The FTC Faces Questions on “Big Tech,” Section 230, Antitrust, Privacy and Data Security

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The Senate Commerce, Science, and Transportation Committee held its first hearing of this Congress with the Federal Trade Commission (FTC). All four sitting commissioners testified and faced a range of diverse questions. This hearing was held a few days before the Supreme Court of the United States (SCOTUS) ruled against the FTC’s traditional use of equitable powers to prevent future or remedy past harms.

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How long will it take for Congress to restore Section 13(b)?

Cocktail Party

Members got to denounce “Big Tech” to the four sitting members of the FTC with varying degrees of outrage. There was much discussion about Section 230, privacy, data security, and antitrust and anti-competitive issues related to Amazon, Apple, Facebook, Google, Microsoft, and Twitter. As always whether Republicans and Democrats can agree on solutions to these problems will be key in determining whether legislation that can pass Congress is forthcoming. There were hints the FTC could use its rulemaking authority to address some of problems “Big Tech” poses, but the agency hinted right back there are serious resource constraints. Members also asked about how to fix Section 13(b) of the FTC Act if SCOTUS should rule against the agency.

Meeting

All the talk about “Big Tech” occurred as a key FTC authority hung in the balance at SCOTUS. In AMG Capital Management, LLC v. FTC, the parties opposing the FTC argue the plain language of the statute does not allow for the seeking of restitution and monetary damages under this specific section of the FTC Act while the agency argues long accepted past practice and Congressional intent do, in fact, allow this relief to be sought when the FTC is seeking to punish violators of Section 5. In October 2020, the FTC wrote the House and Senate committees with jurisdiction over the agency, asking for language to resolve the litigation over 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 also asked that Congress clarify that the agency may act against violators even if their conduct has stopped as it has for more than four decades.

In the last Congress, Ranking Member Roger Wicker (R-MS) included a provision in his privacy bill that would fix the FTC’s 13(b) authority. It remains to be seen whether Wicker and other stakeholders will use the SCOTUS decision as leverage in their negotiations with Democrats to craft a final bill with provisions they prefer on the two most contentious outstanding issues: whether people will be able to sue companies that allegedly violate their new privacy rights, and whether the new federal law will preempt all state privacy statutes.

Geek Out

Chair Maria Cantwell (D-WA) (watch her opening statement or read her full written remarks) noted the release the day before of an FTC report that shines light on COVID related frauds and scams such as selling fake cures, trolling for personal data in order to commit identity theft, and selling fake PPE to first responders. She said the report shows a 45% increase in consumer complaints filed with the FTC from 2019 to 2020. Cantwell stated the FTC’s longstanding authority to return money to victims is endangered at the Supreme Court, and its 13(b) authority is the “bread and butter” of the FTC’s consumer protection powers. She asserted that the FTC has used these powers for more than 40 years to return funds illegally taken from consumers through unlawful business practices. She noted a 2019 case in which the agency returned $34 million to people after Home Depot had claimed that consumers’ computers had contracted viruses. Cantwell contended the COVID pandemic has intensified the need for 13(b) powers, and she claimed the new authority given to the FTC in the “Consolidated Appropriations Act 2021” (P.L. 116-260) (i.e. Division FF, the “COVID-19 Consumer Protection Act”) has been used wisely. She argued that small businesses are also endangered when larger firms use unfair tactics, and so the FTC’s powers benefit smaller firms and the broader economy. Cantwell said Congress needs to do everything possible to protect the FTC’s 13(b) authority and pass new legislation if need be.

Ranking Member Roger Wicker (R-MS) (watch his opening statement or read his full written remarks) said the FTC’s authority is clear, and the agency has the power to police unfair and deceptive practices, including when businesses illegally collect and process personal data, especially in discriminatory ways. He echoed Cantwell’s assertions regarding the pandemic and the surge of new scammers and cyber criminals taking advantage of consumers. Wicker noted that in order to protect people from fraud and deceptive practices, the FTC has historically relied upon its assumed powers under Section 13(b). He explained these powers have allowed the FTC to stop illegal activity or require scammers to give money back to consumers. Wicker noted his privacy bill, the “SAFE DATA Act” (S.4626), has a provision that would clarify the FTC’s authority to stop fraudulent activity and to obtain monetary redress. He added he wanted to hear from the FTC how Congress could further clarify the FTC Act to permit the agency to both enjoin bad practices but also compensate victims for their losses. Wicker stated he wanted to know more about how to ensure the proper assessment of monetary redress and how legitimate businesses are given fair notice of practices that may be unfair as the FTC expands its use of 13(b).

