(a) Detection. The FTC's monitoring program is limited almost
exclusively to examination of commercial advertising on national tele-
vision. This monitoring consists of a review by attorneys and scientists of
commercial scripts broadcast during the first week of each month, which
are submitted to the FTC by the three major networks. Although vast
amounts of material are accumulated dealing with national and local
magazine advertising, national and regional radio scripts, regional tele-
vision, and local newspaper advertising, no personnel have been assigned
59See Guides Against Deceptive Advertising of Guarantees, 16 CFR Â§239 (1960).
eoTire Advertising and Labeling Guides, 16 CFR Â§228 (1967).
eiProposed Guides for Advertising Over-the-Counter Drugs, 16 CFR Â§249 (1969);
Trade Regulation Rule on the Advertising of Nonprescription Systemic Analgesic
Drugs (proposed), 16 CFR Â§415 (1967).
62See Trade Regulation Rule on Cigarettes in Relation to the Health Hazards of
Smoking (proposed), 16 CFR Â§408 (1969). Of course no views as to the merits of
issues underlying this controversy are intended.
to screen this material. ^^ FXC employees have been requested, however,
to report any questionable advertising that they may have seen personally.
National TV does affect a great number of consumers. However, the
ghetto frauds which the FTC believes numerousâ€” such as fictitious pricing,
home improvement frauds, and bait-and-switch schemesâ€” usually appear
in those local media that the FTC entirely ignores. We believe the FTC
cannot mount an effective campaign against false and misleading adver-
tising unless it monitors all interstate media with adequate personnel.
(b) Undercommitment of Enforcement Resources. The FTC has
undertaken in recent years a broad range of investigations of question-
able advertising, but it simply has not made the commitment of person-
nel necessary to carry out these investigations expeditiously and efficiently.
To take one example that came to our attention, the Division of
Special Projects of the Bureau of Deceptive Practices is now responsible
for conducting the following investigations which principally involve
false advertising but also include other consumer fraud problems: mis-
branding of softwood lumber, cigarette advertising and labeling, fair
packaging and labeling, encyclopedia and magazine subscription frauds,
failure to publish or deceptive publication of gasoline octane ratings,
advertising campaigns dealing with gasoline additives, promulgation of
product safety standards, automobile warranty claims, and several other
matters that are still confidential and cannot be listed at this time. A
total of 12 attorneys have been assigned to handle all of these investiga-
tions, and six of those work exclusively on fair packaging and labeling.
The predictable result is that investigations, once initiated, disappear
from public view and surface, if at all, many years later. For example, in
one way or another, the FTC has been investigating and dealing with
the problem of false advertising of analgesic drugs since 1955. In March
1962, the Commission announced that it was initiating a study of the
advertising of cold remedies to determine whether manufacturers of
these products were overstating their effectiveness, but the results of that
study remain unpublished and unimplemented. It is true that the agency
has called for increased allocations, partly to expand the staff of attorneys
available for false advertising work, only to see Congress cut the re-
quested appropriations, and some of the responsibility for delay must be
63There is a procedure whereby attorneys in the FTC, investigating advertising with
respect to a particular product, can ask two or three part-time undergraduate law
students hired for the purpose to clip advertisements for that product from written
materials submitted to the FTC by TV and radio stations, magazines and newspapers.
This obviously does not qualify as a monitoring program.
attributed to legal maneuvers by attorneys for the firms being investi-
gated. Nevertheless, the fundamental determination to commit a large
number of important investigations to a staff of 12 lawyers in the Divi-
sion of Special Projects, while almost 100 employees (lawyers, invest-
igators, and others) staff the Bureau of Textiles and Furs, represents, in
our view, an erroneous evaluation of enforcement priorities.*'^
(c) Enforcement Procedures. In the past few years, the FTC has
resorted to formal enforcement procedures on the average less than 7
times per year in cases primarily involving false advertising charges. Most
of these cases were terminated by negotiated consent arrangements so that
rarely were the resources of the Commission devoted to the litigation
We recognize that in the false advertising area much can be accom-
plished by advising and consulting with advertisers, and encouraging
voluntary compliance. On the other hand, if advertisers believe the FTC
is reluctant to enforce the law vigorously where flagrant false advertising
is uncovered, we fear they will not take the FTC seriously.
