Federal legislation and statutes in every state prohibit employment of unfair or deceptive trade practices and UNFAIR COMPETITION in business. The Federal Trade Commission regulates federal laws designed to prohibit a series of specific practices prohibited in interstate commerce. Several states have established CONSUMER PROTECTION offices as part of the state attorney general offices.
The Federal Trade Commission Act (FTCA), originally passed in 1914 and amended several times thereafter, was the original STATUTE in the United States prohibiting "unfair or deceptive trade acts or practices." Development of the federal law was related to federal antitrust and trademark INFRINGEMENT legislation. Prior to the enactment in the 1960s of state statutes prohibiting deceptive trade practices, the main focus of state law in this area was "unfair competition," which refers to the tort action for practices employed by businesses to confuse consumers as to the source of a product. The tort action for a business "passing off" its goods as those of another was based largely on the COMMON LAW tort action for trademark infringement.
Because the law governing deceptive trade practices was undefined and unclear, the National Conference of Commissioners on Uniform State Laws in 1964 drafted the Uniform Deceptive Trade Practices Act. The NCCUSL revised this uniform law in 1966. The law was originally "designed to bring state law up to date by removing undue restrictions on the common law action for deceptive trade practices." Only eleven states have adopted this act, but it has had a significant effect on other states. Most state deceptive or unfair trade practices statutes were originally enacted between the mid-1960s and mid-1970s.
Applicability of Deceptive Trade Practices Statutes
Deceptive trade practices statutes do not govern all situations where one party has deceived another party. Most states limit the scope of these statutes to commercial transactions involving a consumer purchasing or leasing goods or services for personal, household, or family purposes. The terms used in each statute to set forth the scope of the statute are often the subject of LITIGATION. The majority of states requires a liberal interpretation of the terms of the deceptive trade practices statutes, including those describing the applicability of the statutes.
Trade or Commerce
Several states limit the applicability of deceptive trade practices to transactions in trade or commerce. This requirement usually incorporates a broad range of profit-oriented transactions. But it generally excludes trade between non-merchants and similar transactions.
The appropriate plaintiff under most deceptive trade practices acts is a consumer, commonly defined as a person who will use a good or service for personal, family, or household purposes. The determination of whether a plaintiff is a consumer often requires use of one of two types of analysis, a subjective test and an objective test. The subjective analysis typically considers the intended use of the good or service at the time of the transaction. Thus, if a buyer of a good intends at the time of a purchase to use to good for a personal, family, or household purpose, the buyer will likely be considered a consumer under the relevant statute. The objective analysis considers whether the type of good or service involved in the transaction is ordinarily used for a personal, family, or household purpose.
Goods or Services
Goods are defined under the UNIFORM COMMERCIAL CODE as those items movable at the time of a purchase. Many deceptive trade practices statutes apply this definition to the requirement that goods are involved in a transaction for a deceptive trade practices statute to apply. Livestock are also usually included in the definition of a good. Statutes and courts usually define services broadly, including in the definition most activities conducted on behalf of another. Some states require that consumers seek to purchase merchandise, which incorporates goods, services, real property, commodities, and some intangibles.
Prohibited Acts and Practices
Most state deceptive trade practices statutes include broad restrictions on "deceptive" or "unfair" trade practices. These states often include prohibitions against FRAUDULENT practices and unconscionable practices. The Federal Trade Commission, when interpreting the FTCA, does not require that the person committing an act of deception have the intent to deceive. Moreover, the FTC does not require that actual deception occur. The FTC merely requires that a party have the capacity to deceive or commit an unfair trade practice. If a business or individual has this capacity or tendency to deceive, the FTC under the FTCA may order the company to cease and desist the deceptive or unfair practice. State statutes similarly do not require that a company specifically intends to deceive, nor must a company always have knowledge that a statement is false to be liable for misrepresentations made to a consumer.