Wicker asserted the pandemic has further underscored the need for strong, uniform data privacy legislation because more of Americans’ activities have moved online. He claimed that without a national data privacy regime, continued online activities could pose a serious and sustained risk of exposure and exploitation of the personal data of Americans. Wicker remarked he wanted to know how the FTC has acted to protect the personal data of Americans during the pandemic and what additional tools may be required. He said the FTC also plays a role in overseeing methods of unfair competition in the marketplace and conceded the agency’s work in this realm is not within the jurisdiction of this committee. He stated that nonetheless, the FTC’s competition work does affect consumers and may inform how firms may attempt to defraud, mislead, and discriminate against consumers. Wicker contended in this regard, “Big Tech’s” dominance is of particular concern and has lead to an abuse of their market power in the form of censorship and content suppression and the abuse of consumers’ data in the form of repeated privacy violations and data misuse. He quoted Justice Clarence Thomas’ assertions a few weeks earlier who claimed a few Silicon Valley CEOs decide which films you can stream, which books you can buy, and what scientific discourse is allowed. Wicker said the hearing is a further opportunity to discuss how the agency may use its powers to address these practices. He moved that a letter from the Chamber of Commerce detailing its views on the FTC’s powers be entered into the record.

Cantwell said she asked the FTC about data security rules because she agrees more needs to be done. She expressed her hope that the committee would hold a hearing in May on market dominance in the news industry because the United States Department of Justice (DOJ) and the FTC can do more to address these issues. Cantwell noted the report her staff issued last year on the news industry and the dominance of online advertising companies. She opined that in the information age, there is no shortage of issues the FTC needs to be more aggressively involved in.

Acting FTC Chair Rebecca Kelly Slaughter (watch her testimony and the FTC submitted joint written testimony) referenced the FTC’s report issued the day before the hearing that identified the major challenges consumers have faced and are continuing to face as a result of the pandemic: health and safety concerns, economic distress, and increased susceptibility to digital harm. Slaughter remarked that while all Americans face these challenges, the agency knows that people of color and those with low income have been hardest hit. She said she would focus her remarks on the resources and authority Congress has given the FTC to address these concerns and highlight the most critical areas.

Slaughter said the FTC is “profoundly grateful” for the funding boost Congress gave the agency in its annual appropriation and in the “American Rescue Plan Act” (P.L. 117-2). She claimed that even before the pandemic the growing problems in consumer protection and competition enforcement were stretching the agency’s resources to the breaking point. Slaughter said the agency is using the new funds to hire staff and strategically fund our data collection and outreach efforts with the specific focus on ensuring the agency is reaching the U.S.’ hardest hit communities. Slaughter asserted when Congress gives the FTC new authority, it will take it seriously and put it to use responsibly. She said the agency welcomed the COVID-19 Consumer Protection Act that gave the FTC civil penalty authority regarding certain COVID-19 deceptive acts and practices. Slaughter noted the agency’s first use of these powers targeting deceptive claims about Vitamin D and Zinc products.

Slaughter explained she and her staff are looking at all authority the agency has and how it might use them to better effect, and yet the agency faces significant obstacles in authority and resources. Slaughter said among the most pressing obstacles is “a judicial attack to our ability to provide monetary relief to consumers under Section 13(b) of the FTC Act.” She said the agency uses these authorities in a broad range of cases, including telemarketing fraud, anti-competitive pharmaceutical practices, data security and privacy, scams that target seniors and veterans, and most recently COVID related scams. Slaughter argued Section 13(b) cases have returned billions of dollars, including $11.2 billion in refunds to consumers over just the previous five years. She declared returning funds to consumers who have been harmed is among the most important things the agency does. Slaughter said courts are challenging the FTC’s authority to help consumers and remarked that right behind the case challenging its redress authority under 13(b) is a line of cases challenging the agency’s ability to obtain injunctive relief. She contended enforcement actions will slow and redress for consumers will dry up unless Congress does not act quickly to affirm our full authority under 13(b).

Slaughter said alongside 13(b), the agency’s most pressing other challenge is resources. She again expressed gratitude for the recently provided extra funding but claimed the agency remains under resourced and over leveraged. Slaughter remarked that even before the recent merger wave, the agency was averaging twice as many annual merger filings as it did ten years ago while the FTC’s employee count remained flat. She asserted the FTC had 50% more employees at the beginning of the Reagan Administration than it does today. She claimed on the consumer protection side, there is similar growth in the breadth and depth of problems in the market, especially digital markets that require enforcement. Slaughter said the FTC’s ability to keep up with this volume of work against large, sophisticated companies without resources will be limited.