This failure to put some bite into enforcement is illustrated by the
long history of the FTC's dealings with the J. B. Williams Company over
advertising campaigns for Geritol. After more than three years of investi-
gation, the FTC, in December, 1962, directed the issuance of a complaint
in which it alleged, among other things, that respondents had misrepre-
sented the efficacy of Geritol in the treatment of tiredness, nervousness,
loss of strength and irritability. No preliminary injunction was sought.
About three years later a cease and desist order was entered which was
eventually affirmed with slight modification by the Court of Appeals.^^
Early in 1968 respondents submitted their first compliance report. The
new advertising campaign for Geritol was aired and, on November 14,
1968, the FTC held a public hearing for the purpose of determining
whether the new Geritol commercials conformed with the Commission's
order. The FTC found that the new Geritol commercials still violated
the cease and desist order, but instead of seeking civil penalties the FTC
merely ordered respondent to submit a second compliance report. In
March, 1969, almost 10 years to the day after the beginning of the investi-
gation, the FTC found that certain of Geritol's commercials still violated
64See p. 15, supra.
65J. B. Williams Co. v. FTC, 381 F. 2d 884 (6th Cir. 1967).
36-138 O - 69 - 26
the cease and desist order, but again it did not seek civil enforcement
penalties. No further action has been taken. Whatever the merits of the
Commission's original complaint against the Geritol ads, we believe the
Commission should have taken more effective action in the full decade
since its investigation was initiated.
(d) Ineffective Compliance Program. Responsibility for securing
compliance with cease-and-desist orders issued against respondents en-
gaged in false and misleading advertising lies with the Compliance
Division of the Bureau of Deceptive Practices. Eleven attorneys are
assigned to this work, which consists largely of a review of compliance
reports submitted by respondents, and the investigation of complaints
received from the public alleging violations of orders.
According to the FTC's own personnel, this limited compliance
program is falling further and further behind, and there is no program
to institute a systematic check of compliance with orders or assurances
of voluntary compliance after compliance reports have been approved.
The last time such a survey was attempted was more than 15 years ago,
and it resulted in penalty investigations in 25% of the cases surveyed,
and civil penalty proceedings in 50% of the cases investigated.
The FTC recognizes the shortcomings of its compliance program in
this area, and plans have been proposed within the agency to strengthen
this area of its operations in the future. Such plans are long overdue.
(e) Studies and Reports. Little or no work has been done in recent
years with respect to such questions as the evolving role of new tech-
niques of advertising on buying patterns, the incidence and effectiveness
of subliminal or motivational advertising, or the extent to which adver-
tising has been directed toward establishing artificial product differ-
entiation in the minds of consumers. Moreover, the FTC determines
the "meaning" of advertisements and their impact on consumers without
the benefit of empirical surveys conducted by advertising and marketing
experts. In short, the FTC has made little use of its powers to investi-
gate, study and report on problems in this area. In the future, hopefully,
resources will be made available to undertake these activities.
(f) Consumer Education. Another area in which the FTC has been
passive relates to possible programs of consumer education designed to
make purchasers aware of flagrant deceptions and schemes to defraud.
The Kerner Report indicated that 88% of all Negro households and
95% of poor families in New York City have television sets.^s Thus,
an aggressive informational program on national and local television
holds out the prospect of disseminating knowledge among low income
groups who can ill afford to be victimized by deceptive practices.
We understand that the FTC is now considering establishing a Con-
sumer Education Office to replace its present sporadic efforts. We com-
mend this initiative, and propose that the office make efforts to secure,
without charge, television and radio time by seeking the cooperation of
the Federal Communications Commission, the national networks, local
stations, and the Corporation for Public Broadcasting.
c. Bureau of Textiles and Furs
(1) The FTC Effort. In terms of total dollars and the proportion of
resources allocated, enforcement operations of the Bureau of Textiles and
Furs have been and continue to be among the most preferred in the
FTC over the last 8 or 10 years. In our view, this commitment represents
poor planning and a misallocation of resources.
