The FTC flexed its new-found civil penalty muscle last week by filing the first case pursuant to the COVID-19 Consumer Protection Act, which gives the FTC authority to seek civil penalties for deceptive COVID-related acts and practices.  ICYMI, see our blog post about the civil penalty authority here.

Ordinarily, the FTC is only authorized to seek penalties for violating a prior Court or Commission order, cease and desist order or trade regulation.  This new power extends “[f]or the duration of a public health emergency,” and permits the FTC to seek penalties for deceptive acts or practices in or affecting commerce that is associated with (1) the treatment, cure, prevention, mitigation, or diagnosis of COVID-19, or (2) a government benefit related to COVID-19.

The FTC’s first action under the COVID-19 Consumer Protection Act, U.S. v. Quickwork LLC and Eric Anthony Nepute, is filed in the United States District Court for the Eastern District of Missouri.  The complaint alleges that, despite prior receipt of a letter warning or unsubstantiated COVID-19 efficacy claims, Nepute (a chiropractor) and his company Quickwork deceptively marketed vitamin D and zinc products under the “Wellness Warrior” brand for the treatment, prevention, and cure of COVID-19.  The Complaint contains excerpts from the defendants’ advertisements, marketing

emails, videos, and social media posts suggesting that use of Wellness Warrior products will, among other things, (1) treat or prevent COVID-19; (2) decrease the chance of contracting COVID-19; and (3) decrease the chance of death upon diagnosis with COVID-19. The Complaint also references advertisements stating that the Wellness Warrior products provide equal or better protection than currently available COVID-19 vaccines and that the defendants’ various representations relating to the efficacy of Wellness Warrior products are scientifically proven. Despite these representations, the Complaint alleges that there are no published studies, or other competent and reliable scientific evidence, supporting the efficacy of vitamin D3, zinc, or the Wellness Warrior products in treating or preventing COVID-19.

The Complaint asserts ten causes of action for violations of the FTC Act and the COVID-19 Consumer Protection Act, and seeks preliminary and permanent injunctive relief, rescission or reformation of contracts, the refund of monies paid, restitution, the disgorgement of ill-gotten gains, civil penalties and costs.  With respect to civil penalties, the Complaint alleges that each dissemination of an allegedly-deceptive advertisement constitutes a separate violation for purposes of calculating monetary civil penalties,” and that the Court is authorized to award penalties up to $43,792 for each such violation.

In addition to the remedies sought under the COVID-19 Consumer Protection Act, the FTC is also seeking refunds, restitution and disgorgement under the FTC Act despite the current uncertainty regarding whether the FTC can pursue monetary remedies at all as part of a request for injunctive (equitable) relief.  The Supreme Court is poised to rule on that issue very shortly in AMG Capital Management, LLC v. Federal Trade Commission, No. 19-508 (U.S.).

Regardless, the FTC’s authority to seek civil penalties for allegedly deceptive COVID-19 advertising is clear and we should expect that this will not be the only instance in which the agency seeks to use its new authority.

As 2020 drew to a close and Congress scrambled to reach a deal to continue funding the federal government, tucked in amidst the 2124 pages of the 2021 Appropriations Bill is a new power for the FTC:  civil penalty authority for deceptive COVID-related acts and practices.  Titled the COVID-19 Consumer Protection Act (see page 2094 here), the law states as follows:

(b) For the duration of a public health emergency declared pursuant to section 319 of the Public Health Service Act (42 U.S.C. 247d) as a result of confirmed cases of the 2019 novel coronavirus (COVID–19), including any renewal thereof, it shall be unlawful for any person, partnership, or corporation to engage in a deceptive act or practice in or affecting commerce in violation of section 5(a) of the Federal Trade Commission Act (15 U.S.C.45(a)) that is associated with—

(1) the treatment, cure, prevention, mitigation, or diagnosis of COVID–19; or

(2) a government benefit related to COVID–19.

(c) ENFORCEMENT BY THE FEDERAL TRADE COMMISSION.—

(1) VIOLATION.—A violation of subsection (b) shall be treated as a violation of a rule defining an unfair or deceptive act or practice prescribed under section 18(a)(1)(B) of the Federal Trade Commission Act (15 U.S.C. 57a(a)(1)(B)).

