1. law, govt and politics

THE FEDERAL TRADE
COMMISSION AND EQUITABLE
REMEDIES
EUGENE KAPLAN*
Then what is the measure that is suggested here? It is that "unfair
competition" should not be permitted these masters, lest that unfair
competition should completely merge out of existence the defenseless
and literally devour the weak and leave the citizen no place, no refuge, no succor against a monopoly of trade that grinds him to slavery
and his children to poverty.1
In several litigated matters since 1971, the Federal Trade Commission has ruled that it has the authority to order restitution in
appropriate cases. 2 However, in one of the more recent of these,
Heater v. FTC,3 the Ninth Circuit held that the Commission does
not have such authority.4
It is the thesis of this article that, contrary to the ruling by the
Ninth Circuit, the Commission has - with but two limitations5 * B.A., 1949, State University of New York at Buffalo; LL.B., 1956, Cornell
University. The author has been senior Trial Attorney in the Bureau of Consumer
Protection and is presently with the Bureau of Competition of the Federal Trade
Commission.
The views expressed in this article are solely those of the author and in no way
reflect the opinion of the Federal Trade Commission. The author was not associated with the Heater case.
1. 51 CONG. REc. 11,306 (1914) (remarks of Senator Borah).
2. See Heater v. FTC, 82 F.T.C. 570, 654-56, rev'd in part 503 F.2d 321 (9th Cir.
1974); Windsor Distrib. Co. v. FTC, 437 F.2d 443 (3d Cir. 1971); Holiday Magic
Inc., No. 8834 (F.T.C., Oct. 15, 1974); Curtis Publishing Co., 78 F.T.C. 1472, 1520
(1971). See also notes 81-83 & accompanying text infra.
3. Heater v. FTC, 503 F.2d 321 (9th Cir. 1974).
4. Id. Judge Koelsch set aside the refund provisions of an FTC final order to
cease and desist. He held that under the "cease and desist" provision of the Federal
Trade Commission Act, the Commission did not possess the power to order businessmen to make restitution of monies secured by unfair business practices found
to have been committed by him.
5. The first limitation is that the Commission cannot enforce its own orders.
Under section 5(1) of the enabling statute, 15 U.S.C. § 53(a) (1970), the FTC must
apply to an appropriate district court for civil penalty actions for violations of a
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available to it all the remedies regularly exercised by a court of
equity. These remedies include restitution, divestiture and rescission.
Ample support for this position is readily found in congressional
remarks made during the floor debates in both the Senate and the
House at the time passage of the Federal Trade Commission Act
(FTCA) was under consideration.' Additionally, court decisions
during the past two decades have consistently affirmed the power
of the Commission to promulgate equitable remedies where a simple
prohibition would be a futile gesture.7
I. THE COMMISSION AND Heater
Prior to a discussion of the pertinent sections of the legislative
history as well as the relevant case law, it would be well to briefly
review the facts underlying the Heater decision. On October 6, 1970,
the Federal Trade Commission issued its complaint against Universal Credit Acceptance Corporation, Continental Credit Card Corporation, International Credit Card Corporation, and against Howard
P. Gingold and John Clifford Heater individually and as officers of
Universal and International, charging all of the respondents with
violations of section 5 of the FTCA? The complaint alleged the use
of unfair and deceptive acts and practices, unfair methods of competition in commerce in the sale and servicing of franchises and
membership in the "Honor All Credit Cards" program, and in the
retention of funds thus obtained from franchises and members.
After hearings, the administrative law judge issued an Initial Decision and Order 0 in which he found that both the sales promotion
final cease and desist order.
The second limitation of the Commission is that the order must be issued in the
public interest. According to section 5(2) of the enabling statute, 15 U.S.C. § 45(b)
(1970), the Commission may issue a complaint when it has reason to believe that
a person, partnership or corporation has been using any unfair method of competition or unfair or deceptive practice in or affecting commerce "and if it shall appear
to the Commission that a proceeding by it in respect thereof would be in the
interest of the public ....
."
For further discussion see notes 80-84 & accompany-
ing text infra.
6. The FTCA was approved by the 63d Congress on September 26, 1914. 38 Stat.
717, as amended, 15 U.S.C. §§ 41-77 (1914).
7. See notes 85-102 & accompanying text infra.
8. Universal Credit Acceptance Corp., 82 F.T.C. 570 (1972).
9. Id. at 650-51. Section 5 of the FTCA declares that "unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce, are ...
unlawful." 15 U.S.C. § 45(b) (1970).
10. 82 F.T.C. 570, 582 (1972).
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and advertising of franchises and memberships and the administration of the program were inherently deceptive and unfair to franchisees and members." More particularly, the judge found that the
respondents 2 had represented that they would honor all credit cards
used by the customers of their retail merchant program members
''on a guaranteed non-recourse basis" and that members would be
paid within 30 days regardless of whether the customers had paid
respondents. In fact, the respondents' program was fully recourseable and respondents' retail members were not paid until and unless
their customers paid respondents, and then only after 45 days (and
sometimes not until 75 days later). 3 Additionally, the law judge
found that respondents guaranteed their members a 10 percent increase in business within 12 months of becoming a member. This
guarantee, however, turned out to be simply a promise to waive
membership dues for the second year. 14 In fact, an average member
remained active in the program for only seven to eight months despite the fact that he had paid a two year membership fee. 5
The respondents also represented that their program was operated by substantial businessmen who could rely on corporate assets
in excess of $3 million, that the program was backed by an efficient
and intensive collection agency, and that it was nationally accepted. "6 However, the judge found that the respondents' collection
procedures were at best haphazard; that in January, 1969, respondents had a net working capital deficit exceeding $25,000; and that
respondents' bank accounts never exceeded $99,000 between January, 1965 and November, 1971.17
Based upon these and other findings, the administrative law
judge entered an order prohibiting each of the respondents from
engaging in specific acts and practices in the future. He also directed the respondents to refund all monies paid to them by franchisees and retail merchant members as franchise fees." Both the respondents and the counsel supporting the complaint appealed to the
Commission from certain aspects of the decision. The respondents'
11.
12.
13.
14.
15.
16.
17.
18.
Id. at 633.
Id. at 614-18.
Id. at 689.
Id. at 624.
Id. at 611.
Id. at 621, 623.
Id. at 624.
Id. at 634-42.
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brief was expressly limited to the issue of refunds, or restitution."
The Commission's order upholding the initial decision required
each of the respondents to cease and desist from further pursuit of
the underlying deceptive and unfair scheme, and required the respondents to refund monies to specified franchisees and members."
The Commission ruled, in support of its refund order, that the
respondents' retention of money secured through their unconscionable practices, their misrepresentations, and their failure to refund
these monies constituted violations of section 5. 21 The Commission
went on to explain that the respondents were not engaged in the
business of offering a service or product of some intrinsic value, but
rather were offering a virtually worthless service. Furthermore, they
were taking money under false pretenses and retaining these monies
under color of law, while casting the fraud in the form of a legitimate
business operation purporting to offer the participants an opportunity to make money or to improve their own business opportunities.
These practices were extremely unfair and deceptive, and the Commission had no difficulty finding that retention of monies so ob-
tained was a violation of section
5.22
The Commission concluded that an order which simply prohibited respondents from engaging in similar frauds in the future would
not be effective; it would not truly deter the respondents from devising a future illegal business venture and bilking another group of
unsuspecting members of the public.2 Consequently, a refund was
19. Id. at 645-46 n.6. The respondents' counsel appealed from the law judge's
failure to make certain findings which counsel contended were necessary to support
the proposed order. See id. at 645-46 nn. 5 & 6.