The Bureau of Textiles and Furs is engaged exclusively in the en-
forcement of four statutes: the Wool Products Labeling Act ("Wool
Act"),67 the Textile Fiber Products Identification Act ("Textile Act"),Â«8
the Fur Products Labeling Act ("Fur Act")^^ and the Flammable Fabrics
Act.'^*' Of these, the first three are primarily aimed at protecting pro-
ducers rather than consumers.''^ We do not fault the FTC for enforcing
these protectionist statutes. It is the judgment of Congress that these
industries deserve some protection from competition, and it is neither
our province, nor that of the FTC, to repeal the statutes. We believe,
however, that in allocating its resources along the whole spectrum of
social problems which the agency could attempt to ameliorate, the FTC
has given inordinate attention to these areas. Moreover, the FTC's en-
66REPORT OF THE NATIONAL ADVISORY COMMISSION ON CiVIL DISORDERS 274 (1968).
6715 U. S. C. Â§68 (1964) .
6815 U. S. C. Â§ 70 (1964) .
6915 U. S. C. Â§69 (1964).
7015 U. S. C. Â§1191-1204 (1964), as amended (Supp. Ill 1965-1967).
7iSee Hearings on H. R. 944 Before a Subcomm. of the Comm. on Interstate and
Foreign Commerce, 76th Cong., 1st Sess. 17 (1939) (Wool Act) ; Hearings on H. R.
169, 5606 and 6524 Before a Subcomm. of the Comm. on Interstate and Foreign Com-
merce, 85th Cong., 1st Sess. 22, 38, 42 (1957) (Textile Act) ; Hearings on H. R. 2321
Before the Comm. on Foreign and Interstate Commerce, 82d Cong., 1st Sess. 8 (1951)
(Fur Act) .
forcement effort again has focused on trivial matters which bear little or
no functional relationship either to the protection of competitors, or
the protection of consumers.
For example, in Marcus v. FTC,'''- the FTC found a violation of the
Act because of mislabeling on 4 wool blankets. One was labeled 70%
wool and 30% rayon when it actually contained 79% wool, 5.9% nylon
and various other fabrics, and a second was labeled 90% wool and 10%
nylon, when it in fact had 93.7% wool. The FTC complained because
the blanket labels understated the amount of wool, but the Court of
Appeals found that understatement of wool content was not a violation.
Another blanket was labeled 90% wool, but in fact had 89.9% and that
label was held valid by the Court as an "unavoidable variation in manu-
facture." The fourth blanket was labeled 100% wool when in fact it
contained 14.3% residue other than ^vool, and this was held to be a
meaningful variation. Since the respondent had sold over one million
blankets during the period under investigation, the Court concluded
that the variations found did not constitute substantial evidence of mis-
Typical cases enforcing the Textile Act involve sleeping bags that
were labeled "all acetate" but were found to contain "substantially
less",'''^ or men's irousers that were labeled 75% dacron-polyester and
25% cotton whereas "substantially less dacron" was present.'^* There are
probably some consumer protection advantages that result from en-
forcement of the Textile Act. Most consumers cannot tell by sight
or touch whether a textile is, for example, 60% cotton and 40% dacron,
or contains other fibers, and the Act requires that the label disclose that
information. For a sophisticated shopper, such information is relevant.
On the other hand, the consumer interested in more practical considera-
tions, such as durability, shrinkage, launderability, and warmth, needs to
be told how these qualities relate to fiber content.
In enforcing the Fur Act, the FTC has adopted rules which provide
that all information on the label must be in English, forbid the use of
abbreviations on the label, and limit the minimum size of labels and the
size of type that may be used on the label. Other rules prevent fictitious
price comparisons, fraudulent claims of value, and bogus going-out-of-
business sales. The following list of violations, taken from a report of a
72354 F. 2d 85 (2d Cir. 1965) .
73Geotrade Industrial Group., 62 FTC 102 (1963)
74A. Brash & Sons, Inc., 58 FTC 1033 (1961).
