| The Federal Trade Commission urges Congress to undo three court decisions that have weakened its enforcement powers. |
The Federal Trade Commission (FTC) wrote the House and Senate committees with jurisdiction over the agency, asking for language restoring the power to seek and obtain restitution for victims of those who have violated Section 5 of the FTC Act and disgorgement of ill-gotten gains. The FTC is also asking that Congress clarify that the agency may act against violators even if their conduct has stopped as it has for more than four decades. Two federal appeals courts have ruled in ways that have limited the FTC’s long used powers, and now the Supreme Court of the United States is set to rule on these issues sometime next year. The FTC is claiming, however, that defendants are playing for time in the hopes that the FTC’s authority to seek and receive monetary penalties will ultimately be limited by the United States (U.S.) highest court. Judging by language tucked into a privacy bill introduced by the chair of one of the committees, Congress may be willing to act soon.
The FTC asked the House Energy and Commerce and Senate Commerce, Science, and Transportation Committees “to take quick action to amend Section 13(b) [of the FTC Act i.e. 15 U.S.C. § 53(b)] to make clear that the Commission can bring actions in federal court under Section 13(b) even if conduct is no longer ongoing or impending when the suit is filed and can obtain monetary relief, including restitution and disgorgement, if successful.” The agency asserted “[w]ithout congressional action, the Commission’s ability to use Section 13(b) to provide refunds to consumer victims and to enjoin illegal activity is severely threatened.” All five FTC Commissioners signed the letter.
The FTC explained that adverse rulings by two federal appeals courts are constraining the agency from seeking relief for victims and punishment for violators of the FTC Act in federal courts below those two specific courts, but elsewhere defendants are either asking courts for a similar ruling or using delaying tactics in the hopes the Supreme Court upholds the two federal appeals courts:
- …[C]ourts of appeals in the Third and Seventh Circuits have recently ruled that the agency cannot obtain any monetary relief under Section 13(b). Although review in the Supreme Court is pending, these lower court decisions are already inhibiting our ability to obtain monetary relief under 13(b). Not only do these decisions already prevent us from obtaining redress for consumers in the circuits where they issued, prospective defendants are routinely invoking them in refusing to settle cases with agreed-upon redress payments.
- Moreover, defendants in our law enforcement actions pending in other circuits are seeking to expand the rulings to those circuits and taking steps to delay litigation in anticipation of a potential Supreme Court ruling that would allow them to escape liability for any monetary relief caused by their unlawful conduct. This is a significant impediment to the agency’s effectiveness, its ability to provide redress to consumer victims, and its ability to prevent entities who violate the law from profiting from their wrongdoing.
In a 2019 case, FTC v. Credit Bureau Center, LLC, the United States Court of Appeals for the Seventh Circuit (Seventh Circuit) found that the authority Congress granted in Section 13(b) does not allow the agency to seek and receive restitution. The Seventh Circuit found the provision allows the FTC to seek a permanent injunction but not monetary damages. As the Seventh Circuit explained, 15 U.S.C. § 53(b) “authorizes only restraining orders and injunctions…[b]ut the Commission has long viewed it as also authorizing awards of restitution.” The Seventh Circuit added that it had endorsed this view in a 1989 case, but subsequent Supreme Court cases had thrown into question such expansive readings of agency power that was not supported by statute. Moreover, the Seventh Circuit pointed out the FTC Act “has two detailed remedial provisions that expressly authorize restitution if the Commission follows certain procedures.” Ultimately, the Seventh Circuit held that the “permanent-injunction provision [in 15 U.S.C. § 53(b)] does not authorize monetary relief.”
In the September 2020 case FTC v. AbbVie, Inc., the United States Court of Appeals for the Third Circuit (Third Circuit) followed the Seventh Circuit by holding that Section 13(b) does not permit the FTC to punish behavior that is not currently happening or about to start. Moreover, because disgorgement is a remedy designed to address past conduct, this relief is also not available under Section 13(b).
The Third Circuit held:
- Section 13(b) authorizes a court to “enjoin” antitrust violations. It says nothing about disgorgement, which is a form of restitution, see Liu v. SEC, 140 S. Ct. 1936, 1940–41 (2020), not injunctive relief, see, e.g., Meghrig v. KFC W., Inc., 516 U.S. 479, 484 (1996) (“[N]either [a mandatory nor prohibitory injunction] contemplates the award of . . . ‘damages’ or ‘equitable restitution.’”); Owner-Operator Indep. Drivers Ass’n v. Landstar Sys., Inc., 622 F.3d 1307, 1324 (11th Cir. 2010) (“Injunctive relief constitutes a distinct type of equitable relief; it is not an umbrella term that encompasses restitution or disgorgement.”). Thus, Section 13(b) does not explicitly empower district courts to order disgorgement.