20. Id. at 669-79.
21. Id. at 650-51.
22. The Commission painted a stark picture of the respondents' activities:
To offer a virtually worthless service to small businessmen and individuals
desiring to go into business, however, is to adopt a cloak of legitimacy designed to take advantage of the free enterprise culture and create an impression on the part of their victims that that which they lost was simply a normal
business risk or the product of their own ineptitude or lack of astuteness
rather than the consequences of a fraud against which they might have had
a cause of action.
Id.
23. In contrast to the threat of future prosecutions, requiring the refund of money
obtained by the respondents was a far more effective form of discipline. As the
Commission said,
[i]f the presence of the Act was not sufficient to prevent respondents from
engaging in these blatant violations on this occasion, we can have very little
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ordered as a preventative measure. Heater thereupon filed a petition for review in the Ninth Circuit. 24 Upon review, the Court of
Appeals rejected the Commission's position and released Heater
from the responsibility of paying refunds. Judge Koelsch, writing for
the court, found that
[tihe construction placed by the Commission upon its power to define and prohibit "an unfair act or practice" would, if accepted, operate to invest the Commission with remedial powers which are inconsistent and at variance with the over-all purpose and design of the
Act.n
Unfortunately, the Ninth Circuit incorrectly interpreted the
"over-all purpose and design of the Act" it referred to and the Commission erred in its ruling. Although the Commission was correct in
ordering a refund of monies and "retention of fraudulently obtained
monies" may well be an unfair practice, the Commission has the
power to order restitution and it could have exercised that power in
this case. 26 A review of pertinent legislative and political history as
certainty that simply repeating the Act's prohibitions against fraud and deception is [sic] slightly more specific language will have any greater restraining effects on respondents' conduct in the future. If, on the other hand,
respondents know that they cannot retain the sums of monies which they
receive as a result of their violations, they are far less likely in the future to
once again flaunt these law's proscriptions in the planning of their next
business venture.
Id. at 653.
24. The Commission found all respondents guilty of violations of section 5 but
excused all of them, with the exception of Heater, from paying any refunds. The
basis for their order was that the corporate respondents were created by Heater to
carry out his scheme to defraud. The Commission realized that if future violations
were to be prevented, the relief must be designed to restrain Heater's conduct. The
Commission held that "the entire unconscionable scheme
. . .
was the sole crea-
tion of respondent Heater," and as a result, refused to excuse him from the responsibility of paying a refund. Id. at 659-63.
25. Heater v. FTC, 503 F.2d 321, 323 (9th Cir. 1974).
26. Under both the refund of monies and restitution theories, the ultimate result
is the same: restoring bilked funds to the defrauded parties. The Commission
recognized that it did have the power to order restitution but decided that a refund
would be more appropriate in this instance:
The [refund] order does not seek to render the defrauded franchisee or
member "whole." Rather the order seeks to redress a violation of Section 5
based on the respondents' retention of funds obtained as a result of their
spurious program.
82 F.T.C. 570, 656 n.24.
In fact, the restitution theory should have been followed because it is much more
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well as relevant case law will demonstrate the validity of this conclusion.
II.
A.
THE FEDERAL TRADE COMMISSION ACT
Legislative and PoliticalHistory
It may be observed that there was a direct correlation between the
emasculation of the Sherman Act7 by the courts and the passage
of both the Federal Trade Commission Act 8 and the Clayton Act 2'
by Congress. Although the Sherman Act had only been in existence
slightly over two decades, all three political parties were united in
demanding legislation to supplement that Act early in this century.
In 1912, the Republican presidential platform supported enactment
of legislation supplementing the existing antitrust act which would
define as criminal offenses those specific activities involving the
restraint and monopolization of trade." The Democratic platform
expressed deep regret that courts had so weakened the Sherman
Act, and urged the prevention of acts and practices deemed responsible for the elimination of competition in the economy." The Prodirect and realistic; it can be applied to a much broader range of unfair or deceptive
practices.
27. Sherman Act, 15 U.S.C. § 1 (1970): "Every contract, combination in the
form of trust or otherwise, or conspiracy, in restraint of trade or commerce among
the several States, or with foreign nations, is hereby declared to be illegal."
Although this section purportedly prohibits every contract, combination or conspiracy in restraint of trade or commerce among the several states, the courts have
emasculated it by construing it to preclude only those contracts or combinations
which "unreasonably" or "unduly" restrain competition. Standard Oil Co. v.
United States, 221 US. 1 (1911). The Standard Oil Court traced the history of
monopolies and concluded that only unreasonable contracts or restraints were illegal and subject to court action. This thinking led to the public and congressional
furor against the "rule of reason." See text accompanying notes 33-36 infra. Additionally, there was a generally held view that the Sherman Act was not accomplishing its major purpose of eliminating trusts and monopolies. Thus the cry arose for
a new approach under a new agency.
28. 15 U.S.C. § 41 (1970).
29. 15 U.S.C. § 12 (1970).
30. The Republican Party favored
the enactment of legislation supplementary to the existing Anti-Trust act
which will define as criminal offenses those specific acts that uniformly mark
attempts to restrain and monopolize trade, to the end that those who honestly intend to obey the law may have a guide for their action and that those
who aim to violate the law may the more surely be punished.
TEXT-BooK 272 (1912).
31. Acts deemed necessary by the Democratic Party for restoring competition
REPUBLICAN NAT'L COMM., REPUBLICAN CAMPAIGN
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gressive Party also agreed fully with the proposal that the Sherman
Act should be strengthened and that various agreements and prac3
tices which restrained competition should be prohibited. 1
The Supreme Court's use of the "rule of reason" 33 in construing
the Sherman Act left the impression that the Court had assumed
certain powers intentionally withheld by Congress. Many critics
thought such a step might lead to confusion and disaster.34 Senator
Baird Cummins of Iowa, a leading proponent of new legislation and
Chairman of the Senate Committee on Interstate Commerce, deplored the "rule of reason." He argued that although his committee
had full confidence in the integrity, intelligence, and patriotism of
the Supreme Court of the United States, it was unwilling to repose
in that Court, or in the court system, the vast and undefined power
which was necessary to administer the Sherman Act as modified by
the "rule of reason." Such a rule substituted the courts in a role the
Congress should play and he felt that neither Congress nor the people of this country would permit such a situation.3 Senator Francis
Newlands of Nevada, another Senate leader, added his voice to the
tirade against vesting control over the great combinations in the
hands of the judiciary. He called for the creation of a new administrative tribunal which would serve under the watchful eye of Con1
gress.
included
the prevention of holding companies, of interlocking directors, of stock watering, of discrimination in price and the control by any one corporation of so
large a proportion of any industry as to make it a menace to competitive
conditions.
Id. at 279.
32. The Progressive Party advocated strengthening the Sherman Act
by prohibiting agreements to divide territory or limit output; refusing to sell
to customers who buy from business rivals; to sell below cost in certain areas
while maintaining higher prices in other places; using the power of transportation to aid or injure special business concerns; and other unfair trade practices.
