It feels like only yesterday we were analyzing the Supreme Court’s opinion in Liu v. SEC and its initial impact on FTC cases. As a refresher: Liu held that a disgorgement award may not exceed a firm’s net profits. Subsequent to that, the Court ruled in AMG Capital Management LLC v. FTC that the FTC cannot obtain equitable monetary relief under Section 13(b) of the FTC Act. The House has passed legislation that would “restore” the FTC’s ability to obtain equitable monetary relief, and that bill is now being considered by the Senate. The new bill provides for the FTC to recover both restitution and disgorgement. A decision from the Seventh Circuit, however, found that those remedies are essentially the same thing and that the remedy is properly limited to profits, not revenue.

In CFPB v. Consumer First Legal Group, the district court, pre-Liu, awarded the CFPB $21,709,021 in restitution based on the amount of the defendants’ net revenues. On appeal, the CFPB argued that because Liu addressed only disgorgement, and not restitution, it is inapplicable. The Seventh Circuit disagreed and held that “Liu‘s reasoning is not limited to disgorgement; instead, the opinion purports to set forth a rule applicable to all categories of equitable relief, including restitution.” Central to the Seventh Circuit’s reasoning is the idea that both restitution and disgorgement are forms of equitable monetary relief, and the fact that the district court’s restitution order used disgorgement and restitution interchangeably. Thus, the Seventh Circuit ruled that after Liu an award of equitable monetary relief, whether disgorgement or restitution, is limited to net profits.

It will be worth monitoring how Liu and its progeny apply in the FTC context. Although the Commission lost its authority to obtain equitable monetary relief under Section 13(b), the FTC has been making enhanced used of its authority under Section 19 to recover restitution or redress for certain rule and statutory violations. The FTC has taken the position that this is equitable, not legal, relief, to avoid the right to a jury trial provided by the Seventh Amendment. As noted above, legislation in Congress may “restore” the FTC’s ability to obtain equitable monetary relief under Section 13(b). How the FTC’s use of its Section 19 authority and use of any new Section 13(b) authority intersect with Liu and its progeny is likely to be heavily litigated. Stay tuned.

On July 21, 2021, and in response to President Biden’s Executive Order calling on the FTC to address repair restrictions, the FTC unanimously adopted the Right to Repair Policy Statement related to manufacturer and seller restrictions to product repairs. In the policy statement, the FTC announced its plans to prioritize enforcement against unlawful repair restrictions, including promoting possible updates to state and federal legislation. Manufacturers and sellers should ensure compliance with current consumer protection and antitrust laws and monitor potential rulemaking, a path the FTC is careening toward.

The FTC expressed concern that repair restrictions make it more difficult for competitors, local businesses, and consumers to repair products. In a May 2021 report to Congress, Nixing the Fix: An FTC Report to Congress on Repair Restrictions, the FTC detailed manufacturer-created restrictions, including limiting the availability of parts, software, and telematics information and access to authorized repair networks; designing products to make self-repairs less safe; asserting trademark and patent rights in an overbroad manner; and implementing restrictive end-user license agreements and software locks. The FTC also warned that repair restrictions drive up repair costs, repair wait times, and electronic waste; reduce competition; and have an especially large impact on communities of color and lower-income Americans.

Continue Reading FTC Turns Focus to Repair Restrictions in New Policy Statement

With a new leader at the Federal Trade Commission comes new rules of practice. Chair Lina Kahn convened a first-of-its-kind open Commission meeting, allowing for live public comments following the meeting. In addition to issuing the Made in the USA Final Rule at the meeting, the FTC revised the procedures for issuing Magnuson-Moss Rules. This carries out Commissioner Chopra and now-Chair Khan’s call for more rulemaking, and the next step to former Chair Slaughter’s creation of a rulemaking group within the Commission. The changes concentrate the rulemaking process in the Chair’s office and strip away many of the procedures that helped lead to rules based on bipartisan consensus among the commissioners and support from FTC staff.

By way of background, to pass a rule under the Magnuson-Moss Warranty Federal Trade Commission Improvements Act (“Mag-Moss”), the FTC must: (1)  make a finding that the conduct at issue is “prevalent” and (2) conduct informal hearings allowing interested parties to cross-examine those making oral presentations. The FTC appears interested in applying Mag-Moss rulemaking in both the competition and consumer protection contexts.  Though Mag-Moss has statutory requirements that the FTC must follow, such as publishing a notice of proposed rulemaking, allowing public comment from interested persons, providing the opportunity for informal hearings, and promulgating rules based on the final record, the FTC has enacted procedural rules to carry out these statutory requirements.

Continue Reading New Changes at the FTC: Return of the Rulemaking

The FTC has sued a seller of personal protective equipment (PPE), bringing its first PPE-related case under the COVID-19 Consumer Protection Act (CCPA). The lawsuit demonstrates the FTC’s continued focus on COVID-19-related advertising practices. Although this is not the first time the FTC has brought an action for a failure to deliver PPE on time, it is the first PPE case to be brought under the CCPA, which carries civil penalties of up to $43,792 per violation.

