What do bamboo fabric and green claims have to do with toys, weight loss, car rentals and fur coats? Sounds like the start of a Dad joke, but unfortunately this is no laughing matter. It is the FTC reaching back to bygone eras for help in getting money in its enforcement cases. Much virtual ink was spilled in fall 2021 when the FTC sent Notice of Penalty Offense letters to 1,800 companies warning them of the possibility of civil penalties if they engaged in certain practices that the agency had – many, many years ago – deemed deceptive or unfair. If you need a quick refresher, take a look here and here and here.
For a second act, which to be clear no one was clamoring for, the FTC is now taking us back to the 1970s. Tucked in the back of a recent press release announcing the agency’s latest bamboo cases was a paragraph that stated, “In conjunction with this announcement, the FTC is reviving additional Notices of Penalty Offenses that were issued in the 1970s or 1980s but remain valid and relevant today. These notices cover, for example, textiles, energy savings, fur products, home improvement products, auto rentals, bait and switch, toys, and weight reduction. Businesses in these industries should familiarize themselves with the Commission’s determinations in these areas.”
And sure enough, the FTC website’s section on notice letters was updated to include detailed information about eight “synopsis” documents that were issued in the 1970s. (Before the agency renamed them “Penalty Offense Letters,” they were far less threateningly referred to as “synopsis” documents.) So what on earth is going on here, and is the agency serious about this?
From our perspective, it is – to put it mildly – highly unusual for an agency to use a paragraph buried in a press release on settlements involving bamboo fabric claims to alert the world that it is intending to start invoking the legal authority behind documents that were mostly issued in the golden age of disco or New Wave when we, your authors, were all young and carefree. There is so much to unpack there that it is candidly difficult to figure out where to start.
Let’s start with a big and important reminder. The authority that the FTC is using here is set forth in Section 5(m)(1)(B) of the FTC Act, and the agency can only obtain civil penalties if it can show that the target had “actual knowledge” that the practices had previously been deemed deceptive or unfair by the FTC in litigated administrative decisions. We know that is quite a mouthful, but it is not an easy authority to invoke and there are real challenges for the FTC when and if it uses this authority.
So at the moment, the agency would be hard-pressed to demonstrate “actual knowledge,” with notice consisting of a paragraph buried in a press release regarding agency decisions from 50 years ago. Heck, we almost missed it. But as we saw in the fall, it is certainly possible that down the road, the agency will bulk-mail copies of these Notices or perhaps update and revise them and send out the new versions to relevant market participants. If the FTC is serious about enforcing these eight historic documents, we likely will hear a lot more about this from it. But one other option that the agency can do immediately is to provide a copy of the Notice letter to any companies that they are investigating in that field – or include the letter as an attachment to any subpoena/CID that it issues. That would come closer to providing the target with actual knowledge and put the company at more risk of civil penalties going forward if it continued to engage in the violative practices after receiving the subpoena/CID. Of course, FTC staff can also simply use the threat of seeking penalties in a court hearing as a driver of a settlement with payment of some penalties, likely how it got the bamboo retailers to settle for $5.5 million.
As for the eight new documents – well, the first one we looked at was from 1976, and for one of us, it brought back memories of New York City in the Bicentennial and the amazing Tall Ships in the New York Harbor, and it reminded another of us of the time they watched the fireworks on the National Mall while dressed in colonial garb. But back to the task at hand. The new/old Notice letters cover eight substantive areas – auto rentals, bait and switch, energy savings, fur products, home improvement, textiles, toys, and weight loss. And yes, these truly are the actual synopsis documents that were approved by the FTC, mostly back in the mid-to-late 1970s. The website provides links to the old-school documents that were clearly created on old-school typewriters and then mimeographed, and then provides a more modern “transcript” of the document.
We won’t go through all eight of the documents, but let’s take a closer look at two of them – the 1976 Notice document regarding toys and the 1983 document regarding weight loss. The toy Notice provides a summary of the practices that the agency found to be unfair or deceptive in two administrative advertising cases about toys. In particular, the Notice states that it is an unfair or deceptive practice to misrepresent the performance of a toy or to use “oversized containers” or images to create a misleading impression of the contents contained in them. The weight loss notice, however, is premised on very different case law, the seminal FTC case Porter & Dietsch. The Notice provides, among other things, that it is a deceptive or unfair practice to represent that use of a weight control product will result in weight loss without adequate substantiation or that it is deceptive to represent through testimonials “that any particular experience with a weight control product or plan reflects the typical or ordinary experience of users of the product or plan, unless the representation is true.”
So what does this mean, and what should I be doing and are we done with these Notice letters?
Well for starters, if you do work in any of these areas (or perhaps have engaged in practices that could possibly be considered a bait and switch), take a close look at the Notices in your areas. They all lay out generally well-established principles of consumer protection law. Regardless of whether the FTC can use these Notices to get penalties, there are many other tools at the agency’s disposal. Consider this a good reminder to make sure that your ad claims and marketing practices are looking good.
Don’t panic. Anytime an agency is threatening civil penalties, it should be taken seriously. But there are real questions as to whether and how the FTC can seek penalties through this process. Companies that face a potential Section 5(m)(1)(B) action from the FTC have a lot of defenses – most notably, the ability to argue that their current conduct is too dissimilar from the older cases to subject it to such liability. A fall 2021 blog entry we wrote about the earlier Notice letters provides a helpful analysis of these issues.
And finally, the post-AMG world is complex and messy. Stick with us, and we will help you navigate it.