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The current and future definition of what qualifies as an automatic telephone dialing system (ATDS or autodialer) remains a hotly debated and evaluated issue for every company placing calls and texts, or designing dialer technology, as well as the litigants and jurists already mired in litigation under the Telephone Consumer Protection Act (TCPA).  Last year, the D.C. Circuit struck down the FCC’s ATDS definition in ACA International v. FCC, Case No. 15-1211 (D.C. Cir. 2019).  Courts since have diverged in approaches on interpreting the ATDS term.  See, e.g., prior discussions of Marks and Dominguez.  All eyes thus remain fixed on the FCC for clarification.

In this post, we revisit the relevant details of the Court’s decision in ACA International, and prior statements of FCC Chairman Ajit Pai concerning the ATDS definition to assess how history may be a guide to how the FCC approaches this issue.

Continue Reading Taking Stock of the TCPA in 2019: What is an “Autodialer”?

In a decision that will limit the Federal Trade Commission’s (FTC) ability in both consumer protection and antitrust matters to bring certain claims in federal court, the Third Circuit Court of Appeals held in FTC v. Shire Viropharma, Inc. that the FTC may only bring a case under Section 13(b) of the FTC Act when the FTC can articulate specific facts that a defendant “is violating” or “is about to violate” the law.

Since the 1980s, the FTC has filed most of its cases challenging deceptive or unfair practices under Section 5 of the FTC act in federal court, instead of administratively. The FTC’s authority to file these types of cases in federal court is found in Section 13(b) of the act, added to the act in 1973, which permits the FTC to seek an injunction in federal court “[w]henever the Commission has reason to believe . . . that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the [FTC].” While in cases of pending acquisitions or ongoing fraud it may be clear that the FTC has reason to believe someone “is violating” or “is about to violate” the law, the FTC has also brought cases under Section 13(b) for claims arising from abandoned conduct. The Shire decision addressed the FTC’s authority to bring an action in federal court under Section 13(b) in these circumstances.

In Shire, the FTC alleged that Shire abused the U.S. Food and Drug Administration’s citizen petition process to maintain its monopoly on a drug it manufactured. The complaint alleged that Shire filed forty-six citizen petitions between 2006 and 2012. In 2017, the Commission filed its complaint, which alleged, inter alia, that “[a]bsent an injunction, there is a cognizable danger that Shire will engage in similar conduct” and “[Shire] has the incentive and opportunity to continue to engage in similar conduct in the future. At all relevant times, [Shire] marketed and developed drug products for commercial sale in the United States, and it could do so in the future.”

Shire filed a motion to dismiss, arguing that Section 13(b) only allowed the Commission to pursue injunctive relief where the violation is occurring or is about to occur. After considering the text of the statute and the legislative history, the court agreed. Because the FTC failed to “plausibly suggest [Shire] is ‘about to violate’ any law enforced by the FTC, particularly when the alleged misconduct ceased almost five years before filing of the complaint,” the court dismissed the case.

On appeal, the FTC argued that a “likelihood of recurrence” standard, borrowed from the common law standard for injunctive relief, should govern when the FTC may bring an action in federal court under Section 13(b). The FTC also advanced a “parade of horribles” argument that crafty defendants could flaunt the FTC’s authority by swiftly shutting down their operations at the outset of an FTC investigation to immunize themselves from a federal court action.

The Third Circuit rejected these arguments. It concluded that the statutory text under Section 13(b) requiring that the FTC have reason to believe a wrongdoer “is violating” or “is about to violate” the law unambiguously prohibits only existing or impending conduct. The Court also rejected the FTC’s arguments that its decision would hamper its law enforcement efforts, noting that Section 5 of the FTC Act would continue to allow the FTC to bring administrative actions based on past conduct. The Court further noted that if the FTC determined during the pendency of an administrative action that a respondent was violating or about to violate the law, it could then seek injunctive relief in federal court under Section 13(b). Having determined the appropriate legal standard, the Court of Appeals upheld the district court’s holding that the FTC failed to allege in its complaint that the defendant “is violating” or “is about to violate” the law.

