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FTC Judicial Enforcement Authority Under Attack

FTC Judicial Enforcement Authority Under Attack

For years, attorneys practicing before the Federal Trade Commission have argued that the FTC routinely exceeds its statutory authority when it initiates federal court enforcement lawsuits.  These arguments are finally gaining traction.

First, the U.S. Court of Appeals for the Third Circuit in FTC v. Shire Viropharma Inc. held that the FTC can only initiate a case under the statute it routinely relies upon when the agency can articulate specific facts that a defendant “is violating” or “is about to violate” the law.  This means – at least according to the Third Circuit – the FTC cannot use that statute to address concluded past harm and a lawsuit may only be initiated in federal court in cases of ongoing or imminent misconduct.

While the Third Circuit’s decision left some important questions unanswered (e.g., whether conduct that ceased very recently following the issuance of a Civil Investigative Demand), the ruling is significant.

Equally, if not more significant, is the recent Seventh Circuit holding in FTC v. Credit Bureau Center wherein a three-judge panel overruled decades of precedent and concluded that the FTC’s favorite statute does not even authorize the agency to obtain monetary relief in the form of restitution from defendants.  No court has gone this far and there will almost certainly be more challenges by FTC defense attorneys on behalf of marketers defending allegations of unfair or deceptive practices.

On the heels of Credit Bureau, a direct seller sought a declaratory judgment in the Seventh Circuit against the FTC, challenging the agency’s authority to obtain monetary relief.  The direct seller’s choice of forum was clearly driven by the Credit Bureau case. Here, the complaint against the FTC contained a detailed recitation of the “string of federal court losses” suffered by the agency relating to the extent of its authority to seek monetary relief and to file lawsuits without first exhausting its own administrative process.

If the facts and circumstances are aligned, some defendants may opt to roll the dice on the prospect of not having to pay a dime, rather than stipulate to settlement.  Of course, the prospect of sacrificing a partially suspended judgment is a significant consideration.

There can be little doubt that the FTC is at least mildly alarmed about these recent judicial developments.  In fact, the FTC now routinely requests that parties under investigation execute agreements tolling agreements that could effectively impair equitable defenses and operate as a waiver of defenses based upon the timeliness of asserted claims. 

Senior FTC staff have relied, and shall continue to rely, upon the weight of authority in other circuits regarding the agency’s ability to obtain restitution and other forms of monetary relief pursuant to the relevant statute.  It is likely that this issue will ultimately wind its way up to the Supreme Court or be addressed legislatively by Congress.

The future of the FTC’s enforcement power is unclear and ripe for challenges.  Marketers that are in the crosshairs of an FTC investigation or lawsuit should consult with experienced regulatory defense counsel to discuss the implementation of strategies designed to take advantage of recent judicial developments and optimal resolution positioning.

Informational purposes only. Not legal advice. May be considered advertising material.

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Richard Newman

Richard B. Newman is an advertising law attorney at Hinch Newman LLP focusing on digital media, marketing compliance and regulatory defense. His law firm website is www.hinchnewman.com. Follow him on Twitter @FTCLawDefense.

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