The civil penalty authority is granted through the duration of the current public health emergency.  The current maximum civil penalty amount per violation is $43,280.

Here’s why this is significant:  The FTC generally does not have authority to seek civil penalties for a first violation of the FTC Act.  However, if a company or individual is subject to an order and then violates that order or where the FTC has obtained a final cease and desist order via litigation and subsequently put a non-party on notice of a violation, the FTC can seek civil penalties.   With the authority granted in the COVID-19 Consumer Protection Act, though, the FTC can identify practices relating to COVID-19 treatment, cure, prevention, mitigation, diagnosis, or a government benefit that the agency considers deceptive per Section 5 of the FTC Act and seek civil penalties for that violation.

The law does not specify how each violation will be calculated.  However, at a recent webinar, the Rose Sheet reports that Richard Cleland, FTC Assistant Director for Advertising Practices, indicated that “Every ad is a separate violation and every day that that ad runs or is disseminated to the public is a separate violation.”

As we chronicled, the FTC issued hundreds of COVID-related warning letters relating to deceptive COVID claims during 2020.  And yet, the agency faced criticism from members of Congress who questioned why the FTC did not pursue financial remedies on consumers’ behalf.  With the rollout of the vaccines, potentially more financial assistance in the works, and the virus raging on, the FTC has a larger hammer than it did just a year ago and advertisers of COVID-related products should expect them to use it.

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On Friday, January 22, 2021, the Federal Trade Commission settled charges with three ticket brokers for violating the Better Online Ticket Sales (BOTS) Act, which was passed in 2015.  These are the first case brought under the Act.  In them, the Commission alleged that three brokers “used automated software to illegally buy up tens of thousands of tickets for popular concerts and sporting events, then subsequently made millions of dollars reselling the tickets to fans at higher prices.”  According to the Commission, the brokers acquired 150,000 tickets “using automated ticket-buying software to search for and reserve tickets automatically, software to conceal their IP addresses, and hundreds of fictitious Ticketmaster accounts and credit cards to get around posted event ticket limits.”  Judgments against the three amounted to about $31 million of which the defendants will pay $3.7 million.  The Commission sued both the companies and the individuals who ran the companies.

These cases are notable because they are the first cases but also because it took the Commission over 5 years to bring the first leaving the Act completely unenforced for years.  While the release suggests the investigation was complex, detection was likely easy.  Brokers are usually fairly visible to the public.  The Commission likely found them online, subpoenaed their records and software, and hired a forensic specialist to peel apart the code.  These cases raise serious issues for brokers who use automated purchasing software to purchase tickets for resale although it remains to be seen whether these enforcement actions will be a one-off signal to brokers that the Commission is watching or something more common.  Acting Chair Slaughter’s concurring statement would seem to suggest that there will be more during her tenure.

 

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Things are about to change dramatically at the CFPB.  President-elect Joe Biden today nominated Rohit Chopra, a current commissioner at the Federal Trade Commission and long-time proponent of aggressive enforcement, to serve as director of the Consumer Financial Protection Bureau.

We knew that the incoming Biden administration would entail significant change on many fronts from the current administration, which has publicly espoused a policy of deregulation while continuing to pursue enforcement in certain priority areas.  The nomination of Chopra shows just how far-reaching the forthcoming change will be on issues related to consumer protection and consumer financial protection.

Chopra Background and Time as Commissioner

Prior to his current role as FTC Commissioner, Chopra served as Assistant Director of the CFPB and oversaw the Bureau’s student loan agenda.  Chopra later served as Special Adviser to the Secretary of Education and dealt with issues related to student loan servicing and defaults, consistently advocating for more extensive enforcement.  In the same vein, at the FTC Chopra has regularly dissented from his colleagues on the Commission, including on high profile enforcement matters like Facebook where he argued that the imposed $5 billion settlement was insufficient to redress unjust gains and “does little to change the business model or practices that led to the recidivism.”