The seller in FTC v. Romero allegedly failed to ship PPE to customers on time (or in some cases, at all), failed to notify customers of shipping delays, failed to offer refunds, and delivered products that were inferior to what was advertised. On June 29, the FTC filed a complaint in the District Court for the Middle District of Florida, bringing claims under both the CCPA and the Mail Order Rule.

We have previously blogged on the CCPA, which prohibits deceptive marketing related to the treatment, cure, prevention, mitigation, or diagnosis of COVID-19. We also have blogged on timely shipping in the age of COVID-19 and how to comply with the FTC’s Mail Order Rule. In short, the Mail Order Rule requires businesses that sell goods online, by phone, or by mail to have a reasonable basis for their advertised shipping times, or, if they do not advertise shipping times, to have a reasonable basis to believe they can ship the goods within 30 days. If a business cannot ship the goods by the advertised shipping date or within 30 days (where it did not advertise a shipping date), the business must offer the customer the option to consent to the delay or receive a full refund. Violations of the Mail Order Rule also carry civil penalties of up to $43,792 for each violation.

Sellers of COVID-19-related products should evaluate their advertising and shipping practices to ensure the two match: if your advertising includes claims—express or implied—about shipping or delivery times, you must ensure the claims are not misleading, and you also must comply with the nuanced requirements of the Mail Order Rule.

State attorneys general nationwide have continued to be aggressive consumer protection law enforcers. In the wake of April’s unanimous Supreme Court decision curtailing the Federal Trade Commission’s (FTC) ability to recoup equitable monetary relief from businesses accused of fraudulent or deceptive practices, state-level enforcement activity and state-federal coordination are expected to increase. In fact, just days after our recent webinar a coalition of state AGs wrote to Congress supporting legislation that would restore the FTC’s authority, while noting that “the states’ own enforcement efforts are fortified through collaboration with the FTC.” In that webinar, Venable partners Eric Berman, of our Advertising and Marketing Group, and Erik Jones, of our eCommerce, Privacy, and Cybersecurity Group, addressed state AG enforcement trends and strategies for responding to a state AG investigation.

Q: How do state AGs become aware of the issues or complaints that might drive an investigation?

A: Consumer complaints drive regulatory investigations, and state AGs may become aware of these complaints in a variety of ways. Consumers can file complaints directly with a state AG office, either online, via telephone hotline, or via “snail mail.” State AG staff may access the FTC’s Consumer Sentinel, a consumer complaint database that is free and available to any federal, state, or local law enforcement agency. State AG lawyers and non-lawyer investigators scour the Better Business Bureau (BBB) websites and so-called “gripe” sites, and may pose as consumers themselves to “secret shop” a targeted business. Finally, state AGs might become aware of your marketing practices through disgruntled former employees (or board members), competitor complaints, national and local media coverage, or referrals from other law enforcers.

Continue Reading You Asked, We Answered – State AGs and Consumer Protection: An Update and Outlook

There’s a new sheriff – er, chairwoman – in town over at the FTC, and she’s planning to shake things up. During the Commission’s first open meeting in more than 20 years, Chairwoman Khan announced a new era of streamlined, widespread rulemaking, and increased public participation, transparency, and fairness. However, as every single vote broke along party lines, with the Democratic majority steamrolling Republican requests for increased dialogue, public comment periods, and expert input, the open meetings may be little more than political theater intended to cover a massive change in how the FTC operates. In fact, public comments were relegated to the end of the meeting, after votes were already cast, and the commissioners were given only five days, the bare minimum time, to consider the new rules and regulations. In the words of Commissioner Phillips, the Democratic majority wants to make regulating “easier, not better.” And after yesterday’s votes, it seems likely that the “new” FTC will look a lot like the FTC of the 1970s, which was widely criticized as a body of five unelected officials with broad, self-granted and oft-exercised power to regulate the economy badly. According to Commissioner Wilson, “if we don’t acknowledge the mistakes of the past, we are doomed to repeat them.”

Below are some highlights from the meeting.

Continue Reading FTC Holds First Open Meeting in 20 Years

Following the Supreme Court’s April ruling in AMG Capital Management that the FTC is not entitled to monetary relief under Section 13(b) of the FTC Act, the FTC has pivoted to other weapons in its enforcement arsenal to obtain monetary relief from those subject to enforcement actions.  The latest example is the FTC’s pursuit of civil penalties against a merchant cash advance provider.

