all that anybody can think of now, we would be confronted with new ones
right along, because unfair practices are as multifarious as the ingenuity of man is resourceful. . .. " Id
Various industry representatives repeated their objections in the House hearings. See id. at 35
(statement of Raymond Bill, National Publishers' Association) (broad language makes amendment
not only impractical but dangerous). Rep. Robert Crosser of Ohio stated in response to one industry witness' call for a definition of deceptive that the word was self-explanatory. Id at 41. He
suggested "that practially everyone understands better what the word 'deceptive' means than...
the word 'unfair[.]' " Id
Rep. Cole apparently favored a definition, but industry representatives were unable to offer him
any suitable suggestion. He concluded that "I have an open ear myself to any definition that you
think would cover it, but I am not willing, for one, to put a definition in this bill which will leave it
to the [ingeniousness] of violators to adopt something which Congress does not include. That is the
danger and difficulty." Id at 42. Rep. Charles A. Halleck attempted to draw a distinction between
"cataloguing" deceptive practices, and providing a "broad general definition or statement of principles." Id at 44-45. This matter was pursued when Commissioner Davis resumed his testimony
after several industry representatives had testified.
COMMISSIONER DAvis. I said yesterday that the Commission has given this subject consideration for years and years. It has discussed it with various members of industry; Members of Congress; lawyers who deal with this subject; and has given consideration to all
suggestions, and has reached the conclusion that this is just as definite a definition as can
be fairly and safely and practically given.
MR. HALLECK. Of course, this is no definition at all.
COMMISSIONER DAVIs. [Industry representatives] may object to this, but when you
ask, 'Well, what would you say? How would you define it?' [they are unable to provide an
alternative].
Id (statement of Erwin L. Davis, Commissioner, FTC).
In his testimony, Commissioner Davis provided the most detailed definition of deception:
[n]ow, the word 'unfair' is already in the act. So far as "deceptive" is concerned, we think
that that is even a more definite term and one that any citizen understands . . . . We
think that any man capable of engaging in business knows whether he is engaging in
so far as the word "deceptive" is concerned ... that is
deceptive acts and practices.
clear in itself.
Id at 59.
Debate on the House floor did not consider whether deception should be defined. Rather, the
arguments centered on amendments to §§ 12-15 of the Act, (currently codified at 15 U.S.C. §§ 52-
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built an extensive and stable body of law defining deceptive acts and
practices that violate the FTC Act.' t 13 A description of that body of law
follows.
III.
ANALYSIS OF DECEPTIVE ACTS OR PRACTICES
The law of deception under section 5 of the FTC Act,' t4 as it has
developed and been applied throughout some fifty years of Commission
law enforcement, has three principal components. First, there must be
an act or practice that has the tendenc or capacity to mislead consumers. 115 The act or practice may be an oral or written representation, an
omission of fact, or some other conduct associated with the marketing
and sale of products (including real property) or services. In determining that such an act or practice has the tendency or capacity to mislead,
the Commission need not find that actual deception has occurred.
Second, for an act or practice to be found deceptive it must have the
capacity to mislead a substantialnumber of consumers. The Commission
examines the effect of the conduct on consumers of all types, including
those who are not sophisticated, wary, or cautious. If a challenged act
or practice is directed to a particular audience or group of consumers,
the Commission determines whether the act or practice has the capacity
to mislead a substantial portion of that group.
Third, the act or practice must be misleading in a materialrespect. An
act or practice is material if it concerns information that is important to
a consumer's consideration of a commercial transaction, including deliberations about the purchase or use of a product or service. The Commission need not determine that consumers have suffered actual injury in
55 (1982)), which now regulates false advertising of "food, drugs, devices, or cosmetics." Id § 12(a)
(currently 15 U.S.C. § 52(a) (1982)). Se 83 CONG. REc. 393-96 (1938).
113. See FTC v. Colgate-Palmolive Co., 380 U.S. 374, 385 (1965) (Commission has influential
role in interpreting § 5 and applying it to novel cases); FTC v. Motion Picture Adv. Serv. Co., 344
U.S. 392, 394 (1953) (proscriptions under § 5 are flexible and are defined with particularity by
numerous business cases); FTC v. R.F. Keppel & Brother, Inc., 291 U.S. 304, 312 (1934) (Commission's powers gradually defined through deciding cases).
114. 15 U.S.C. § 45 (1982). Section 5 provides in pertinent part: "unfair or deceptive acts or
practices in or affecting commerce are hereby declared unlawful." Id § 45(a)(1). Section 12 of the
FTC Act, a companion section that governs the advertising of food, drugs, medical devices, and
cosmetics, prohibits false advertisements that are "misleading in a material respect." Id. §§ 52, 55
(1982). Section 12(b) of the FTC Act provides that advertisements violating § 12 of the Act also
violate § 5. Id § 52(b). Cases decided under § 12 are discussed in this Article, but only as they
pertain to the analysis of the law of deception under § 5.
115. The term "consumers" is not limited to retail customers, but includes businesses, partnerships, corporate entities, employees, and others. See, e.g., Universal Credit Acceptance Corp., 82
F.T.C. 570, 643 (1973) (commercial buyers of services and franchises), rev'din parton othergroundssub
non Heater v. FTC, 503 F.2d 321 (9th Cir. 1974); American Mktg. Assocs., Inc., 73 F.T.C. 213, 25354 (1968) (prospective employees of corporation); Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures, 16 C.F.R. § 436.2(b) (1984) (regulation
protects any individual, group, association, general partnership, corporation, or other business
entity).
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THE LAW OF DECEPTION
order to find that a misleading act or practice is material. If damages
can be measured, however, the act or practice is certainly material.
In summary, an act or practice is deceptive if it has a tendency or
capacity to mislead a substantial number of consumers in a material
way.
A.
Act or Practice That Has the Tendency or Capacity to Mislead
The Commission begins its analysis in a deception case by focusing on
the act or practice in question. Various activities, ranging from affirmative conduct to the failure to perform particular acts, may constitute
acts or practices within the meaning of section 5. For example, deception can occur in affirmative representations, written and oral, express
and implied; through omissions of material information; or through
other forms of verbal or nonverbal conduct associated with the marketing and sale of products (including real property) and services. A party
may also be responsible for a deceptive act or practice committed by
others who have engaged in conduct that deceives consumers. For example, section 5 is violated when agents of a principal deceive consumers or when a party "places in the hands" of others the means or
instrumentalities with which to deceive consumers. 1 6 This analysis does
not catalog all forms of deceptive acts and practices, but some of the
more significant acts or practices within the three general categories of
affirmative representations, omissions, and marketing practices are discussed below.
In determining whether an act or practice is deceptive, the Commission first must consider whether it has the tendency or capacity to mislead consumers. 1 7 The Commission need not find that consumers have
116. See, e.g., Regina Corp. v. FTC, 322 F.2d 765, 768 (3d Cir. 1963) ("[o]ne who places in the
hands of another" a means of consummating fraud violates § 5); Goodman v. FTC, 244 F.2d 584,
592-93 (9th Cir. 1957) (principal liable for agents' misrepresentations within scope of apparent and
actual authority); Standard Distribs., Inc. v. FTC, 211 F.2d 7, 13 (2d Cir. 1954) (principal liable for
agents' misrepresentations regardless of efforts to prevent deception); National Housewares, Inc., 90
F.T.C. 512, 590-91 (1977) (actor violated § 5 by directly influencing another to violate § 5); see aso
FTC v. Winsted Hosiery Co., 258 U.S. 483, 494 (1922) ("person is a wrongdoer who. . . furnishes
another with the means of consummating a fraud"); Benrus Watch Co. v. FTC, 352 F.2d 313, 318
(8th Cir. 1965) (manufacturer liable for deceptive pre-ticketing of products although products sold
through retailers), cerr. denied, 384 U.S. 939 (1966).
117. E.g., American Home Prods. Corp. v. FTC, 695 F.2d 681, 687 (3d Cir. 1982) (capacity of
advertising as a whole to deceive must be considered); Beneficial Corp. v. FTC, 542 F.2d 611, 617
(3d Cir. 1976) (tendency of advertising to deceive considered), cert. denied, 430 U.S. 983 (1977);
Montgomery Ward & Co. v. FTC, 379 F.2d 666, 670 (7th Cir. 1967) (§ 5 violated if advertisement
has likelihood or capacity to deceive); United States Retail Credit Ass'n, Inc. v. FTC, 300 F.2d 212,
221 (4th Cir. 1962) (advertisement with tendency and capacity to deceive violates § 5); Goodman v.
FTC, 244 F.2d 584, 603-04 (9th Cir. 1957) (capacity to deceive is criterion for decision under § 5);
Charles of The Ritz Distribs. Corp. v. FTC, 143 F.2d 676, 680 (2d Cir. 1944) (representation with
capacity to deceive unlawful); see also FTC v. Algoma Lumber Co., 291 U.S. 67, 81 (1934) (order to
purge business methods of capacity to deceive).
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33:849
actually been misled to declare an act or practice deceptive." 8 Commercial activities with only the potential to mislead may also be deceptive. Some courts have considered the "likelihood or propensity" of
deception as a means of assessing an act's capacity to mislead., 9
Whether an act or practice has the "tendency or capacity" to mislead,
however, remains the traditional standard applied by both the Commission and the courts. 120
The requirement that the Commission need only find that an act has
a tendency or capacity to mislead consumers arises from the nature of
the Commission's law enforcement responsibilities. As the United States
Court of Appeals for the Third Circuit has noted, "[t]he purpose of the
Federal Trade Commission Act is to protect the public, not to punish a
wrongdoer,. . . and it is in the public interest to stop any deception at
its incipiency." 12 t Consequently, the Commission need not show either
actual damage to the public or actual deception. 22 Nor is it relevant
whether a person engaging in a potentially misleading act or practice
intended to mislead consumers or acted in bad faith. The Commission
may prohibit conduct that is capable of misleading consumers even
123
when it is performed unintentionally or in good faith.
118. E.g., American Home Prods. Corp. v. FTC, 695 F.2d 681, 687 (3d Cir. 1982) (capacity to
deceive may be found without evidence of actual deception); Trans World Accounts, Inc. v. FTC,
594 F.2d 212, 214 (9th Cir. 1979) (proof of actual deception unnecessary to establish violation of§ 5
if misrepresentation tends to deceive); Resort Car Rental Sys., Inc. v. FTC, 518 F.2d 962, 964 (9th
Cir.) (actual damage to public and actual deception need not be shown), cert. dtiedsub nom. Mackenzie v. United States, 423 U.S. 827 (1975); Charles of The Ritz Distribs. Corp. v. FTC, 143 F.2d
676, 680 (2d Cir. 1944) (consumer testimony of actual deception unnecessary); Bockenstette v. FTC,
134 F.2d 369, 371 (10th Cir. 1943) (evidence of actual deception unnecessary); Raymond Lee Org.,
Inc., 92 F.T.C. 489, 626-27 (1978) (proof of actual deception not necessary to find violation of§ 5),
aft, 679 F.2d 905 (D.C. Cir. 1980); Trade Regulation Rule; Funeral Industry Practices, 47 Fed.
Reg. 42,260, 42,274 (1982) (statement of basis and purpose) (statement deceptive if it actually misleads consumers or has tendency or capacity to deceive) (rule codified at 16 C.F.R. §§ 453.1-453. 10
(1984)).
119. See Beneficial Corp. v. FTC, 542 F.2d 611, 617 (3d Cir. 1976), cert. demed, 430 U.S. 983
(1977); Montgomery Ward & Co. v. FTC, 379 F.2d 666, 670 (7th Cir. 1967). The courts in both of
these cases stated the issue using not only the word "likelihood" but also the phrases "tendency to
mislead" or "capacity to deceive." This suggests that the terms were considered by the courts
simply as alternative articulations of the traditional standard. Neither these nor any other decisions
suggest that the Commission must find that deception is "probable"-that it is more likely than not
that consumers will be misled-in order to find an act or practice deceptive.
120. For a discussion of early cases applying the "tendency or capacity to deceive" standard,
see supra notes 100-11 and accompanying text. Application of the tendency or capacity to deceive
standard has continued regularly up to the present. See American Home Prods. Corp. v. FTC, 695
F.2d 681, 686-87 (3d Cir. 1982).