The FTC is likely to appeal the decision in Shire, but there is no guarantee that the Supreme Court will grant certiorari given the plain language of the statute and the lack of any contrary circuit authority. In the meantime, the same issue in the context of a consumer protection action is likely headed to the Eleventh Circuit Court of Appeals in FTC v. Hornbeam Special Situations, LLC, No. 1:17-cv-3094 (N.D. Ga.). where the FTC sued a variety of defendants, including the estates of deceased individuals, for allegedly billing consumers without their authorization.

While the FTC continues to have the option to bring cases against past violations administratively under Section 5, including to seek a cease and desist order, it may decide to exercise more restraint in bringing cases involving abandoned conduct. This is especially true for claims subject to statutes of limitations. Where the FTC does decide to pursue conduct that has ceased, it may seek tolling agreements during the investigational phase.

The FTC may consider bringing more administrative actions under its Part 3 authority. As former Commissioner Maureen Ohlhausen has observed, “[t]he FTC’s Part 3 authority is a powerful tool for developing or clarifying the law.” Yet, over time, the FTC has brought far fewer Part 3 cases – 94 cases during the period 1977 to 1986 compared to 12 during the period 2007 to 2016. Shire, and quite possibly Hornbeam, should cause the Commission to assess the reasons behind this trend and to take steps to ensure the Part 3 process fulfills the role intended by Congress when it was created. That could very well mean that cases that would have been brought in federal court may find their way to hearing being brought before administrative law judges.

In support of its request for an en banc rehearing of a Ninth Circuit Court of Appeals panel decision in FTC v. AT&T over the jurisdictional boundaries between the Federal Trade Commission’s (FTC) and Federal Communications Commission’s (FCC) authority over phone companies, broadband providers, and other common carriers, the FTC sent a letter to the Court yesterday highlighting the Congressional joint resolution signed into law by President Trump that eliminates the broadband and voice privacy rules in a November 2016 FCC order.

The FTC argues in its letter to the Ninth Circuit that because “the FCC privacy rules never became effective and are now null and void, they cannot mitigate the regulatory gap discussed by the FTC in its petition.”  The FTC suggests that the regulatory gap is unlikely to be filled by the FCC in the future because the Congressional Review Act prevents “reissu[ing] the privacy rules in ‘substantially the same form’ or issu[ing] new rules that are ‘substantially the same’ as the disapproved rule unless such action is authorized by a newly enacted law. 5 U.S.C. § 801(b)(2).”

Whether this argument is likely to help persuade the Ninth Circuit to grant the FTC’s request for an en banc rehearing is unclear.  This filing also follows an op-ed earlier this week by the FTC’s acting Chairman, Maureen Ohlhausen and FCC Chairman Ajit Pai, stating that the FCC’s prior party-line vote to strip the Federal Trade Commission of its jurisdiction over Internet broadband providers was a mistake,” and that the two agencies would work together to “restore the FTC’s authority to police ISP’s privacy practices.”  We will keep you posted on updates.

Just over one week after being named acting chair of the Federal Trade Commission (FTC), Maureen Ohlhausen delivered the keynote address at the American Bar Association’s biennial Consumer Protection Conference in Atlanta on February 2.

During her remarks, acting chair Ohlhausen offered insight into consumer protection priorities during her tenure as acting chair.

First, acting chair Ohlhausen signaled the importance of the Agency focusing on stopping fraudulent schemes, especially those targeting vulnerable populations such as the elderly or military members.

Second, the acting chair noted that remedies sought in FTC cases should be more closely linked to actual, rather than speculative, consumer injury or harm, echoing her recent dissent in Qualcomm, and further posited that the FTC’s efforts in recent cases to collect disgorgement in non-fraud cases is inconsistent with prior FTC practice.  Specifically, the acting chair called into question the Agency’s practice of seeking disgorgement that is disproportionate to actual consumer injury.  As an example, she referred to her dissent in Uber, where she wrote that “I dissent from the complaint against Uber and the settlement resolving that complaint because the monetary settlement of $20 million is not tied to an estimate of consumer harm.”  And for privacy enforcement actions, she emphasized the need for “concrete injury” to justify agency action.

