No Restitution for the Weary: Seventh Circuit Limits FTC’s Ability to Seek Restitution

The Seventh Circuit issued a decision this week that guts a key part of the FTC’s enforcement arsenal – the ability to obtain equitable monetary relief from defendants when the FTC challenges conduct in federal court under Section 13(b) of the FTC Act. We’ve written previously—here, here, here, and here—regarding the limits courts have placed on the FTC’s ability to invoke Section 13(b) and this case brings those issues to a head.

The case in question, FTC v. Credit Bureau Center, involves a credit-monitoring service that allegedly violated several consumer protection statutes by automatically enrolling consumers in a $29.94 monthly subscription without proper notice. The FTC sued the company and its owner, Michael Brown, under Section 13(b) of the FTC Act and sought a permanent injunction and restitution. The district court judge granted both requests, and Brown was ordered to pay more than $5 million in restitution. On appeal, the Seventh Circuit affirmed the district court’s judgment – except for the restitution award, which, in a surprising about-face, the court vacated.

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FTC Gathers Video Game Industry to Talk Loot Boxes

On August 7, 2019, the Federal Trade Commission (FTC) held a workshop examining consumer protection issues related to “loot boxes” in video games in Washington, DC. Loot boxes are digital containers of virtual goods that a user can purchase in-game using real-world currency or earn based on meeting certain in-game milestones. A user does not know what is in the loot box before purchasing. It may contain digital goods (such as character skins, tools, weapons, etc.) that the user can use in the game. Importantly, the user cannot choose the contents of the loot box. The box could contain an extremely rare/sought-after item, or the contents could be a collection of items already owned by the user (or somewhere in between).

Loot boxes are a form of micro-transaction that video game manufactures rely upon to offset the cost of game development, which, as explained in the workshop, has risen from tens of thousands of dollars to, in some cases, hundreds of millions of dollars. However, the FTC and other consumer groups are concerned that these transactions may come as a surprise to consumers (especially parents of small children) if they are not properly and clearly disclosed.

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Exactly How Long is the Long Arm of the Law? The FTC Seeks to Extend its Reach to Offshore Payment Processors

We frequently hear about the “long arm of the law,” but, in the case of the Federal Trade Commission, just how far does that arm actually reach? The FTC recently filed an amended complaint in the U.S. District Court for the Central District of California adding SIA Transact Pro, a Latvian payment processor, and its CEO as additional defendants in its case against Apex Capital Group, LLC and other parties. The amended complaint alleges that Apex Capital defrauded consumers, and that the newly added foreign-based payment processor helped its merchant, Apex Capital, avoid detection by consumers and law enforcement.

Specifically, according to the FTC, Apex Capital offered “free” trials of personal care products and dietary supplements for just the cost of shipping and handling—$4.95. However, approximately two weeks after a consumer ordered a “free” trial, the FTC alleges that Apex Capital would charge that consumer’s credit or debit card the full price of the product ($90) and enroll the consumer in an automatic renewal option—all without that consumer’s knowledge or consent.

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Oh Won’t You Stay: The Exception to the Governmental Unit Exception to the Bankruptcy Code’s Automatic Stay

Clients sometimes ask whether filing bankruptcy can protect them from Federal Trade Commission scrutiny. The saga of Joseph Rensin and his company BlueHippo provides an opportunity to review the limited protection bankruptcy provides from the FTC. For more on the underlying case see our prior blog posts here and here.

Rensin, the owner of BlueHippo, has succeeded – at least temporarily – in his latest effort to avoid paying the $13.4 million judgment entered in the FTC’s decade-long litigation against the defendants. The Second Circuit held that the district court violated the Bankruptcy Code’s automatic stay by holding Rensin in contempt after he had filed for bankruptcy relief.