121. Regina Corp. v. FTC, 322 F.2d 765, 768 (3d Cir. 1963); accordGoodmanv. FTC, 244 F.2d
584, 602 (9th Cir. 1957); Royal Baking Powder Co. v. FTC, 281 F. 744, 745 (2d Cir. 1922).
122. See Resort Car Rental Sys., Inc. v. FTC, 518 F.2d 962, 964 (9th Cir.), cert. denied sub norm.
Mackenzie v. United States, 423 U.S. 827 (1975); see also
FTC v. Algoma Lumber Co., 291 U.S. 67,
77 (1934) (substitution of yellow pine for advertised white pine illegal even if products had
equivalent value).
123. See Chrysler Corp. v. FTC, 561 F.2d 357, 363 & n.5 (D.C. Cir. 1977) (advertiser's good
faith will not immunize it from responsibility for misrepresentations); Feil v. FTC, 285 F.2d 879,
896 (9th Cir. 1960) (existence of good or bad faith immaterial); Pep Boys-Manny, Moe & Jack,
19841
THE LAW OF DECEPTION
A wide variety of acts and practices may have the tendency or capacity to mislead consumers and therefore may be deceptive. A written or
oral affirmative representation may be deceptive if it has the capacity to
mislead consumers because it is contrary to fact or because it presents
truthful information in a misleading way. Express representations, including affirmative statements that a product's performance is proven or
substantiated, are clearly misleading if they are contrary to fact or
false.12 4 Claims that are literally true also may be deceptive if the overall impression they communicate is misleading;12 5 for example, if a
phrase is subject to more than one interpretation, one of which is contrary to fact, 126 or if the claim is true only in unusual or limited circumInc. v. FTC, 122 F.2d 158, 161 (3d Cir. 1941) (deliberate effort to deceive not necessary); Ford
Motor Co. v. FTC, 120 F.2d 175, 181 (6th Cir.) (good or bad faith of advertiser irrelevant), cert.
dented, 314 U.S. 668 (1941); AMREP Corp., 102 F.T.C. 1362, 1632 (1983) (good faith of seller not
defense to § 5 violation), appealflled,No. 84-1434 (10th Cir. Apr. 2, 1984); Travel King, Inc., 86
F.T.C. 715, 773 (1975) (intent to deceive "simply not" element of deception).
A party's intent or culpability, however, may be considered in designing an appropriate remedial
order. See Sears, Roebuck & Co. v. FTC, 676 F.2d 385, 392 (9th Cir. 1982) (willingness to flout law
and deliberateness of violation considered in reviewing order); Litton Indus., Inc. v. FTC, 676 F.2d
364, 372 (9th Cir. 1982) (circumstances must be considered in entering order); Porter & Dietsch,
Inc. v. FTC, 605 F.2d 294, 309 (7th Cir. 1979) (extent of culpability has bearing on remedy), cert.
denied,445 U.S. 950 (1980).
124. See National Comm'n on Egg Nutrition v. FTC, 570 F.2d 157, 161 (7th Cir. 1977) (claims
that no evidence linked egg consumption and risk of heart disease false because such evidence does
exist), cert dented, 439 U.S. 821 (1978); Warner-Lambert Co. v. FTC, 562 F.2d 749, 753-56 (D.C.
Cir. 1977) (claims that mouthwash could prevent or cure colds and sore throats false because ingredients and method of application would not produce these results), cert. denied, 435 U.S. 950 (1978);
Niresk Indus., Inc. v. FTC, 278 F.2d 337, 340 (7th Cir.) (claims of price reductions on cooking
product false because product never sold at higher price and not comparable to higher priced
products), -ert. denied,364 U.S. 883 (1960); Certified Bldg. Prods., Inc., 83 F.T.C. 1004, 1034 (1973)
(claims that residential siding would reduce heating costs by 50% false because consumers do not
obtain that level of savings), af'drub non. Thiret v. FTC, 512 F.2d 176 (10th Cir. 1975); Firestone
Tire & Rubber Co., 81 F.T.C. 398, 451-52 (1972) (claim that tests showed respondent's tires would
stop 25% quicker deceptive because tests did not substantiate claim), afd, 481 F.2d 246 (6th Cir.),
cert. denied, 414 U.S. 1112 (1973).
125. See American Home Prods. Corp. v. FTC, 695 F.2d 681, 688 (3d Cir. 1982) (Commission
looks to impression made by advertisements as a whole because more limited examination would
allow only "limited recourse against crafty advertisers" who deceive by means other than words);
Kalwajtys v. FTC, 237 F.2d 654, 656 (7th Cir. 1956) (examining impression created in mind of
prospective purchaser), cert. denied,352 U.S. 1025 (1957); Rhodes Pharmacal Co. v. FTC, 208 F.2d
382, 387 (7th Cir. 1953) (literally true advertisements that create false impression deceptive), rev'dto
reinstateorder, 348 U.S. 940 (1955); P. Lorillard Co. v. FTC, 186 F.2d 52, 57-58 (4th Cir. 1950) (claim
deceptive because advertisement's presentation of magazine article caused reader to believe exact
opposite of what writer of article intended).
126. See, e.g., Chrysler Corp. v. FTC, 561 F.2d 357, 363 (D.C. Cir. 1977) (advertising claims
deceptive if capable of conveying misleading impressions although other nonmisleading interpretations possible); Giant Food, Inc. v. FTC, 322 F.2d 977, 981 (D.C. Cir. 1963) (use of manufacturer's
list prices deceptive although their use also served nondeceptive function); FTC v. Sterling Drug,
Inc., 317 F.2d 669, 674-75 (2d Cir. 1963) (true statement can convey false impression if statement is
half-truth or has two meanings, one ofwhich is deceptive); Murray Space Shoe Corp. v. FTC, 304
F.2d 270, 272 (2d Cir. 1962) (claim that shoes relieve pain deceptive because it could be taken to
mean shoes had therapeutic value and they did not); National Comm'n on Egg Nutrition v. FTC,
88 F T.C. 84, 185-86 (1976) ("[A]n otherwise false advertisement is not rendered acceptable merely
because one possible interpretation of it is not untrue"), affd as mod6fed, 570 F.2d 157 (7th Cir.
1977), cer!. denied, 439 U.S. 821 (1978).
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stances, the claim may be found to be deceptive.' 27 Express
representations that consumers do not interpret as statements of fact,
such as obviously exaggerated descriptions of a product's merits, subjective expressions of opinion, or "puffing," may not tend to mislead consumers. 128 The use of expert opinion, demonstrations, or objective
evidence of performance, however, may enhance the credibility of repre29
sentations and increase their capacity to mislead consumers.
Many cases involve false and misleading implications, suggestions, or
insinuations. Because innuendo as well as outright false statements may
127. See, e.g., J.B. Williams Co. v. FTC, 381 F.2d 884, 889-90 (6th Cir. 1967) (claims that
product relieved tiredness caused by iron deficiency anemia were misleading because most people
with tiredness symptoms do not suffer from this condition); Feil v. FTC, 285 F.2d 879, 900-01 (9th
Cir. 1960) (claim that product cured bed-wetting misleading because product worked only for some
forms of problem and not for 25-50% of cases in which problem was organic); Keele Hair & Scalp
Specialists, Inc., 55 F.T.C. 1840, 1849-50 (1959) (claim that most bald men could benefit from
product misleading because product not effective for male pattern baldness), aft'd, 275 F.2d 18 (5th
Cir. 1960); see alro Trade Regulation Rules; Labeling and Advertising of Home Insulation, 44 Fed.
Reg. 50,218, 50,224 (Aug. 27, 1979) (statement of basis and purpose) (claims for insulation R-value
based on testing at a one-inch thickness deceptive because such testing may produce higher R-value
than testing at greater thicknesses, and insulation is sold at greater thicknesses) (rule codified at 16
C.F.R. §§ 460.1-460.24 (1984)); Guides Concerning Use of Endorsements and Testimonials in Advertising, 16 C.F.R. § 255.2 (1984) (consumer endorsement concerning central attribute of product
or service represents that endorser's experience is representative of consumers generally and if unsubstantiated, advertisement must disclose expected performance or limited applicability of endorser's experience).
128. See, e.g., Goodman v. FTC, 244 F.2d 584, 603 (9th Cir. 1957) (quoting Steelco Stainless
Steel, Inc. v. FTC, 187 F.2d 693, 697-98 (7th Cir. 1951) ("puffing" tolerated, but statements intended to deceive prospective purchasers and induce them to purchase not considered puffing);
Pfizer, Inc., 81 F.T.C. 23, 64 (1972) (puffing or other hyperbole in advertising is not type of affirmative product claim for which Commission or consumer would expect documentation); Wilmington
Chem. Corp., 69 F.T.C. 828, 865 (1966) (statements made for purpose of deceiving prospective
purchasers cannot properly be characterized as mere puffing).
The critical issue in "puffing" cases is the extent to which consumers might be misled by the
claims. In Unfair or Deceptive Advertising and Labeling of Cigarettes in Relation to the Health
Hazards of Smoking, 29 Fed. Reg. 8324 (1964) (statement of basis and purpose) [hereinafter cited
as Cigarette Statement], the Commission stated:
While the courts still make occasional reference to the fact-opinion distinction, they recognize no privilege for statements of opinion in advertising, and invariably regard as a deceptive and unlawful representation any opinion stated in such a manner as to mislead
the consumer. The traditionally broad scope of permissible "puffing" has been narrowed
to include only expressions that the consumer clearly understands to be pure sales rhetoric
on which he should not rely in deciding whether to purchase the seller's product. The
test, thus, is not whether a representation is intended as a statement of fact or one of
opinion, but whether it is likely to mislead the consumer.
Id at 8351.
129. See, e.g., FTC v. Colgate-Palmolive Co., 380 U.S. 374, 389 (1965) (techniques such as
certifying product equivalent to telling public that it may rely on validity of certification); AMREP
Corp., 102 F.T.C. 1362, 1656-59 (1983) (respondent who represented self as real estate expert in
order to sell undeveloped property could not claim statements were mere opinion), pettionfor review
fled, No. 84-1434 (10th Cir. Apr. 2, 1984); Chrysler Corp., 87 F.T.C. 719, 747 (1976) (reference in
advertisement to report in magazine "designed to disarm skeptical consumers"), afdas modfd, 561
F.2d 357 (D.C. Cir. 1977); see also Guides Concerning Use of Endorsements and Testimonials in
Advertising, 16 C.F.R. § 255.1 (1984) (endorsements must reflect "honest opinions, findings, beliefs,
or experience of the endorser" and may not be deceptive or include representations that advertiser
could not substantiate if made directly by advertiser).
1984]
THE LAW OF DECEPTION
mislead consumers, implied representations may be found deceptive. 130
In addition, under the Commission's advertising substantiation doctrine
express claims about a product's performance or safety contain implied
representations that the claims have been substantiated. If the claims
are not in fact substantiated-that is, supported by a reasonable basisthe advertising may be found deceptive.' 3 ' Both express and implied
representations may be qualified by disclosures or disclaimers, but
whether the disclaimers are effective in correcting a misrepresentation
32
depends on the net impression conveyed.'
Omissions constitute a second category of acts or practices that can
mislead consumers. Omitting material information from written or oral
sales presentations, including advertising, or from other aspects of commercial transactions, 133 may be deceptive. For the omission to be con130. See, e.g., Fedders Corp. v. FTC, 529 F.2d 1398, 1402-03 (2d Cir.) (claim that air conditioners unique in having reserve cooling power deceptive because it implied claim of high cooling performance in extreme conditions), cert. denied, 429 U.S. 818 (1976); National Bakers Servs., Inc. v.
FTC, 329 F.2d 365, 366-67 (7th Cir. 1964) (claim that seller's bread had few calories per slice
deceptive because bread actually was lower in calories per slice than standard bread only because
sliced more thinly); Mytinger & Casselberry, Inc. v. FTC, 301 F.2d 534, 540-41 (D.C. Cir. 1962)
(claim that government document implied approval or endorsement of product deceptive because
document was consent decree settling criminal misrepresentation charges).