Slaughter said there are additional ways Congress could strengthen the agency’s hand to deter illegal conduct and return more funds to consumers aside from restoring Section 13(b) and granting more resources. She stated she would welcome broader civil penalty authority, establishment of a consumer redress fund, and independent litigating authority for its civil penalty cases.

FTC Commissioner Noah Joshua Phillips (watch his testimony) thanked the committee and Congress for providing the FTC with an increased ability to fight the wave of scams during the epidemic. He asserted fighting bad actions such as these are the “bread and butter” of the agency’s consumer protection mission. Phillips said he wants to focus on Section 13(b) as it applies to consumer protection. He declared that should SCOTUS rule against the FTC, a fix will be needed because in too many cases where money should be on the table, it will not be. Phillips contended that any fix should focus on helping consumers and not inappropriately hurting businesses. He observed that some have cited deterrence as the goal and that courts have found deterrence to be penal in nature. He voiced his concern that disgorgement will be used as a penalty, especially in cases where consumer harm is low.

Phillips claimed that penalties make sense where there are clear rules and conversely penalties do not work well where they are no clear rules. He argued it makes sense to punish those who violate a prominently post speed limit but does not when the advertised limit is a “fair speed” and then punish those traveling at 65 miles per hour. Phillips argued this concept is central to the FTC and was first applied in competition and later in consumer protection and where the agency deems conduct violates broad terms like unfair and deceptive. He claimed this broad authority allows the agency to be nimble, address new issues like privacy, and to help develop the law. Phillips remarked the FTC can advise Congress as it did with the “Consumer Review Fairness Act” and also send a message to the courts as happened with pay for delay agreements. He argued because the FTC enforces broad terms that give businesses less notice, the agency does not have general penalty authority. Phillips contended that when a company is subject to an order, or the FTC has adopted a rule, Congress has passed a statute, or notice has been provided under Section 5(m)(1)(B) — when rules are clear — penalties apply.

Phillips asserted that Section 19, another FTC tool, provides a contrast. He said where conduct is fraudulent or dishonest but might not be as clearly defined equitable money is available. Phillips noted there is less of a notice issue because businesses know fraud can get them into trouble. He claimed the FTC uses Section 13(b) to stop harmful conduct in a wide set of instances: fraud, pharmaceutical cases, antitrust cases, data security and privacy cases, mergers, and deceptive advertising. Phillips remarked the powers Congress gives the FTC can and will be applied broadly, but the appropriate remedies should not be the same in every case. He asserted the FTC should have a different result for fraud than for data breach caused by unreasonable data security practices. Phillips contended the equitable remedies available to the FTC were developed in a line of cases regarding fraud and it is fitting in these cases. He said courts often start with the defendant’s gross receipts as a proxy for consumers’ losses and stated courts have also held defendants are not required to offset the losses for consumers based on the products they receive. Phillips stated that for pure fraud, it makes sense to ensure consumers get all their money back. He claimed in other cases, it does not make sense for consumers to receive every penny they paid, and it may make more sense for them to receive some or most of the value of the good (e.g. they ate the cereal or stayed in the hotel room.) Phillips declared equity should reflect that fact. He expressed his fear that without clarification in an FTC fix, there will be efforts to punish more companies under the guise of disgorgement. Phillips opined the pressing concern is to stop ongoing fraud and to get back the money consumers have lost.

FTC Commissioner Rohit Chopra (watch his testimony) stated that he appreciates everyone’s work to fix Section 13(b) but claimed a Section 13(b) fix will not address all the FTC’s challenges. He argued that time after time when large firms have flagrantly violated the law, the FTC is unwilling to pursue meaningful accountability. Chopra cited the example of Google and how its repeated violations over the previous decade were greeted with favorable treatment by the FTC. He noted the agency’s 2011 order with Google directing the company to halt its unlawful privacy practices and that one year later the FTC announced the company violated the order. Chopra stated that around the same time the FTC investigated Google’s anti-competitive practices but closed this inquiry in 2013 allowing the company to submit a “weird non-binding” list of commitments. He contended that in 2014 the FTC announced it had again caught Google breaking the law and thereafter caught Google conducting years of illegal surveillance of children on YouTube. Chopra declared this most recent settlement allowed Google to retain illegally developed algorithms enhanced by data from children.

