As we wait to see how the Supreme Court will rule on the FTC’s redress authority and whether the FTC will potentially be controlled by Republicans or Democrats for at least the next four years, it is worth noting that Commissioner Chopra and one of his attorney advisors has written an interesting draft paper advocating for increased use of the FTC’s penalty authority under Section 5(m)(1)(B). And what is that exactly, you ask? Well, to the authors, that is part of the problem, as they argue that the FTC has improperly neglected an important tool in its law enforcement toolbox. The paper itself is lengthy (40+ pages) and goes into far more detail than we can do justice to in a blog post, but below are some highlights.
While the Commission typically only obtains civil penalties against parties that violate their own existing consent orders, Section 5(m) allows the Commission to seek civil penalties against a party who engages in conduct it knows to have been determined unlawful in an adjudicated Commission order (in other words, not a consent order and not necessarily an order against that company.) Section 5(m) was last used in 2009 with respect to allegedly misleading claims that textile products were made from bamboo, when in reality they were made from a type of rayon, sourced from bamboo. The Commission sent letters to numerous retailers notifying them of a prior Commission order relating to this finding, effectively putting them on “notice” under Section 5(m). Thus, with the stroke of a pen or the mailing of an envelope, the Commission was able to make an entire industry subject to civil penalties. Several years later, that effort bore fruit as the Commission obtained civil penalties from several retailers that allegedly engaged in such misrepresentations.
Apart from the fact that Section 5(m) permits civil penalties against first-time violators (and is not at risk of being struck down by the Supreme Court), what other advantages do the authors see for Section 5(m) over consumer redress? The authors point to several. First, consumer redress by definition is capped at however many dollars the wrongdoer received from consumers. The authors argue that in at least some cases, this may not serve as a sufficient deterrent. For example, a consumer may have incurred collateral medical costs or may have taken out a loan or given up other opportunities to pursue a multilevel marketing opportunity. Continue Reading