Chopra also suggested that the FTC should have sought individual liability against CEO Mark Zuckerberg and other individual officers, arguing that “the FTC Act does not include special exemptions for executives of the world’s largest corporations, but this settlement sends the unfortunate message that they are subject to another set of rules.”  Chopra has also regularly dissented from FTC settlements limited to injunctive relief, most recently arguing in the Zoom matter that the settlement “provides no help for affected users” and further contributes to “the agency’s credibility deficit when it comes to oversight of the digital economy.”

Potential Priorities at the CFPB

President-elect Biden is able to appoint a new director to replace current CFPB director Kathy Kraninger under Seila Law v. CFPB, a June 2020 Supreme Court decision that held the director must be removable at will in order for the Bureau’s single director structure to be constitutional.  If confirmed as director, Chopra will likely restore the agency to its days of aggressive enforcement under its first director Richard Cordray in the Obama administration.

Chopra is also likely to seek to undo many changes made in the Trump administration.  Potential priorities for a CFPB under Chopra include:

  • Financial technology or the “fintech” sector broadly, including how innovative financial solutions use consumer information and whether fintech solutions adversely impact certain groups.
  • Reconsidering the Payday Lending Rule, which was significantly rolled back by the current administration and is currently being challenged in federal court.
  • New and aggressive enforcement related to fair lending laws and student loans, particularly given Chopra’s background and documented interest in the student loan market.
  • Expanded use of the Bureau’s authority to prohibit “abusive” acts and practices, a unique authority established under the Dodd-Frank Act which to date has been used sparingly in narrow circumstances.

Chopra’s nomination also means that President-elect Biden will likely need to nominate at least two new commissioners to the FTC – given Chopra’s departure and the likely imminent departure of current FTC Chair Joe Simons.

We’ll continue to monitor both the CFPB and FTC fronts and post updates here – all signs indicate that we’re in for some interesting times ahead.

https://www.adlawaccess.com/articles/federal-trade-commission/13-b/With one eye on the U.S. Supreme Court, which is being asked to confirm that the FTC has authority to seek monetary relief under Section 13(b) in AMG Capital Management, LLC v. Federal Trade Commission, and the other eye on Congress which may or may not pass legislation authorizing monetary relief under Section 13(b), there has been very little said about what we might expect if neither were to occur.  What if the Court finds that 13(b) does not provide this authorization and Congress does not act?  How might the FTC seek consumer redress against entities alleged to have engaged in unfair or deceptive advertising practices in district court?  One answer is Section 19 of the FTC Act.  So then, what can we expect if Section 19 becomes the FTC’s best path forward?

Under Section 19 of the FTC Act, the FTC can pursue consumer redress for alleged unfair or deceptive practices, but first must file administratively for an order directing the target of the investigation to cease and desist from the allegedly unfair or deceptive practices and, if the order is challenged, go through several rounds of review—first by the Commission and then by the United States Court of Appeals.  Only after the Commission’s order becomes final can the FTC commence the Section 19 action in district court for consumer redress.  That action, of course, is still subject to the typical federal appellate process—which can make a Section 19 action an extremely time-consuming process.

F.T.C. v. Figgie International, Inc. provides an example of how Section 19 would work, as well as its limitations.  In Figgie, the FTC obtained a cease and desist order under Section 5 ordering Figgie to cease and desist from engaging in the unfair or deceptive practices it used to market its Vanguard heat detector products.  According to the FTC, “[t]he crux of Figgie’s message was that heat detectors could be relied on as life-saving fire warning devices, and that the best protection for one’s home is a combination of four or five heat detectors to one smoke detector.”

Following the administrative proceeding, the Administrative Law Judge concluded that every one of Figgie’s promotional materials “‘clearly conveys’ the claim that Vanguard heat detectors provide the necessary warning to allow safe escape from a residential fire.”  The promotional materials also discussed the National Fire Prevention Association (“NFPA”) standards “‘in such a way as to leave the reader with a distinct impression that [the NFPA] regards both smoke detectors and heat detectors as equally effective.’”  However, while the NFPA previously recommended using both smoke and heat detectors as part of a household fire warning system, after fire prevention experts conducted a series of tests that illustrated the limitations of heat detectors, the NFPA revised its standards to require only that smoke detectors (not heat detectors) be installed on each level of the home and outside each bedroom.