The FTC initially sued RCG Advances, LLC and other defendants who provided merchant cash advances to small businesses in June 2020 for allegedly taking out withdrawals that exceeded the agreed-upon repayment amount.  Lacking the ability to obtain monetary relief after the AMG decision, the FTC got creative and amended its complaint, adding new statutory claims under the Gramm-Leach-Bliley Act (the GLB Act).  Under the GLB Act, the FTC alleges that the defendants obtained customers’ financial information by making “false, fictitious, or fraudulent statement[s] or representation[s.]”  The FTC is empowered with enforcing the GLB Act—and dozens of other statutes, such the Fair Debt Collection Practices Act and the Fair Credit Reporting Act—as rule violations, meaning the FTC can seek consumer redress under Section 19 of the FTC Act and civil penalties. Continue Reading Rolling with the Punches: The FTC Goes with Civil Penalties after <em>AMG Capital Management</em> Takes Away Section 13(b) Authority

A recent decision by the Second Circuit in an antitrust case involving advertising may have long-standing effects on how competitors use each other’s names and trademarks in advertising and on settlement agreements in the intellectual property space. The Second Circuit’s decision in 1-800 Contacts, Inc. v. FTC could allow competitors more freedom to agree on restraints on the use of their trademarks. While agreements between competitors should still be carefully considered from an antitrust perspective, this decision has signaled a deference to parties’ negotiated trademark settlements that could allow new and more robust approaches to trademark protection. This is especially true where, as here, competitors attempt to agree on limits to the use of their trademarks in search terms purchased for advertising purposes on search engines such as Google.

Background

In November of 2017, we discussed an Initial Decision by an FTC ALJ that 1-800 Contacts had violated Section 5 of the FTC Act by negotiating settlement agreements with its competitors that were anti-competitive in nature. Specifically, such agreements mutually limited each parties’ abilities to bid on search terms containing each other’s trademarks and URLs in auctions for placement in search results on websites such as Google. The ALJ found that 1-800 Contacts directly harmed competition and consumers in the online market for contact lenses and rejected 1-800 Contacts’ argument that such agreements were pro-competitive because, among other things, they efficiently protected trademark rights while avoiding expensive litigation.

Continue Reading After an Almost Four-Year Battle, the Second Circuit Sees Anti-Competitive Concerns Differently Than the FTC in 1-800 Contacts Case

Background

Advertisers, e-commerce websites, affiliate networks, and publishers each play a large role in the development of the Internet. One reason they have been able to do so is Section 230 of the Communications Decency Act of 1996 (CDA), which immunizes online interactive services from liability arising from third-party content on their platforms. The CDA does so in twenty-six words:

“No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”

Through this immunity, the CDA allows online services to host the speech of others, without assuming responsibility for what those users may say or do. No one disputes the premise that Section 230 fosters free expression and the creation of vibrant marketplaces for advertisers and merchants to efficiently and effectively reach consumers. Recently, however, confusion and controversy have arisen as to exactly who and what Section 230 does and does not protect, leading to divisions among court decisions and to calls for legislative “overhaul.” A quick review for merchants, advertisers, agencies, and affiliate networks seems desirable.

Continue Reading An Advertiser’s Guide to Section 230 of the Communications Decency Act

This week, the Federal Trade Commission (FTC) announced a proposed settlement with MoviePass to resolve allegations that the company offered an automatically renewing movie subscription program but blocked paid subscribers from using the advertised services, and failed to adequately secure subscribers’ personal data.

The FTC brought the case against MoviePass under the Restore Online Shoppers Confidence Act (ROSCA), the federal statute governing online negative option programs. The statute requires sellers to clearly and conspicuously disclose all “material terms of the transaction” and obtain consumers’ express informed consent before charging them for online negative option features.

However, the FTC’s complaint did not take issue with the company’s billing disclosures or consent mechanism. Instead, it asserted that the company’s failure to disclose its deceptive tactics that prevented subscribers from accessing all of the advertised benefits violated ROSCA. In the complaint the FTC alleged that MoviePass, Inc deceptively marketed a MoviePass subscription service that allowed customers to view movies at local theaters for a monthly fee. However, once customers purchased a subscription, MoviePass allegedly used various methods to prevent subscribers from accessing the advertised service. For example, to limit the movies that customers could view, MoviePass allegedly blocked account access by invalidating subscriber passwords under the guise of “suspicious activity or potential fraud.” The FTC asserted that resetting a password was cumbersome and often failed, precluding subscribers from regaining access. Next, the FTC alleged that MoviePass’s operators implemented a ticket verification program that required users to submit pictures of their physical movie ticket stubs for approval through the app within a certain time frame after purchase. Users who failed to submit their ticket stubs would be blocked from viewing future movies and could risk subscription termination. Third, MoviePass allegedly used “trip wires” to block certain groups of subscribers—heavy users who viewed more than three movies per month—from using the service to purchase more tickets. These allegations seem to echo statements from the FTC’s Dark Patterns workshop (we blogged about the workshop here), which discussed ways the FTC should address websites and apps that impair consumers’ autonomy, decision making, and choice.

Continue Reading Lights, Camera, Action! FTC Settlement Signals Novel Use of ROSCA