131. See, e.g., Firestone Tire & Rubber Co. v. FTC, 481 F.2d 246, 250-51 (6th Cir.) (performance and safety claims about tire stopping capabilities implied that claims had been substantiated
by scientific testing and were deceptive because not substantiated), cert. denied,414 U.S. 1112 (1973);
National Dynamics Corp., 82 F.T.C. 488, 549-50 (1973) (advertising found deceptive where respondents conveyed impression to public that they had reasonable factual basis for believing claims
were true), afd as modftd, 492 F.2d 1333 (2d Cir.), cert. denied, 419 U.S. 993 (1974); Heinz W.
Kirchner, 63 F.T.C. 1282, 1295 (1963) (affirmation of safety when user's health or safety may be
adversely affected and claim implicitly represents that advertiser has reasonable and substantial
foundation in fact for making claim), afd, 337 F.2d 751 (9th Cir. 1964); see also National Comm'n
on Egg Nutrition, 88 F.T.C. 84, 191 (1976) (claim based on inadequate or nonexistent substantiation deceptive under § 5 for omission of highly material fact), a dasmod fed, 570 F.2d 157 (7th Cir.
1977), cert. denied, 439 U.S. 821 (1978); cf. Pfizer, Inc., 81 F.T.C. 23, 64 (1972) (affirmative product
claim unfair unless advertiser has reasonable basis for making claim).
132. See, e.g., Standard Oil Co. v. FTC, 577 F.2d 653, 659 (9th Cir. 1978) (Commission properly found "predominant visual message" misleading when not corrected or contradicted by accompanying verbal message); Giant Food, Inc. v. FTC, 322 F.2d 977, 986 (D.C. Cir. 1963) (qualifying
statement may not alleviate deception if it is in fine print and set apart from body of advertisement
or if disclosure, as here, contributed to deception), cer. dimissed, 376 U.S. 967 (1964); Litton Indus.,
Inc., 97 F.T.C. 1, 71 & n.6 (1981) (fine print disclosures inadequate to remedy misleading statement
made in headline), affdas modifed, 676 F.2d 364 (9th Cir. 1982); see also Bantam Books, Inc. v. FTC,
275 F.2d 680, 681-82 (2d Cir.) (Commission properly found inconspicuous disclosures that books
were abridged or previously published under other titles inadequate), cert. denied, 364 U.S. 819
(1960); AMREP Corp., 102 F.T.C. 1362, 1646-47 n.47 (1983) (small print disclosure in brochure
failed to dispel misrepresentations made in oral sales presentation), petitionfor review fled No. 841434 (10th Cir. Apr. 2, 1984); Raymond Lee Org., Inc., 92 F.T.C. 489, 618-19 (1978) (ambiguous
disclosures in contracts did not counter overall impression fostered by prior written and oral representations), afd, 679 F.2d 905 (D.C. Cir. 1980); Peacock Buick, Inc., 86 F.T.C. 1532, 1554 & n. 5
(1975) (subsequent disclosure in financing agreement that cars were used did not cure prior misrepresentations), review denied, 553 F.2d 97 (4th Cir. 1977).
133. See, e.g., Porter & Dietsch, Inc. v. FTC, 605 F.2d 294, 303-04 (7th Cir. 1979) (failure to
disclose substantial weight losses from use of product were rare and product presented health risk),
cert. denied, 445 U.S. 950 (1980); Simeon Mgmt. Corp. v. FTC, 579 F.2d 1137, 1144-45 (9th Cir.
1978) (failure to disclose that drug not determined safe and effective for purposes for which sold);
880
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 33:849
sidered misleading, the undisclosed information must be necessary to
correct a material misimpression or false assumption in the minds of
consumers. This is true whether a seller's affirmative acts create that
misimpression or assumption or the misimpression or assumption simply
arises from consumers' expectations in the circumstances of the
transaction. 134
Marketing and point-of-sale practices that have the tendency or capacity to mislead consumers present a third category of deceptive conduct. These practices may be deceptive if they tend to create a
misimpression about either the transaction or the nature, value, or utility of the products or services involved. For example, product demonstrations or visual displays may deceive consumers because they
misrepresent the performance or capabilities of a product.1 35 The Commission has also found companies or individuals in violation of section 5
for using bait-and-switch practices,1 36 sending and attempting to obtain
J.B. Williams Co. v. FTC, 381 F.2d 884, 889 (6th Cir. 1967) (failure to disclose that most people
suffering from advertised symptoms could not benefit from product advertised as cure); Royal Oil
Corp. v. FTC, 262 F.2d 741, 744-45 (4th Cir. 1959) (failure to disclose that "reprocessed" oil had
been previously used); L. Heller & Son, Inc. v. FTC, 191 F.2d 954, 955-56 (7th Cir. 1951) (failure to
disclose foreign origin of pearls); Horizon Corp.,.97 F.T.C. 464, 814 (1981) (failure to disclose that
undeveloped land was extremely long-term investment); Market Dev. Corp., 95 F.T.C. 100, 212
(1980) (failure to disclose extra charges or conditions imposed on use of vacation certificates); Peacock Buick, Inc., 86 F.T.C. 1532, 1557-58 (1975) (failure to disclose prior use of late model cars sold
for close to list price), review denied, 553 F.2d 97 (4th Cir. 1977).
In promulgating a home insulation trade regulation rule, Labeling and Advertising of Home
Insulation, 44 Fed. Reg. 50,218 (1979) (statement of basis and purpose) (rule codified at 16 C.F.R.
§§ 460.1-460.24 (1984)), the Commission asserted that "[i]t is an established principle of section 5
that when a consumer's normal expectations concerning a product are at odds with actual information about the product, this disparity must be corrected through disclosure." Id at 50,223.
134. See infoa notes 209-35 and accompanying text (discussing materiality of omissions).
135. See, e.g., FTC v. Colgate-Palmolive Co., 380 U.S. 374, 390 (1965) (undisclosed use ofplexiglass in demonstration of shaving cream's ability to shave sandpaper was deceptive); Standard Oil
Co. v. FTC, 577 F.2d 653, 659 (9th Cir. 1978) (visual demonstration that the product substantially
reduced automotive emissions was misleading); ITT Continental Baking Co. v. FTC, 532 F.2d 207,
214-15 (2d Cir. 1976) (visual sequence showing small child growing up in seconds misrepresented
bread as extraordinary growth food for children); Libbey-Owens-Ford Glass Co. v. FTC, 352 F.2d
415, 417-18 (6th Cir. 1965) (televised depiction of glass purporting to show equivalence to other
glass deceptive when distortions in glass were exaggerated and one photo of "glass" actually photo
of open window).
In the case of advertising, the overall impression of the advertisement governs whether it is deceptive. See American Home Prods. Corp. v. FTC, 695 F.2d 681, 687-88 (3d Cir. 1982). The court in
American Home Productsstated:
The Commission's right to scrutinize the visual and aural imagery of advertisements follows from the principle that the Commission looks to the impression made by the advertisements as a whole. Without this mode of examination, the Commission would have
limited recourse against crafty advertisers whose deceptive messages were conveyed by
means other than, or in addition to, spoken words.
Id at 688.
136. See, e.g., American Aluminum Corp., 84 F.T.C. 21, 50 (1974) (bait-and-switch tactic of
disparaging low priced siding in order to encourage purchase of expensive siding prohibited), afd,
522 F.2d 1278 (5th Cir. 1975), cert. denied, 426 U.S. 906 (1976); Seekonk Freezer Meats, Inc., 82
F.T.C. 1025, 1044 (1973) (bait and switch in meat sales deceptive); Leon A. Tashof, 74 F.T.C. 1361,
1388 (1968) (§ 5 violated by bait and switch of eyeglasses), afd, 437 F.2d 707 (D.C. Cir. 1970). See
1984]
THE LAW OF DECEPTION
payment for unordered merchandise, 137 labeling products with artificial
or fictitious prices, 38 marketing pyramid sales schemes, 3 9 engaging in
high-pressure sales tactics in the context of pervasive misrepresentations
of material facts,' 40 and failing to provide promised services or to meet
warranty obligations.' 4' Commercial acts or practices that use deception to secure an initial contact with a consumer or to create interest in a
product or service are deceptive even if the misleading impression is corrected by a subsequent truthful disclosure before the transaction is
42
completed.'
The Federal Trade Commission has the expertise to determine
generalg4 Guides Against Bait Advertising, 16 C.F.R. §§ 238.0-238.4 (1984). Similarly, advertising
food specials may be deceptive if the advertised items are not readily available for sale. Eg., The
Great At. & Pac. Tea Co., 85 F.T.C. 601, 668-73 (1975); Retail Food Store Advertising and Marketing Practices, 16 C.F.R. §§ 424.1-424.2 (1984).
137. See Sunshine Art Studios, Inc., 81 F.T.C. 836, 866-67 (1972), aJ'd, 481 F.2d 1171 (lst Cir.
1973).
138. See, e.g., FTC v. Mary Carter Paint Co., 382 U.S. 46, 48 (1965) (marketing two cans of
paint for one price and calling second can "free" misrepresented usual and customary price of
paint); Helbros Watch Co. v. FTC, 310 F.2d 868, 869-70 (D.C. Cir. 1962) (reducing prices after preticketing items with prices higher than usual selling price deceives consumers into believing product
better buy than it is), cert. denied 372 U.S. 976 (1963); Niresk Indus. v. FTC, 278 F.2d 337, 340 (7th
Cir.) (marketing cookware at reduction from "regular" price deceptive when cookware had not sold
for that price and was not comparable to products selling for that price), cert. dented, 364 U.S. 883
(1960); Southern States Distrib. Co., 83 F.T.C. 1126, 1174-78 (1973) (marketing products under
supposed "distress" sale conditions and giving fictitious discounts from arbitrarily set initial prices
misrepresented prices as bargains).
139. See, e.g.. Koscot Interplanetary, Inc., 86 F.T.C. 1106, 1180-81 (1975) (claim that all members of plan can profit from recruitment of new members deceptive), modifed, 87 F.T.C. 75 (1976);
Holiday Magic, Inc., 84 F.T.C. 748, 1036-37 (1974) (open-ended multilevel marketing plan deceptive when held out as reasonable business opportunity because required level of marketing impossible), modfla, 85 F.T.C. 90 (1975). But see, e.g., Ger-Ro-Mar, Inc. v. FTC, 518 F.2d 33, 37-38 (2d Cir.
1975) (evidence did not support per se condemnation of multi-level marketing plan); Amway Corp.,
93 F.T.C. 618, 715 (1979) (multi-level plan lacked essential features required for finding of inherent
deception).
140. &e AMREP Corp., 102 F.T.C. 1362, 1662 (1983) (misleading statements purporting not
to bind purchaser to real estate contract obligations on signing), appealfled,No. 84-1434 (10th Cir.
Apr. 2, 1984); Horizon Corp., 97 F.T.C. 464, 840-42 (1981) (misleading statements creating sense of
urgency in consumers to buy real estate immediately).
141. See, e.g., Market Dev. Corp., 95 F.T.C. 100, 212-214 (1980) (failure to provide accommodations promised and refund money when requested under money-back "guarantee" deceptive);
Jay Norris, Inc., 91 F.T.C. 751, 835-36 (1978) (delay and failure to deliver merchandise or provide
promised refunds deceptive), afd as modified, 598 F.2d 1244 (2d Cir.), cert. denied, 444 U.S. 980
(1979); National Trade Publications Serv., Inc., 58 F.T.C. 706, 715-17 (1961) (practice of soliciting
magazine subscriptions respondents not authorized to sell, accepting money, and then forcing purchasers to take substitutes deceptive), afd, 300 F.2d 790 (8th Cir. 1962).
142. See, e.g., Exposition Press, Inc. v. FTC, 295 F.2d 869, 873 (2d Cir. 1961) (deceptive advertisement illegal even though literature sent in response to ad clarified deceptive statement), cert.
denied,370 U.S. 917 (1962); Carter Prods., Inc. v. FTC, 186 F.2d 821, 824 (7th Cir. 1951) (advertisement illegal even though instructions on containers corrected misleading impression created by
advertisements); Raymond Lee Org., Inc., 92 F.T.C. 489, 618-19 (1978) (written contractual disclaimers insufficient to remedy prior oral and written misrepresentations), affid, 679 F.2d 905 (D.C.
Cir. 1980); Encyclopaedia Britannica, Inc., 87 F.T.C. 421, 496-97 (1976) (gaining entry to prospective customers' homes on pretense of collecting advertising research deceptive when true purpose to
sell encyclopedias), afd, 605 F.2d 964 (7th Cir. 1979), cert. denied, 445 U.S. 934 (1980); Peacock
Buick, Inc., 86 F.T.C. 1532, 1562-63 (1975) (sales agreement disclosure that service charges must be
paid did not cure prior misrepresentations about car price), review deniedmem., 553 F.2d 97 (4th Cir.
