ADventures in Law

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<img class="alignright wp-image-5242" src="https://adttorneys.bakerhostetlerblogs.com/wp-content/uploads/sites/33/2019/03/FTC-iStock_000065443239_Large-300x200.jpg" alt="Federal Trade Commission Doorway Sign" width="345" height="230" />All eyes remain on the Supreme Court and what, if any, changes the Court may make to the Federal Trade Commission’s (FTC’s) authority to seek consumer redress. Will the Court strip the FTC of that authority entirely? The Third Circuit’s recent decision in an antitrust matter suggests so. The circuit court held Section 13(b) of the FTC Act does not allow for disgorgement. (By way of background, that section gives the FTC authority to seek preliminary and permanent injunctions. The FTC has traditionally interpreted this right to injunctive relief as also carrying the authority to seek equitable monetary relief. Some defendants, however, have argued this is too broad an interpretation of the law.)

At the same time, it is worth remembering that even if the FTC’s redress authority survives its Supreme Court challenge, it may not come through unscathed, and defendants and courts are subjecting the FTC’s redress requests to increasing scrutiny. One such example involves a recent Ninth Circuit decision, <em>FTC v. OMICS Group Inc.</em>, No. 19-15738 (9th Cir. Sept. 11, 2020). The case itself is rather unusual. The FTC filed suit against OMICS Group in 2016, alleging that the defendant had misled researchers into submitting articles to it for publication by overstating the nature of the articles it had previously published and had misrepresented the nature of conferences it sponsored, which it charged participants to attend.

The district court denied OMICS Group’s motion for summary judgment and held that the company is liable for $50 million in equitable monetary relief. OMICS Group appealed. While the Ninth Circuit upheld the FTC’s redress authority, and by a vote of 2-1 upheld the specific redress calculation, the circuit court’s decision suggests possible landmines for determining redress even if the Supreme Court rules in favor of the FTC.

In her dissent, Judge Hunsaker noted that the FTC’s evidence indicated only about 60% of the conference revenue was derived from conferences that were misleadingly marketed. Despite this, the FTC included 100% of conference revenues when calculating redress. The majority decided that this was appropriate, stating that defendants had failed to overturn the presumption in favor of a return of all revenues based on their “general denial of any wrongdoing – in the absence of affirmative evidence showing a lack of deception in some conference marketing or that the FTC overvalued conference-related revenues . . . .” All this raises the question of what evidence the Ninth Circuit would find sufficient to show a “lack of deception.” Bear in mind that in order to establish a violation of Section 5 of the FTC Act, the FTC need only show that a significant minority of consumers were deceived, perhaps even less than 20% of purchasers. Suppose the defendant proffers a consumer survey establishing a net deception rate of only 20%. Will the Ninth Circuit now cut the FTC’s redress demand by 80%? If not, why not? And if the FTC receives a redress payment equal to 20% of sales or net profits, and the agency can identify purchasers of the good or service, will the FTC try to return funds to purchasers? If so, will it try to find some means to identify purchasers who were among the 20% who were misled?

The Ninth Circuit’s decision is a good reminder that the debate over the FTC’s redress authority may linger well beyond any Supreme Court decision during this upcoming term.

FTC Enforcement: What Is Equitable Relief?