Prior to Rensin’s bankruptcy filing, the FTC sought an order from the district court holding Rensin in contempt for failure to comply with the $13.4 million judgment. The district court held an evidentiary hearing, and set a schedule for post-hearing briefing. Rensin filed a Chapter 7 bankruptcy petition two days before his post-hearing brief was due. Rensin sought to hold the post-hearing briefing in abeyance in light of his bankruptcy filing, but the district court ruled that the automatic stay did not apply under the “governmental unit” exception (aka the “police powers” exception) to the automatic stay.

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“Public Access” isn’t a “Public Function”: No First Amendment Liability for Privately Managed Public Access Channels

The Supreme Court recently plucked public access television out of your neighbor’s basement and clarified the state-action doctrine in Manhattan Community Access Corp. v. Halleck. The result has made it all the more important for content creators to understand the types of entities hosting their content. So let’s drop the blue screen and roll cameras because we’re live in 5-4-3-2-1.

The plaintiffs in Halleck alleged that MNN, the private nonprofit that manages the New York City public access channels, violated their First Amendment rights by restricting them from using the channels based on the content of their programs.

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What is “Incidental”? Ninth Circuit Provides Guidance on How to Determine if a Fax is an “Advertisement” Under the TCPA’s Junk Fax Provisions

On May 17, 2019, the U.S. Supreme Court announced it would not hear an appeal in Supply Pro Sorbents, LLC v. RingCentral, Inc., apparently satisfied with a Ninth Circuit ruling that the inclusion of a one-line company identifier on a fax cover page was not in violation of the TCPA’s bar on unsolicited advertisements. In Supply Pro, the Ninth Circuit affirmed the district court’s dismissal of a Junk Fax Prevention Act (“JFPA”) claim, holding that an unsolicited fax that merely contained an identifier of the sender and link to its website in an otherwise information facsimile did not run afoul of the JFPA. Persuaded by FCC guidance, the Ninth Circuit held that a “one-line identifier” is only an “incidental advertisement” that does not render the entire fax an advertisement within the meaning of the JFPA. Although the Ninth Circuit did not further delve into how to identify an “incidental advertisement,” the district court’s opinion provides further guidance. The district court noted in its decision that FCC Guidance looks to the relative size of the advertisement when assessing these types of unsolicited communications. Here, the identifier only took up one line, rendering it incidental. While the one-line identifier clearly promoted the defendant’s business, it did not rise to the level of a violation of the JFPA.

The denial of certiorari comes on the heels of a separate recent Third Circuit JFPA decision, which held that it would not expand the definition of “advertisement” in the context of the TCPA where the plaintiff received unsolicited faxes from a defendant merely seeking biographical information about healthcare providers to use in a database. The Third Circuit explained that, while the unsolicited faxes were sent with a profit motivation, “there must be a nexus between the fax and the purchasing decisions of the ultimate purchaser.” And, a fax specifically noting that “[t]here is no cost to you to participate in this data maintenance initiative. This is not an attempt to sell you anything” was held not be aimed at targeting potential buyers of the provider database.

At the end of the day, the test for what is and is not “advertising” under the JFPA still remains somewhat subjective by requiring a look into the “relative size” of the advertisement. However, the holdings in the Supply Pro and the Third Circuit decision may point to a narrowing of the construction of “advertisement” in the context of the TCPA’s bar on unsolicited advertising faxes, and confirm that such determinations can be made at the dismissal stage.

Federal Court to FTC: Show the Receipts When Seeking Disgorgement

A new decision out of the Middle District of Florida may signal further erosion of the FTC’s authority to seek monetary relief as it sets forth a heightened standard of proof the FTC must satisfy to support its disgorgement calculation. In FTC v. Vylah Tech LLC, the court found Vylah Tech, a small tech company, liable for disseminating false and misleading information regarding its computers. However, the court completely shut down the FTC’s demand for disgorgement of $3,400,000 in Vylah Tech’s purported revenues, awarding the FTC a whopping $0.