After an administrative trial, the ALJ found that Figgie knew of the changes in the NFPA standards and the limitations of heat detectors prior to making the challenged representations.  The ALJ found that Figgie’s representations were “misleading and deceptive in the absence of an explanation of the limits of heat detectors and the comparative superiority of smoke detectors.”  On appeal, the Commission upheld most of the ALJ’s findings and conclusions, but changed the disclaimer required on Figgie’s heat detectors.  The rest of the Commission’s cease and desist order “closely tracked the ALJ’s order” and prohibited Figgie from representing that heat detectors provide the necessary warning to permit safe escape from most residential fires, that combining heat detectors and smoke detectors provide greater warning than smoke detectors alone, and that Figgie may not misrepresent the capabilities of heat detectors to provide warning that would permit people to escape from residential fires.

After the cease and desist order became final (following an appeal to the Fourth Circuit Court of Appeals), the FTC filed an action pursuant to Section 19 in U.S. District Court for the Central District of California seeking consumer redress.  The FTC was awarded summary judgment by the district court, which found Figgie engaged in dishonest or fraudulent practices and awarded millions of dollars in consumer redress.

Of note, prior to summary judgment the district court granted the FTC’s “motion to deem ‘conclusive’” the list of 42 findings from the administrative proceeding.  That is because in a Section 19 proceeding, the Commission’s findings of material fact in support of a cease and desist order “shall be conclusive.”  On appeal, the Ninth Circuit noted that [t]he Commission’s findings, and those of the administrative law judge which the Commission adopted, are accordingly treated as established facts for purposes of this decision.”  Thus, to the extent that a district court’s findings deviate from the findings of the Commission, “the Commission’s findings control.”

The Ninth Circuit decision noted that “liability for past conduct would be imposed on Figgie if a reasonable person would have known in the circumstances that it was dishonest or fraudulent for Figgie to use the practices it did to sell heat detectors.”  In rejecting Figgie’s argument that actual knowledge was required, the Court noted that “Congress unambiguously referred the district court to the statement of mind of a hypothetical reasonable person, not the knowledge of the defendant.  The standard is objective, not subjective.”

Moreover, while the Ninth Circuit stated that “Section 19 liability must not be a rubber stamp of Section 5 liability,” it held that “[w]hen the findings of the Commission in respect to defendant’s practices are such that a reasonable person would know that the defendant’s practices were dishonest or fraudulent, the district [court] need not engage in further fact finding other than to make the ultimate determination that a reasonable person would know.”  The Figgie action, it held, was such a case, because it found there is “ample evidence in the Commission’s findings to satisfy a court that a reasonable person with Figgie’s access to the scientific data establishing the relative inferiority of heat detectors would have known that Figgie’s vigorous misrepresentations on their behalf were dishonest and fraudulent.”

And while the ALJ acknowledged “a debate among fire professionals” concerning the tenability limits of heat detectors, the Ninth Circuit relied on findings that “[a] consensus among experts, well supported by careful testing, established that smoke detectors almost always provide earlier warning than heat detectors, and Figgie had no basis for doubting the truth of the consensus, yet Figgie marketed its heat detectors in a manner designed to mislead consumers about this critical information.”  Hence, the conduct was deemed dishonest or fraudulent.

As Figgie demonstrates, the ALJ’s findings of fact almost certainly will be conclusive and, if appealed to the Commission, they are likely to be adopted.  The Commission, after all, is the entity that authorized the issuance of the administrative complaint that precipitated the Section 19 action in the first place.  All of this underscores how important it is to contest any underlying facts that may ultimately be considered to bear on whether the challenged conduct was dishonest or fraudulent.

Figgie seems to suggest a plausible alternative, if things don’t break the Commission’s way in AMG Capital Management.  If that is the case, then why haven’t we seen more Section 19(b) cases over the years?  One answer is undoubtedly the success of the Section 13(b) program.  Why engage in administrative litigation, without the possibility of consumer redress absent a showing of dishonest and fraudulent conduct?  This has undoubtedly led to the ALJ becoming a version of the Maytag repairman, with relatively few cases to manage.