case that eventually reached the Court of Appeals, is some indication of
the kind of infractions that may occur:
A few hand written labels containing (in addition to the required
data) non-required words "fur name" on the same side; one garment
with no fur identification; a hand written label which omitted the
information that the fur was dyed and which contained the non-
required words "romance flank muskrat"; more than thirty labels con-
taining non-required words, e.g., "romance" and "fur name"; several
labels omitting the information that the fur was dyed; about ten labels
omitting the name or registered number of the marketer; several labels
omitting the name of the mink trimming used on the garment of
another fur; more than a dozen labels having the words "Southwest
Africa" abbreviated as "S.W. Africa"; and several labels or garments
of Persian Lamb in which the word "lamb" was omittedJ^
It is difficult to justify such literal-minded enforcement of this statute by
the Bureau of Textiles and Furs. Many of the trivial violations found in
the literal text of labels, invoices and advertising are hardly relevant to
any serious consumer interest. Indeed, if the misleading information were
deceptive in a significant wayâ€” for example, if rabbit were labeled as
Persian Lambâ€” Section 5 would be available to prevent continuation of
The fourth statute enforced by the Bureau of Textiles and Furs is the
Flammable Fabrics Act, passed in 1953 and amended in 1967. It is not a
labeling or disclosure statute, but directly prohibits the manufacture and
marketing of any wearing apparel that does not conform to standards
promulgated by the Secretary of Commerce. The Act resulted from a
number of highly publicized incidents in the early 1950's involving severe
burning of children by highly flamable children's cowboy playsuits and
so-called "torch sweaters", and was amended in 1967 to allow for more
flexibility in standards and to broaden the coverage of the Act to include
household furnishings, draperies and blankets.
Time and effort devoted by the Bureau of Textiles and Furs to
enforcement of this statute has been relatively minor compared to
enforcement of the three labeling statutes. Of all Textile and Fur Bureau
cases on the FTC docket in July 1962, 13.3% involved violations of the
Flamable Fabrics Act. The percentage rose to 30% in 1964 and
Tr.The Fair v. FTC, 272 F. 2d 609, 611 (7th Cir. 1959) ; see also Mannis v. FTC, 293
F. 2d 774 (9th Cir. 1961) , affirming a Commission order although one of the viola-
tions was "far fetched" (the word "muskrat" was spelled "mustrak") and other
asserted violations were "hypcrtechnical."
dropped to 5.6% in 1966 and 5.87o in 1967. By 1968 it was up to
16%. Budget allocation for Flammable Fabrics Act enforcement have run
at about 10% of total textile and fur allocations over the last five years-
compared to about 40% per year for Textile Act enforcement during the
same period. In budget requests for fiscal 1970, the FTC has put sub-
stantially more emphasis on Flammable Fabrics Act enforcement. Thus,
of 70 additional employees requested for fiscal 1970, 54 are to work in
this area of enforcement.
(2) Evaluation. Operations of the Bureau of Textiles and Furs
(other than in Flammable Fabrics Act enforcement) represent a glaring
example of misallocation of resources and a misguided enforcement
policy. Each year larger allocations are requested and increasing amounts
spent on an energetic program to achieve results of highly dubious value
to anyone. Moreover, the examples of concern with trivial labeling errors,
mentioned above, came up in enforcement actions that were appealed to
the Courts of Appeals; we suspectâ€” and several of the present Commis-
sioners in the FTC support us in this viewâ€” that even more trivial viola-
tions are involved in enforcement through voluntary compliance
Time and again, the FTC has defended itself against charges of in-
adequate consumer protection programs on the ground that a sufficient
allocation to support these programs had not been made available. Keep-
ing in mind that money saved by cutting the allocation to the Bureau
of Textiles and Furs could be used for serious consumer protection work,
we conclude that:
(a) The Flammable Fabrics Act is a legitimate and important aspect
of consumer protection which, accordingly, should be rigorously en-
(b) Present efforts of the Bureau of Textiles and Furs to inspect
20% of all mills and manufacturers in the United States each year, and
10% to 15% of all retail outlets, are out of proportion to the contribu-
tion that such an ambitious program can make to consumer protection.
We believe a carefully devised sampling programâ€” cutting present ex-
penditures on enforcement of the Wool, Textile, and Fur Acts by one-
half to two-thirdsâ€” would be entirely adequate.