T. ROOSEVELT, PROGRESSIVE PRINCIPLES 319 (1913).
33. See note 27 supra.
34. S. REP. No. 1326, 62d Cong., 3d Sess. 11 (1913).
35. Id. at 10.
36. "The Supreme Court yesterday acted upon this matter with reference to
one of the great trusts in a decision which applies to them all, and, .
.
. has
taken upon itself what the dissenting member of that Court, Mr. Justice
Harlan, declared to be judicial legislation, and has written into the statute
words which Congress never put there ....
"The question, therefore, presents itself to us whether we are to permit in
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In searching for a solution to the problems raised by the judicial
treatment of the Sherman Act, Congress did not find it advisable
to amend that Act.3' Rather, it determined that new legislation,
"supplementing" the Sherman Act, and a newly established agency
would better resolve the problems raised by trusts. Congress envisioned an independent commission comprised of skilled men and
women with adequate authority who were capable38of coping with
the myriad problems arising in the business world.
B. The Commission's Power to Define Unfair Practices
The FTCA originally stated "that unfair methods of competition
in commerce are hereby declared unlawful. ' 39 The most serious disagreement (and one that consumed the most time during the floor
debates in both the House and the Senate) was whether the bill
should specifically define the practices that were injurious to competition and the economy, or whether such definition should be left
to the administrative body responsible for controlling those practices.
The argument that the unfair practices should be defined by Congress was exemplified in the remarks of Senator David Reed of
Missouri who rather dramatically argued that this country's government was one of men and that vesting in a government board the
discretion to control an individual's conduct took away from that
person the discretion to control his own conduct. Moreover, whenever five men were given the power to condemn an individual's
actions on the basis not of written law but rather of their own
subjective judgment, the decision of that group was being substithe future the administration regarding these great combinations to drift
practically into the hands of the courts and subject the question as to the
reasonableness or unreasonableness of any restraint upon trade imposed by
these corporations ... to the varying judgments of different courts upon the
facts and the law, or whether we will organize, as the servant of Congress,
an administrative tribunal similar to the Interstate Commerce Commission,
with powers of recommendation, with powers of condemnation, with powers
of correction similar to those enjoyed by the Interstate Commerce Commission over interstate transportation."
51 CONG. Rac. 11,097 (1914) (remarks of Senator Newlands, quoting from his own
remarks given on May 16, 1911).
37. S. REP. No. 1326, 62d Cong., 3d Sess. 10 (1913).
38. Id. at 13.
39. Federal Trade Commission Act § 5, ch. 311, 38 Stat. 717 (1914), as amended,
15 U.S.C. § 45(a)(1) (1970).
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FTC AND EQUITABLE REMEDIES
tuted for the law of the land. Such a process imposed the Commission's will in place of individual citizen's rights. Reed went on to
argue that a commission could be established, but that Congress
itself should provide the definitions of illegal conduct."
The argument for vesting broader discretion in the commission
was rather humorously expressed by Senator Frank Brandegee of
Connecticut. He analogized the task of enumerating the number of
unfair practices possible to the ingenuity of man attempting to
catch a flea on a sand beach. In his view, it was futile to attempt to
spell out the different acts and practices men would and could think
of that would be judged as unfair.4' In a less jocular vein, Senator
Newlands, speaking for the Interstate Commerce Committee, stated
that "unfair methods of competition" covered every competitive act
that was against public morals and was readily subject to interpretation.42 He later stated his belief that the phrase would cover every40. In urging that Congress take this task upon itself, Senator Reed argued that
Congress should not give a commission such unrestricted power. In his remarks he
reasoned:
We can establish this commission; we can give it powers broad enough to
reach every wrong that has been denounced upon this floor without giving
license to do as it pleases, without giving it the power to trample upon our
rights, without giving it the power to make its will the supreme law of this
land. We can do this under the Constitution. There is no wrong in this land
that cannot be reached under the Constitution of the United States; there is
no wrong in this land so subtle, so powerful, so insidious that we can not reach
it by law. We do not need to substitute the will of men for law.
Talk about conferring this power upon a commission. Sir, if arbitrary
power is to be conferred, I would rather confer it upon the courts than upon
a commission.
51 CONG. REc. 13,233 (1914) (remarks of Senator Reed).
41. Senator Brandegee had great confidence in the ability of people to avoid the
proscriptions of the statute:
There is no limit to the devices which the ingenuity of competitors will resort
to as they are forbidden to indulge those which they are practicing. So it is
useless to attempt to enumerate the different things which some people think
or would judge to be unfair methods in competition. They are as varied as
the ethical conceptions of the consciences of men.
Id. at 12,792 (remarks of Senator Brandegee).
42. Senator Newlands likened the task of interpreting "unfair methods" to that
of applying similar expressions in the Interstate Commerce Act:
The committee is of the opinion that this term [unfair methods of competition] is capable of interpretation by a commission just as thoroughly as the
term "reasonable rate" by the Interstate Commerce Commission or the term
"unjust discrimination" . . . .
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thing the Committee wished; it would have such an elastic character that it would meet every new condition that might be invented
in the process of achieving monopoly through unfair competition. 3
It is interesting to note that Congress was quite aware of the
problems involved in the new undertaking. As far as Congress was
concerned, unfair competition, like fraud, was a creature of protean
shapes, constantly assuming different characteristics."
Furthermore, there was much distrust of the courts expressed
during the debates. Senator Cummins expressed the attitude of
many when he declared that. given the new legislation with the
undefined phrase "unfair methods of competition," he would prefer
a commission that at all times operated under the control of Congress over one which settled the inevitable problems in the comparative seclusion of our courts.45 Although Senator Cummins' apprehension was partially justified, there gradually evolved in various
court opinions the degree of insight and understanding envisioned
by Congress.
In FTC v. Raladam Co.," the Supreme Court stated that although statements made in congressional debates could not normally be used as aids in the construction of a statute, the extent of
agreement during the debates on the purpose of the FTCA made
such statements usable in construing it." The Court continued in a
vein truly reflective of those debates and demonstrated complete
understanding of the purpose of the Act. That purpose was to stop
unfair practices that drove competitors out of business, to protect
It is true, perhaps, that those words "reasonable rates" and "unjust discrimination," have been used. . . and had a fixed significance, which, perhaps, the term "unfair competition" has not yet gained. . . . [Tihe term
"unfair competition" has not been used so frequently as conveying an idea
as these other terms, but there must always be a time when the use of a
phrase shall commence as indicating at law a certain thing.
Now, then, the question is what unfair competition covers. It covers every
practice and method between competitors upon the part of one against the
other that is against public morals, in my judgment, or is an offense for which
a remedy lies either at law or in equity.
Id. at 11,112 (remarks of Senator Newlands).
43. Id. at 12,024 (remarks of Senator Newlands).
44. Id. at 11,598 (remarks of Senator Thomas).
45. Id. at 13,047 (remarks of Senator Cummins).
46. 283 U.S. 643 (1931) (Commission ordered respondent to cease from representing his "obesity cure" as being a scientific method of treating obesity).
47. Id. at 650.
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small businessmen and to prevent monopolies from forming."