Third, acting chair Ohlhausen indicated a desire for the FTC to be more transparent about its investigation and enforcement matters.  She noted that there may be value in disclosing (without disclosing confidential information) details of investigations where the FTC closes an investigation without nay enforcement action.  According to acting chair Ohlhausen, such transparency would help provide guidance to businesses about practices and policies that the Commission deems permissible, in addition to those that are not.  It is unclear how much additional information acting chair Ohlhausen envisions disclosing beyond information contained in Commission closing letters at present.

Also with respect to investigations, the acting chair signaled the need for the Agency to narrowly tailor investigative requests to only obtain information that is necessary and relevant to its investigations.  Recognizing the burden of overly broad information requests, she stated that “the FTC must remain able to collect the information we need to enforce the law, but I am certain that we can do this while reducing the burden on businesses, particularly third parties who are not under investigation.”

Although her remarks were brief, the acting chair’s address suggests a more restrained approach by the FTC than it has pursued in recent years.  Given the three open seats on the Commission yet to be filled, two by Republicans, and the future appointment of a permanent chairperson, more changes are a certainty.

Showing that it’s not about to slow down its aggressive enforcement of its open Internet regulations, the Federal Communications Commission (FCC) announced a settlement yesterday resolving claims that T-Mobile USA Inc. (T-Mobile) failed to adequately disclose material restrictions on T-Mobile and MetroPCS data plans that were advertised as “unlimited” from August 2014 to June 2015.  Specifically, the FCC’s investigation found that T‑Mobile failed to adequately disclose that it would significantly slow the speed of its customers’ “unlimited” data after they reached preset, undisclosed thresholds for data usage.

The FCC’s settlement requires T-Mobile to pay a total of $48 million. It further requires T-Mobile to clearly and conspicuously disclose any material limitations on the amount and speed of mobile data for its “unlimited” plans, and includes reporting and training obligations. Continue Reading FCC Flexes Muscle: T-Mobile to Pay $48 Million for Failing to Disclose Limits on ‘Unlimited’ Data

On October 13, 2016, the Federal Trade Commission (FTC) filed a petition in the U.S. Court of Appeals for the Ninth Circuit requesting a rehearing en banc of the court’s decision in the FTC’s case against AT&T alleging that the company dramatically reduced – or “throttled” – data speeds for certain customers on unlimited data plans once those customers had used a certain level of data.  A three-judge panel for the Ninth Circuit determined in August 2016 that the case should be dismissed because AT&T was not subject to an FTC enforcement action due to the company’s status as a common carrier.  As we noted in a previous blog post, this case could reset the jurisdictional boundaries between the FTC and the Federal Communications Commission (FCC) with respect to phone companies, broadband providers and other common carriers.

As expected, the FTC asked the Ninth Circuit to rehear the case en banc.  The request, if granted by the court, would result in the full contingent of judges hearing the case, likely early next year.  The FTC advances three primary arguments in support of rehearing, but the most interesting by far is its claim of a gap in consumer protection jurisdiction as a result of the ruling.

The FTC’s lead argument is that the decision allegedly “creates an enforcement gap” because “no other federal agency has the FTC’s breadth of authority to protect consumers from many unfair or deceptive practices across the economy and to obtain redress for consumer harm.”  In support, the FTC argues that the FCC’s jurisdiction “is limited to matters ‘for and in connection with’ common-carrier service” and, unlike the FTC, the FCC cannot collect consumer redress and is subject to a one year statute of limitations.  The FTC further argues that the Ninth Circuit panel’s status-based approach to determining FTC jurisdiction has wide-reaching implications for any company who can claim to be a “common carrier” in some aspect of its business to avoid enforcement actions for non-common-carriage activities.  (We noted this open question in our previous post as well.)  Such entities – which the FTC identified to include large cable companies, satellite service providers, internet companies and energy utilities – may manipulate their common carrier status to avoid FTC jurisdiction.  Finally, the FTC claims that the ruling “threatens the FTC’s ability to enforce other important consumer protection statutes including the Children’s Online Privacy Protection Act, the Telemarketing and Consumer Fraud and Abuse Act, and the Restore Online Shoppers’ Confidence Act, and several others.”