882
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 33:849
whether particular acts or practices have the tendency or capacity to
mislead consumers. The courts have recognized that the Commission
has extensive experience and familiarity with the expectations and beliefs of the public and have agreed that the Commission "has the discretion to interpret the meanings of various communications and the
'impressions they would likely make upon the viewing public.' "143
Thus, the Commission is able to determine the meaning of a representation and assess its capacity to deceive by examining the representation
1 In some cases, however, the Commission may not be persuaded
itself.'4
based on its own expertise that an act or practice has the capacity to
mislead consumers and may demand extrinsic evidence or expert opin1 45
ion before reaching such a conclusion.
The Supreme Court has noted that the law does not require the Commission to sample public opinion or to produce consumer or expert testimony in order to establish the meaning of a representation, nor to
demonstrate that an act or practice has the capacity to deceive consumers. 14 6 Evidence concerning the effect that an act or practice has on
1977); see also Resort Car Rental Sys. v. FTC, 518 F.2d 962, 964 (9th Cir.) (public not under duty to
denied, 423 U.S. 827 (1975).
make reasonable inquiry into truth of advertising), cert.
Attempts to recompense consumers after the fact also do not excuse the deception. See Sears,
Roebuck & Co., 95 F.T.C. 406, 518 (1980) (money-back guarantee no defense to charge of deception because it does not compensate consumer for often considerable time and expense incident to
returning major-ticket item and obtaining replacement), afd, 676 F.2d 385 (9th Cir. 1982); Montgomery Ward & Co. v. FTC, 379 F.2d 666, 671 (7th Cir. 1967) (money-back guarantee no defense
to charge of deceptive advertising).
143. Trans World Accounts v. FTC, 594 F.2d 212, 214 (9th Cir. 1979) (quoting Libbey-OwensFord Glass Co. v. FTC, 352 F.2d 415, 417 (6th Cir. 1965)); see also Simeon Mgmt. Corp. v. FTC,
579 F.2d 1137, 1145 (9th Cir. 1978) (Commission's experience puts it in better position than courts
to determine when practice is deceptive); Fedders Corp. v. FTC, 529 F.2d 1398, 1403 (2d Cir.)
(determining deception in advertising is area of Commission's greatest expertise), cert. denied, 429
U.S. 818 (1976); Resort Car Rental Sys. v. FTC, 518 F.2d 962, 964 (9th Cir.) (Commission's experdenid, 423 U.S. 827 (1975).
tise is determining deception), cert.
144. See Chrysler Corp. v. FTC, 561 F.2d 357, 363 (D.C. Cir. 1977) (Commission entitled to
conclude from advertisements and stipulations that advertisements had tendency and capacity to
mislead); Niresk Indus. v. FTC, 278 F.2d 337, 342 (7th Cir.) (Commission could conclude from
examination of advertisements alone their tendency to mislead), cert. denied, 364 U.S. 883 (1960).
Similarly, the inspection of a product may be all that the Commission requires to conclude that
material information about the product has not been disclosed. Royal Oil Corp. v. FTC, 262 F.2d
741, 745 (4th Cir. 1959) (neither deceived customers nor experts needed when exhibits sufficiently
demonstrate capacity to deceive).
145. See Leonard F. Porter, Inc., 88 F.T.C. 546, 626-27 (1976) (Commission found no deception
in failure to disclose products' origin absent evidence that consumers would assume products made
by Alaskan natives); ef Elliot Knitwear, Inc. v. FTC, 266 F.2d 787, 789 (2d Cir. 1959) (term
"Cashmora" on sweater labels not "deceptive per se" when labels also disclosed sweater content);
The Kroger Co., 98 F.T.C. 639, 728-30 (1981) (summary judgment improper when genuine factual
issue remains concerning message of advertisement), modified, 100 F.T.C. 573 (1982).
146. FTC v. Colgate-Palmolive Co., 380 U.S. 374, 391-92 (1965) (Commission need not conduct survey before determining that commercials had tendency to mislead); see also American
Home Prods. Corp. v. FTC, 695 F.2d 681, 687-88 & n.10 (3d Cir. 1982) (customer testimony helpful
but not essential in light of FTC expertise); Resort Car Rental Sys. v. FTC, 518 F.2d 962, 964 (9th
Cir.) (consumers' testimony merely supported inferences logically drawn from advertisement
alone), cert. denied, 423 U.S 827 (1975); J.B. Williams Co. v. FTC, 381 F.2d 884, 890 (6th Cir. 1967)
THE LAW OF DECEPTION
consumers is often helpful, however, and the Commission has frequently
admitted and relied on such extrinsic evidence.' 47 Nevertheless, extrinsic evidence "supplements rather than supplants the Commission's expertise [and] must be weighed in terms of its probative value the same as
all other evidence offered during adjudicative proceedings."' 48 The
Commission's determination that an act or practice has the tendency or
a finding of fact given considerable
capacity to mislead consumers 4 is
9
deference by reviewing courts.'
B.
SubstantialNumber of Consumers
The second element required for a finding of deception is a determination that an act or practice has the capacity to mislead a substantial
number of consumers. The Commission and the courts have used various terms to state this element, including whether a "substantial seg(Commission need not take random sample to determine meaning and impact of advertisements);
Carter Prods. v. FTC, 323 F.2d 523, 528 (5th Cir. 1963) (Commission need not depend on testimony and exhibits); Exposition Press, Inc. v. FTC, 295 F.2d 869, 872 (2d Cir. 1961) (consumer
testimony not needed to support Commission's inference of deception), cert. denied, 370 U.S. 917
(1962); Zenith Radio Corp. v. FTC, 143 F.2d 29, 31 (7th Cir. 1944) (Commission not required to
sample opinion to determine what advertisements represented to public); The Kroger Co., 98
F.T.C. 639, 728 (1981) (consumer perceptions unnecessary to Commission's decision), modifed, 100
F.T.C. 573 (1982); National Dynamics Corp., 82 F.T.C. 488, 548 (1973) (consumer testimony undenied, 419 U.S. 993
necessary for Commission's interpretation), af, 492 F.2d 1333 (2d Cir.), cert.
(1974).
147. See, e.g., Firestone Tire & Rubber Co. v. FTC, 481 F.2d 246, 249 (6th Cir.) (finding condenied, 414 U.S. 1112 (1973). In
sumer survey regarding meaning of advertisement relevant), cert.
Ford Motor Co., 87 F.T.C. 756 (1976), the Commission affirmed the administrative law judge's
grant of complaint counsel's motion for summary judgment on the meaning of certain advertisements. The judge had reviewed results of a consumer survey and determined them to corroborate
his interpretation of the advertisement, leading him to conclude that it was unnecessary to hear
expert testimony on the survey data. Id at 794-96.
When, however, evidence in the form of surveys or consumer testimony is part of the record, the
Commission cannot ignore it. In accordance with due process requirements, the Commission must
consider and accept or reject the evidence as part of the agency's review of the entire record in a
proceeding. E.g., Cinderella Career and Finishing Schools, Inc. v. FTC, 425 F.2d 583, 586-88 (D.C.
Cir. 1970) (Commission must consider consumers' testimony if part of record); Bristol-Myers Co.,
102 F.T.C. 21, 319 (1983) (Commission must consider extrinsic evidence on meaning of advertisement, if introduced), af'd,738 F.2d 554 (2d Cir. 1984); Firestone Tire & Rubber Co., 81 F.T.C. 398,
454 (1972) (Commission must consider consumer views when offered), aj'd,481 F.2d 246 (6th Cir.),
ciri. dented, 414 U.S. 1112 (1973).
148. Crown Cent. Petroleum Corp., 84 F.T.C. 1493, 1540 (1974), modtifd, 888 F.T.C. 210
(1976); see also Bristol-Myers Co., 102 F.T.C. 21, 319 (1983) (extrinsic evidence may assist, not
supplant, Commission's judgment), aJ'd, 738 F.2d 554 (2d Cir. 1984); Firestone Tire & Rubber Co.,
81 F.T.C. 398, 454 (1972) (Commission should consider consumer testimony to determine if it
denied, 414 U.S. 1112 (1973).
might supplement its expertise), afd, 481 F.2d 246 (6th Cir.), cert.
149. FTC v. Mary Carter Paint Co., 382 U.S. 46, 48-49 (1965); accord FTC v. ColgatePalmolive Co., 380 U.S. 374, 384-85 (1965); American Home Prods. Corp. v. FTC, 695 F.2d 681,
686 (3d Cir. 1982); Litton Indus., Inc. v. FTC, 676 F.2d 364, 368-69 (9th Cir. 1982); Firestone Tire
denied, 414 U.S. 1112 (1973); Kalwajtys
& Rubber Co. v. FTC, 481 F.2d 246, 24849 (6th Cir.), cert.
denied, 352 U.S. 1025 (1957).
v. FTC, 237 F.2d 654, 656 (7th Cir. 1956), cert.
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 33:949
ment,"' 50 a "substantial percentage,"'15 "substantial numbers,"' 152
"some reasonably significant number" of consumers, 153 or a "portion of
the purchasing public"' 54 have been or could be misled. If a practice is
targeted at a specific group of consumers, the test is whether it could
mislead a substantial number of that particular group's members. 55
The fundamental concept underlying each of these similar articulations
of the standard is that an act or practice need not mislead all-or even
most-consumers to be deceptive.
The earliest judicial discussions of deception established that consumers are entitled to take commercial representations at face value and
need not distrust them. Thus, the United States Supreme Court, in rejecting a lower court's conclusion that consumers could not be "fatuous
enough" to accept the bold assertions of one seller, declared:
[t]he fact that a false statement may be obviously false to those who
are trained and experienced does not change its character, nor take
away its power to deceive others less experienced. There is no duty
resting upon a citizen to suspect the honesty of those with whom he
transacts business. Laws are made to protect the trusting as well as
the suspicious. The best element of business has long since decided
that honesty should govern competitive enterprises, and that the rule
of caveat emptor should not be relied upon to reward fraud and
deception.'
56
150. Trade Regulation Rule on Funeral Industry Practices, 47 Fed. Reg. 42,260, 42,274 (1982)
(statement of basis and purpose) (rule codified at 16 C.F.R. §§ 453.1-453.10 (1984)) ("A statement
is deceptive under Section 5 of the FTC Act if it actually misleads consumers, or has the tendency
or capacity to deceive a substantial segment of the purchasing public in some material respect.");
Cigarette Statement, supra note 128, at 8350 ("test of unlawful deception under Section 5 is whether
the advertisement in question is likely to deceive a substantial segment of the purchasing public, or
of that part of the purchasing public to whom the representation is directed").
151. Benrus Watch Co. v. FTC, 352 F.2d 313, 319-20 (8th Cir. 1965) (affirming finding of
deception based on perceptions of "substantial percentage" of consumers who might buy watches),
cert.
denied,384 U.S. 939 (1966). For a discussion of the facts of Bennis Watch Co., see mf/ra
note 185.
152. Raymond Lee Org., Inc., 92 F.T.C. 489, 649 (1978) (§ 5 violated if "substantial numbers
of the public" base purchasing decisions on false beliefs), afd, 679 F.2d 905 (D.C. Cir. 1980); Bristol-Myers Co., 85 F.T.C. 688, 744 (1975) ("substantial number" of consumers surveyed-probably
somewhere between 14-33%----understood "Dry Ban" to be "dry"); see also Travel King, Inc., 86
F.T.C. 715, 759 (1975) (substantial numbers of people purchased services from respondents).
153. The Kroger Co., 98 F.T.C. 639, 728 (1981) (Commission based its reading of challenged
advertisements on their effect on "some reasonably significant number of consumers"), modied. 100
F.T.C. 573 (1982); see also
American Home Prods. Corp., 98 F.T.C. 136, 408 ("studies in the record
show that a significant number of consumers perceived Anacin to be effective for relief of tension"),
a.fdas modifed, 695 F.2d 681 (3d Cir. 1982).