Even earlier, in FTC v. Beech-Nut Packing Co.,49 the Supreme
Court had apparently reviewed the legislative history and determined that the "unfair methods of competition" denounced by the
Act had been left without specific definition; Congress had deemed
it better to leave the subject without precise definition and have
each case determined upon its own facts because such a variety of
means existed to effectuate any given scheme. The Court concluded
that the Commission, subject to judicial review, had the authority
and responsibility of determining those practices which came within
the purview of the Act.1
In A.L.A. Schechter Poultry Corp. v. United States,' the Supreme Court again discussed the "protean" nature of unfair methods of competition and the quasi-judicial responsibilities of the Federal Trade Commission. The Court reiterated the congressional design in establishing the Commission:
What are "unfair methods of competition" are thus to be determined
in particular instances, upon evidence, in the light of particular competitive conditions and of what is found to be a specific and
substantial public interest ....
To make this possible, a Congress
set up a special procedure. A Commission, a quasi-judicial body, was
created. Provision was made for formal complaint, for notice and
hearing, for appropriate findings of fact supported by adequate evidence, and for judicial review to give assurance that 52the action of the
Commission is taken within its statutory authority.
48. As the Court concisely summarized the debate on the Act,
the necessity of curbing those whose unfair methods threatened to drive their
competitors out of business was constantly emphasized. It was urged that the
best way to stop monopoly at the threshold was to prevent unfair competition; that the unfair competition sought to be reached was that which must
ultimately result in the extinction of rivals and the establishment of monopoly; that by the words "unfair methods" was meant those resorted to for the
purpose of destroying competition or of eliminating a competitor or of introducing monopoly - such as tend unfairly to destroy or injure the business
of a competitor; that the law was necessary to protect small business against
giant competitors; that it was an effort to make competition stronger in its
fight against monopoly; that unfair competition was that practice that destroys competition and establishes monopoly.
Id.
49. 257 U.S. 441 (1922).
50. Id. at 453.
51. 295 U.S. 495 (1935).
52. Id. at 532-33 (citations omitted).
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Finally, in FTC v. Motion PictureAdvertising Service Co., Inc.,"
the Supreme Court made explicit exactly what Congress had intended: the Commission, and not the courts, was to define the "unfair methods of competition" clause. 4
C.
The Commission's Power to Formulate Economic Remedies
Coupled with Congress' realization that its intent behind the
Sherman Act had been negated by the "rule of reason" was its
judgment that courts were not adequately equipped to devise appropriate remedies in many cases involving economic competition. 5
Congress was in search of a body of experts that not only would
define unfair trade practices, but would also use its expertise in both
law and economics to design decrees that were effective, meaningful
and realistic. The judiciary simply lacked the expertise and the
resources. The Senate Interstate Commerce Committee in its report
of February 26, 1913,11 was very explicit on this point. The Committee considered the methods by which corporations or a series of
associated corporations were dissolved or reorganized under a court
decree to be serious fundamental problems. In its view, the courts
were not equipped for the work of a reconstruction; a commission
which was intimately acquainted with commercial affairs and the
business community would be infinitely more effective."
Based on these considerations, Congress inserted what is presently section 7 of the FTCA,58 expressly recognizing the proposed
53. 344 U.S. 392 (1953).
54. No doubt was left as to the Commission's role:
The precise impact of a particularpractice on the trade is for the Commission, not the courts, to determine. The point where a method of competition
becomes "unfair" within the meaning of the Act will often turn on the exigencies of a particular situation, trade practices, or the practical requirements
of the business in question.
Id. at 396 (emphasis added).
55. S. REP. No. 1326, 62d Cong., 3d Sess. 13 (1913).
56. Id.
57. See 51 CONG. REc. 8847 (1914) (remarks of Representative Adamson); id. at
11,387 (remarks of Senator Cummins); id. at 1869 (remarks of Representative
Morgan).
58. Section 7 reads as follows:
In any suit in equity brought by or under the direction of the Attorney
General as provided in the antitrust Acts, the court may, upon the conclusion
of the testimony therein, if it shall be then of opinion that the complainant
is entitled to relief, refer said suit to the Commission, as a master in chancery, to ascertain and report an appropriate form of decree therein. The
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administrative body as the expert in formulating relief. The courts
have the authority under this section to use the Commission as a
master in chancery for the purpose of designing decrees involving
complicated economic and legal issues that arise in the courts. The
section is a direct expression of congressional intent in coping with
competitive illegalities. 9
Remarks made during the House debate clearly show that Congress wanted the Commission to exercise as broad a power as possible in designing decrees in actions involving unfair and deceptive
trade practices:
This bill only uses the same old doctrine that has been used for
hundreds of years in the general law of fraud, and applies it under
this definition to a class of practices or acts or conduct in commercial
transactions in interstate or foreign commerce. The remedies for the
violation are those daily used in the courts of equity. So that there is
nothing new or startling when we realize that."0
This bill will thus help by information, encouragement, admonition, advice, and, if necessary, restraint. No power is lacking...
This procedure is simple, speedy, accessible to every citizen, and
offers the opportunity to repress every evil practice."
Congress modelled the regulation of big business on the regulation
of the railroads by a commission with wide discretion and power in
applying the law.6" The view was voiced that the new commission
Commission shall proceed upon such notice to the parties and under such
rules of procedure as the court may prescribe, and upon the coming in of such
report such exceptions may be filed and such proceedings had in relation
thereto as upon the report of a master in other equity causes, but the court
may adopt or reject such report, in whole or in part, and enter such decree
as the nature of the case may in its judgment require.
Federal Trade Commission Act, ch. 311, § 7, 38 Stat. 722 (1914), as amended, 15
U.S.C. § 47 (1970).
59. See notes 55-57 & accompanying text supra.
60. 51 CONG. REc. 14,936 (1914) (remarks of Representative Stevens of Minnesota) (emphasis added).
61. Id. at 14,937 (emphasis added).
62. This view was expressed by Representative Stevens of New Hamphire:
There are only two ways by which government can regulate business. It
may regulate business practices by specific prohibitions of law, leaving its
enforcement to the criminal courts, or it can regulate big business corporations in the same way that the railroads are regulated-by the creation of a
commission with a wide discretion and wide power in the applicationof the
law.
Id. at 14,941 (emphasis added).
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should be able to punish unfair competition so that the business
community could operate without fear and with full confidence. 63
Some who were not particularly enamored of commission government saw this creation as an effective, efficient and economical
means of providing ready remedies to aggrieved individuals, persons
who in many instances could not afford the expense of the courts."4
Others saw the commission as a vehicle whereby an individual who
experienced injury through unfair practices, but could not afford
court action, was able to obtain legal redress. 5 The commission
would more than adequately cope with the problems, if given the
power."
It was argued that remedies to problems confronting the commission should be left to the commission to determine; such remedies
were "matters of administration" and could not be worked out in
advance. 7 Congress was advised to avoid establishing any set rule.6
In a colloquy staged on the Senate floor concerning the review role
of the courts, it was made quite clear that the statute did not simply
involve prohibitions. There was a consensus that confiscatory action
by the commission was a possibility, although there was disagreement as to the degree."9
Finally, the basic philosophy of the statute was summarized. It
was recognized that in the area of unfair trade practices, there
would certainly be a remedy for the individual, either at law or in
63. Id. at 11,871 (remarks of Senator Townsend).
64. Id. at 12,029 (remarks of Senator Saulsbury).
65. Id. at 12,030 (remarks of Senator Newlands).
66. Id. at 9057 (remarks of Representative Dillon).
67. Id. at 8980 (remarks of Representative Murdock).
68. Id.
69. The Senate recognized that under the then-proposed section 5 something
well beyond a cease and desist order, such as an order involving property confiscation, could be issued. The problem was not whether it could issue, but only what
protection a court would provide.
