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From Competitor to Consumer: The Changing Focus of Federal Regulation of Advertising, 1914–1938

Published online by Cambridge University Press:  11 June 2012

Richard S. Tedlow
Richard S. Tedlow
Affiliation:
Assistant Professor of Business Administration, Harvard Business School
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Abstract

It is a truism that government regulation of business, like all institutions of the political economy, has been evolutionary in nature. Yet few regulatory programs have metamorphosed quite so completely as that of the Federal Trade Commission, which converted itself in the period covered by this article from a watchdog of “competitive practices” that might militate against preservation of atomistic industrial organization, to an agency bent on protecting the interests of consumers. Professor Tedlow shows how this process worked itself out in the important case of truth in advertising.

Type
Research Article
Information
Business History Review , Volume 55 , Issue 1 , Spring 1981 , pp. 35 - 58
Copyright
Copyright © The President and Fellows of Harvard College 1981

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References

1 Samuel Johnson, The Idler, No. 40 (January 20, 1759) in Bate, Walter Jackson, Bullitt, John M., and Powell, L.F., eds., The Idler and The Adventurer (New Haven, 1963), 125.Google Scholar

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7 FTC v. Standard Education Society, 302 U.S. 112, 116 (1937).

8 Young, Toadstool, 125–143.

9 See generally Note, “The Regulation of Advertising,” 56 Columbia Law Review, 1019, 1021–1056 (1956) and “Developments in the Law — Deceptive Advertising,” 80 Harvard Law Review, 1005, 1016–1026, 1038–1118 (1967).

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14 Congressional Record, Vol. 51, 11540.

15 Ibid., 11188–11189.

16 Ibid., 11189. For a good general discussion of the background of the Commission, see Davis, George C. Jr, “The Federal Trade Commission: Promise and Practice in Regulating Business” (Ph.D. thesis, University of Illinois, 1969), 1–131.Google ScholarMontague, Gilbert H., “Unfair Methods of Competition,” 31 Yale Law Journal 20–41 (1922).Google Scholar

17 Congressional Record, Vol. 51, 13114Google Scholar; Miller, John Perry, Unfair Competition (Cambridge, Mass., 1941), 69.CrossRefGoogle Scholar See also Callmann, Rudolf, “False Advertising as a Competitive Tort,” 48 Columbia Law Review 876 (1948)Google Scholar. Henderson, Gerard C., The Federal Trade Commission (New Haven, 1924), 339.Google Scholar

18 Henderson, The Federal Trade Commission, 339. Ira Millstein, “The Federal Trade Commission and False Advertising,” 64 Columbia Law Review 439, 450 (1964). The importance of advertising as a competitive tool is discussed in a few places in the legislative history such as U.S. House of Representatives, 63rd Cong., 1st Sess. Hearings before the Committee on the Judiciary, Trust Legislation, pt. 5, 139–140, 144–145, 154–157, 160, 167–181, 220–222, but for the most part it is conspicuous by its absence.

19 Henderson, Commission, 339; Millstein, “False Advertising,” 451. And see Stone, Alan, Economic Regulation and the Public Interest (Ithaca, 1977), 171.Google Scholar

20 FTC, AR (1916), 6.

21 Sears, Roebuck & Co. v. FTC, 258 Fed. 307, 311 (1919).

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23 FTC, AR (1929), 47–48.

24 Ibid., (1931), 113.

25 Millstein, “False Advertising,” 452–453.

26 The idea of looking to the limitations that the federal courts placed on the Federal Trade Commission's other activities as an explanation for the Commission's interest in advertising was suggested to me by Mr. T. Lane Moore III of the National Archives.

27 Cong. Rec., Vol. 51, 11598.

28 253 U.S. 421, 427 (1920).

