## Facts

- Mary Carter Paint Co. marketed paint using promotions stating that for each can purchased, the buyer would receive a “free” can of equal quality and quantity.
- The Federal Trade Commission brought an administrative complaint alleging the “free” offers were deceptive under § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45.
- The FTC found Mary Carter lacked a bona fide history of selling single cans at the advertised “regular” price and effectively sold two cans together while representing the second can as a gift.
- The Commission adopted findings that the advertised single-can price was not the usual and customary retail price, and that the second can was not actually “free,” but part of a two-for-one price presentation.
- The FTC issued a cease-and-desist order barring use of the challenged “free” representations.
- The Fifth Circuit set aside the FTC’s order, and the Supreme Court granted certiorari.

## Issues

1. Whether substantial evidence supported the FTC’s finding that Mary Carter’s “free” paint-can offer was deceptive under § 5 of the FTC Act.
2. Whether the FTC acted arbitrarily or departed from its established policy, including its Guides Against Deceptive Pricing, in condemning the “free” offer.

## Decision

- The Supreme Court reversed the Fifth Circuit and remanded.
- The Court held substantial evidence supported the FTC’s factual findings and its conclusion that the advertising was deceptive.
- The Court rejected the argument that the FTC’s decision was an arbitrary departure from its “free” offer policies.
- The Court emphasized deference to the FTC’s expert judgment when supported by substantial evidence and consistent with announced policy.
- Vote: 7–1 (one Justice not participating).

## Legal Principles

- Under § 5 of the FTC Act, advertising is deceptive if it has a capacity or tendency to mislead consumers under the circumstances.
- Reviewing courts must sustain the FTC’s determination when supported by substantial evidence and when the agency’s action is not arbitrary.
- Use of the term “free” may be deceptive when the seller, in substance, recoups the “free” item’s cost through the pricing of the required purchase, making the gift representation illusory.
- The FTC’s Guides Against Deceptive Pricing are advisory aids that inform enforcement; apparent technical compliance does not preclude an FTC finding of deception where the underlying price representation is not genuine.
- A “two-for-one” or “free with purchase” claim is misleading if the stated base price is not the seller’s usual and customary single-item price (or a comparable usual and customary price in the trade area when no such prior sales history exists).

## Conclusion

The Court sustained the FTC’s cease-and-desist order because the record supported the finding that Mary Carter’s “free” can promotion misrepresented a two-can sale as a gift, and the Commission’s application of its “free” offer policy was neither arbitrary nor unsupported by substantial evidence.


Federal Trade Comm’n v. Mary Carter Paint Co., 382 U.S. 46 (1965)