Mr. Newlands. As I understand the Senator, in any event, whether it is a
limited court review or a broad court review, the court can determine, first,
whether the action of the commission is confiscatory in character ....
Mr. Cummins. I do not care to affirm the statement of the Senator from
Nevada just as he has made it. I do not think the inquiry into confiscation
will often arise under the "unfair competition" section.
Mr. Newlands. I do.
Mr. Cummins. This is the question that will arise: Does the order of the
commission take the property of the complainant without due process of law
Id. at 13,007.
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FTC AND EQUITABLE REMEDIES
equity. 0 Such remedies, however, had little meaning for most individuals because the actions would normally entail vast expenditures
for lawyers' fees which were beyond the means of most persons.
Thus, the need to establish a commission with remedial powers was
clear. Congress had passed the Interstate Commerce Act, to relieve
shippers of the burden of individual litigation with the great railroads:
We placed society between him [the individual] and the corporation
with which he dealt, and we organized a tribunal conducted at the
expense of society with a view
to seeing that injustice to the individ7
ual was not accomplished. '
The same principle was applied to trade:
Either you have to break up these great combinations of capital, .
or you must adopt some social machinery which will protect the
individual from oppression and wrong. This tribunal is simply for the
purpose of economically giving to each individual, at the lowest cost
of effort and money, the power of asserting his right which exists in
law or in equity. 2
Thus, a Congress disenchanted with the ineffectiveness of the
Sherman Act and the courts' use of the "rule of reason" turned to
the administrative agency as a new device in regulating business.
Congress envisioned the creation of an independent governmental
agency which would employ highly trained experts to cope with the
illegalities and inequities in the American business community. In
its effort to maintain the intense level of competition felt necessary
for a healthy economy, the agency was authorized to declare various
undefined practices as being injurious to the economy; and to design
orders that would stop those practices and enhance competition at
the same time.
D.
The FTCA's Cease and Desist Provision
The question next arises why the "cease and desist" language was
included in the statute if a literal reading of the three words was
never intended.3 The phrase is a congressional "shorthand" in an
70. Id. at 11,109 (1914) (remarks of Senator Newlands).
71. Id.
72. Id.
73. Section 45(b) of the FTCA reads in part:
If upon such hearing the Commission shall be of the opinion that the method
of competition or the act or practice in question is prohibited by [this Act],
it shall make a report in writing in which it shall state its findings as to the
188
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area in which it would have been impossible to be more definitive.
It is significant that Congress was reviewing the proposed Clayton
Act at the same time the FTCA was being considered. 74 Whereas the
FTCA was concerned with numerous undefined practices, the Clayton Act was designed to preclude specifically identifiable illegalities. 5 Because Congress was aware of these specific practices, it
could legislate a specific remedy - for example, divestiture in the
case of illegal mergers and compelling the sale of critical stock in
the case of interlocking directorates. 7 However, none of this specificity could be used for the unknown problems with which the FTC
was to concern itself.
Congress was in effect leaving the remedy to
77
the Commission.
The phrase "cease and desist" was adopted from similar language
found in the Interstate Commerce Commission Act 8 which states
that the Commission is empowered "to make an order that the
carrier or carriers shall cease and desist from [any] violation
.. . .- Congress had relied heavily on the philosophy and pattern
of the Interstate Commerce Commission Act in designing the
FTCA. In both acts, and with the same language, Congress wisely
left the determination of specific relief to the responsible agency.
E. Statutory Limitations on the Commission's Power
It has been mentioned that only two limitations exist with regard
to the power the Commission may exercise in drawing up remedies
against violators of the Act.0 The first is that it cannot enforce its
facts and shall issue and cause to be served on such person, partnership, or
corporation an order requiring such person, partnership, or corporation to
cease and desist from using such method of competition or such act or practice.
15 U.S.C. § 45(b) (1970).
74. See note 29 supra.
75. Such illegalities include: price discrimination, 15 U.S.C. § 13 (1970); exclusive dealings, id. § 14; mergers, id. § 18; interlocking directorates, id. § 19.
76. Id. § 21.
77. See note 61 supra.The early drafts of the statute used the words "restraining
and prohibiting," which were later changed to "directing the discontinuance of."
51 CONG. REC. 11,185 (1914) (remarks of Senator Saulsbury). Finally, on July 25,
1914, the phrase "cease and desist" was introduced. Id. at 12,726 (remarks of the
Secretary of the Senate).
78. 49 U.S.C. § 15 (1970).
79. Id. (emphasis added).
80. See note 5 & accompanying text supra.
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FTC AND EQUITABLE REMEDIES
own order but must go to the district court to penalize violators of
any order. Fines of up to $10,000 a day can be imposed if the circumstances so warrant." Thus, in practice, a violator of the order has
two opportunities to escape penalty.
The second limitation is particularly germane to the thesis herein.
Simply stated, it is that the Commission, as opposed to a court in
the federal system, can act only in the "public interest." Congress
was quite explicit on this point. The Commission may not represent
an individual; it can represent only the general public. Benefits may
flow to individuals as a result of Commission action (individuals, as
members of the public, are necessarily benefited); the action taken
by the Commission must be based upon substantial economic considerations before staff or funds can be committed. Representative
Frederick Stevens of Minnesota paid careful attention to this point
in his remarks on the House floor, making certain that the Commission would not become involved in private quarrels or controversies,
and that the Commission had the authority to act only when the
public interest was injuriously affected. 8
Representative James Covington of Maryland supported this view
of the Commission's authority and the distinction between private
and public controversies. He stated that a controversy between individuals which began to "oppress" the public could in effect be in
the public interest. 3 Finally, Senator Newlands warned that the
Commission should not concern itself with minor problems, or with
trivia that could and should be settled by correspondence. 4
With the exception of these two limitations, it is quite evident
that Congress intended the Commission to have final authority in
defining, evaluating and correcting acts and practices that are unfair and deceptive. As discussed previously, the Commission was to
81. 15 U.S.C. § 45 (Supp. 1973).
82. In describing this limitation of the proposed act, Stevens emphasized:
All that this bill does is to take the great mass of jurisprudence, with its
definitions and limitations and rules and principles, and make it applicable
by statute to the law of fraud affecting interstate commerce, with this jurisdictional qualification carefully stated in the bill, that the commission has
no authority to act unless the methods of unfair competition shall injuriously
affect the public interest. That must be the basis of its action and jurisdiction. In that way the commission will be freed from private quarrels and
controversies.
51 CONG. REc. 14,936 (1914) (remarks of Representative Stevens).
83. Id. at 14,937 (remarks of Representative Covington).
84. Id. at 11,109 (remarks of Senator Newlands).
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have the power and the discretion of a court of equity in coping with
these practices.
III.
COURT IMPLEMENTATION OF THE FEDERAL TRADE COMMISSION ACT
The courts have frequently recognized the congressional intent
expressed in the 1914 debates.