29 The typology and statistics are those of Blaisdell, Thomas C. Jr, The Federal Trade Commission (New York, 1932), 38–41.Google Scholar He lists as old criteria, traditional at common law: misrepresentation; trade mark infringement; commercial bribery; bogus independents; lottery sales methods; disparagement; conspiracy to maintain trade channels, fix prices, or coerce; and harrassment. The largest group of cases was in misrepresentation, in which advertising could be and often was involved as it could have been with four of the other above categories. Blaisdell's new criteria complaints include: resale price maintenance, guarantees against price decline, selling below cost, refusal to deal, and violations of Sections 2 and 3 of the Clayton Act (tying contracts, exclusive dealing, price discrimination). For a year-by-year breakdown and categorization of FTC complaints, see Public Regulation of Competitive Practices (New York, 1929), 272–278.

30 McFarland, Carl, Judicial Control of the Federal Trade Commission and the Interstate Commerce Commission (Cambridge, Mass., 1933), 94Google Scholar and 39–99 passim. FTC v. Winsted Hosiery Co. 258 U.S. 483 (1922). Millstein says that after this case “FTC jurisdiction over false advertising was indisputable.” “False Advertising,” 453. This is something of an overstatement considering the fact that the Commission was reversed on the puffery issue in Ostermoor (although the impact of this decision was muted because of a disagreement about the meaning of an illustration in the advertisement in question). Even in this realm, then, the Commission was not unimpeded. In re Ostermoor, 10 FTC 45 (1926); Ostermoor v. FTC, 16 F. 2d 962 (1927); Note, “Untrue Advertising” 36 Yale Law Journal; “Developments,” Harvard Law Review, 1020–1021; Preston, Ivan L., The Great American Blow-Up (Madison, 1975), 177–178.Google ScholarProsser, William L., Handbook of the Law of Torts (St. Paul, Minnesota, 1971), 685Google Scholar; Note, “Yes, FTC, There is a Virginia,…” 57 Boston University Law Review 833, 848 (1977).

31 Memorandum on Unfair Competition at the Common Law [Printed for office use only by the Federal Trade Commission] (Washington, D.C., 1916); Memorandum, M.Q. Macdonald to Joseph E. Davies, Federal Trade Commission Papers, Record Group 122, General Records, File #8181–1–1, National Archives, Washington, D.C. (hereinafter FTCP).

32 This paragraph is based on a variety of sources. Indispensable are Pope, Daniel A., “The Development of National Advertising, 1865–1920” (Ph.D. Thesis, Columbia University, 1973)Google Scholar and Hower, Ralph M., The History of an Advertising Agency (Cambridge, Mass., 1949).CrossRefGoogle Scholar Others include Shapiro, Stephen R., “The Big Sell” (Ph.D. thesis, University of Wisconsin, 1969)Google Scholar; Twyman, Robert W., History of Marshall Field & Co. (Philadelphia, 1954)Google Scholar; Hopkins, Claude C., My Life in Advertising (Chicago, 1966)Google Scholar; Albert D. Lasker, “Reminiscences” Columbia Oral History Collection: “The Lasker Story… As He Told It,” Advertising Age (hereinafter AA) July 7, 1952 and the twenty-five following issues; Gunther, John, Taken at the Flood (New York, 1960)Google Scholar; Curti, Merle, “The Changing Concept of ‘Human Nature’ in the Literature of American Advertising,” Business History Review, 41 (Winter, 1967).CrossRefGoogle Scholar

33 Quoted in Pope, “National Advertising,” 317.

34 Ibid., 337–393; Roland Cole, “Review of the Ten-Year Fight Against Fraudulent Advertising” Printers' Ink (hereinafter PI), Febuary 24, 1921, 17–20, 25–26; Kenner, H.J., The Fight for Truth in Advertising (New York, 1936), 26–36.Google Scholar

35 Merle Sidener to Joseph E. Davies, August 30, 1915; Warren B. Choate to Merle Sidener; September 3, 1915; Joseph E. Davies to Merle Sidener, October 10, 1915; Herbert S. Houston to Joseph E. Davies, November 9, 1915; General Records, File #8505–550–2 FTCP.

