One of the major missions of the Federal Trade Commission is to protect the public from false, deceptive and misleading advertising.
Increasingly in the last few months, observers of the agency have been asking whether the claims for future performance being made by the agency's admittedly activist chairman might not result in a request by the FTC for some substantiation if they had been made by a business entity.
In early testimony to Congress and repeated statements since being sworn in as FTC chairman last April, Michael Pertschuk has spoken of a new direction for an FTC already unquestionably revitalized under the Republicans: new initiatives, new approaches to old but lingering problems, new theories to apply existing laws to the problems of a more complex economic environment than envisioned when the laws were passed.
He promised to bring test cases to push to the "outer limits" the ability of current laws to stop the increasing concentration of economic power.
He promised new ways of looking at advertising to test whether the atmosphere it creates does not have a deceptive or unfair impact beyond the printed word. He especially promised action on advertising directed to children, especially pre-schoolers, which he suggested may well be unfair under the statutes the FTC administers.
The commission has not yet made much progress - at least publicly - with those new initiatives, Pertschuk admits. In remarks before the Public Citizen Forum in December, Pertschuk agreed that his record of achievement was "modest." Asking that judgment be withheld a year, he said "the most significant accomplishments I can claim credit for are in truth merely initiatives which only give promise of future consumer benefit."
Nevertheless, his words already have come back to haunt him. Pertschuk faced some hostile questions last month at a meeting of the Consumer Assembly - a natural constitutency for Pertschuk: The former Senate Commerce Committee chief counsel helped monitor the agencies and pass consumer legislation with the lobbying aid of many of his listeners.
That day, he had to do some fast talking to convince the group that, even though the FTC had missed five deadlines he set for discussion of the issue of childrens' advertising, it was still one of his top priorities. He pledged to donate his salary - $4,366 a month - to dental research if the commission has not begun public deliberation on staff proposals by the end of this month.
"I think I do tend to be too quick with making promises," Pertschuk confessed in an interview. "Part of that is learning that, even at its best, a bureaucracy - and this is a small and relatively efficient bureaucracy - does not operate as quickly as a public interest firm or even the committee." When the senators for whom he worked made a decision, "We were free to move forward and do things." Even at its best, decisions go through several layers at the FTC and take more time, he said.
The issue of children's advertising was a special problem, he contended, because the staff didn't really expect the commission to take fully seriously the issues that were being raised in a petition filed with the agency. "The staff were really very modest and diffident in their approach to those rules, and what we really wanted was for them to take the underlying questions very seriously," he said.
"But I'm not going to learn to live with unconscionable delays," he vowed.
Up to now, however, there have been what many call "unconscionable" delays in moving along major cases and proceedings that had been started by the commission over the last few years, despite Pertschuk's pledge at his confirmation to cut down on delays - a pledge in all fairness every appointee to every agency makes.
Last week, something of a logjam appeared to be broken with the release of three items that have been pending for some time: approval, after 15 months, of rules implementing a law requiring companies to notify the government a month in advance of large mergers and acquisitions; a final ruling on the pricing policies of five softwood plywood manufacturers in a case that has been at the commission level since November 1976; and the release of a presiding officer's report of proceedings on a rule proposed in November 1975 that would extend its "holder-in-due-course" rule to creditors as well as sellers.
But there are a myriad of other items awaiting final commission resolution, such as the final ruling in a case charging major soft-drink syrup manufacturers with impsosing illegal restrictions on their bottlers, a case in which the agency held oral argument in July 1976. Still awaiting action is a proposal made more than two years ago to expand one of the FTC's most successful, useful and least expensive consumer programs - the requirement that manufacturers place care labels on wearing apparel. Also pending are final decisions on proposed rules affecting the sale of funeral services, hearing aids, used cars and vocational school programs, and the advertising of eye-glasses and prescription drugs, among others.
Pertschuk admitted he was liberal about deadlines - up until Jan. 1. "I was lenient . . . because I felt that both bureaus were in the process of getting organized and reorganized, and with new people learning their jobs, there's bound to be some slippage," he said. It was important to let them "step back" from the ongoing programs to take a look at overall goalsand question whether the programs, cases and rules were appropriate and what their relationships were with respect to others.