154. Bantam Books, Inc., 55 F.T.C. 779, 787 (1958) (failure to disclose has "tendency and
capacity to lead a portion of the purchasing public" into mistaken belief), a'd 275 F.2d 680 (2d
Cir.), cert. denied,364 U.S. 819 (1960); see aLo Haskelite Mfg. Corp., 33 F.T.C. 1212, 1217 (1941) (§ 5
violated when "substantial portion of the purchasing public" may be deceived), afd, 127 F.2d 765
(7th Cir. 1942).
155. See Heinz W. Kirchner, 63 F.T.C. 1282, 1290 (1963) (advertising "aimed at a specially
susceptible group of people," such as children, measured by impact on that group), affd, 337 F.2d
751 (9th Cir. 1964); Cigarette Statement, supra note 128, at 8351; ef Bates v. State Bar, 433 U S.
350, 383 n.37 (1977) (whether advertisement for legal services is misleading "requires consideration
of the legal sophistication of its audience").
156. FTC v. Standard Educ. Soc'y, 302 U.S. 112, 116 (1937).
1984]
THE LAW OF DECEPTION
Since this decision, the Commission and the courts have consistently recognized that section 5 protects "credulous" consumers, 57 and that, in
evaluating the tendency of representations to deceive, "the Commission
is bound to protect the public in general, the unsuspecting as well as the
58
skeptical."
In determining whether a substantial number of consumers may be
misled, the Commission often considers whether "ordinary"' 59 or "average"' 16 consumers could be misled. Settled law recognizes, however,
that the consuming public includes many persons who may not be so63
phisticated,' 6' well informed, 62 or careful in making purchases.'
157. Se Fell v. FTC, 285 F.2d 879, 887 (9th Cir. 1960) (§ 5 protects consumers incapable of
discerning misleading information); Aronberg v. FTC, 132 F.2d 165, 167 (7th Cir. 1942) (§ 3 not
designed for experts "but to protect the public-that vast multitude which includes the ignorant,
the unthinking, and the credulous "); Gold Bullion Int'l, Ltd., 92 F.T.C. 196, 221 (§ 5 protects both
knowledgeable and uninformed persons), modatifd, 92 F.T.C. 667 (1978).
158. Doherty, Clifford, Steers & Shenfield, Inc. v. FTC, 392 F.2d 921, 926 (6th Cir. 1968)
(citing Exposition Press, Inc. v. FTC, 295 F.2d 869 (2d Cir. 1961), cert. denied,370 U.S. 917 (1962)).
159. E.g., Stupell Originals, Inc., 67 F.T.C. 173, 186 (1965) (ordinary purchaser would not
recognize defect in children's goggles).
160. Eg., Warner-Lambert Co., 86 F.T.C. 1398, 1415 n.4 (1975) (evaluating effect of Listerine
advertisement on "average" listener), affdas modf/td, 562 F.2d 749 (D.C. Cir. 1977), cert. dentd, 435
U.S. 950 (1978). For a discussion of the facts of Warner-Lambert, see infra note 165.
161. See Exposition Press, Inc. v. FTC, 295 F.2d 869, 872 (2d Cir. 1961) ("In evaluating the
tendency of language to deceive, the Commission should look not to the most sophisticated readers
but rather to the least."), cet. denied, 370 U.S. 917 (1962).
162. ,See National Comm'n on Egg Nutrition, 88 F.T.C. 89, 186 (1976) (FTC does not "take
[respondents or] the public for fools," but many members of public are "without substantial knowledge of the subject area" and may be deceived), afdasmodifed, 570 F.2d 157 (7th Cir. 1977), cert.
denied,439 U.S. 821 (1978).
In Raymond Lee Org., Inc., 92 F.T.C. 489 (1978), aj'd,679 F.2d 905 (D.C. Cir. 1980), the Commission recognized that most of the company's potential clients did not have the specialized knowledge necessary to avoid being misled:
[W]e note that respondents' customers lack familiarity with the intricacies of patent law
and the legal limitations on the patent advice and services respondents may provide.
Given this situation, it is not unreasonable to assume that potential clients of [respondents] would rely on respondents' representations concerning their legal qualifications and
expertise. Our concern is with how these persons perceived [respondents'] representations
since the capacity of a representation to deceive must be determined in light of the sophistication and understanding of the group to whom it is directed [citations omitted]. The
law is not made for the protection of experts but for the public who may be governed by
appearances and general impressions [citations omitted].
Id at 327-28, see also Beneficial Corp. v. FTC, 542 F.2d 611, 618 n.l I (3d Cir. 1976) (considering
composition and sophistication of general public), cert. denied, 430 U.S. 983 (1977); Helbros Watch
Co. v. FTC, 310 F.2d 868, 869 n.4 (D.C. Cir. 1962) (deceptive pricing, although recognized by
sophisticated buyers, prohibited by § 5), cert. denied, 372 U.S. 976 (1963); P. Lorillard Co. v. FTC,
186 F.2d 52, 58 (4th Cir. 1950) (advertisement's effect on general public must be determined);
Aronberg v. FTC, 132 F.2d 165, 167 (7th Cir. 1942) (advertisements must be considered in light of
audience to which they are directed).
Similarly, in Firestone Tire & Rubber Co., 81 F.T.C. 398 (1972), affd, 481 F.2d 246 (6th Cir.),
cert. dented 414 U.S. 1112 (1973), the Commission evaluated a seller's claim that its products were
not defective and concluded:
To any one who is not an expert on tire testing, and who does not know, therefore, that it
is impossible under current tests to assure that tires are free of defects, we find that this
advertisement not only affirmatively implied that only Firestone tires which are free of
defects reach the consuming public but also affirmatively negated any possible contrary
assumption on the part of consumers.
Id at 457.
886
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These groups may constitute a substantial number of consumers even
though some of their members may not be "average" or "ordinary."
Furthermore, even "average" consumers are not expected to exercise
constant vigilance against deceptive conduct. 164 The Commission and
the courts have recognized the normal inattentiveness of consumers to
the subtleties of sellers' communications, particularly with respect to
65
advertising. 1
The Commission and the courts presume, absent contrary evidence,
that sellers have used words in their "ordinary and commonly accepted
understanding" when they advance product claims or promises to perform.166 The Commission does not, however, hold a company to the
literal meaning of its words when such an interpretation is bizarre or
idiosyncratic. 167 The Commission has recognized that it cannot hold a
163. See, e.g., Niresk Indus., Inc. v. FTC, 278 F.2d 337, 342 (7th Cir.) (Commission not restricted to consideration of impression "an expert or careful reader would draw from the advertisements."), cert. denied, 364 U.S. 883 (1960); Independent Directory Corp. v. FTC, 188 F.2d 468, 470
(2d Cir. 1951) ("careless business man" entitled to protection from deception); Gold Bullion Int'l
Ltd., 92 F.T.C. 196, 221 (§ 5 law protects both the "unsuspecting person of ordinary observation
and care," and the "ignorant, unthinking and credulous"), modified, 92 F.T.C. 667 (1978).
164. See American Home Prods. Corp. v. FTC, 695 F.2d 681, 689 (3d Cir. 1982) (although
"vigilant and literal-minded consumers" might interpret advertisements as truthful, deception of
average consumers is nevertheless possible); Colgate-Palmolive Co. v. FTC, 310 F.2d 89, 91 (1st Cir.
1962) ("advertisements are not judged by scholarly dissection in a college classroom'), rev 'don other
grounds, 380 U.S. 374 (1965); Ward Labs., Inc. v. FTC, 276 F.2d 952, 954 (2d Cir.) (advertisements
judged by effect on "average member of the public" who is "influenced by the impression gleaned
from a quick glance at the most legible words"), cert. denied,364 U.S. 827 (1960); Aronberg v. FTC,
132 F.2d 165, 167 (7th Cir. 1942) ("buying public does not ordinarily carefully study or weigh each
word in an advertisement"); Stupell Originals, inc., 67 F.T.C. 173, 186 (1965) (although risk of
injury from use of product "may be obvious to the person who pauses to consider such possibility,
we seriously doubt that the ordinary purchaser would dwell on this eventuality').
165. For example, in Warner-Lambert Co., 86 F.T.C. 1398 (1975), afdasm ioetfd, 562F.2d749
(D.C. Cir. 1977), cert. denied,435 U.S. 950 (1978), the Commission rejected the advertiser's interpretation of its claims, and stated:
[o]ne of respondent's [Warner-Lambert] officials who was directly responsible for Listerine
advertising testified . . . that a basic difference between pre-November 1969 and subsequent advertising is the change from "I bet that will keep colds away" to "I bet that will
"; that the former was a fewer colds claim while the substitute is
keep you in school ....
a mildness claim. It is doubted that the average listener would draw the distinction and
would reason that the child would stay in school, not because he didn't have a cold, but
only because the cold was more moderate. Similarly rejected is the witness' explanation
that listeners would perceive "fight off" as a fewer colds claim, but would understand
"fighting chance" and "fight back" used since November 1969 as mildness claims. The
purported distinctions are much too sophisticated to be realistic.
Warner-Lambert Co., 86 F.T.C. at 1415 n.4.
166. International Parts Corp. v. FTC, 133 F.2d 883, 886 (7th Cir. 1943); see also National
Comm'n on Egg Nutrition v. FTC, 570 F.2d 157, 161 (7th Cir. 1977) (court applied "commonly
understood sense" of word used), cert. denied,439 U.S. 821 (1978); Beneficial Corp. v. FTC, 542 F.2d
611, 618 (3d Cir. 1976) (consumers whose impression was that main qualification for Beneficial's
"Instant Tax Refund" was entitlement to actual government refund "may well have been singularly dense" but were "a part of the audience to which the advertisements were directed"), cert.
denied, 430 U.S. 983 (1977).
167. Early court decisions suggest, however, that the Commission does have power under § 5 to
hold companies to literal interpretations of their advertisements. For example, in Charles of the
Ritz Distrib. Corp. v. FTC, 143 F.2d 676 (2d Cir. 1944), the court stated:
19841
THE LAW OF DECEPTION
seller liable for every possible interpretation of a claim or protect every
member of the purchasing public. 68 Furthermore, "neither the courts
nor the Commission should freely speculate that the viewing public will
place a patently absurd interpretation on an advertisement."1 69 What
the Commission must determine is whether a significant number of the
consumers to whom a representation is directed could be misled.
The Commission considers potentially misleading acts or practices "in
light of the sophistication and understanding of the persons to whom
they were directed."170 When a product or service appeals only to a
specific segment of the population, the Commission considers the mental
state, 17 mental capability, and experience 72 of the members of that
particular group in determining whether a substantial number of those
consumers could be deceived. The vulnerability of children to deceptive
practices, for example, has long had special recognition. 73 The law will
[The Commission may "insist upon the most literal truthfulness" in advertisements, [citation omitted], and should have the discretion, undisturbed by the courts, to insist if it
chooses "upon a form of advertising clear enough so that, in the words of the prophet
Isaiah, 'wayfaring men, though fools, shall not err therein.' "
Jd at 680 (quoting General Motors Corp. v. FTC, 143 F.2d 676 (2d Cir. 1940)); see also Gelb v.
FTC, 144 F.2d 580, 582 (2d Cir. 1944) (affirming Commission prohibition on claims that Clairol
"permanent" hair dye colors hair "permanently," despite its conclusion that "[it seems scarcely
possible that any user. . . could be so credulous as to suppose that hair not yet grown out would be
colored").
168. See Heinz W. Kirchner, 63 F.T.C. 1282 (1963), afd, 337 F.2d 751 (9th Cir. 1964). In
Kirchner, the Commission noted the limits on its deception authority:
True, as has been reiterated many times, the Commission's responsibility is to prevent
deception of the gullible and credulous, as well as the cautious and knowledgeable [citation omitted]. This principle loses its validity, however, if it is applied uncritically or
pushed to an absurd extreme. An advertiser cannot be charged with liability in respect of
every conceivable misconception, however outlandish, to which his representations might
be subject among the foolish or feeble-minded. . . . Perhaps a few misguided souls believe, for example, that all "Danish pastry is made in Denmark.
... A representation
does not become "false and deceptive" merely because it will be unreasonably misunderstood by an nsigniftant and unrepresentatie segment of the class of persons to whom the
representation is addressed.
Id at 1290; see also The Kroger Co., 98 F.T.C. 639, 728 (1981) (advertisers not liable for every
possible interpretation), modiftd, 100 F.T.C. 573 (1982).