36 Tedlow, Richard S., Keeping the Corporate Image: Public Relations and Business, 1900–1950 (Greenwich, Conn., 1979)Google Scholar, Chapters 1 and 2; Huebner, Lee W., “The Discovery of Propaganda” (Ph.D. Thesis, Harvard University, 1968).Google ScholarBaker, Ray Stannard, American Chronicle (New York, 1945), 183.Google Scholar Newlands suggested that the Commissioners appointed would be “lawyers, economists, publicists, and men experienced in industry.” Cong. Rec., Vol. 51, 11108. My appreciation of the importance to the Commission of making accurate information available to the business community was increased by conversations with Lane Moore. On this topic, see Edward N. Hurley to Joseph E. Davies, January 21, 1917 General Records, File 8517–88, FTCR Davies addressed the AACW convention on “Competition and Democracy” on June 20, 1915 in Chicago. Joseph E. Davies speech file, Federal Trade Commission Library, Washington, D.C. Hurleys book, Awakening of Business was published through the AACW in 1916. Journal of William S. Culbertson, 1917–1918, Box 3, William S. Culbertson Papers, Library of Congress, Washington, D.C.

37 For procedural enforcement problems that rendered the Model Statute virtually without serious effect, see “Regulation,” Columbia Law Review, 1058–1065. “Before the Federal Trade Commission. Conference with Representatives of the Associated Advertising Clubs of the World,” November 23, 1915, 11 and 60, Docket Section, File # 40–2–19–1, FTCP.

38 “Before the Federal Trade Commission” 45–46.

39 Ibid., 21.

40 Chase, Stuart and Schlink, F.J., Your Money's Worth (New York, 1927), 96, 208–212.Google Scholar Milton Handler, “The Jurisdiction of the Federal Trade Commission over False and Misleading Advertising,” 31 Columbia Law Review, 527, 550 (1931).

41 Young, James Harvey, The Medical Messiahs (Princeton, 1967), 70–81.Google Scholar

42 Raladam Co. v. FTC, 42 F. 2d 430, 436–437 (1930).

43 Handler, “Jurisdiction,” 534.

44 283 U.S. 643, 647–649 (1931).

45 Young, Messiahs, 210–211, 127.

46 Stone, Economic Regulation, 158. Alexander, George J., Honesty and Competition (Syracuse, 1967), 2.Google Scholar

47 Statement in Senate during debate on S. 3744 in Dunn, Charles Wesley, ed., Wheeler-Lea Act: A Statement of Its Legislative Record (New York, 1938), 63–64.Google Scholar

48 Drug Markets, June, 1931, Press Clippings, Book 1, FTCP.

49 Kallett, Arthur and Schlink, F.J., 100,000,000 Guinea Pigs (New York, 1933), 12, 70.Google Scholar

50 Much of the discussion of this subject draws on, but does not follow in every respect, two skillful studies: Pease, Otis, The Responsibilities of American Advertising (New Haven, 1958), 115–137Google Scholar and Jackson, Charles O., Food and Drug Legislation in the New Deal (Princeton, 1970)Google Scholar, passim.

51 Sternsher, Bernard, Rexford Tugwell and the New Deal (New Brunswick, N.J., 1964), 227.Google Scholar

52 This skill is pithily illustrated in the description of the following skirmish by law professor David F. Cavers, who was an advisor to the Department of Agriculture during the New Deal: “The debate in the House took place late in the evening of June 20. It was a short one. The issue was nicely defined by Representative McReynolds of Tennessee who said: ‘Now members of the House, what are you going to do about it? Are you going to turn this over to Tugwell for enforcement or are you going to leave it with the Federal Trade Commission with such men as Judge Davis and other men from this House on that Commission? [Applause]’ Representative Rayburn … observed: ‘… there is nobody who has lobbied around this Capitol on any bill in the twenty three years I have been in Congress more than the members of the Federal Trade Commission have lobbied on this bill….’ When the vote was taken, the score stood: Tugwell, 70; Judge Davis and the other House alumni, 190.” “The Food, Drug, and Cosmetic Act of 1938,” 6 Law and Contemporary Problems 2 (1939).