"And that's a process that takes time," he insisted. "But after Jan. 1, we agreed that deadlines were to be taken seriously, and priorities taken seriously," he said. "And I expect the bureaus to hold to that standard.
"I've been promised a number of things coming to the commission in order over the next several months which will represent - each of them - significant finishes of things under way," Pertschuk stated.
Neither of Pertschuk's two chief bureau directors has backed down on their commitments to fulfill their boss' promises; one of the reasons they were hired was they agreed with his goals. They're working on them. But like increasing numbers of Carter administration officials, they too concede some things just take time.
Since coming to the FTC as director of the FTC's Bureau of Competition in July, Alfred F. Dougherty Jr. says he has spent most of his time reorganizing the bureau, going through each pending case and investigation to determine which ones to abandon, and reviewing the agency's monopoly complaint against eight major oil companies, a review that resulted in a decision to narrow the focus of the so-far unwieldy case.
"I knew . . . that I would have to spend the first six months organizing the bureau to get a hold of investigations and cases, sort them out and make decisions," Dougherty said. "We're on track but that's taken six months."
Still, some in his bureau must have been impatient; during the fall, Dougherty received an anonymous letter in his office mail quoting Petronius Arbiter, the Roman, who said:
"We trained hard . . . but it seemed that every time we beginning to form up into teams we would be reorganized. I was to learn later in life that we tend to meet any new situation by reorganizing; and a wonderful method it can be for creating the illusion of progress while producing confusion, inefficiency, and demoralization."
Dougherty, who came to his post from the law firm of Hogan and Hartson but who had earlier served as deputy director of the bureau he now heads, is setting up a planning process within the bureau to facilitate what he says will be more rigorous analysis - economic and legal - before proceeding with major new initiatives. "We want to pinpoint the problems so that attorneys and economists don't spend years tramping through the high grass of Vietnam," he says.
"There's a cost in doing all this at the front, but in the end I think there'll be a savings," he contends, although he adds: "This approach only makes sense if you're here for the long pull." Assuming Carter is reelected, Pertschuk is committed to stay the full seven years of his term and expects his top staff to also.
Dougherty is trying to develop theories to challenge conglomerate mergers and shared monopolies under existing laws, one of Pertschuk's priorities. He says he's reread the legislative histories and the antitrust statutes and is convinced that they are broad enough to allow effective action at least against any form of concentrated economic power. "The congressional intent that underlies the antitrust laws reflects a fundamental American suspicion of concentrations of power - political or economic - in few hands, private or governmental," Dougherty said in a recent speech outlining the "new beginnings" at the FTC. He said the bureau is studying especially how to utilize the very broad "unfairness" provision in the FTC Act most effectively "in line with the apparent desires of its drafters and present social and economic needs and values."
Dougherty also agrees with Pertschuk's view that the FTC can and should take into account social considerations, or "humanistic factors," not solely economic efficiency measures, in selecting targets for antitrust attack. (Pertschuk's failure so far to formally appoint a successor to Darius Gaskins Jr. as director of the FTC's bureau of economics and his emphasis on social concerns in antitrust enforcement is said to have resulted in plunging morale among the agency's economists.)
Dougherty is committed to some use of industrywide rules to promote competition in certain areas, instead of enforcement of the antitrust laws solely on a case-by-case basis. Three possibilities actively being considered for the agency's first venture into antitrust rule making would focus on:
Delivered pricing, the practice of quoting prices for manufactured goods that includes shipping costs even if the buyer wants to pick them up.
Ownership by physicians of medical-related vendors such as pharmacies or medical laboratories.
Physician control of state and local Blue Shield plans and their national association.
Food, health and energy projects consume a major portion of the bureau's resources, Dougherty said. They include a study of oil company ownership of alternative energy sources, the suit challenging the merger of Atlantic Richfield Co. and the Anaconda Co., and an investigation into the structure of the American automobile industry. After more than a year of planned hearings and interviews, the commission is issuing its first subpoenas in the auto investigation, he said.
With a number of projects mandated by Congress, especially in the energy area, there is "not too much left to play with," Dougherty lamented about the budget. He said some "good" cases and investigations are now in the "pipeline," but cautions, "As we go to items with a larger impact, there will be fewer cases."