Notably, the FTC’s position was previewed by FTC Chairwoman Edith Ramirez in her written testimony for an FTC oversight hearing before the Senate Committee on Commerce, Science and Transportation on September 27, 2016.  As we predicted, Chairwoman Ramirez argued that the case supported the FTC’s long-time effort to repeal the common carrier exception, stating in part that following the Ninth Circuit’s ruling, coupled with the FCC’s 2015 decision to reclassify broadband Internet access as a common carriage service, “[a]ny company that has or acquires the status of a common carrier will be able to argue that it is immune from FTC enforcement against any of its lines of business by virtue of its common carrier status.”

Whether the FCC agrees with the FTC’s characterization of its jurisdiction is yet to be determined.  Nevertheless, the fault line is clearly identified in the FTC’s filing.  We will continue to monitor this case and will post any new developments here.

Are hyperlinked and hovering disclosures enough to adequately inform consumers about the terms of your offer? Is requiring consumers to click on a button to accept all terms and conditions enough to obtain their informed consent to each of your terms and conditions? A recent federal court decision demonstrates that the answers to those questions are not always clear. The decision at issue is a September 23 order denying DIRECTV’s motion for partial summary judgment in a case brought by the Federal Trade Commission.

For context, in early 2015 the FTC filed a lawsuit against DIRECTV for deceptively advertising programming packages. Among other alleged violations, the FTC claimed that DIRECTV violated the Restore Online Shopper’s Confidence Act (ROSCA) by (i) charging consumers for access to premium channels through a negative option on its website while failing to clearly and conspicuously disclose all materials; and (ii) failing to obtain consumers’ express informed consent before charging them for premium channels through its website.

DIRECTV filed a motion for summary judgment on the two ROSCA claims, arguing that it disclosed all material terms through hyperlinks and info-hovers throughout the subscription web flow. DIRECTV likewise contended that it disclosed its negative option throughout the subscription web flow and in its terms and conditions, to which consumers had to affirmatively agree before their financial information was submitted to DIRECTV. To support its arguments, DIRECTV pointed out that the FTC had presented no contrary evidence. For example, the FTC did not produce consumer surveys, research, studies, or tests supporting its ROSCA claims, or even disclose whether any such evidence exists. DIRECTV also argued that its negative option disclosures complied with a consent decree previously entered into with state attorneys general.

The FTC argued in response that although DIRECTV may have disclosed material terms through hyperlinks and info-hovers, consumers would only see those disclosures if they clicked on the links or moved their cursors above the info-hovers. The FTC further argued that info-hovers did not accompany every mention of premium-channel promotions, and that consumers could navigate through the website and checkout without ever seeing any of the disclosures. The FTC also argued that the hyperlinks leading to the disclosures used non-descriptive names like “Additional Offer Details” that did not adequately describe the referenced content. Even if consumers clicked on disclosures, the FTC noted, the material terms were buried in dense, confusing language. Finally, although consumers may have been required to click to accept the terms and conditions generally, there was no information presented on the checkout page or the referenced terms and conditions about the negative option.

Last week, the federal judge overseeing the case denied DIRECTV’s motion for summary judgment on the two ROSCA claims. In denying DIRECTV’s motion, the court noted that “while the contents of the website did not appear to be disputed, the inferences drawn from those contents are vigorously disputed, and that dispute is the heart of this case.” In drawing all reasonable inferences in the opposing party’s (FTC’s) favor, as required when deciding a motion for summary judgment, the court held that there was an issue of fact as to whether the non-descriptive names of hyperlinks used by DIRECTV to disclose its material terms rendered the disclosures less than clear and conspicuous. Likewise, the court determined that, viewing all facts favorably for the FTC, there was a reasonable inference “that consumers did not have sufficient information and thus could not have given informed consent when they clicked ‘I Accept. Submit My Order.’”