169. Standard Oil Co. of Cal. v. FTC, 577 F.2d 653, 657 (9th Cir. 1978).
170. Horizon Corp., 97 F.T.C. 464, 810 n. 13 (1981); see also Raymond Lee Org., Inc., 92 F.T.C.
489, 628 (1978), afd, 679 F.2d 905 (D.C. Cir. 1980).
171. In Doris Savitch, 50 F.T.C. 828 (1954), afd, 218 F.2d 817 (2d Cir. 1955), the Commission
considered the psychological condition of women to whom an advertisement was directed:
In view of this medical testimony, it is reasonable to believe that some persons "worry"
about delayed menstruation and might think it was due to pregnancy. To such persons
desiring for any reason to terminate that condition, respondents' advertisement could well
be construed as promising relief. In any event, the mental condition of such person is an
element to be considered in arriving at which construction might reasonably be put upon
the advertisement.
Id at 834.
172. See Leon A. Tashof, 74 F.T.C. 1361, 1401 (1968) (in evaluating "easy credit" representations, essential to consider representations' impact on consumers who were "largely from the lowincome strata whose marketing sophistication and knowhow are minimal"), afd, 437 F.2d 707
(D.C. Cir. 1970).
173. See FTC v. R.F. Keppel & Brother, 291 U.S. 304, 313 (1933) (children susceptible to
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not permit sellers to take advantage of consumers who have limited cog1 74
nitive abilities or unreasonable hopes.
In a few deceptive advertising cases in which the Commission determined that section 5 was violated, it premised its conclusion on findings
that consumers could have "reasonably" interpreted the advertiser's
claims in a certain way.175 Those findings do not mean that consumers
must be "reasonable" in order to be entitled to the protection of section
76
5, however, just as findings in other cases that the "clear import"'1 of
an advertisement was false do not mean that advertisements violate section 5 only if they "clearly" express a falsity. A finding that consumers
deceptive advertising because of inability to protect themselves). In its statement of purpose for the
trade regulation rule regarding cigarette advertising, the Commission noted that children are particularly vulnerable to deceptive advertising:
Thus, throughout the law in general and under Section 5 of the Trade Commission Act in
particular, it has been recognized that minors constitute an especially vulnerable and
susceptible class requiring special protection from business practices that would not be
unlawful if they only involved adults. Accordingly, a marketing practice, directed in a
substantial part toward minors, that interferes substantially and unjustifiably with their
freedom of buying choice is an unfair or deceptive act or practice even if it is not especially pernicious as to adults. Thus, cigarette advertising or labeling that does not disclose
the health hazards of cigarette smoking may be independently unlawful under Section
5-quite apart from the grounds previously advanced--because it "exploit[s] consumers,
children, who are unable to protect themselves."
Cigarette Statement, supranote 128, at 8358 (quoting R.F. Keppel & Brother, Inc., 291 U.S. at 313);
see also Avalon Indus., Inc., 83 F.T.C. 1728, 1750 (1974) (higher standard of care required in protecting children from likelihood of deception); ITT Continental Baking Co., 83 F.T.C. 865, 960-61
(determining effect of Wonder Bread advertisement on children), modfld, 83 F.T.C. 1105 (1973),
aftd, 532 F.2d 207 (2d Cir. 1976); Stupell Originals Inc., 67 F.T.C. 173, 186-87 (1965) (seller must
disclose hazards of product use to purchasers who are children); Ideal Toy Co., 64 F.T.C. 297, 310
(1964) (initial decision) (children lack ability to recognize false representations because of age and
inexperience). Se generally Notice of Proposed Trade Regulation Rulemaking and Public Hearing
on Children's Advertising, 43 Fed. Reg. 17,967, 17,969 (1978)(proposing broad regulations governing children's advertising).
174. See Travel King, Inc., 86 F.T.C. 715, 757, 759-60 (1975) (despite "absolutely incredible"
nature of psychic surgery, "substantial numbers of people" were "drawn by the desperate but futile
hope that by some magic their bodies would be opened by Philippine 'healers,' and the causes of
their diseases removed"). The Commission and the courts have recognized that vanity can also
interfere with reason. See Stauffer Labs., Inc. v. FTC, 343 F.2d 75, 83 (9th Cir. 1965) (clarity in
advertising weight-loss products needed because of "eagerness with which women seek beauty
aids"); Ward v. FTC, 276 F.2d 952, 954 (2d Cir.) (average male customer "because of masculine
vanity will grasp at any straw in the form of a remedy which will save his hair or stem the hair line
retreat"), cert. denied, 364 U.S. 827 (1960); Porter & Dietsch, Inc., 90 F.T.C. 770, 865 (1977) ("To
these corpulent consumers the promises of weight loss without dieting are the Siren's call, and
advertising that heralds unrestrained consumption while muting the inevitable need for temperance if not abstinence simply does not pass muster."), aJf'das modfed, 605 F.2d 294 (7th Cir. 1979),
cert. denied, 445 U.S. 950 (1980).
175. See, e.g., Bristol-Myers Co., 102 F.T.C. 21, 322 (1983) (consumers could "reasonably understand" claim to mean Bufferin relieves pain twice as fast as aspirin), aJ'd, 738 F.2d 554 (2d Cir.
1984); American Home Prods. Corp., 98 F.T.C. 136, 371-72 (1981) (Anacin claim could "reasonably be understood" to be based on study of all similar products), affdas modif, 695 F.2d 681 (3d
Cir. 1982).
176. See American Home Prods. Corp., 98 F.T.C. 136, 367 (1981) ("clear import" of claim is
deceptive), af'dar modifed, 695 F.2d 681 (3d Cir. 1982). Similarly, the finding in Amercan Home
Prod. that the company intended to create a certain impression, id.
at 368, does not imply that the
Commission must find intentional misconduct to rule that § 5 has been violated.
19841
THE LAW OF DECEPTION
reasonably could be misled is one sufficient, but not necessary, way to
establish deception.1 77 Neither the courts nor any previous Commission
has ever declared that section 5 only protects consumers who act
"reasonably."
One recent Commission opinion, Bristol-Myers Co., 178 suggested that
the Commission must judge advertisements according to the impression
the advertisements have on "reasonable members of the public."1 79
This statement was merely a reformulation of the well-established requirement that the Commission cannot hold the advertiser to an outlandish interpretation of an advertisement that is directed to the general
public. 11o There is no support in Biistol-Myersor elsewhere for the proposition that the Commission cannot find an act or practice deceptive unless "reasonable" consumers are misled.
The Commission has stated, in other opinions, that its interpretation
of advertising claims must be "reasonable."t 8 1 These cases convey the
Commission's recognition that it must act reasonably-not arbitrarily or
177. American Home Prods. illustrates several different ways in which the Commission can reach
the conclusion that an advertiser's claims are deceptive. In finding that the company falsely
claimed that Anacin contains a pain reliever other than aspirin, the Commission concluded that the
"clear import" of some of the challenged advertisements was this falsity. Id at 367. As to other
advertisements, however, it concluded only that consumers would "reasonably have understood"
that such a claim was made. Iad at 367, 371-72. The Commission applied a third method of analysis in finding that claims for tension relief were made. That conclusion was based in large part on
expert testimony and on a survey based on one advertisement showing that 22% of viewers believed
the challenged claim had been implicitly made. Id at 393-94. A similar analysis was made in
Bristol-Myers Co., 102 F.T.C. 21, 321 (1983), af'd, 738 F.2d 554 (2d Cir. 1984).
178. Bristol-Myers Co., 102 F.T.C. 21 (1983), af'd, 738 F.2d 554 (2d Cir. 1984).
179. Id. at 321 (1983) ("the Commission may not inject novel meanings into [advertisements]
and then strike them down as unsupported; [advertisements] must bejudged by the impression they
make on reasonable members of the public").
180. The three cases cited in Bristo/-Myers as authority for its conclusion that "acts must be
judged by the impression they make on reasonable members of the public" merely stated that the
Commission must interpret an advertisement reasonably. In Ward Labs. v. FTC, 276 F.2d 952 (2d
Cir.), cerl. dnied, 364 U.S. 827 (1960), the court upheld the Commission's decision to protect "the
average male, of which there are millions, who because of masculine vanity will grasp at any straw
[to] save his hair. . . ." Id at 954. The court held that advertisements should be judged by their
effect on "the average member of the public who more likely will be influenced by the impression
gleaned from a quick glance at the most legible words." Id In International Parts Corp. v. FTC,
133 F.2d 883 (7th Cir. 1943), also cited in Bristol-Myers, the court vacated the Commission's order
forbidding the company from claiming that the finish on its mufflers permanently prevented rust or
corrosion. id at 886. The court concluded that the company had not claimed that its finish prevented rust permanently, and found that the common meaning of the word "prevents" does not
connote permanency. Id The court held only that a company "will be presumed to have used [a]
word in its ordinary and commonly accepted understanding, in the absence of any showing to the
contrary." MLFinally, in Heinz W. Kirchner, 63 F.T.C. 1282 (1963), afd, 337 F.2d 751 (9th Cir.
1964), the Commission concluded that it will not interpret an advertisement as it would be understood by only an "insignificant and unrepresentative" segment of consumers. Id at 1290.
181. See, e.g., Sears, Roebuck & Co., 95 F.T.C. 406, 511 (1980) (Commission overturned administrative law judge's interpretation of advertisements, noting rule that advertisements must be "reasonably subject to some interpretation that is false" to be held deceptive), aJ'd, 676 F.2d 385 (9th
Cir. 1982); National Dynamics Corp., 82 F.T.C. 488, 548 (1973) (Commission overturned ALJ's
holding that it could not reasonably be found that advertiser impliedly represented that claims
were substantiated), afdas modifwd, 492 F.2d 1333 (2d Cir.), cert. denied,419 U.S. 993 (1974); Pfizer,
890
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capriciously-in determining whether an advertisement could mislead a
substantial number of consumers.182
Most deception cases are decided without any extrinsic evidence relating to how many consumers could be misled. Typically, the Commission is able to infer whether a substantial number of consumers could be
misled by examining the challenged conduct itself and the surrounding
circumstances. 1 3 Even when extrinsic evidence of the actual effect of an
advertisement on consumers is available in the form of consumer surveys
or expert testimony, the Commission does not rely exclusively on that
evidence. 184
The Commission has never identified a specific minimum percentage
of consumers who must be misled in order to find deception, nor has it
designated a specific percentage as per se substantial, when extrinsic evidence of the number of consumers deceived is introduced. Indeed, those
decisions that have discussed extrinsic evidence of this nature suggest
that the number of consumers needed to constitute a "substantial
number" varies depending on the nature of the claim and the consequences of the deception. Generally, twenty or twenty-five percent may
be considered a substantial number.18 5 A smaller percentage may be
Inc., 81 F.T.C. 23, 59 (1972) (Commission affirmed ALJ's dismissal of complaint because alleged
implied representations could not "reasonably be found" in advertisements).
182. In The Kroger Co., 98 F.T.C. 639 (1981), modiftd, 100 F.T.C. 573 (1982), the Commission
explained this obligation:
It is settled that the Commission has sufficient expertise to determine an advertisement's
meanings-express and implied-without necessarily resorting to evidence of consumer
perceptions ....
This is not to say that an advertisement is susceptible to every reading
that it may technically support, no matter how tenuous it might be; rather, the interpretation must be reasonable in light of the claims made in the advertisement, taken as a
whole. . . . In many cases, the Commission has refused to accept particular interpretations urged by complaint counsel because the advertisements themselves did not imply
them and no extrinsic evidence had been offered to prove their apprehension by some
reasonably significant number of consumers.
Id at 728.
183. The Commission may rely solely on its own expertise to find deception. Id ee supranotes
143-49 and accompanying text (discussing of Commission's expertise).
184. See, e.g., Bristol-Myers Co., 102 F.T.C. 21, 352-54 (1983), afd, 738 F.2d 554 (2d Cir. 1984);
American Home Prods. Corp., 98 F.T.C. 136, 393-94 (1981), a 'd smoihfl d, 695 F.2d 681 (3d Cir.
1982). Extrinsic evidence simply supplements the Commission's expertise and is not accorded controlling weight. See supra note 148 and accompanying text (discussing Commission's reliance on its
expertise).