- So if a violator’s conduct is neither imminent nor ongoing, there is nothing to enjoin, and the FTC cannot sue under Section 13(b). By contrast, the requirement makes little sense as applied to a disgorgement remedy. Disgorgement deprives a wrongdoer of past gains, see Liu, 140 S. Ct. at 1940–41, meaning that even if a wrongdoer’s conduct is not imminent or ongoing, he may have gains to disgorge. If Congress contemplated the FTC could sue for disgorgement under Section 13(b), it probably would not have required the FTC to show an imminent or ongoing violation. That requirement suggests Section 13(b) does not empower district courts to order disgorgement.
The FTC pointed to another Third Circuit case that further limits its Section 13(b) authority with respect to injunctions. The agency explained:
- In FTC v. Shire ViroPharma, the court held that the FTC can bring enforcement actions under Section 13(b) only when a violation is either ongoing or “impending” at the time the suit is filed. That decision unnecessarily limits the Commission’s ability to obtain relief for consumers who have been harmed by unlawful conduct that occurred in the past but is not ongoing.
- The decision also hampers the Commission’s longstanding ability to protect consumers by getting an injunction that prohibits defendants from resuming their unlawful activities in cases where the conduct has stopped but there is a reasonable likelihood that the defendants could resume their unlawful activities in the future.
- The decision also is impacting our ability to settle cases. Targets of FTC investigations now routinely argue that they are immune from suit because they are no longer violating the law, despite the fact that there is a likelihood of recurrence, and they make these arguments even in cases when they stopped violating the law only after learning that the FTC was investigating them.
In that case, the Third Circuit upheld a District Court’s ruling that Section 13(b) does not allow for the enjoining of past conduct and held:
On appeal, the FTC urges us to adopt a more expansive view of Section 13(b). According to the FTC, the phrase“ is violating, or is about to violate” in Section 13(b) is satisfied by showing a past violation and a reasonable likelihood of recurrent future conduct. We reject the FTC’s invitation to stretch Section 13(b) beyond its clear text. The FTC admits that Shire is not currently violating the law. And the complaint fails to allege that Shire is about to violate the law.
Republicans on one of the committees included a legislative fix in a privacy bill. The “Setting an American Framework to Ensure Data Access, Transparency, and Accountability (SAFE DATA) Act” (S.4626) was introduced in September 2020 by Senate Commerce, Science, and Transportation Committee Chair Roger Wicker (R-MS), Senate Majority Whip and Communications, Technology, Innovation, and the Internet Subcommittee Chair John Thune (R-SD), Transportation and Safety Subcommittee Chair Deb Fischer (R-NE), and Safety, and Senator Marsha Blackburn (R-TN). As noted, there is language that would seem to address these Third and Seventh Circuit cases. Section 403 would alter Section 13(b), expanding it to include past violations and the relief the FTC may seek to include restitution, disgorgement, and other equitable remedies. However, it is highly unlikely the Congress will address privacy legislation, and Republicans may have included this legislative language as a sweetener for Democrats to swallow the medicine of state preemption and no private right of action in the SAFE DATA Act. Chances of standalone legislation are unknown at present.
Additionally, in a draft law review article, FTC Commissioner Rohit Chopra and an attorney advisor Samuel Levine argued the FTC would use a dormant power to fill the gap in ts enforcement authority left by these case. They asserted:
- [T]he agency should resurrect one of the key authorities abandoned in the 1980s: Section 5(m)(1)(B) of the FTC Act, the Penalty Offense Authority. The Penalty Offense Authority is a unique tool in commercial regulation. Typically, first- time offenses involving unfair or deceptive practices do not lead to civil penalties. However, if the Commission formally condemns these practices in a cease-and-desist order, they can become what we call “Penalty Offenses.” Other parties that commit these offenses with knowledge that they have been condemned by the Commission face financial penalties that can add up to a multiple of their illegal profits, rather than a fraction.
- Using this authority, the Commission can substantially increase deterrence and reduce litigation risk by noticing whole industries of Penalty Offenses, exposing violators to significant civil penalties, while helping to ensure fairness for honest firms. This would dramatically improve the FTC’s effectiveness relative to our current approach, which relies almost entirely on Section 13(b) and no-money cease-and-desist orders, even in cases of blatant lawbreaking.
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Michael Kans 