We have heretofore analogized the power of administrative agencies
to fashion appropriate relief to the power of courts to fashion Sherman Act decrees. . . . Authority to mold administrative decrees is
indeed like the authority of courts to frame injunctive decrees...
subject of course to judicial review.8 5
The Supreme Court has expressly held that the Commission has
wide discretion in its choice of a remedy "deemed adequate to cope
with the unlawful practices" disclosed," and that "courts will not
interfere except where the remedy selected has no reasonable relation to the unlawful practices found to exist." 7
Moreover, the courts have made it clear that the Commission has
primary responsibility for designing an appropriate remedy to cure
violations found to exist and to prevent their recurrence. The purpose of the relief is "to prevent violations of the Act, the threat of
which is indicated by past conduct of the petitioners."8 9 Through its
order, the Commission "cannot be required to confine its road block
to the narrow lane the transgressor has traveled; it must be allowed
effectively to close all roads to the prohibited goal, so that its order
may not be by-passed with impunity."9 Once a violation is found
the Commission must "frame its order broadly enough to prevent
respondents from engaging in similarly illegal practices in [the]
future.""1 By means of these orders the Commission is bound "to
develop that enforcement policy best calculated to achieve the ends
85. Pan American Airways v. United States, 371 U.S. 296, 312 n.17 (1963) (citations omitted).
86. Jacob Siegel Co. v. FTC, 327 U.S. 608, 611-13 (1946).
87. Id. at 613.
88. As in the Heater case, a cease and desist order alone may stop a practice but
be totally ineffective in preventing comparable acts in the future.
89. Feitler v. FTC, 201 F.2d 790, 794 (9th Cir.), cert. denied, 346 U.S. 814 (1953),
citing NLRB v. Express Publishing Co., 312 U.S. 426 (1941).
90. F.T.C. v. Ruberoid, 343 U.S. 470, 473 (1952). See also FTC v. National Lead
Co., 352 U.S. 419, 431 (1957).
91. FTC v. Colgate-Palmolive Co., 380 U.S. 374, 395 (1965). See also Atlantic
Ref. Co. v. FTC, 381 U.S. 357, 367 (1965); FTC v. Henry Broch & Co., 368 U.S.
360, 366 (1962).
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FTC AND EQUITABLE REMEDIES
contemplated by Congress."92
Over the years, this policy has been substantially and routinely
implemented; this implementation has often forced the Commission to resort to an equitable remedy not specifically enumerated in
the FTCA. In Windsor Distributing Company v. FTC,3 the Commission, in addition to issuing a cease and desist order against certain practices used in the sale of vending machines and supplies,
had ordered restitution to certain designated customers." Although
restitution went well beyond the cease and desist order, the court
was not in the least disturbed, and ruled that the relief was well
within the discretion of the Commission and thus quite appropriate.95
The Commission's exercise of another equitable power was also
approved in American Cyanamid Co. v. FTC." The Commission
had issued a complaint charging a number of illegalities against
several drug manufacturers in an application for a patent on the
"wonder drug" tetracycline, as well as its production and sale. As
part of the order against the companies, the Commission ordered
the compulsory licensing of patents on tetracycline and aureomycin
on a reasonable royalty basis. In discussing the appropriateness of
the order, the Cyanamid court held that "compulsory licensing of
patents by the courts for patent misuse is a permissible remedy in
anti-trust cases."' 7 Citing numerous authorities," the court found
92. Moog Indus., Inc. v. FTC, 355 U.S. 411, 413 (1958).
93. 437 F.2d 443 (3d Cir. 1971).
94. In shaping its remedy the court ordered Windsor to
refund immediately all monies to (1) customers who have requested contract
cancellation in writing within three days from the execution thereof, (2)
customers who have refused to sign statements indicating satisfaction with
respondents' placement of the machines, and (3) customers showing that
respondents' contract, solicitations or performance were attended by or involved violations of any of the provisions of this order.
Commission Docket 8773 (March 6, 1970), 1971 CCH TRADE CAS. 73,433.
95. In Windsor, the petitioners
complain[ed] only that the cease and desist order is so broad and vague as
to render compliance impossible, and goes beyond the relief appropriate in
the circumstances. We [the court] have reviewed the transcript of proceedings before the hearing examiner and we conclude that the order is well
within the area of Commission discretion in framing relief appropriateto
termination of the unfairpracticesfound to exist.
437 F.2d at 444. (emphasis added).
96. 363 F.2d 757 (6th Cir. 1966).
97. Id. at 771-72.
98. See Atlantic Ref. Co. v. FTC, 381 U.S. 351 (1965); FTC v. Henry Broch &
192
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such relief well within Commission jurisdiction."
In J.B. Williams Co. v. FTC,00 the Commission attempted to
correct misleading advertising of Geritol, a product which purportedly cured "tired blood" and restored strength by building up iron
in the body. The order, in addition to cease and desist provisions,
called for disclosure of the fact that the majority of people experiencing symptoms of tiredness and loss of strength do not suffer
because of an iron deficiency anemia. The court, in upholding the
ordered relief, stated in effect that as long as the Commission's
findings were appropriate, the relief was quite acceptable. 0 '
Even the Ninth Circuit has recognized that the Commission has
powers other than those specifically enumerated in the FTCA. In
1 2
Golden Grain Macaroni Co. v. FTC
1 the court heard an action
brought solely under section 5. In upholding an order for divestiture
of two of the companies, the Ninth Circuit ruled that a section 5
violation may be found where the "'basic policies' of the Sherman
Act or the Clayton Act are violated." ' 3 Once the violation had been
demonstrated, the order was quite appropriate.
Other examples of the Commission's exercise of its equitable powers could be given,"0 4 but even this brief review of the courts' impleCo., 368 U.S. 360 (1962); FTC v. Ruberoid, 343 U.S. 470 (1952); Jacob Siegel Co.
v. FTC, 327 U.S. 608 (1946).
99. 363 F.2d at 771-72.
100. 381 F.2d 884 (6th Cir. 1967).
101. Id. at 891.
102. 472 F.2d 882 (9th Cir. 1972).
103. Id. at 886.
104. Two other cases in which the Commission has exercised its equitable powers
merit some comment. In L.G. Balfour Co. v. FTC, 442 F.2d 1 (7th Cir. 1971), the
Commission had alleged a monopolization of the collegiate insignia jewelry industry. In addition to a number of cease and desist provisions, the Commission, acting
solely under section 5, had ordered Balfour to divest an acquired competitor. It had
not relied on section 7 of the Clayton Act, 15 U.S.C. § 18 (1970), even though
section 5 has no express divestiture provision. Relying on Pan American World
Airways v. United States, 371 U.S. 296 (1963), the Seventh Circuit upheld this
action. The court agreed with the Commission's statement that simply prohibiting
future acquisitions without ordering divestiture would be a vain act. 442 F.2d at
23. Finally, the court reaffirmed the well-settled doctrine that the Commission has
discretion to choose the appropriate remedial order. Id.
The Commission, in a case before it, Curtis Publishing Co., 78 F.T.C. 1472
(1971), had made clear that it believed it has remedial powers that are broader and
more flexible than a literal reading of the statute might indicate. The Commission
reiterated that it is not limited to prohibiting an illegal practice in the precise form
in which it existed in the past - it could go so far as to prohibit even a lawful device
19751
FTC AND EQUITABLE REMEDIES
mentation of the congressional purpose behind section 5 makes it
quite apparent that the Commission is vested with an unusual range
of powers in its efforts to maintain fair and honest competition and
to protect consumers. It may enjoin unfair or deceptive practices.
It may prohibit illegal practices from reappearing in different forms
in the future. Finally, it may design relief that has as its purpose
the restoration of competition and the correction of false impressions in the mind of the public. It is quite evident from the foregoing
discussion that the Supreme Court and lower courts have frequently
supported and implemented these powers.105
IV.
