Are FTC Enforcement Powers Being Reigned In?
Olshan’s Advertising, Marketing & Promotions Practice Group chair Andrew Lustigman and associate Morgan Spina authored an article for the ABA’s Spring 2019 What’s In Store newsletter titled “Are FTC Enforcement Powers Being Reigned In?” The article examines Section 13(b) of the FTC Act (15 U.S.C. §53(b)), which stipulates that “when the FTC has ‘reason to believe’ that an individual or corporate entity ‘is violating, or is about to violate’ a law enforced by the FTC, that the FTC may bring suit in federal court ‘to enjoin such acts or practices.’” “For years,” Mr. Lustigman and Ms. Spina write, “the FTC’s broad interpretations have attracted little resistance. More recently, however, the FTC has faced legal challenges to its presumptions of the statute on multiple fronts.” Firstly, the FTC’s “likely-to-recur” standard has come into question: “Frequently, the FTC successfully argues that a defendant’s prior conduct may be used as evidence of likely recurrence of the same conduct, thereby observing the ‘about to violate’ standard. Recent cases reflect a potential shift away from this interpretation of the statute,” as in FTC v. Shire ViroPharma, wherein the FTC, in order to seek an injunction against the pharmaceutical company on grounds of prior misconduct, cited ViroPharma’s alleged spurious citizen petitions to the FDA pertaining to one of its drugs. Unconventionally, the District of Delaware court rejected the FTC’s reliance on the “likely-to-recur” standard, a decision subsequently affirmed by the Third Circuit Court of Appeals. The FTC’s ability to seek equitable relief has likewise been challenged of late: “For decades, the FTC successfully argued that a ‘permanent injunction’ entitles the FTC to obtain not only an order permanently barring certain deceptive practices, but also grants the FTC the inherent power to seek and the court to impose, all forms of equitable relief, including monetary relief by way of disgorgement and restitution.” In FTC v. Hornbeam Special Situations, LLC., Judge Batten explained that Section 13(b) “clearly states that it is a provision for injunctive relief, temporary or permanent” and “mentions nothing of disgorgement or otherwise.” Noting that despite his comments, Judge Batten ultimately applied existing precedent, Mr. Lustigman and Ms. Spina comment, “While it remains to be seen whether Judge Batten’s criticism of prior accepted statutory interpretation is reflective of a more wide-reaching opinion on the bench, or whether his reading of the statute merely represents an outlier viewpoint, defendants should certainly press the ruling to their advantage whenever possible.” Making sense of the recent challenges to the FTC’s authority, the authors conclude, “The statutory text of Section 13(b) appears on its face to pose issues for the FTC, so perhaps these recent decisions will prompt a call to Congress to make legislative changes that will establish clarity in this area. Regardless of what comes next, it is clear that the FTC’s enforcement powers are being checked on multiple fronts.”
Marketing & Administrative Manager