Although the court’s denial of DIRECTV’s motion for partial summary judgment didn’t determine that DIRECTV’s disclosures were inadequate or that DIRECTV had violated ROSCA, the court’s finding that a triable issue of fact existed on these issues should serve as a warning to advertisers. As the FTC has advised, advertisers should incorporate key disclosures in the underlying claim, where possible, instead of using hyperlinks or info-hovers. When hyperlinks are used, the links should be obvious and labeled appropriately to convey the importance, nature, and relevance of the referenced information. Currently pending before the court is the FTC’s motion for partial summary judgment on the same claims that were the subject of DIRECTV’s motion. The FTC apparently believes that there can be no genuine issue of material fact over the alleged inadequacy of DIRECTV’s disclosures. Regardless of whether the FTC succeeds on it motion, the other claims at issue are headed for trial. Unless the parties reach a settlement, the trial is currently set to begin on January 30, 2017.

On advertisements, websites, and legal documents, disclosures are everywhere.  But how do consumers notice, understand, and use disclosures in their decision-making?  And how can businesses and advertisers effectively design and evaluate disclosures?  These were questions that the Federal Trade Commission explored during its September 15 public workshop, “Putting Disclosures to the Test.”  Throughout the one-day workshop, academics, industry researchers, and regulators (from the FTC and CFPB) presented research and discussed issues related to the use of disclosures, including evaluation criteria, testing methods, and future areas for exploration.

In opening the workshop, Chairwoman Ramirez identified three primary goals of disclosures: (1) ensure that consumers see or hear the disclosure; (2) convey information in a manner that promotes consumer understanding of the disclosure’s content; and (3) facilitate consumer’s use of the information to make informed choices.  Unlike effective disclosures, ineffective disclosures have a tendency to overwhelm, confuse, or distract consumers.  Chairwoman Ramirez stated that the same legal principles that have guided the Commission’s approach to disclosures for some time have been applied to new media and technology.  She highlighted the Commission’s efforts to provide guidance on these emerging issues, such as through the 2013 updates to the .Com Disclosures Guide and the May 2015 release of “The FTC’s Endorsement Guides: What People Are Asking.”

FTC Disclosures WorkshopSome speakers noted that even disclosures that comply with the FTC’s clear and conspicuous standard may still be ineffective at communicating necessary information to consumers.  Chairwoman Ramirez suggested that use of disclosures in certain areas may be inappropriate altogether, although she declined to specify those areas.  Other speakers emphasized the ways that effective disclosures can benefit consumers by preventing advertisements from being deceptive, communicating privacy policies, and providing consent mechanisms.  Private research also suggests that there may be additional benefits to businesses from effective disclosures through improved market differentiation and customer satisfaction.  Some disclosures, however, may have adverse consequences like increasing complexity, producing consumer confusion, and creating unintended biases.

Testing disclosures can be helpful to ensure that that they have the intended effect without adverse consequences.  Testing can also help advertisers design simpler and more comprehensible disclosures.  Speakers generally lauded the capacity for disclosure testing to improve the effectiveness of disclosures, although they stopped short of suggesting that testing was legally required and acknowledged that testing is not always feasible.  Evaluating disclosures can be expensive and require resources outside of the reach of many businesses.  Further, there often is a lack of agreement over the ideal methods and procedures for testing disclosures.   Continue Reading Beyond “Clear and Conspicuous”: FTC Workshop Highlights Issues Related to Testing of Consumer Disclosures

On Monday, August 29, 2016, the Ninth Circuit Court of Appeals issued an opinion that may dramatically alter the boundaries between the Federal Trade Commission’s (FTC) and Federal Communications Commission’s (FCC) authority over phone companies, broadband providers, and other common carriers.  The Ninth Circuit dismissed a case that the FTC brought against AT&T over its practices in connection with wireless data services provided to AT&T’s customers with unlimited data plans.  The FTC had filed a complaint against AT&T for “throttling” the data usage of customers grandfathered into unlimited data plans.  Once customers had used a certain level of data, AT&T would dramatically reduce their data speed, regardless of network congestion.  The FTC asserted that AT&T’s imposition of the data speed restrictions was an “unfair act or practice,” and that AT&T’s failure to adequately disclose the policy was a “deceptive act or practice.”

The Ninth Circuit’s decision is the latest in a series of actions attempting to identify the jurisdiction over Internet access services and Internet-based services.  As providers and regulators have struggled to identify the proper regulations applicable to such services, the Ninth Circuit’s decision could force significant shifts by both the FTC and FCC for at least a large segment of the industry.