Heater v. FTC
It is in this context that we should examine the Ninth Circuit's
ruling in Heater. The Commission found that Heater had violated
section 5 by committing practices so deceptive that they were actually fraudulent.10 6 The court did not question this ruling since the
Commission's factual findings are conclusive if based upon substantial evidence." 7
The Commission ordered a refund of the fraudulently obtained
money in the belief that it was the most effective remedy and to
insure that the monies would not be used to fund comparable frauds
in the future.' This type of remedy was apparently mandated by
the Supreme Court when it stated in FTC v. National Lead Co.,'"
that in cases of fraud the Commission is not only obligated to suppress the unlawful practice, but also to take such reasonable action
as is necessary to preclude the revival of the illegal practice. 10 Yet
in spite of National Lead and the Commission's findings, the Ninth
Circuit concluded the FTC had no power to order the refund under
the "cease and desist" provision.
The court's conclusion is clearly inconsistent with the FTCA's
legislative history and subsequent cases. Both Congress and the
courts have repeatedly indicated that the Commission is clothed
with wide discretion in determining the type of order necessary to
for the purpose of preventing the continuation of an illegal practice. Id. at 1513.
See also FTC v. National Lead, 352 U.S. 419 (1947).
105.
106.
107.
108.
109.
110.
See notes 93-103 & accompanying text supra.
82 F.T.C. 570, 605-632 (1974). See notes 8-25 & accompanying text supra.
503 F.2d at 326.
82 F.T.C. 570, 654-57 (1974).
352 U.S. 419 (1957).
Id. at 430.
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bring an end to the unfair practices found to exist. Both have named
the Commission the expert body to determine what remedy is necessary to eliminate the unfair or deceptive trade practices which have
been disclosed. The Commission has been given wide latitude and
the courts are not to interfere except where the remedy selected has
no reasonable relation to the unlawful practice.' Furthermore, the
Supreme Court has pointed out that Congress, in passing the FTCA,
felt that courts needed the assistance of those trained to cope with
monopolistic and fraudulent practices in the framing of judicial
decrees in this area, 112 and that primary responsibility for fashioning
orders, having been placed with the Commission should not be
"lightly modified" by such orders.13 The only issue that should be
raised is whether the remedy selected has a reasonable relation to
the unlawful practices found to exist." 4
The second major question the court discussed was the latitude
permitted the Commission in defining the statutory proscription of
unfair trade practices. The decision paid lip service to the proposition that the Commission is the expert body designated by Congress
to define and condemn unfair trade practices. For example, the
recent Supreme Court decision of FTC v. Sperry & Hutchinson
Co."5 was cited in support of a broad discretion being vested in the
Commission to determine unfair practices:
The Commission has described the factors it considers in determining
whether a practice that is neither in violation of the antitrust laws
nor deceptive is nonetheless unfair: "(1) whether the practice, without necessarily having been previously considered unlawful, offends
public policy as it has been established by statutes, the common law,
or otherwise - whether, in other words, it is within at least the
penumbra of some common-law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive or
unscrupulous; (3) whether it causes substantial injury to consumers
(or competitors or other businessmen). ' '16
However, at the same time, the court totally negated this authoriza111. FTC v. National Lead Co., 352 U.S. 419 (1957).
112. FTC v. Cement Institute, 333 U.S. 683, 726 (1948).
113. See text accompanying note 87 supra.
114. Id.
115. 405 U.S. 233 (1972).
116. 503 F.2d at 323, quoting FTC v. Sperry & Hutchinson Co., 405 U.S. 233,
244 n.5 (1972) (quoting Statement of Basis and Purpose of Trade Regulation Rule
408, Unfair or Deceptive Advertising and Labeling of Cigarettes in Relation to the
Health Hazards of Smoking, 29 Fed. Reg. 8355 (1964)).
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FTC AND EQUITABLE REMEDIES
tion by adding a dimension to section 5 that never concerned Congress except in a very limited and inapplicable area. The court
concluded that a potential violator must be given "notice" if his
actions have not previously been found by the Commission to be
violations.117
The fallacy with the court's reasoning is that fraud is hardly a new
violation. Even if it were, the court has introduced a serious limitation on the intended flexibility of section 5 that was neither imposed
nor even contemplated by Congress. The court correctly stated that
some Representatives were concerned that businessmen would not
know what practices the new law encompassed. But their argument
that a clear definition of prohibited acts should be included in the
law, rather than the undefined phrase "unfair methods of competition," did not prevail.' Like the "restraint of trade" clause of the
Sherman Act, the "unfair methods of competition" phrase presented a risk of doing business that most businessmen were able to
evaluate on the basis of their experience and common sense.
The only time the problem of "notice" arose in the debates was
in relation to an unsuccessful amendment introduced by Senator
Moses Clapp of Minnesota to permit the recovery of treble damages
by a party when suing privately under the FTCA."9 The wording'
of the amendment was the same as that found in the Sherman
Act.' In response to a question on the Senate floor, 2 2 Senator Clapp
stated that under the proposed amendment a private citizen could
not sue before the Commission has declared a practice to be in
violation of section 5 .2 The context was strictly related to the pro117. 503 F.2d at 323.
118. See notes 39-45 & accompanying text supra.
119. 51 CONG. REc. 13,113 (1914) (remarks of Senator Clapp).
120. The text of the amendment was as follows:
Any person who shall be injured in his business or property by any other
person or corporation by reason of anything forbidden or declared to be
unlawful by this act may sue therefore in any district court of the United
States in the district in which the defendant resides or may be found, without
respect to the amount in controversy, and shall recover threefold the damages
by him sustained and the costs of the suit, together with a reasonable attor-
ney's fee.
Id.
121. 15 U.S.C. § 15 (1970).
122. 51 CONG. REC. 13,114 (1914) (remarks of Senator McCumber).
123. Id. (remarks of Senator Clapp). Senator Clapp's negative response was
conditioned upon a finding by the courts that Congress had delegated the legislative function to the Commission, since nothing would be forbidden until the Commission declared a certain act illegal.
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posed right to treble damages and had no relevance to the power of
the Commission to define an "unfair method of competition."
Moreover, this bit of debate cannot be used to support the proposition that Congress, having insisted that notice be given, thereby
"limited the consequences of a violation of the Act to a cease and
desist order" as the Heater court attempted to do. There is no requirement that notice be given, and no limitation restricting relief
to a cease and desist order. 24 It should be noted that the Ninth
Circuit, when confronted with a similar claim in Golden Grain
Macaronithat failure to give notice amounted to a violation of due
process requirements, 25 ruled that due process had been satisfied if
the defendant understood the issue and was afforded full opportunity to justify its conduct. The respondents in Heater were fully
apprised of the charges and had presented their case in court. Furthermore, the Ninth Circuit in Golden Grain Macaronihad viewed
divestiture solely under section 5 as a proper remedy; yet in Heater
it did not permit restitution, even after admitting that it saw no
difference between the economic impact of restitution and divestiture. 2 It is submitted that the argument attempted by the court is
unjustifiable.