185. For example, in American Home Prods. Corp., 98 F.T.C. 136, afd as moefled, 695 F.2d
681 (3d Cir. 1982), the Commission found that the sellers made an implied claim that an over-thecounter drug relieved tension. Id at 393-94. This conclusion was based in part on a survey showing
that 22% of viewers surveyed concluded that the challenged claim had been made. In BristolMyers Co., 85 F.T.C. 688 (1975), the Commission examined responses from a consumer survey and
agreed that "a substantial number of consumers surveyed (probably between 14% and 33%)" understood Dry Ban to be "dry." Id at 745. In evaluating another alleged claim for the deodorant,
the Commission concluded that a showing that between two and four percent of consumers believed a certain implied representation had been made was "patently insubstantial in this context."
Id. at 746. Finally, in Benrus Watch Co., 64 F.T.C. 1018 (1964), afd, 352 F.2d 313 (8th Cir. 1965),
cert. denied, 384 U.S. 939 (1966), the company introduced a survey purporting to show that 86%
19841
THE LAW OF DECEPTION
sufficient, however, if physical injury or large monetary loss could result
from consumers being misled.1 86 Evidence of the total number of consumers who were deceived by a particular act, as well as evidence of the
relative number of consumers deceived by an act, has been used by the
Commission to determine whether a substantial number of consumers
were deceived.' 87 The group that was exposed to the allegedly deceptive acts or practices is the reference point in determining whether a
substantial number of consumers were or could have been misled. If
that group is small, then a small number of consumers, in absolute
terms, may be sufficient to warrant a finding of deception. 8 8 A practice
of consumers would not be misled. Id at 1032. The Commission rejected the company's interpretation of the survey results, but added that "even if the study does show 86 percent nondeception . .. , this still leaves 14 percent of the prospective purchasers who . . . are entitled to
protection." Id at 1045. The court of appeals affirmed the Commission's decision and concluded
that even if an "overwhelming majority" of consumers would not be deceived, 14% constituted a
"substantial percentage of the watch buying public, a percentage that is entitled to protection."
Benrus Watch Co. v. FTC, 352 F.2d 313, 319-20 (8th Cir. 1965), cert. denied, 384 U.S. 939 (1966).
186. A survey introduced in Firestone Tire & Rubber Co., 81 F.T.C. 398 (1972), af'd, 481 F.2d
246 (6th Cir.), cert. denied, 414 U.S. 1112 (1973), indicated that 15.3% of consumers thought an
advertisement for tires made a promise of absolute safety, although about one-third of those consumers thought the claim was exaggerated. Id at 453. The Commission did not rely on the survey
in finding liability because it believed that the survey was flawed, resulting in underreporting of
interpretations held by consumers. Id at 455. In reviewing the Commission's decision, the court of
appeals noted that it is "hard to overturn the deception findings of the Commission if the ad thus
misled 15% (or 10%) of the buying public." Firestone Tire & Rubber Co. v. FTC, 481 F.2d 246, 249
(6th Cir.), ert. denied, 414 U.S. 1112 (1973).
The Commission has observed that "the seller of a product whose use may cause personal injury
is held to a more stringent standard of truthfulness in advertising than other sellers." Cigarette
Statement, supra note 128, at 8353. In Firestone Tire & Rubber Co., 81 F.T.C. 398 (1972), afl'd, 481
F.2d 246 (6th Cir.), cert. denied, 414 U.S. 1112 (1973), the Commission stated that:
[B]oth alleged misrepresentations go to the issue of the safety of respondent's product, an
issue of great significance to consumers. On this issue, the Commission has required
scrupulous accuracy in advertising claims, for obvious reasons. If consumers are misled or
uninformed as to the safety of a product, the consequences may not be limited to monetary loss but personal injury as well.
Ad at 456; see also Standard Oil Co., 84 F.T.C. 1401, 1472-73 (1974) (advertisers who claim product
will reduce air pollution must "exercise an extra measure ofcaution"), affdas modifed, 577 F.2d 653
(9th Cir. 1978); Heinz W. Kirchner, 63 F.T.C. 1282, 1291-95 (1963) (advertiser has duty to inquire
into truth of claims for hazardous products), afd,337 F.2d 751 (9th Cir. 1964).
187. In Travel King, Inc., 86 F.T.C. 715 (1975), the Commission found that "many thousands
of ill persons from all over the world" constituted "substantial numbers." Id at 759-60. Deception
in that case resulted both in physical harm, from the interruption of proper medical care and the
rigors of international travel, and in substantial loss of time and money to persons who went to the
Philippines for "psychic surgery." Id at 764. Obviously, the promises of "psychic surgery" could
potentially appeal to only a numerically small population of seriously ill persons.
188. Cf Fedders Corp., 85 F.T.C. 38 (1975), af'd,529 F.2d 1398 (2d Cir.), cert. denied, 429 U.S.
818 (1976). In Fdders Corp., the respondent company argued that it should not be held liable
because the misleading advertisements constituted only about six percent of its total advertising
expenditures. The Commission found this fact "wholly irrelevant," and added:
Similarly, we are entirely unimpressed with the fact that the offending advertisements
appeared in non-urban newspapers with less circulation than metropolitan dailies. We
are pleased to note, however, that respondent does not maintain that "deception is all
right if practiced in moderation. . . though the learned administrative law judge may be
excused for having received the contrary impression."
Id. at 71-72.
892
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that is ostensibly directed to all consumers but is, in fact, targeted to a
particularly credulous segment of the population, is judged according to
its potential impact on that group.' 8 9
C
Materiality
An act or practice is deceptive only if it is misleading in a material
respect. Generally, the act or practice must concern information that is
material to a consumer's decision whether to purchase the advertised
product or service. 19° It may also pertain to material information concerning the use or care of a product.19' Material facts are not limited to
those that deal with the substantive qualities of a product; any fact may
be material if it "induces a purchaser's decision to buy,"' 92 or is "likely
to affect the average consumer in deciding whether to purchase [a] product,"1 93 or otherwise pertains to a particular consumer preference. The
Commission need not agree with the consumer preference 194 because
"the public is entitled to get what it chooses, though the choice may be
dictated by caprice or by fashion or perhaps by ignorance. ' 195
Materiality does not require a showing of consumer injury. Because
section 5 protects consumer preferences, including their subjective pref189. See supra note 155 and accompanying text (discussing impact of deceptive advertising on
small group of consumers).
190. FTC v. Colgate-Palmolive Co., 380 U.S. 374, 387 (1965); see American Home Prods.
Corp., 98 F.T.C. 136, 368 (1981) (omitted or misleading information must be material to consumer's decision to buy), affd as modifwd, 695 F.2d 681 (3d Cir. 1982).
191. Care Labeling of Textile Wearing Apparel and Certain Piece Goods as Amended, 16
C.F.R. §§ 423.1-423.10 (1984) (requiring disclosure of instructions for laundering and cleaning of
clothing). In numerous cases settled through consent orders, the Commission has alleged that information pertaining to the use or care of a product is material to consumers. See, e.g., American
Motors Corp., 100 F.T.C. 229, 230-31 (1982) (safe use of jeeps in on-pavement driving); Chrysler
Corp., 99 F.T.C. 347, 348-50 (1982) (use and care information for replacement of oil filters in
vehicles). The Commission has also issued complaints in matters still in litigation alleging the materiality of use and care information. See Volks agen of Am., Inc., [1979-1983 Transfer Binder]
TRADE REG. REP. (CCH) j 21,802 (F.T.C. Apr. 1, 1981) (use and care of Volkswagen and Audi
vehicles); International Harvester Co., [1979-1983 Transfer Binder] TRADE REG. REP. (CCH) 1
21,768 (F.T.C. Oct. 10, 1980) (use and care of tractors).
192. FTC v. Colgate-Palmolive Co., 380 U.S. 374, 386-87 (1965). For a discussion of cases in
which a fact was determined to be material although it did not concern an inherent quality of the
product, see infra notes 203-08 and 224-27.
193. Cigarette Statement, supra note 128, at 8351 (material deception if likely to affect average
consumer's purchasing choice). The information need not be important to all consumers to be
material. See also Basic Books, Inc. v. FTC, 276 F.2d 718, 721 (7th Cir. 1960) (deceptive practices
not excused by showing of some satisfied customers); Market Dev. Corp., 95 F.T.C. 100, 214 (1980)
(although misrepresented facts not material to some buyers, § 5 may still be violated).
194. Even if the consumer received "his money's worth" § 5 may be violated. See FTC v.
Colgate-Palmolive Co., 380 U.S. 374, 387 (1965); see also FTC v. Algoma Lumber Co., 291 U.S. 67,
76 (1934) (mislabeling illegal although buyer received product of equivalent value).
195. FTC v. Algoma Lumber Co., 291 U.S. 67, 78 (1934); see also FTC v. Colgate-Palmolive
Co., 380 U.S. 374, 389 (1965) (seller cannot use misrepresentation "to break down what he regards
to be an annoying or irrational habit of the buying public"); Kerran v. FTC, 265 F.2d 246, 248
(10th Cir.) (public entitled to its choice although it "is predicated at least in part upon ill-founded
sentiment, belief, or caprice'), cert. denied, 361 U.S. 818 (1959).
1984]
THE LAW OF DECEPTION
erences, materiality can be established without an assessment of damages. 196 Indeed, the Commission may find that a misrepresentation was
material even without finding that consumers would have made different choices but for the misrepresentation.
Typically, many preferences influence a consumer's decision to
purchase a product or service with no single one being determinative.
In many cases, especially in those involving advertising, it would be extremely difficult to establish that a particular misrepresentation caused
consumers to choose differently, and even more difficult to show that
they were "injured" by the different choice. Under the law, "[t]he fact
that consumers were not harmed because they would have purchased
the product anyway. . . is not relevant .
,197
"...
Therefore, neither reliance on the misrepresentation nor injury is an element of materiality.
When a fact is misrepresented intentionally, the Commission normally can infer that the misrepresentation is material.' 98 The company's business decision to make a misrepresentation is a convincing
basis for the inference that it is important to potential purchasers. 199 In
other cases, the Commission determines whether a fact is material on
the basis of its expertise and any extrinsic evidence in the record. 2°° In
finding various affirmative misrepresentations to be deceptive, the Commission has identified a wide variety of material consumer preferences,
196. Simeon Mgmt. Corp., 87 F.T.C. 1184, 1229 (1976) ("neither actual damage to the public
nor actual deception need be shown"), afd, 579 F.2d 1137 (9th Cir. 1978); (quoting Resort Car
Rental Sys., Inc. v. FTC, 518 F.2d 962, 964 (9th Cir.), cert. deniedsub nan. Mackenzie v. United
States, 423 U.S. 827 (1975)).
197. Firestone Tire & Rubber Co., 81 F.T.C. 398, 451 (1972), afd, 481 F.2d 246 (6th Cir.), cert.
denied, 414 U.S. 1112 (1973). The Commission in Firestone rejected an argument that § 5 was not
violated because proof of sales resulting from misrepresentations was not introduced, and stated
that "it need not be shown that even one consumer actually relied on a particular false claim." Id;
see also Travel King, Inc., 86 F.T.C. 715, 774 (1975) (actual reliance on particular false claim not
required).
198. See FTC v. Colgate-Palmolive Co., 380 U.S. 374, 392 ("When the Commission finds deception it is also authorized, within the bounds of reason, to infer that the deception will constitute
a material factor in a purchaser's decision to buy."); American Home Prods. Corp., 98 F.T.C. 136,
368 (1981) (materiality implied from face of advertisements), aj'dasmodified, 695 F.2d 681 (3d Cir.
1982).
199. Cf Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n, 447 U.S. 557, 567 (1980)
("Most businesses---even regulated monopolies---are unlikely to underwrite promotional advertising that is of no interest to consumers.').
200. In some cases, the Commission may not be persuaded that a fact is material unless extrinsic evidence is provided to support that conclusion. In Peacock Buick, Inc., 86 F.T.C. 1532, 1561-62
(1975), reiew denied, 553 F.2d 97 (4th Cir. 1977), for example, the Commission concluded that,
although prior damage to used cars could be a material fact, the record had not been developed
sufficiently to enable the Commission to distinguish between minor, unimportant damage and
damage that consumers would consider material. Id at 1561-62. In American Home Prods. Corp.,
98 F.T.C. 136 (1981), afd as mod&ied, 695 F.2d 681 (3d Cir. 1982), the Commission observed that
one basis for a conclusion that a claim of a particular product feature is material could be evidence
of a difference in market price between products that do and do not have the feature. Id at 369-70;
see also Leonard F. Porter, Inc., 88 F.T.C. 546, 628 (1976) (price disparity "would not be expected to
persist in the absence of a perceived difference in value").