Albert H. Kramer, director of the FTC's Bureau of Consumer Protection, also defends his staff and output."Things never happen as fast as one would like them to," he says. "While we've not moved as quickly as I would like, and we've been frustrated by some delays, it's a mistake to say that nothing's happened; things are moving along in reasonable fashion."
In addition to the childrens' advertising proposals that have just been delivered to members of the commission - and which represented a major staff resource - Kramer said the bureau staff was well along in finishing up many of the major proceedings that he said "people have been yelling and screaming about for years . . . we're getting them whipped into shape."
In addition, he also cited as major programs investigations started into redlining practices, credit reporting, a rule-making designed to give consumers guidance about buying home insulation, and several cases into land-sale abuse, one of which resulted in a court order stopping payments for the first time.
Like Dougherty, Kramer also is studying ways of expanding recent FTC ventures into defining what is "unfair," especially as it relates to advertising. In a speech in the fall, Kramer suggested regulators had been attempting to solve "Marconian problems" with "Gutenbergian remedies." He said that ads need to be evaluated by the regulators within the environment in which the ad is presented, taking cognizance of the "sensory experience" the ad seeks to create.
"If contemporary advertising is as effective as I believe it is, regulators are woefully unequipped to evaluate the possible falsity, deception, or unfairness to those ads via the double-spaced wypewritten memo or brief," he contended.
He also suggested in an interview that he is seeking to develop a concept to unfairness that deals with information generation as a whole in the marketplace. "We need to look at the total effect and total impact of advertising on consumers in assessing what is unfair or deceptive," he said.
The first test of the bureau's emerging ideas on advertising will apparently come up before the commission later this month (and Pertschuk will keep his salary). As outlines by Tracy Westen, deputy of the bureau, the staff has proposed that the FTC prohibit all advertising on television programs with substantial audiences of children six years and younger. In addition, the staff has suggested keeping ads for heavily sugared foods from children seven through 12 years of age by scheduling those commericals only after 9 p.m.
The third part of the package would allow presentation of advertising of other products to the 7-to-12 age group only if the advertiser agreed to fund "corrective advertising" outside the commercial itself to present health, safety or nutritional information about that group of products.
Two bureau-promoted actions taken in the last month by the commission have gotten reviews. In one, the FTC sued Ford Motor Co. for failing to inform car owners and prospective buyers about a design defect that could cause major engine damage in several and subcompact 1974-77 models. Ford had suggested during negotiations with FTC that is would notify the 2.5 million owners of the cars in question and offer a "consumer satisfaction" program already announced to its dealers only, but the FTC staff wanted Ford to sign a binding cease-and-desist order - something the auto maker didn't want to do.
"I just don't know whether it's worth the taxpayer' money to sue to get a whole loaf when the company has already promised three-quarters of a loaf," one lawyer said.
The other recent action which has generated some controversy was the agency's acceptance of a $700,000 package from STP Corp. to settle agency charges that the company made false deceptive and unsubtantial claim in advertising its STP Oil Treatment and STP Double Oil Filters, thus violating a previous order. Along with a cash settlement of $500,000, STP agreed to place "notices" in three newspapers and 11 magazines about the settlement which Kramer said would help "correct lingering misimpressions caused by the original advertisements.
Noting that none of the counter-notice will be seen on television or in any of the magazines where the original ads ran, one lawyer who practices before that FTC said he "didn't understand" the settlement. "The concept of corrective advertising is to reach the people who were misled by the ads and correct their misimpressions," he says. "But the notice appeared in the Wall Street Journal and the financial section of the New York Times, not where the 'car nuts' are going to see it."
(FTC sources suggest that the notices also were designed to give the business community a "message.")
Sitting on the witness side of the table answering questions instead of asking them as he had done for 13 years, Pertschuk told Congress recently he's learned a lot. "I thought it was a large agency, but it's quite small," he said. "And I found the 'large' resources very limited."
As a result, he seems more sober about what can be done. "We have taken on a lot," he said during an interview. "I think the hard choices will come in choosing those things that we're not going to do . . . even though they need being done."