But it is not just the money, it is the requirement that the Commission establish that the conduct was dishonest and fraudulent – no small task – and timing too.  Section 19 cases, as they have historically been conducted, take a very long time.  Consider that the FTC issued its administrative complaint against Figgie in May 1983, the ALJ issued his findings of facts in October 1984, and the decision was appealed to the full Commission and substantially adopted in April 1986.  Figgie then appealed the Commission’s Order to the U.S. Court of Appeals for the Fourth Circuit, where it was ultimately upheld in 1987.  By the time that the Ninth Circuit issued its decision on appeal from the Section 19 district court action and the petition for certiorari to the Supreme Court was denied in early 1994, more than a decade had passed since the issuance of the FTC’s administrative complaint.

The FTC recently announced that glue maker, Chemence, paid a landmark $1.2 million settlement to resolve allegations that the company failed to comply with a 2016 Order regarding “Made in USA” claims. The 2016 Order required Chemence to pay $220,000 and to stop making misleading claims that its products were made in the United States.

According to the newest complaint, in spite of the 2016 Order, Chemence continued to falsely label its products with an unqualified “Proudly Made in USA” claim, despite foreign materials accounting for more than 80 percent of the materials costs and more than 50 percent of the overall manufacturing costs. The complaint also alleges that Chemence’s president, James Cooke, falsely declared under penalty of perjury that Chemence had modified its labeling to read “Made in USA with US and globally sourced materials.”

The resulting Order again requires Chemence to refrain from making misleading “Made in USA claims,” including unqualified claims unless they can show that the product’s final assembly or processing and all significant processing takes place in the United States, and that all or virtually all ingredients or components of the product are made and sourced in the United States. To the extent that Chemence makes qualified “Made in USA” claims, the company must provide a clear and conspicuous disclosure regarding which product contains foreign parts. If Chemence claims that a product is assembled in the United States, the company must ensure that it is last substantially transformed in the United States, its principal assembly takes place in the United States, and the United States assembly operations are substantial. The Order also prohibits Chemence from making any misleading county-of-origin claim about a product unless they have a reasonable basis that substantiates their claim.   Moreover, Chemence must notify all customers with a letter detailing the FTC allegations and the proper labeling for purchased products.

Chemence’s historic settlement with the FTC suggests that the Commission is heeding Commissioner Chopra’s calls to “mov[e] away from lax enforcement” concerning “Made in USA” claims.

This most recent enforcement action also comes as the FTC has proposed its Made in USA Labeling Rule.  Last summer’s NPRM includes the possibility for civil penalties for violations of the rule, and would give the FTC authority over all “Made in USA” claims, including those made online.

In spite of dissent from Commissioners Phillips and Wilson, comments in response to the proposed rule have been largely positive.  Supporters cited the current pandemic, noting that consumers are now more likely to buy goods online, resulting in the need for increased oversight of online advertising.

Even still, the NPRM met some pushback from several industry organizations and consumers who question the consistency of the proposed rule with respect to FTC precedent, trade agreements, and, echoing Commissioner Phillips’ dissent, FTC jurisdiction. In particular, comments flag that the proposed rule conflicts with USDA precedent, which currently holds that cattle raised in a foreign country and imported for slaughter and processing can qualify for a Made in USA or Product of USA label. It is not clear how this conflict between the two regulatory agencies would play out in practice.

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The FTC has not released a revised rule in response to the comments, though  we anticipate that some version of the rule will likely come into effect. “Made in the USA” enforcement has been a high-priority for the FTC in recent years, and with the potential for a new Democrat chair leading the Commission, we expect this trend to continue. Please contact any of the attorneys in Kelley Drye’s Advertising Group if you would like assistance with Made in USA compliance.

 

 

When the FTC decides not to pursue an investigation, it often issues a short closing letter to the company explaining why FTC staff decided not to recommend enforcement. The letters are just a few paragraphs long and don’t contain a lot of details, but if you read between the lines, you can often get some ideas about what types of conduct the FTC considers to be problematic.

Almost all of the closing letters in 2020 involve Made in the USA claims, showing that is still a hot topic for the FTC, but a recent closing letter on a different topic caught our eye. That letter was issued to Yotpo and concerns the company’s platform that gives clients control over how they collect, display, and market consumer reviews and other UGC.