Chopra stated that while the FTC is “quick to bring down the hammer” on small business, large firms like Google know the FTC “is simply not serious about holding them accountable.” He asserted that the page must be turned on the FTC’s perceived powerlessness. Chopra contended that the FTC must make clear FTC orders are not suggestions. He remarked Google is not the only company to engage in repeat offenses. He argued in 2012 after the FTC finalized a settlement with facebook over its privacy abuses, the company violated the order almost immediately over and over again. Chopra stated Facebook was able to extract a settlement from the FTC that gave the company a lot to celebrate; Facebook was not required to make any material changes to its business model or its user surveillance. Chopra added the FTC handed out special immunity provisions for Facebook’s top executives. He declared the settlement was a devastating setback for consumer privacy.

Chopra argued Congress and the FTC must implement major changes when it comes to stopping repeat offenders. He argued that because the FTC sometimes lacks the will to enforce laws, Congress must allow victims and state attorneys general to seek injunctive relief in court to halt violations of FTC orders. Chopra contended that the FTC must make sure it is meaningfully deterring wrongdoing in the first instance. He said the FTC often agrees to “no-money, no-fault settlements” even in cases of egregious fraud like fake review and Made in USA scams where bad actors simply agree to follow the law going forward. Chopra claimed that when the FTC does seek money from wrongdoers, it can be insufficient, for under Section 13(b) in an instance where a company scams a person out of $1 million, the maximum that can be recovered is $1 million. He declared this is not a deterrent, particularly when the probability of getting caught is so low. Chopra argued action must be taken to trigger additional remedies such as penalties and damages without imposing any new requirements or uncertainty on businesses. He added Congress can empower the agency to seek civil penalties in a broader range of cases, including knowing violations of Section 5 and other dishonest or fraudulent conduct.

Chopra ended by saying abuse of 47 U.S.C. 230 (Section 230) must be addressed. Chopra argued tech companies aggressively exploit Section 230 to evade accountability even when the immunity does not apply. He asserted the lack of clarity taxes public resources and slows down enforcement. Chopra stated his fear that e-commerce marketplaces are becoming havens for counterfeit and unsafe goods, including fake PPE and medicines to treat COVID-19. He noted members of the committee have put forward a number of Section 230 proposals, including the removal of liability for civil enforcement actions. Chopra stated his strong support for efforts to rein in these abuses which can be local bricks and mortar businesses and the news media at a competitive disadvantage. Chopra claimed the ongoing abuses of tech companies during the pandemic has reminded policymakers it is important the FTC has all the tools it needs and uses them.

FTC Commissioner Christine Wilson (watch her testimony) said she would discuss three areas where Congress can support the FTC: 1) by clarifying the FTC’s 13(b) authority; 2) enacting federal privacy legislation; and 3) approaching the topic of antitrust reform judiciously. She noted recent court decisions have challenged the FTC’s ability to use 13(b) to obtain injunctive and equitable monetary relief, which impairs the agency’s ability to conduct negotiations in settlement cases. Wilson claimed the FTC faces difficulty in prosecuting and resolving cases and asserted Congressional clarification of 13(b) would help immensely. She noted stakeholders have expressed legitimate concerns about 13(b), and the absence of a statute of limitations can be cured by including one. Wilson said concerns about the unfounded use of 13(b) can be addressed by setting boundaries on when disgorgement and argued the factors the FTC cited in rescinding its 2003 Disgorgement Policy provide a good roadmap. Wilson claimed that in cases regarding consumer protection pertaining to legitimate concerns accused of using deceptive claims Congress could help courts determine the value obtained by the consumer despite the deception. She declared the legitimate concerns about 13(b) can be addressed while also restoring the agency’s ability to police wrongdoing.

Wilson remarked regarding federal privacy legislation. She noted that on a bipartisan basis the FTC has long urged Congress to pass privacy legislation, and consumer and industry groups agree. Wilson stated the first and best option would be for Congress to enact privacy legislation because lawmakers are best situated to make the value judgements inherent in privacy legislation. She said the FTC stands ready to assist in implementing that legislation through rulemaking and enforcement. Wilson asked what happens in the event Congress has other priorities. She observed the agency has been lambasted for not doing enough on privacy, an assertion with which she disagreed. Wilson contended the agency has limited authority and tools but conceded that rulemaking under Section 18 is within the FTC’s authority. She stated that the so-called Moss-Magnuson rulemaking is not ideal but in the absence of Congressional action and in the face of continuing privacy harm, including growing infringements of our civil liberties, she supports Slaughter in considering this path. Wilson noted the Moss-Magnuson rulemaking is a lengthy, cumbersome process and said she would be thrilled if Congress preempted such a rulemaking by passing privacy legislation. She argued that absent legislation, such a rulemaking would move the U.S. closer to providing transparency for consumers, establishing guardrails for businesses, and erecting safeguards for our civil liberties. Wilson declared inaction is not an option.

