I. Background
Since the Fair Trade Act took effect in 1992, the FTC accumulated law enforcement experiences in different types of cases. As the quality of cases become better and the number of cases increases, we categorize untrue advertisements according to different industry subcategories for detailed analysis. The target of this study is the distribution industry. The distribution industry is closely related to the welfare of consumers and its advertisements greatly affect consumer rights. Since the FTC has already made plenty of decisions on the distribution industry, we plan to study the industry data to understand the characteristics of this industry and to interpret the regulatory implications of advertisements. In addition to the systematical review on previous FTC decisions, we also summarize some criteria from past experience for future reference.
II. Methodology and Analysis
The methodology in this study is to summarize and analyze previous FTC decisions on untrue advertisements in the distribution industry. In the meantime, this study also explores related administrative court and civil court judgments. The purpose of this methodology is to fully present the practices on untrue advertisement in the distribution industry and clarify standards for law enforcement. The structure of study is as follows: Chapter 1, Introduction; Chapter 2, The scope of study: definitions of the distribution industry and untrue advertisement; Chapter 3, the main part of the study, analyzing previous FTC decisions based on the structure proposed in Chapter 2; and Chapter 4, Conclusion and suggestions on future policy.
III. Major Suggestions
The following are suggestions proposed by this study on the regulations imposed on advertisements in the distribution industry based on previous analysis:
(1) Product price is the key factor in transactions in the distribution industry. Any false or untrue representation on product price or other trading terms advertised can bring damages to the interests of the trading counterpart or competitors. In practice, there are plenty disputes on the untrue price listed in advertisements. Advertisements on body & beauty and electronic appliance are the two major categories for untrue advertisements, and most illegal behaviors in the electronic appliance category are computer-related advertisements. We suggest incorporating the above results into future policy-making, especially for setting the theme and targets of the enforcement policy.
(2) Inaccurate price labels in on-line advertisements differ from traditional advertisements in the distribution industry, and therefore it shall have different evaluation under the Fair Trade Act. On-line advertisement has its unique features due to the fact that transactions are not done at any specific locations, and the inaccurate price label is not a “bait” seducing consumers to the store. If the advertiser does not sell and delivery products in the end, it is disputable whether the advertiser uses the inaccurate label to compete with others and solicit transactions. According to FTC’s position in its decisions, the major concern under the fair trade regulation is whether the inaccurate price label is a means of unfair competition and whether the inaccurate label caused consumers to make an error in the purchasing-decision. For future inaccurate price labels in on-line commerce cases, the following factors shall be considered for violations of the untrue advertisement under the Fair Trade Act: whether the advertiser delivers the product, consumer’s awareness, whether it is a means of competition, and whether the means is unjustifiable.
(3) An administrative fine is imposed on violations to Article 21 of the Fair Trade Act. Besides compensation for purposes of ensuring public interests are served, the purpose of the administrative fine is to raise concerns on advertisement and avoid future risks. Potential means to avoid such risks include: 1) the distributor may improve its internal control capacity, and 2) the distributor may require suppliers to pay closer attention. Improving the capacity of internal control better complies with the legislative intent of Article 21 of the Fair Trade Act. In case the court approves the transfer of burden, i.e. the advertiser may transfer its duty of care to the supplier, it is discussable whether such interpretation complies with the legislative intent of the said article. In addition, the civil court has ever decided to impose triple compensations for damages done to consumers for untrue advertisement in the distribution industry. If this become generally accepted by the court, it is going to create a deterrent effect on untrue advertisement. The FTC shall closely track the development civil court decisions.