The investigation focused on whether Yotpo’s star-rating filters provided clients with the ability to suppress negative Reviewsreviews and thereby mislead consumers into believing that the displayed reviews reflect the sentiments of all reviewers. Staff ultimately decided not to recommend enforcement for a number of reasons, including Yotpo’s commitment to implement measures to protect against the misuse of its services to suppress or delay the posting of negative reviews.

Clients sometimes ask us whether they can “curate” reviews. Although there may be circumstances in which that’s possible, this closing letter suggests that the FTC will frown upon an attempt to suppress negative reviews, especially if that’s done in a manner that could mislead consumers about the larger universe of reviews. The FTC acknowledges that companies can filter out some reviews – such as reviews that are inappropriate or irrelevant – but the criteria for suppressing reviews must be applied uniformly to all reviews. You can’t just hide a review because it’s negative.

The FTC today announced four new enforcement actions and one new settlement alleging deceptive income claims in violation of the FTC Act.  The FTC noted that these actions are part of a broader initiative branded as “Operation Income Illusion,” which it described as a crackdown “against the operators of work-from-home and employment scams, pyramid schemes, investment scams, bogus coaching courses, and other schemes” that purport to offer significant income opportunities but that “end up costing consumers thousands of dollars.”

The four new actions are against the following companies.

  • Moda Latina, which allegedly targeted Latina consumers by deceptively claiming that consumers could “have your own business and earn up to a thousand dollars per week” and “earn a lot of money” and “large profits.”  According to the complaint, the company typically charged between $199 and $299 for enrollment and a start-up kit with allegedly authentic products such as gold jewelry, brand-name perfumes, makeup and other beauty and luxury fashion products.  The complaint alleges that the start-up kit often failed to include re-saleable goods and that the company had “no adequate basis for making earnings claims in connection with the marketing, selling, and advertising of Moda Latina.”  The FTC asserted that 89% of consumers who place an initial order never place a second order as evidence of deception.
  • Digital Income System, which allegedly sold a business opportunity scheme of selling memberships at various price points from $1,000 (Entrepreneur) to $25,000 (Executive).  By purchasing a membership, consumers had the capacity to sell memberships to others and “earn a commission of up to 50% of his or her own membership level.”  The complaint alleges multiple violations of the FTC Act and the Business Opportunity Rule, which applies to certain contracts where a seller solicits a prospective purchaser with opportunities to sell goods or services through specified arrangements.
  • RagingBull.com, LLC f/k/a Lighthouse Media LLC, a company selling online services related to stock and options trading.  According to the complaint, the company promoted courses from “self-made millionaires” with “simple-to-follow strategies for beating the market” and emphasized the alleged success of its founders and individually named defendants.  The complaint identifies both general income claims (“Don’t Just Beat the Market…Crush It”) and more specific claims and testimonials touting earnings of “$6,500 in 20 minutes,” or “$500 in 15 minutes.”
  • Randon Morris and his network of companies that sold storefront websites promoted to yield thousands of dollars in monthly income.  According to the FTC, the companies played on consumer fears about the COVID-19 pandemic with robocalls in violation of the Telemarketing Sales Rule.  The complaint further alleges that the companies deceptively advertised a relationship with Amazon and falsely suggested that consumers would receive commissions from Amazon purchases.

In its announcement, the FTC said that Operation Income Illusion includes more than 50 enforcement actions from the FTC and other regulators including the Securities and Exchange Commission, the Commodity Futures Trading Commission, the U.S. Attorney’s Office for the Eastern District of Arkansas, and state and local agencies in Arizona, Arkansas, California, Florida, Indiana, Maryland, New Hampshire, Oregon, and Pennsylvania.  The announcement is a reminder that income and business opportunity claims are a priority for the FTC, particularly in COVID times where regulators are concerned that companies are taking advantage of consumers’ financial instability and/or unemployment.

As a way to further promote compliance of the direct sales industry, the Direct Selling Association (DSA) is offering a three-part certification program beginning next month called the Direct Selling Compliance Professional Certification Program (DSCP-CP).  The program is a great way for companies and individuals to learn more about compliance and risk mitigation strategies in the direct selling space, including related to income and business opportunity claims.  More information about the DSCP certification program is available on DSA’s website here.