Wilson stated cautioned that calls to overhaul antitrust enforcement typically focus on “Big Tech.” She added there many types of concerns, including consumer privacy, content moderation, and anti-competitive conduct. Wilson observed some people use these concerns to justify breaking up large tech companies. She submitted the better approach is to address each concern with appropriate tools. Wilson contended privacy concerns require privacy legislation and content moderation concerns may require reforms to Section 230. She asserted her belief that antitrust laws are sufficiently broad and flexible to address the dynamic tech sector. Wilson noted the DOJ’s victory against Microsoft in the 1990’s and the antitrust suits filed by DOJ, the FTC, and state attorneys general against Google and Facebook using existing antitrust laws. She suggested Congress should await the outcome of these cases before making sweeping changes. Wilson said this judicious approach is needed because many proposals threaten to wreak havoc on the broader economy by politicizing antitrust enforcement, stifling innovation in research and development (R&D), and driving prices higher at a time when many Americans are still suffering economic fallout from the pandemic. She submitted that incentives to create investment in R&D and charge lower prices are better than encouraging free-riding and regulatory gamesmanship. Wilson made clear she is not saying the FTC’s approach is perfect and supports retrospective review of mergers and greater agency transparency when it brings actions and declines to bring actions. She stated Congress can help by clarifying that the same standard applies to DOJ and FTC merger challenges, providing more funding, and giving the FTC authority over non-profits and common carriers.

Hearing Roadmap

• Cantwell asked about FTC support for power to seek disgorgement and the use of civil penalties to deter bad actors. She asked whether the commissioners supported a data security rulemaking.
• Wicker asked about the Chamber of Commerce’s letter on 13(b) and the differences between disgorgement, restitution, and compensation.
• Senator Deb Fischer (R-NE) asked about the proper compensation for collegiate athletes and a possible rulemaking for data security and privacy.
• Senator Jon Tester (D-MT) asked how the agency is planning to educate rural consumers about COVID-19 scams and the difficulty of repairing many consumer goods that are now computerized.
• Senator Jerry Moran (R-KS) asked for an update on FTC authority to punish anti-competitive practices for buying and then significantly marking up process through the use of bots. He also asked whether the FTC would be interested in the spike in natural gas prices during the very cold spell that hit the Midwest and parts of the south in February.
• Senator Amy Klobuchar (D-MN) asked about the bill she introduced with Senator Chuck Grassley (R-IA) to reform the FTC merger filing process and fee structure. She inquired about the FTC’s need for additional rulemaking authority.
• Senator Ted Cruz (R-TX) asked what the FTC should do to address “Big Tech’s” abuses with an emphasis on unfair content moderation.
• Senator Richard Blumenthal (D-CT) referenced the sale of fake vaccine cards online and asked what the FTC can do. He also asked about the FTC’s willingness to investigate the Facebook breach being a possible violation of its consent decree.
• Senator Marsha Blackburn (R-TN) asked how the FTC can rein in “Big Tech” and what other issues Congress should consider in the entertainment industry, especially the problems posed by bots in ticket sales.
• Senator Brian Schatz (D-HI) asked about the problematic accuracy of credit reporting agencies. He asked about resources the agency needs.
• Senator John Thune (R-SD)  asked about the February 2020 Section 6(b) orders issued to Alphabet, Apple, Amazon, Facebook, and Microsoft.
• Senator Gary Peters (D-MI) asked whether COVID scammers have obtained data from data brokers in order to target people and about unscrupulous and perhaps even illegal practices some contractors are using to land federal contracts during the pandemic.
• Senator Jacky Rosen (D-NZ) asked about steps the FTC has taken to address the rise of identity theft during the pandemic.
• Senator Cynthia Lummis (R-WY) asked about the use of bots to buy up scarce goods.
• Senator John Hickenlooper (D-CO) asked about technical cybersecurity assistance for small businesses.

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