Ten months ago, the U.S. Supreme Court issued its unanimous decision in the AMG case, and with this decision, it put an end to the Federal Trade Commission’s (FTC) decadeslong reliance on Section 13(b) of the FTC Act as the primary tool to obtain monetary relief in federal court. It’s impossible to overstate the significance of this decision and its impact on the agency. And the quiet you hear is the sound of Congress not exactly acting quickly to legislate any sort of fix of the issue. (Although the House did pass legislation in the summer of 2021.)
Change is always difficult – especially for a law enforcement agency that has a long track record of getting a lot of money in federal court. But even since AMG, the agency has announced the occasional law enforcement matter with some form of monetary relief. So I thought it was worth taking a look back at how the agency has addressed the loss of this important tool and cataloguing the steps it has taken and the different tools it is now using to obtain money in the post-AMG world.
Certainly, the first course of action the agency took was a renewed emphasis on a different part of the statute, Section 19, which was not affected by AMG. Section 19, among other things, allows the agency to seek “relief necessary to redress injury to consumers” in many cases where there are allegations of rule violations. As a result, we started seeing the agency advance Section 19 liability theories in active litigations, and are seeing a heightened focus on alleging rule violations in new matters, such as the recent Hubble case, which alleged contact lens rule violations and thereby allowed the agency to seek penalties and redress. Another example is the Blessings in No Time case, which alleged pyramid violations but also had a count alleging violations of the Consumer Review Fairness Act, a statute that allows penalties and other monetary relief. Although this provision of Section 19 is incredibly important to the agency, not every allegation of Section 19 relief has been successful, and at least one court took a pretty narrow view of how and when Section 19 relief can be obtained.
In part because Section 19 relief is premised on rule violations, rulemaking has returned to the FTC, if not quite with a vengeance; but it certainly appears likely to become more important this year. The agency quietly released a Statement of Regulatory Priorities in December that set forth a very ambitious rulemaking agenda for 2022, including a possible rulemaking defining certain unfair methods of competition and rules about security practices and “intrusive surveillance.” Although the Republican commissioners had strong concerns about the broad regulatory agenda, the commission did unanimously begin a rulemaking on the issue of imposter fraud. And this week, they will be discussing whether to initiate a rulemaking on earnings claims. These FTC rulemakings, however, take a long, long time.
Rulemaking is one time-consuming way to expand the scope of actions subject to Section 19 – but a much simpler way is to reinterpret existing rules or statutes. We saw that in two very clear ways in 2021. First up was the Restore Online Shoppers Confidence Act (ROSCA). In the MoviePass case, for the first time the agency indicated that ROSCA applies when a company makes deceptive claims about the underlying product or service rather than simply being deceptive about the negative option feature of the service. This interpretation was confirmed by the agency in its Negative Option Policy Statement. We saw another broadening of authority with the policy statement on the Health Breach Notification Rule. This statement by the commission’s majority set forth a much broader interpretation of the rule, one that was contradicted by then-existing agency guidance on the rule.
Another change we saw, and anticipate seeing more of, is the use of the administrative litigation process to obtain money. Section 19 also allows the agency to seek money in federal court after administrative litigation in cases that involve fraudulent or dishonest conduct. It’s a long process, but it is a clear statutory path to money in appropriate cases even without a rule violation. And in a recent case against Fashion Nova for alleged review suppression, the case was brought and settled administratively with monetary relief.
Hitching up with state partners is another potential route to monetary relief, since their ability to get money was not at issue in AMG. Not too long after AMG came out, the FTC issued a federal complaint against Frontier Communications, alleging misrepresentations about Internet speeds. The FTC was joined in that action by six states, and the prayers for relief set forth in that complaint are quite different from the language we saw for many decades. The FTC prayer for relief specifies that the agency is seeking injunctive relief, and the state prayers for relief discuss monetary theories such as redress or disgorgement. A similar approach appears in the Stem Cell Institute of America case, where the FTC filed the matter jointly with the state of Georgia.
And finally, we would be remiss if we didn’t add the Notice of Penalty Offenses; we all heard about this other seldom-used FTC authority in the fall of 2021, when the FTC sent out 1,800 letters to companies in a wide range of industries, attempting to put them on notice that if they engaged in certain practices, they would potentially be liable for massive civil penalties. A lot has been written about these letters and whether the threat of penalties is real, but certainly this type of letter is another tool that may be used in the future. Thus far, the agency has not attempted to involve this authority to obtain civil penalties, but for a longtime FTC official, it would be very odd to do such a high-profile warning campaign and not do the follow-up. The letters set the table, and perhaps this year we will see how the agency follows up.
The agency has creatively approached this change in authority, and we will continue to watch closely to see how this evolves.
[View source.]