As the parties prepare for oral argument before the Supreme Court on January 13 in AMG Capital Management LLC et al. v. FTC, case number 19-508, amicus briefs in support of the Commission’s position have been filed this week, with most warning of dire consequences for consumers and competition if the case does not break the Commission’s way:

  1. The National Consumer Law Center, UC Berkeley Center for Consumer Law and Economic Justice, Center for Consumer Law and Education, Housing Clinic of Jerome N. Frank Legal Services Organization at Yale Law School, and Professor Craig Cowie

“Absent a ‘clear and valid legislative command’ to the contrary, Congress does not impliedly impinge on the equitable powers of a court…Consumer redress through Section 13(b) actions, as envisioned by Congress and provided by the court, continues to protect American consumers and promote a fair marketplace. Stripping the courts of their equitable power to provide redress would create perverse market forces that would expose vulnerable populations to fraud while putting lawful market actors at a competitive disadvantage.” (3-4)

“Incomplete justice against deceptive practices only serves to mar the reputation of legitimate members of the free market and perpetuate harm against the American public.” (28)

  1. Public Citizen

“If, as petitioners contend, federal courts lack the authority to award complete relief in a § 13 action, and may only halt unlawful conduct prospectively, scam artists and other wrongdoers will have a green light to engage in prohibited conduct that harms consumers, secure in the knowledge that they are likely to retain the economic fruits of their unlawful ventures.  The end result will be to increase the financial harms experienced by American consumers, while curtailing the relief that consumers may obtain after unlawful actors are caught.” (2)

  1. 29 State AGs

“Stripping the FTC of its authority to seek restitution under Section 13(b) would weaken its efforts to combat unfair and deceptive practices, which, in turn, would frustrate federal-state collaboration and require States to divert resources away from other consumer-protection efforts to perform the duties previously fulfilled by the FTC.” (2)

“Without such authority [to return ill-gotten gains to victims], consumers and businesses in the amici States will be deprived of what is rightfully theirs, wrongdoers will be allowed to profit from their illegal conduct, and markets will become less fair and competitive.” (22)

  1. Open Markets Institute

“Besides overthrowing the established meaning of an injunction and rewriting the statutory text, the arguments of AMG and its amici would also encourage corporate lawbreaking at the expense of consumers, workers, rivals, and independent businesses.” (2)

  1. Truth in Advertising, Inc.

“The Section 13(b) regime petitioners urge the Court to tear down also harnesses another historic hallmark of equity jurisdiction – its focus on making relief effectual, a vital priority where defendants have the means and inclination to dissipate assets and frustrate judicial remedies.” (5)

“This Court should not credit petitioners’ and amici’s assurances – based on the continued availability of parallel state-law remedies – that imposing their ‘narrow construction’ of Section 13(b) would not adversely affect consumer protection.  That claim ignores the central lesson of experience under consumer protection law: Remedies that are expansive on paper often prove ineffectual in practice. It takes nothing away from state enforcers to recognize that their efforts are not substitutes for those of the Commission, which has vast expertise, national jurisdiction, and global reach and is unimpeded by structural and legal complexities that challenge state-level efforts to address nationwide and global misbehavior.” (7)

“Hundreds of pages of briefing cannot obscure the glaring reality that a rule giving the worst wrongdoers an absolute right to retain funds they took from unwitting victims will make consumers and the economy more vulnerable to harm.” (32)

6. The American Antitrust Institute

“the goals of U.S. antitrust law will be significantly impaired if the Federal Trade Commission is unable to prevent unfair methods of competition by seeking disgorgement in appropriate antitrust cases under Section 13(b) of the Federal Trade Commission Act.” (1)

“If the FTC cannot seek disgorgement in those cases, anticompetitive conduct will continue to pay. And the Commission will be hard-pressed to prevent it.” (3)

“If Section 13(b) prohibited traditional equitable remedies, the agency’s – and courts’ – only option for ensuring that a company will be able to divest its illegally-acquired assets would be to block a merger or acquisition outright. And so the agency would always be forced to forego a more targeted remedy – with less impact on the regulated business – in favor of the most drastic alternative, even when the Commission itself believes it is unnecessary to do so.” (24)

