The Wheeler-Lea Act of 1938 amended the Federal Trade Commission Act of 1914 to give the Federal Trade Commission (FTC) jurisdiction over false or misleading advertising in addition to special powers to regulate advertising on food, drugs, cosmetics, and therapeutic devices. The 1914 act, which had established the FTC, declared “unfair methods of competition” to be unlawful. The FTC broadly interpreted the act to include jurisdiction in certain cases of deceptive and false advertising of the character of goods that was likely to mislead the public. In 1922 the U.S. Supreme Court upheld the FTC’s jurisdiction in this area with its approval of an FTC order to cease and desist from deceptive advertising.
During the 1930s, however, several cases began to roll back the boundaries of the FTC’s jurisdiction, the most damaging of these cases being FTC v. Raladam Co. (1931). In FTC v. Raladam Co., the Supreme Court unanimously ruled that one of the facts necessary to support the FTC’s jurisdiction to issue an order to cease and desist a false advertisement was proof that the advertisement affected competitors. If there was no proof that the advertisement affected any competitors, then the FTC was without jurisdiction, even if the advertisement admittedly deceived the public. FTC v. Raladam Co. effectively limited the scope of the FTC to injury to the competition and not injury to the public. The consumer could not claim any protection under the Federal Trade Commission Act.
In 1938, after years of intense lobbying, Congress legislatively overruled FTC v. Raladam Co. case by passing the Wheeler-Lea Act. The Wheeler-Lea Act amended Section Five of the Federal Trade Commission Act to read, “Unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.” The FTC was empowered to issue cease-and-desist orders against firms that make false and misleading advertising claims. Proof of injury to the competitors was no longer a requirement. The Wheeler-Lea Act further strengthened the FTC’s power in dealing with false and deceptive advertising of food, drugs, cosmetics and other therapeutic devices by providing definitive and significant penalties for violation of orders to cease and desist from illegal practices.