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THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 33:849
including those for products that perform better, 20 1 products that are
safer, 20 2 "bargain" prices, 20 3 particular trade names, 20 4 certifications of
quality, such as the Good Housekeeping Seal, 20 5 testimonials, 20 6 and
other forms of verification of product performance claims such as dem20 8
onstrations 20 7 and tests.
The omission of material information can also be misleading. 20 9 This
occurs when "the effect of nondisclosure is that substantial numbers of
the public are likely to make purchasing decisions based on false beliefs,
whether those beliefs are attributable to past representations or are
likely to result if future advertising is left untouched. ' ' 210 The Commission has found, on the basis of its own expertise, that it is deceptive to
fail to disclose different types of product information to consumers. For
example, the Commission has found information that most consumers
with the symptoms described by a seller would not be benefited by use
of the seller's product 21 ' and information that a weight reduction program involving the injection of a drug that had not been found safe and
effective by the Food and Drug Administration for that use to be material. 2 12 It may also be deceptive to fail to disclose that a product is
used 213 or reprocessed; 214 that a book is abridged; 2 15 that a product is
manufactured in a foreign country; 21 6 that simulated wood buffet trays
are made of paper;21 7 that injury to the eyes could result if a toy were to
denied, 429 U.S.
201. Fedders Corp., 85 F.T.C. 38, 61 (1975), afid,529 F.2d 1398 (2d Cir.), cert.
818 (1976).
202. Firestone Tire & Rubber Co., 81 F.T.C. 398,456 (1972), afd,481 F.2d 246 (6th Cir.), cerl.
denied, 414 U.S. 1112 (1973).
203. FTC v. Standard Educ. Soc'y, 302 U.S. 112, 116 (1937).
denied, 364 U.S. 883 (1960).
204. Niresk Indus., Inc. v. FTC, 278 F.2d 337, 340 (7th Cir.), cert.
205. Id at 341-42.
206. FTC v. Standard Educ. Soc'y, 302 U.S. 112, 118 (1937).
207. FTC v. Colgate-Palmolive Co., 380 U.S. 374, 389-90 (1965).
208. Chrysler Corp., 87 F.T.C. 719, 747 (1976), ft'das modtd, 561 F.2d 357 (D.C. Cir. 1977);
National Dynamics Corp., 82 F.T.C. 488, 549-50 (1973), afdezr modred, 492 F.2d 1333 (2d Cir.),
cert.
denied,419 U.S. 993 (1974).
209. Section 15 of the FTC Act expressly provides that in determining whether an advertisement for food, drugs, medical devices, or cosmetics is materially misleading, the Commission must
consider "the extent to which the advertisement fails to reveal facts material in the light of such
representations or material with respect to consequences which may result from the use of the
commodity. . . ." 15 U.S.C. § 55(a)(1) (1982).
210. Raymond Lee Org., Inc., 92 F.T.C. 489, 649 (1978) (Commission may require affirmative
disclosures to eliminate misconceptions about performance), af'd, 679 F.2d 905 (D.C. Cir. 1980).
211. See J.B. Williams Co., 68 F.T.C. 481, 545-47 (1965) (claim that product will overcome
tiredness deceptive), afd a modftied, 381 F.2d 884 (6th Cir. 1967); Keele Hair & Scalp Specialists,
Inc., 55 F.T.C. 1840, 1851-52 (1959) (claim that product would remedy baldness deceptive), afd,
275 F.2d 18 (5th Cir. 1960).
212. Simeon Mgmt. Corp., 87 F.T.C. 1184, 1230 (1976), afd,579 F.2d 1137 (9th Cir. 1978).
213. Peacock Buick, Inc., 86 F.T.C. 1532, 1557-58 (1975), af', 553 F.2d 97 (4th Cir. 1977).
denied, 361 U.S. 818 (1959).
214. Kerran v. FTC, 265 F.2d 246, 248 (10th Cir.), cert
denied,
364
275 F.2d 680 (2d Cir.), cert.
215. Bantam Books, Inc., 55 F.T.C. 779, 787 (1958), a 'd,
U.S. 819 (1960).
216. Brite Mfg. Co., 65 F.T.C. 1067, 1081-83 (1964), afd,347 F.2d 477 (D.C. Cir. 1965).
217. Haskelite Mfg. Corp., 33 F.T.C. 1212, 1217 (1941), afd, 127 F.2d 765 (7th Cir. 1942).
1984]
THE LAW OF DECEPTION
break in normal use;218 that apparel composed of a fabric resembling
natural fibers is actually rayon; 2 19 that dresses are made of highly flammable fabric; 220 that property sold for investment will be difficult to
resell and is unlikely to appreciate for many years; 22 1 and that property
is useless for residential or commercial use because of natural phenomena such as arroyos, washes, and flood plains. 222 The Commission has
also alleged in cases in which consent orders were issued that an unusually high rate of product failure is a material fact that must be disclosed. 223 In other cases, the Commission has found deceptive a seller's
failure to disclose that it does not have a reasonable basis for a product
performance claim; 224 that the seller adds a handling and service charge
to the price of its product; 225 that notes of indebtedness executed in con-
nection with a retail sale may be assigned to third parties against whom
the purchaser may not be able to raise any claims or defenses based on
the sales contract; 226 and that confidential financial information provided to a finance company's income tax preparation service may be
22 7
used to solicit loan applications.
The Commission has identified in rulemaking proceedings other material information that must be disclosed to consumers. For example, the
Commission concluded that product sellers and advertisers should disclose that "cigarette smoking is dangerous to health and may cause
death from cancer and other diseases. '228 In addition, the Commission
218.
Stupell Originals, Inc., 67 F.T.C. 173, 194 (1965).
219. Mary Muffet, Inc., 47 F.T.C. 724, 728 (1950), afd, 194 F.2d 504 (2d Cir. 1952).
220. Seymour Dress & Blouse Co., 49 F.T.C. 1278, 1282 (1953); Academy Knitted Fabrics
Corp., 49 F.T.C. 697, 700-01 (1952).
221. AMREP Corp.,102 F.T.C. 1362, 1641 (1983) (failure of real estate representative to disclose lack of appreciation in resale market when encouraging low risk investment plan), appealfled,
No. 84-1434 (10th Cir. Apr. 2, 1984).
222.
Horizon Corp., 97 F.T.C. 464, 812 (1981).
223.
E.g., General Motors Corp., (1979-1983 Transfer Binder] TRADE REG. REP. (CCH) 1
22,131 (F.T.C. Nov. 16, 1983) (consent order) (motor vehicles allegedly defective); Champion
Home Builders Co., [1979-1983 Transfer Binder] TRADE RaG. REP. (CCH)
21,970 (F.T.C. Feb.
13, 1983) (consent order) (solar heating device allegedly defective).
224. National Comm'n on Egg Nutrition, 88 F.T.C. 89, 191 (1976), af'das modified, 570 F.2d
denied, 439 U.S. 821 (1978); see also Jay Norris Corp., 91 F.T.C. 751, 854
157 (7th Cir. 1977), cert.
(1978), afd as modifid, 598 F.2d 1244 (2d Cir.), cer.denied, 444 U.S. 980, modifed, 94 F.T.C. 415
(1979); National Dynamics Corp., 82 F.T.C. 488, 545-50 (1973), afdas modfied, 492 F.2d 1333 (2d
Cir.), cert denied, 419 U.S. 993 (1974).
225. Peacock Buick, Inc., 86 F.T.C. 1532, 1562 (1975), review denied,553 F.2d 97 (4th Cir. 1977);
sie also Macmillan, Inc., 96 F.T.C. 208, 303-04 (1980) (failure to disclose tuition costs for correspondence school deceptive).
226. Southern States Distrib. Co., 83 F.T.C. 1126, 1172-73 (1973); see also Certified Bldg.
Prods., Inc., 83 F.T.C. 1004, 1039 (1973); All-State Indus. of N.C., Inc., 75 F.T.C. 465, 490 (1969),
denied, 400 U.S. 828 (1970).
aJ'd,423 F.2d 423 (4th Cir.), cert.
denied, 430 U.S. 983
227. Beneficial Corp. v. FTC, 542 F.2d 611, 620-21 (3d Cir. 1976), cert.
(1977).
228. Cigarette Statement, supra note 128, at 8325. This rule was superseded by the Federal
Cigarette Labeling and Advertising Act, Pub. L. No. 89-92, § 2, 79 Stat. 282 (1965) (codified at 15
U.S.C. §§ 1331-1340 (1982)).
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[Vol. 33:849
has also concluded that product sellers and advertisers must disclose information about clothing care instructions; 229 information about the initial and recurring costs associated with starting and operating a
franchise and information about the business experience and financial
condition of a franchisor; 230 the "R-value" measure of home insulation's
resistance to the flow of heat; 23t and that state law usually does not re2 32
quire embalming and the use of outer burial containers.
In many instances of deception by omission, the deception actually
stems from or is promoted by implied representations or other actions of
the seller.233 In contrast, deception in cases involving "pure omission"
arises solely from the seller's failure to correct preexisting erroneous assumptions or beliefs of consumers. As the Commission has found, "[t]he
principle crystallized in [the case law] is that section 5 forbids sellers to
exploit the normal expectations of consumers in order to deceive just as
it forbids sellers to create false expectations by affirmative acts. ' 234 Not
every material fact about which consumers may have a preexisting erroneous belief must be disclosed: deception occurs only if consumers could
actually be misled by a seller's inaction. In other words, the Commission must find that consumers have erroneous expectations that are con23 5
trary to an undisclosed material fact.
CONCLUSION
The majority's recent efforts to narrow the law of deception have resulted in considerable uncertainty over the appropriate standard. The
inconsistency between the literal language of the new standard and its
229. Care Labeling of Textile Wearing Apparel and Certain Piece Goods as Amended, 16
C.F.R. §§ 423.1-.10 (1984); see also 36 Fed. Reg. 23,883, 23,889 (1971) (legal analysis of rule).
230. Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures, 16 C.F.R. §§ 436.1-.3 (1984); see also 43 Fed. Reg. 59,614, 59,636-37 (1978) (legal
analysis of rule).
231. Labeling and Advertising of Home Insulation, 16 C.F.R. §§ 460.1-.24 (1984); see also 44
Fed. Reg. 50,218, 50,223 (1979) (legal analysis of rule).
232. Funeral Industry Practices, 16 C.F.R. §§ 453.1-.10 (1984); see also 47 Fed. Reg. 42,260,
42,275-77 (1982) (legal analysis of rule).
233. The normal appearance of the product, for example, may impliedly represent that it is
new or that it is made of a certain material. Merely offering a product for sale may implicitly
represent that it will perform its intended function and do so without posing an unusual risk of
harm. Similarly, an explicit performance claim for a product may impliedly represent that the
seller has a reasonable basis for the claim. These situations can be analyzed alternatively as involving implied misrepresentations or omissions of material facts.
234. Cigarette Statement, supra note 128, at 8352.
235. See FTC v. Simeon Mgmt. Corp., 532 F.2d 708, 716 (9th Cir. 1976) (deception occurs if
public holds belief contrary to undisclosed material facts). In &mon Mgmt., the Commission's request for a preliminary injunction was denied because the court was unpersuaded that consumers
would assume that the drug used in a weight reduction program had been approved for that use by
the FDA. Id The Commission ultimately determined that consumers would make such an assumption and that determination was affirmed. Simeon Mgmt. Corp., 87 F.T.C. 1184 (1976), afd,
579 F.2d 1137 (9th Cir. 1978).
1984]
THE LAW OF DECEPTION
897
proponents' statements concerning its purpose has added to the confusion. Recent pronouncements indicate, however, that the proponents of
the new standard did not intend to change the traditional law governing
deceptive acts or practices. Whether such pronouncements represent
admission of a failed effort to narrow the law of deception or a responsible reaction to criticism of the new standard, it should be recognized
that the law of deception has not changed. To this end, we have
presented a statement of the current law of deception. This statement
should assist both those responsible for enforcing the law and those for
whom the law was designed.