At issue before the Ninth Circuit was the scope of the FTC Act’s exemption of “common carriers” from the FTC’s authority.  The FTC argued, and the trial court held, that the common carrier exemption only applied to the extent that the service in question is a common carrier service (i.e., an “activity-based” test that precluded FTC jurisdiction only where a common carrier is engaging in common carrier activities).  Because the service that the FTC challenged (wireless broadband Internet access service (“BIAS”)) was not a common carrier service at the time that the FTC brought its action against AT&T, the trial court held AT&T was not engaging in common carrier activity and therefore the FTC had authority to bring its lawsuit.

AT&T appealed the decision, arguing that the FTC Act’s exemption of common carriers should be based on their status, and thus telecommunications service providers like itself are exempt from the FTC’s authority regardless of whether the activity at issue is a common carrier service.

The Ninth Circuit noted two things related to the dispute.  First, the court noted that “it is undisputed that AT&T is and was a ‘common carrier[] subject to the Acts to regulate commerce’ for a substantial part of its activity.”  Further, the court noted that, during the time period in question, AT&T’s mobile data service “was not identified and regulated by the FCC as a common carrier service” although, since the FCC’s 2015 Open Internet Order, the FCC has classified the service as a common carrier service.

The Ninth Circuit sided with AT&T, and remanded the case for an entry of an order for dismissal. The court held that under the plain language of the statute, the exemption is based on a company’s status and applies regardless of the activity at issue.  The “literal reading of the words Congress selected,” the court wrote, “simply does not comport with an activity-based approach [to the common carrier exemption].”  The court compared the common carrier exemption to the other exemptions in the statute (for banks, savings and loan institutions, federal credit unions, air carriers and foreign air carriers) that are admitted by the FTC to be status-based, and to the exemption for meatpackers “insofar as they are subject to the Packers and Stockyards Act,” which the court found to be activity-based.  The court held that amendments enacted in 1958 to Section 5 – which added the “insofar as” language – indicated an activity-based exemption for that provision but affirmed status-based exemptions for the remainder “then and now.”

Notably, the Ninth Circuit chose to address the status question, rather than addressing a more narrow issue of whether the FCC’s 2015 reclassification of BIAS as a telecommunications service applied to AT&T’s service retroactively.


The FTC issued a statement that it is “disappointed” and “considering [its] options,” but it is unclear whether it will appeal the ruling to the Supreme Court.   It is worth noting that, although the Ninth Circuit did not discuss the decisions, this is the third time that a court of appeals has faced status-based arguments relating to the common carrier exemption.  The Seventh Circuit’s 1977 decision in U.S. v. Miller, and the Second Circuit’s 2006 decision in FTC v. Verity Int’l, Ltd., both involved entities claiming common carrier status, although neither decision brought finality to the question.  If the FTC pursues the issue further, industry and practitioners could receive welcome guidance on the issue.

More broadly, the FTC has openly called for the end of the common carrier exemption in the past few years.  This decision may add fuel to the agency’s efforts in that regard.

As is, the decision makes it more difficult for the FTC to bring an action against a company that can claim to be a common carrier.  The Ninth Circuit’s decision noted that AT&T unquestionably was a common carrier “for a substantial part of its activity” and at one point distinguished a case, noting that AT&T’s status “is not based on its acquisition of some minor division unrelated to the company’s core activities.”  Nevertheless, the court’s analysis leaves open the possibility that even providing only a small amount of common carrier service may be enough to qualify all of a company’s activities for the common carrier exemption.

On the FCC side, there are equally broad questions raised by the decision.  The FCC recently has broadly construed its own authority under Section 201(b), to a fair degree of controversy, to address practices of common carriers “for or in connection with” their services, such as advertising and billing.  Presumably, these efforts will continue after the Ninth Circuit’s ruling.  The Ninth Circuit’s ruling, however, may encourage the FCC to fill any potential gap in coverage by taking a broader view of its own authority to regulate non-common carrier services that common carriers offer to consumers.  This could have significant implications for a number of ongoing FCC proceedings, including a proceeding to overhaul the FCC’s privacy rules after the Open Internet Order and requests to classify SMS messaging and interconnected voice-over-Internet-Protocol (VoIP) service as telecommunications services subject to common carrier regulation.  This also might color the FCC’s approach to regulation of over-the-top services provided by non-carrier entities using telecommunications or Internet services.