53 New York Journal of Commerce, March 24, 1938, Press Clippings, Rook 1, FTCP.

54 The amendments are published in Dunn, Wheeler-Lea, 2–8.

55 Handler, Milton, “The Control of False Advertising under the Wheeler-Lea Act,” 6 Law and Contemporary Problems 91, 97 (1939).Google Scholar

56 Handler, “Wheeler-Lea,” 97. An example of the problem that scienter and reliance could cause in private actions is shown by the case of a consumer who brought an action of deceit against a baker because part of a wire nail had been embedded in a loaf of bread, which, to her discomfort, she had swallowed. She based her action upon the advertised claim that “This bread is 100 per cent pure, made under the most modern, scientific process, [and] has very special merit as a healthful and nutritious food.” The court found (1) that this claim merely meant that no unwholesome ingredients were used in the preparation of the bread and not that some foreign substance might not be present by accident, (2) that there was no proof the baker had known of the presence of the nail, and (3) that the consumer had not proven she had relied on the claim to purchase the product. Handler, “False and Misleading,” 23.

57 Handler, “Wheeler-Lea,” 97. Young, Messiahs, 300–301.

58 Dunn, Wheeler-Lea, 168. See Preston, Blow-up, ix-x, 17–20, 303–304.

59 Handler, “Wheeler-Lea,” 98.

60 AA, July 9, 1938, 1; PI Monthly, August 1, 1938, Press Clippings, Book 1, FTCP; Grocers Commercial Bulletin, August 1, 1938, PI August 25, 1938, Ibid. The New York Times felt that copy was being toned down (August 14, 1938, Ibid.), but Otis Pease rightly cautions that the general impact of the Amendments on copy is difficult to determine. Responsibilities, 137. Stanford, Alfred, “Shadow Over the Copy Desk,” Advertising and Selling, October, 1, 1938, 29–30 ff.Google Scholar September 15, 1938, Press Clippings, Book 1, FTCP.

61 Note, “The Consumer and Federal Regulation of Advertising,” 53 Harvard Law Review, 828, 839 (1940). Young, Messiahs, 302–303.

62 New York Times, February 16, 1940, 14. Note, “The Consumer and Federal Regulation,” Harvard Law Review, 841.

63 Young, Messiahs, 299.

64 Barnouw, Erik, The Sponsor (New York, 1978), 39.Google Scholar

65 Young, Messiahs, 299. For Geritol, see J.B. Williams Co. v. FTC, 381 F. 2d 884 (1967); U.S. v. J.B. Williams Co., 354 F. Supp. 521 (S.D. N.Y., 1973); U.S. v. J.B. Williams Co., 498 F. 2d 414 (2nd Cir., 1974); New York Times, January 23, 1973, 3; “FTC turns over Geritol Litigation to Justice Dept.” AA, December 8, 1969, 8; American Bar Association. Commission to Study the Federal Trade Commission, “Report” (September 15, 1969), 43–44; Cox, Edward F., Fellmeth, Hubert C., and Schulz, John E., “The Nader Report” on the Federal Trade Commission (New York, 1969), 24, 65–67.Google Scholar

66 Pitofsky, Robert, “Beyond Nader; Consumer Protection and the Regulation of Advertising,” 90 Harvard Law Review 661, 671 (1977)Google Scholar; Interview with Commissioner Pitofsky, October 6, 1978, Washington, D.C.

67 Tedlow, Richard S., “Advertising and the Federal Trade Commission: An Historical Overview,” (Unpublished paper, author's possession, 1978).Google Scholar

68 A very interesting example is Note, “Fairness and Unfairness in Television Product Advertising,” 76 Michigan Law Review 498 (1978).Google Scholar