(c) The tendency of the Bureau to insist on literal compliance not
only with the statutes but with the FTC's regulations under the statutes
must cease. In other words, the Commission should devise a set of criteria
for actionable violations that distinguishes between trivial, nitpicking
deviations as opposed to potentially serious deceptions of consumers.
d. Retail Frauds,
(1) The FTC Effortâ€” A Limited War. Despite findings in its own
studies that retail fraud against consumers is practiced on a vast scale,
and findings by many others that it is a problem of major national con-
cern, the FTC has devoted very limited resources to coping with these
problems. The only comprehensive and organized effort to deal with
retail marketing frauds was its consumer protection project begun in
late 1966 in the District of Columbia. This progam represents an em-
bryonic effort at the type of study which the FTC needs in order to
produce a unified plan of attack on consumer problems, but it was con-
ducted on too small a scale, and for too short a period of time, to ac-
complish a sufficiently broad result.
As a result of this single program, however, 108 investigations of
sellers in the District of Columbia were opened and 42 formal com-
plaints issued. Several important FTC opinions were eventually handed
down in connection with these complaints, including a few that broke
important new ground in the development of consumer rights.'^* The
knowledge gained as a result of the project influenced the drafting of the
FTC's guides on retail installment credit sales, and is said by FTC per-
sonnel to have influenced the enactment by Congress of truth-in-lending
legislation. These are extraordinary results from a program which, at
the height of its activities, involved an average of five full-time lawyers.
Nevertheless, the project itself has been allowed to dwindle to a skeleton
operation, and no other similar project has been attempted. Several of
the guides published in recent years touch upon consumer fraud prob-
lems,'^'^ and the FTC also has issued some complaints in this area. For
example, we found that in the last three years the FTC had filed an
average of about 15 complaints per year alleging fraudulent bait-and-
switch practices or other fraudulent pricing tactics, about 12 complaints
per year charging misrepresentations of potential earnings of franchises
and dealerships (mostly involving chinchilla breeding franchises), about
7 complaints per year against home improvement frauds (e.g. bogus
contests, phony commissions for "model home" displays, and fictitious pric-
ing) and about 4 per year dealing with misrepresentations as to potential
â– resee, e.g., In re Leon Tashof, CCH Trade Reg. Rep. ^f 18,606 (FTC 1968) ; Empico
Corp. [1965-1967 Transfer Binder] CCH Trade Reg. Rep. Â«I 17,859 (FTC 1967).
775ee, e.g., Guides Against Deceptive Pricine;, 16 CFR Â§233 (1967) : Guides Against
Bait Advertising, 16 CFR Â§238 (1967); Guides Against Deceptive Advertising of
Guarantees. 16 CFR Â§ 238 (f967) .
earnings upon graduation from various types of schools. With the
exception of cases emerging from the D.C. Program, we are advised
that every one of these actions developed from complaints received in
the mail by the FTC. Determination whether to react to a letter of
complaint alleging retail fraud is made on a case-by-case basis, and we
are advised that no effort has been made to distinguish any trends in
the approximately 12,000 letters of complaint now received each year.
The planning failure is evident.
Another FTC program to combat localized consumer abuse has been
its "federal-state coordination" program. This program involves re-
ferral of complaints received at the FTC to local enforcement officials
when they involve essentially intrastate problems, solicitation of com-
plaints from state and local officials where interstate problems are in-
volved, responding to requests from state legislators and other state
officials for advice or assistance in drafting legislation, preparing drafts
of model legislation for consideration by states, and appearing and par-
ticipating in conferences and meetings of local enforcement officials. We
commend all of these efforts, but we also note that from the time the
program was started in October, 1965, until a few months ago, the
entire operation consisted of one lawyer and one secretary. '^s As a result
of this undercommitment of resources, described as "miniscule" by the
FTC's present General Counsel, this one-man operation has been unable
to keep up with current responsibilities, much less expand the office's
operations into new and promising areas.
Finally the FTC, in order to be more fully informed on consumer
fraud problems in the nation and to receive advice as to the role it could
best play in dealing with these problems, held extensive hearings in
November and December of 1968. No action has yet been taken on the
basis of these hearings.
(2) Evaluation of Reasons for the FTC's Cautious Approach. It is
the view of the majority of the present Commissioners of the FTC that
the agency should not become deeply involved in ghetto fraud and other
retail consumer abuses. Three reasons have been offered in support of
this judgment: (a) retail fraud principally involves criminal conduct,
and the FTC, with the power to do nothing more than enter a cease-and-
desist order, cannot play an effective role in this area; even where non-