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Courts Cast Doubt on the FTC’s Power to Sue Based on Past Conduct

The FTC heavily relies upon its statutory authority to seek injunctive relief in federal court.  The FTC has broadly interpreted these powers to seek not just injunctive relief enjoining a particular practice, but monetary relief in the form of disgorgement.  Moreover, the FTC has taken the position that defendants in such actions are not entitled to a jury trial, because the relief being sought is merely equitable. 

Two recent federal court decisions have challenged the FTC’s authority to bring consumer fraud and anti-competition suits seeking injunctive relief based on a potential defendant’s prior conduct, as opposed to its current or impending conduct. Both of these two decisions center on the courts’ interpretation of Section 13(b) of the FTC Act, casting doubt on the FTC’s reliance on a “likely-to-recur” standard, as opposed to the more arduous standard that a strict reading of the statute necessitates. 

Section 13(b) of the FTC Act states that the FTC may bring a suit in district court to enjoin certain acts or practices when the FTC “has reason to believe that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission.” [emphasis added]. The judges in these two recent cases interpret the provision strictly to mean that evidence of a defendant’s prior violating conduct, without more, falls short of the standard required for the FTC to seek an injunction in reliance of Section 13(b).

In the first instance, the FTC’s powers were challenged with respect to Section 13(b) in an antitrust suit against a drug maker. In this Delaware district court matter, the FTC sought an injunction against drug maker, Shire ViroPharma. The FTC alleged that between March 2006 and April 2012, in an attempt to delay its competitors releasing generic alternatives to its drug, ViroPharma violated the FTC Act by inundating the Food and Drug Administration (“FDA”) with dozens of sham citizen petitions and comments with respect to its drug, Vancocin. Sometime after April 2012, ViroPharma was acquired by Shire, who subsequently sold rights in that drug to a third party.

In this case, the FTC sought to use evidence of ViroPharma’s prior conduct regarding its Vancocin drug as a means of seeking an injunction with respect to future conduct. Specifically, the FTC alleged that Shire ViroPharma was “perfectly positioned” to employ the same tactics but with a different drug, and therefore an injunction was appropriate. The Federal district court judge, however, disagreed, stating in his March 20, 2018 decision that he did not believe that the FTC’s allegations “plausibly suggest ViroPharma is ‘about to violate’ any law enforced by the FTC, particularly when the alleged misconduct ceased almost five years before filing of the complaint.”

The ViroPharma case was closely followed by Georgia federal court’s seemingly consistent interpretation of Section 13(b). In the October 15, 2018 decision, the Georgia federal judge refused to accept the FTC’s position that discount-club marketers were likely to deceive consumers in the future. As in the ViroPharma case, the FTC sought to introduce evidence of the defendant’s past conduct to indicate the defendant’s imminent future breach of FTC laws, thereby warranting an injunction. In this more recent decision, the Judge reasoned that the FTC’s long held interpretation of Section 13(b) that results in a “likely-to-recur” standard fails to comport with the plain language of the provision.

Although these two recent cases appear to disrupt the FTC’s long held reliance on the “likely to recur” standard, it cannot be said that they have decisively changed the way in which Section 13(b) of the FTC Act will be interpreted on a going forward basis. Importantly, the FTC is appealing the ViroPharma decision to the Third Circuit, and it may decide to appeal Georgia federal court decision to the Eleventh Circuit. In addition, several commentators have come out in criticism of the two federal judges’ interpretation of the statute, arguing that they interpretations are illogical, and is one instance, just “plain wrong.”

Takeaway: The question as to the FTC’s powers to seek injunctive relief under Section 13(b) remains somewhat unsettled. It is unclear whether these cases are merely outliers, or conversely, if the decisions will shape the FTC’s approach to enforcement into the future. The statutory text of Section 13(b) appears to be problematic for the FTC, so perhaps these recent decisions will prompt a call to Congress to make the requisite legislative changes for the purpose of establishing clarity. Regardless of what comes next, these two decisions the FTC’s injunctive relief powers are being checked.

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