Time will tell how this plays out, but for now, the Ninth Circuit appears to have significantly reset the boundaries between the agencies’ jurisdictions.  AT&T is not off the hook yet, however, as it faces a parallel action from the FCC, which has issued a Notice of Apparent Liability to AT&T, alleging that its disclosures in connection with its unlimited data plans violated the FCC’s “transparency” rules.  The FCC proposed $100 million in forfeitures for the violation, which sparked vigorous dissent by the two Republican commissioners and was opposed by AT&T in a strongly-worded response.  The FCC forfeiture proceeding remains pending.

Steve Augustino and Jameson Dempsey, of Kelley Drye’s Communication Group, co-authored this post.

The Federal Trade Commission announced yesterday that it has approved final amendments to Commission Rule 1.98 that adjust the maximum civil penalty dollar amounts for violations of 16 provisions of law the FTC enforces, as required by the Federal Civil Penalties Inflation Adjustment Act of 2015 (“Adjustment Act”), which requires federal agencies to implement a “catch up” adjustment in 2016 to address due to inflation since the civil penalties in their jurisdiction were last set or adjusted by statute.

The maximum civil penalty amount has increased from $16,000 to $40,000 for the following violations and others listed in the Federal Register Notice:

  • Section 5(l) of the FTC Act, which pertains to violations of final Commission orders issued under section 5(b) of the FTC Act; and
  • Sections 5(m)(1)(A) and 5(m)(1)(B) of the FTC Act: trade regulation rules issued by the Commission under section 18 of the FTC Act that address unfair or deceptive acts or practices.

The new maximum civil penalty amounts will take effect on August 1, 2016, as required per the Adjustment Act.  Following this initial catch-up, the Adjustment Act directs agencies to adjust their civil penalties for inflation every January thereafter.

The Adjustment Act applies to civil penalties assessed after the effective date of the applicable adjustment, including civil penalties whose associated violation predated the effective date.  The Adjustment Act does not retrospectively change previously assessed or enforced civil penalties.  In addition, the Adjustment Act does not alter an agency’s statutory authority to assess penalties below the maximum level; however, to the extent that minimum penalties exist for violations, those are subject to adjustment as well.

How Penalties Were Selected For Adjustment

The Adjustment Act defined “civil monetary penalty” as “any penalty, fine, or other sanction that

(A)(i) is for a specific monetary amount as provided by Federal law; or

(ii) has a maximum amount provided for by Federal law; and

(B) is assessed or enforced by an agency pursuant to Federal law; and

(C) is assessed or enforced pursuant to an administrative proceeding or a civil action in the Federal courts.

Agencies were responsible for identifying applicable civil penalties.

Calculation of Inflation Adjustments

The catch-up adjustment is defined as the percentage by which the U.S. Department of Labor’s Consumer Price Index for all-urban consumers (“CPI-U”) for the month of October 2015 exceeds the CPI-U for the month of October for the year in which the amount of the penalty was last set or adjusted pursuant to law.  The Adjustment Act limits the amount of the catch-up increase for 2016 to 150% of the amount of the civil penalty in effect on November 2, 2015.

Guidance regarding calculation of future adjustments is forthcoming.  The Office of Management and Budget will issue adjustment rate guidance no later than December 15 each year to adjust for inflation in the CPI-U as of the most recent October.

Notice and Comment Not Used

The Commission did not engage in notice and comment prior to adopting this interim final rule.  Per the Commission, “advance opportunity for notice and comment are not required ‘when the agency for good cause finds (and incorporates the findings and a brief statement of the reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.’”  5 U.S.C. 553(b)(3)(B)  In short, because the Adjustment Act directs agencies to promulgate the adjustment through an interim final rulemaking no later than July 1, 2016, and prescribes the formula for making the adjustment, the Commission determined that good cause exists to forego prior public notice and comment under the Administrative Procedures Act.