There has been a lot of press about the fact that the Federal Trade Commission (FTC) recently increased the civil penalties from $16,000 to $40,000 for each violation of certain trade regulations and final Commission orders. In some cases this change may have a dramatic impact — penalties for some antitrust violations may increase significantly because many antitrust violations tend to be single in nature — e.g. failure to make an HSR filing. However, on the consumer protection side the actual impact is less clear because of how “per violation” is calculated. For example, suppose you sold 100,000 towels labeled in violation of the Textile Act. At the old penalty level the maximum penalty would be $1.6 billion. The recent increase brings that to $4 billion. Few companies could realistically afford either figure, nor would the FTC ever likely insist on such an astronomical penalty for this type of violation. (As many of you undoubtedly know the FTC exercises a great deal of discretion in fixing the amount of any penalty and can require a penalty well short of the maximum depending upon the nature of the violation, whether consumers derived some benefit from the product, the degree of intent, etc.) But what about your run of the mill deceptive advertisement that violates an existing order? Is each ad one violation? Unfortunately, from the FTC’s perspective the answer is “no.”
Although the FTC and trial court ultimately have discretion in setting the actual amount of any penalty, their views on how one counts individual violations have been generally pro-enforcement. For example, in United States v. Wilson Chemical Company, Inc., 1962 CCH Trade Cases P 70,478 (W.D.Pa.1962) the advertisement in question appeared in 25 million comic books, with the court holding that “each comic book published and mailed which reaches the hands of a recipient is a violation of the Order.” Similarly, in a third circuit case, the defendant confused consumers with unfair and deceptive sweepstakes promotions in mailing travel checks or cash convertible bonds. The court found that each individual mailing constituted a distinct and separate violation of the FTC’s consent order, rather than one bulk mailing.
Thus, unless an advertiser shows a commercial once during the Super Bowl and then never again (and even then would each YouTube view count as a separate violation?), the potential maximum penalty can add up pretty quickly, regardless of whether the amount per violation is $16,000 or $40,000. Rather than focusing on how many violations may have occurred, advertisers are typically better off focusing on the various discretionary factors that come into play in determining what level of penalty to impose or depending upon their resources, making an ability to pay argument.
*Stephanie Serhan is a Summer Associate and not yet admitted to practice law.