The Role of the Ftc in Regulating Advertising

Abstract

On January 5, 2011, a class action suit was filed in the Superior Court of the State of California on behalf of Monet Parham, and those similarly situated, against McDonald’s Corporation. This action seeks an injunctive relief requiring McDonald’s to stop practicing “unfair, unlawful, deceptive and fraudulent practices of promoting and advertising McDonald’s Happy Meal products to very young California children, using the inducement of various toys.” (MONET PARHAM vs. McDONALD's CORPORATION and McDONALD'S USA, LLC, 2011) The question at hand will be whether or not the Federal Trade Commission has jurisdiction that may influence the outcome of this case.

Historical Background

On September 26, 1914 President Woodrow Wilson signed the Federal Trade Commission Act. This Act transformed the Bureau of Corporations, which was previously under the Commerce Department, into a five-member, independent agency. The formation of the Federal Trade Commission (FTC) was Congress’ response to years of national debate regarding competition policy. Much like the Bureau of Commerce, the FTC could conduct studies and issue reports; however, the role of the FTC was expanded to include enforcement authority to “prevent persons, partnerships, or corporations, except banks, and common carriers subject to the Acts to regulate commerce, from using unfair methods of competition in Commerce.” (FTC's History Timeline)

In effect, the 1914 Act declared “unfair methods of competition” to be unlawful. The FTC broadly interpreted the Act to include jurisdiction over deceptive and false advertising that was likely to mislead the public. This interpretation was upheld in a 1922 Supreme Court decision that supported an FTC order to cease and desist from deceptive advertising. (Gagnon) However, in 1931 the boundaries of this assumed jurisdiction were challenged. In FTC v. Raladam Co. the Supreme Court unanimously ruled that an order to cease and desist false advertising can...