A consumer who has been victimized by a potential deceptive or unfair trade practice should consult the deceptive trade practice statute in that state, plus consult CASE LAW applying this statute, to determine whether he or she has a cause of action. In addition to the broad prohibition against deception, most state statutes also include a list of practices that are defined as deceptive. Under the Uniform Deceptive Trade Practices Act, if a business or person engages in the following, the action constitutes a deceptive trade practice:
Passes off goods or services as those of another
Causes likelihood of confusion or of misunderstanding as to the source, sponsorship, approval, or certification of goods or services
Causes likelihood of confusion or of misunderstanding as to affiliation, connection, or association with, or certification by, another
Uses deceptive representations or designations of geographic origin in connection with goods or services
Represents that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or qualities that they do not have or that a person has a sponsor-ship, approval, status, affiliation, or connection that he does not have
Represents that goods are original or new if they are deteriorated, altered, reconditioned, reclaimed, used, or second-hand
Represents that goods or services are of particular standard, quality, or grade, or that goods are of particular style or model, if they are of another
Disparages the goods, services, or business of another by false or misleading misrepresentation of fact
Advertises goods or services with intent not to sell them as advertised
Advertises goods or services with intent not to supply reasonably expected public demand, unless advertisement discloses a limitation of quantity
Makes false or misleading statements of fact concerning the reasons for, existence of, or amounts of price reductions
Engages in any other conduct which similarly creates the likelihood of confusion or of misunderstanding
Most states include similar items in their lists of deceptive trade practices violations, even if those states have not adopted the uniform act. In addition, the FTC and many states prohibit other unfair practices, including the following:
Unfair provisions in contracts of adhesion
Coercive or high-pressure tactics in sales and collection efforts
Taking advantage of bargaining power of vulnerable groups
Taking advantage of emergency situations
Unconscionable activities, including outrageous and offensive conduct by a business in the sale of goods or services
Other Practices Deemed Deceptive or Unfair
The Federal Fair Debt Collection Practices Act and state debt collection statutes govern most abuses by debt collectors in debt collection activities. Deceptive trade practices statutes may provide remedies in situations that are not covered by these debt collection statutes. For example, most debt collection statutes do not cover some forms of debt collection, such as foreclosures, repossessions, and evictions, but a deceptive trade practices statute may apply. Moreover, deceptive trade practices statutes may also permit a consumer to bring a cause of action against a CREDITOR for debt collection practices of an independent agency hired by the creditor. Several cases have dealt with issues regarding misrepresentations made by debt collectors or deceptive agreements proposed by debt collectors.
Breach of Warranties
Consumers have several means of enforcing a WARRANTY provided in a sales or service contract. If a business employs deceptive practices with respect to the advertisement or negotiation of a warranty, a deceptive trade practices statute may provide a consumer a remedy in addition to a breach of warranty claim.
Most states have enacted legislation regarding deceptive practices of insurance companies, including those practices related to the sale of policies and the payment of claims. In some states, employment of a deceptive practice in insurance is also a deceptive trade practice. A deceptive trade practices statute may also provide a remedy in insurance cases where state insurance laws do not apply.
Pyramid Schemes and Similar Practices
Several states prohibit certain illegal business schemes through deceptive trace practices statutes. One such scheme is a "pyramid scheme," where investors make money by recruiting others to join and invest in a company rather than selling a product as claimed by the company. Other schemes include deceptive employment opportunity claims and misleading or deceptive game or contest promotions. Some states do not specifically include these schemes in the statute, but courts in those states may have applied provisions of the relevant deceptive trade practices statute in cases involving these schemes.
Remedies for Violations of Deceptive Trade Practices Statutes
A consumer who has been the victim of a deceptive trade practice has a variety of remedies. State deceptive trade practices statutes have been particularly successful due to the damages provisions included in the statutes. About half of the states provide minimum STATUTORY damages to a litigant who has proven a deceptive trade practice, even if the litigant has not proven actual damages. Many states also permit courts to award treble damages, which means the actual damages to a party injured by a deceptive trade practice are tripled. Several states also permit courts to impose PUNITIVE DAMAGES and/or attorney's fees for these practices.
In addition to monetary damages, several other options may exist for a person injured by a deceptive trade practice. When the FTC has JURISDICTION over a case, it may enjoin a deceptive trade practice of a company under the FTCA. Statutes in each of the states also permit government enforcement officials to seek cease and desist orders to prevent businesses from engaging in deceptive trade practices. These remedies may be available in addition to civil remedies sought by private litigants.
State and Local Provisions Prohibiting Deceptive Trade Practices
Although many state deceptive trade practices statutes include similar provisions, application of these statutes often differs from state to state. Consumers who have been victimized by a deceptive trade practice should be sure to consult their relevant state statutes to determine the appropriate procedures to follow, the appropriate office to contact, and special requirements that must be met to bring a suit in that state. Each state has adopted some version of a deceptive trade practices statute. The following are brief summaries of these statutes.
VIRGINIA: The state statute prohibits 32 specific practices, plus any other fraudulent acts or practices. A supplier must conduct a consumer transaction for the statute to apply. The attorney general's office may enforce the statute for violations by a business.