In a scathing opinion, the court admonished the FTC’s disgorgement calculation, stating that under the FTC’s current practices, “the disgorgement total is [obviously] a moving target.” First, the court found that the FTC’s calculation—based solely on bank records—was unreasonable. Specifically, the bank records were not specific enough to establish that the requested disgorgement figure “reasonably approximate[d]” the defendant’s unjust gains, as the records did not allow for identification of actual consumer transactions.

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Locksmiths Locked Out of Lawsuit Against Search Engines

These days, Big Tech is Big News. While federal lawmakers have recently turned their attention to tech giants and their market power—and launched a broad antitrust probe to boot—a recent decision out of the D.C. Circuit may offer these companies some respite (for now). In a case that pitted fourteen locksmith companies against three tech giants, the appeals court ruled that the safe harbor protections under Section 230 of the Communications Decency Act (“CDA”) applied to shield the tech giants from suit.

In addition to state law claims, the locksmith company plaintiffs (the “Locksmiths”) brought a false advertising claim under the Lanham Act and two antitrust claims under the Sherman Act against three tech giants (the “Search Engines”). The thrust of the Locksmiths’ complaint is that the Search Engines conspired to inundate search results with listings for fake or scam locksmith companies in an effort to force legitimate locksmith companies to pay additional fees for better search result placement. Specifically, the Locksmiths took issue with the fact that the Search Engines, through the use of algorithms, took data they received from the scam businesses (such as address information) and displayed it pictorially alongside similar data points from legitimate businesses. The Locksmiths also complained that the Search Engines knew these sites were for scam businesses.

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FTC Continues to Clamp Down on Gag Clauses

About a month ago, we blogged about how the FTC brought its first-ever cases under the Consumer Review Fairness Act (CRFA) since the statute went into effect in 2017. Well, it looks like the FTC was just getting started, as it announced this week that it has issued administrative complaints and proposed orders against two more companies for allegedly violating the CRFA.

To briefly recap, the CRFA prohibits businesses from including “gag clauses” in their form contracts that bar consumers from writing or posting negative reviews. According to the FTC’s administrative complaint against Shore to Please Vacations LLC, the respondents did just that by including a disclaimer in its form contract for online vacation house rentals that stated “you agree not to defame or leave negative reviews (…as well as any review less than a ‘5 star’ or ‘absolute best’ rating) about this property and/or business,” and specified that “breaching this clause…will immediately result in minimum liquidated damages of $25,000.” Similarly, the FTC alleged that Staffordshire Property Management, LLC used form contracts that prohibited rental applicants from disparaging Staffordshire or publicizing any opinions or communications related to Staffordshire, the rental application, or the application process. Under the FTC’s proposed consent orders, both companies are prohibited from using non-disparagement clauses in standardized customer contracts, and they must notify affected consumers of their right to post honest reviews. In addition, Shore to Please Vacations is required to dismiss with prejudice a claim that it filed against a renter for violating its non-disparagement clause.

If this past month is any indication, this will not be the last we hear of CRFA-related complaints. If you haven’t already, check all of your form contracts to make sure they don’t contain gag clauses; they’re often baked into boilerplate language, so it’s easy to overlook or forget that they exist. Receiving negative reviews may be bad for business, but getting sued by the FTC is probably worse—so we recommend that you play fair and comply with the Consumer Review Fairness Act.

FTC Reminds Crowdfunders: Deliver on Your Promises or Refund

Crowdfunding plays an important role in democratizing access to capital for small entrepreneurs, but as we’ve written before, entrepreneurs of every ilk need to remember that their representations to consumers need to be truthful, accurate and not misleading. Last month, the FTC filed a complaint against Douglas Monahan and his company iBackPack of Texas, LLC, alleging that Monahan and his company had violated Section 5 of the FTC Act by scamming consumers on crowdfunding sites Indiegogo and Kickstarter with four crowdfunding campaigns that together raised over $800,000, including a campaign to develop a bulletproof backpack that could recharge personal electronic devices and act as a mobile hot spot.

iBackPack ad

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