A third issue addressed by the court was the lack of the Commission's power to grant "private relief," but the court's repeated use
of the term is quite misleading. The Commission cannot order "private relief";2 7 it can only act in the public interest. The Commission
is not an ombudsman. A particular class of individuals is restored
to a financial status comparable to that which it held prior to being
defrauded only because the Commission determines that the most
effective means of preventing future violations by the accused is to
restore the funds obtained through the unfair acts. The Commission
is precluded by statute from representing directly the legal interests
of an individual or group of individuals.2 8 The statute also requires
124. 503 F.2d at 324.
125. 472 F.2d at 885. See notes 102, 103 & accompanying text supra.
126. The court showed little sympathy for offenders who had been unjustly enriched:
Moreover, we recognize that there is no economic difference in the impact of
those orders [divestiture and affirmative disclosures] and a restitution order
- in each case the offender loses the benefits of money expended in reliance
on the legality of conduct later found illegal.
503 F.2d at 325 n.13.
127. Id. at 323. See Carlson v. Coca-Cola Co., 318 F. Supp. 785 (N.D. Cal. 1970).
128. 15 U.S.C. § 45(b) (1970).
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FTC AND EQUITABLE REMEDIES
the Commission to protect the public interest from unfair methods
of competition and unfair and deceptive practices; on the rare occasion where specific groups of individuals directly benefit from an
order issued in the public interest, it seems clear that the latter
mandate should prevail.
Finally, the Heater court refused to acknowledge that Commission decisions affecting "private rights and liabilities" may have
retroactive impact. 12 9 It continued its use of the legislative history
to argue that the broad power to define unfair acts and practices
asserted as "[t]he basis for the refund order must be read in light
of the contemplated non-retroactivity of a Commission decision."130
The court cited no specific authority from either the legislative
debates or cases to support this contention. Rather, it introduced
another limitation on the Commission and on section 5 that was
never contemplated by Congress and which is in fact quite unrealistic. A study of the legislative history demonstrates that the Act does
operate retroactively. While arguing against the passage of the
FTCA and the broad power being delegated to it, Senator John
Shields of Tennessee made the following comment:
The commission is authorized to declare what constitutes unfair competition or unfair methods of competition . . . .The worst part of
this legislative power, however, is that the commission is authorized
to give it a retrospective effect; in other words, the commission may,
after the act is done or committed for the first time, declare that such
an act constitutes unfair competition and a violation of law. 3'
Despite this criticism, the Act was passed without any limitations,
definitions or caveats, contrary to the conclusion drawn by the
Ninth Circuit.3 2 As Senator Shields observed, the Act does operate
retroactively; Commissioner Dixon, speaking for the Commission,
recognized this characteristic of section 5 in his opinion in Curtis
Publishing Co. :133
Every Commission order is "retrospective," in the sense that it looks
to and is based upon the causes and results of the acts found to violate
the statute, and at the same time it is "prospective" in the sense that
its design, purpose, and effect is to dissipate any lingering effects of
the past violations and to prevent their recurrence in the future. 34
129.
130.
131.
132.
133.
134.
503 F.2d at 324-25 n.13.
Id. at 324.
51 CONG. REc. 13,057 (1914) (remarks of Senator Shields) (emphasis added).
503 F.2d at 323-25.
78 F.T.C. 1472 (1970).
Id. at 1514.
198
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The Ninth Circuit was aware of the Commission's position expressed in Curtis,'3 but disregarded it and instead cited a 1971
Senate Commerce Committee report 3 ' to support its "prospective"
view. If the FTCA is read literally, it is correct that there is no
specific consumer relief granted, but neither is there specific consumer relief enunciated in the powers of a court of equity. As stated
throughout this article, Congress wished to leave designation of the
relief to the Commission and as such gave it general and equitable
powers. Moreover, the Commerce Committee report was dated July
16, 1971. The Curtis opinion, which first declared the retrospective
nature of the Commission orders as well as its power to grant consumer relief, was dated June 30, 1971. Thus, the drafters of the
report were unaware of the Curtis decision; their conclusion about
the status of the law has become inaccurate following that opinion.
It is submitted that the court erred in its ruling, both in its conclusion and in its effort to limit the intended operation of section
5.137
CONCLUSION
Over sixty years ago, Congress, because of certain general economic fears as well as dissatisfaction with the Sherman Act and its
interpretation by the courts, created the Federal Trade Commission. Its general purpose was and is to provide expertise both to the
business community and the courts regarding unfair trade practices, and to bring to a halt practices that inhibit fair competition.
The Commission may accomplish these objectives in two ways.
First, it can define "unfair methods of competition" according to its
135. 503 F.2d at 325 n.13.
136. Id. at 326, citing S. REP. No. 296, 92d Cong., 1st Sess. (1971). The following
portion of the report was quoted: "At the present time cease and desist orders have
prospective application only and afford no specific consumer redress to consumers
already injured." S. REP. No. 296, 92d Cong., 1st Sess. 24 (1971).
137. The court cited G.
HENDERSON, THE FEDERAL TRADE COMMISSION
(1924) for
the argument that "[t]he act does not expressly confer any general power, of the
kind possessed by a court of equity, to compel restitution, or otherwise to so mold
the decree as to do substantial justice under the circumstances." Id. at 71 (emphasis added). The short answer to this is that the Sherman Act does not expressly
confer equitable powers either, but it has nevertheless given rise to the exercise of
those powers. Moreover, this volume was written in 1924, long before the Supreme
Court (or any lower courts) fully interpreted congressional intent as discussed
herein. It would be anomalous to grant the Sherman Act an interpretation which
encompasses equitable powers without giving the FTCA a similar construction.
1975]
FTC AND EQUITABLE REMEDIES
best collective judgment and order the cessation of those activities.
Second, it can accomplish the same objective by means of the equitable remedial power which Congress granted it. Only a few specific
limitations were imposed by Congress on these powers. They include the requirement that the Commission act only in the public
interest, and that it can enforce its own order only after bringing it
before the appropriate court.
Fortunately, the Supreme Court has recognized what Congress
was attempting to achieve by creating the Commission and has
provided support toward that objective. There is no reason why the
Court should not continue that support. 3 '
138. Subsequent to the completion of this article, Congress passed the
Magnuson-Moss Warranty - Federal Trade Commission Improvements Act, Pub.
L. No. 93-637, 88 Stat. 2183 (Jan. 4, 1975), explicitly giving the Commission equitable powers to redress consumer problems. It might appear from a cursory reading
of this act that the Heater relief discussion in this article is largely moot, and, in
retrospect, that the Ninth Circuit correctly interpreted the powers of the Commission.
In fact, the converse of each point is correct; the discussion herein takes on even
more significance than prior to passage of the act for several reasons. In the Committee report, Congress expressly stated that this legislation is only supplemental
to the Commission's already existing power and in no way limits the Commission
from itself seeking and supporting much broader powers through cases in the
courts:
The section is intended to supplement the ability of the Commission to
redress consumer and other injury resulting from violations of its rule or of
Section 5(a) of the Federal Trade Commission Act and is not intended to
modify or limit any existing power the Commission may have to itself issue
orders designed to remedy violations of the law. This issue is before the
courts. It is not the intent of the conferees to influence the outcome in any
way.
S. REP. No. 1408, 93d Cong., 2d Sess. 42 (1974) (Conference Report on S. 356).
Thus, it is quite obvious that the problems raised by the Heateropinion are not
moot. Furthermore, contrary to the reasoning in Heater, Congress in 1975 (just as
in 1914) viewed the Commission as a body possessing greater remedial powers than
were made explicit.