7. 43 Professors of Remedies, Restitution, Antitrust, and Intellectual Property Law

“An overly rigid conception of the statutory injunction power as including only a command to act or not act, but not the adjunct authority to order an accounting of profits or restitution of ill-gotten gains, belies the historic meanings and uses of injunctive authority.  Such a strict and formalistic view ignores the long history of injunctions and incident authority also to order restitution, even when the statute provides for injunctions without explicitly listing other remedies.” (3)

“Eliminating the ability of courts to award restitution in §13(b) cases would cause serious harm in many cases. It would unjustly enrich defendants, leave wrongdoing under-deterred, and fail to carry out the very purposes of the FTC Act – protecting against exactly this type of wrongful profiting from consumers.” (26)

8. And finally, a group of nine former FTC officials, all of whom helped advance the FTC’s consumer fraud program through aggressive use of Section 13(b) authority at various times between 1995 and 2020.  These nine officials include one former commissioner (Mozelle W. Thompson, 1997-2004); three former Directors of the Bureau of Consumer Protection (the legendary Jodie Bernstein, 1995-2001, David C. Vladeck, 2009-2012, and Jessica Rich 2013-2017); and five other former prominent FTC consumer protection attorneys (Eileen Harrington, Mary K. Engle, C. Lee Peeler, Teresa Schwartz, and Joel Winston).

“Make no mistake, Section 13(b) remains the FTC’s most important enforcement tool” (3)

“Unless Section 13(b) authorizes equitable remedies, including the appointment of receivers, accountings, and the imposition of asset freezes, the FTC would have little power to prevent asset dissipation and consumer redress would often be a fantasy.” (4)

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Earlier this week, the Federal Trade Commission re-stated its position to the Supreme Court, arguing that there is no “clear legislative command” to restrict the traditional powers of equity.  In other words, courts of equity could do just about anything, and since an injunction is equitable relief, an injunction can equal monetary restitution as well.  No real surprises here.

But the obvious problem remains: that’s not what the statutory text says. And we are not in a court of equity, but a court of law, dealing with a statutory provision that allows for injunctions and does not allow for monetary remedies. With argument set before an increasingly textualist Supreme Court in mid-January, the judicial field seems tilted in the wrong direction for the FTC.

Which very well means that the real fight will come later, in Congress.  And while we wait for the Supreme Court’s decision to clarify the FTC’s enforcement authority, it is unclear how long that clarification will stick.  In considering this issue, it is useful to consider Congress’s pending action to clarify the penalty authority of another independent agency, SEC, an effort that is gathering some steam.

As part of its annual defense policy bill, Congress is poised to enhance the SEC’s ability to pursue violations of the securities laws. Specifically, Section 6501 of H.R. 6395, the FY21 National Defense Authorization Act (NDAA) –  as agreed to by House and Senate negotiators – would provide statutory authority for the SEC to seek disgorgement as a remedy for unjust enrichment gained through a securities law violation. The bill establishes up to a 10-year statute of limitations for disgorgement and a 10-year statute of limitations for equitable remedies.

Section 6501 of the defense bill largely mirrors Title V of Senator Mark Warner’s (D-VA) anti-money laundering bill, the ILLICIT CASH Act (S. 2563) (itself incorporated into the defense bill) – although does not include restitution as Warner’s bill does. The language is also similar to H.R. 4344, the Investor Protection and Capital Markets Fairness Act, authored by Representatives Ben McAdams (D-UT) and Bill Huizenga (R-MI). H.R. 4344 passed the House in November 2019 by a vote of 314-95 and was endorsed by SEC Chairman Jay Clayton. We wrote about the prospects for, and broader implications of, these bills in January.

The NDAA – and with it, these new tools for the SEC – is expected to be passed by both chambers of Congress next week, notwithstanding a Presidential veto threat.  When it comes to 13(b), however, despite some recent (and mild) momentum, Congressional action to clarify the FTC’s Section 13(b) authority seems far less certain with just a handful of days left this session.  But it is certainly something to watch closely once the 117th Congressional session convenes in 2021.