Believe it or not, the FTC’s power is not limitless. We wrote previously on an antitrust decision (FTC v. Shire ViroPharma) limiting the FTC’s ability to proceed in federal court to challenge past violations of the FTC Act. This week a judge extended that reasoning to the FTC’s consumer protection enforcement authority. In FTC v. Hornbeam Special Situations, Judge Timothy C. Batten Sr. held that when the FTC proceeds in federal court pursuant to Section 13(b) of the FTC Act, the FTC must plead facts indicating that each defendant is violating or about to violate a law enforced by the FTC. Having found the FTC had thus far failed to do so, Judge Batten will allow the FTC the opportunity to amend its complaint to add such facts.

Section 13(b) provides:

Whenever the Commission has reason to believe (1) that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced the Federal Trade Commission . . . the Commission by any of its attorneys may bring suit to enjoin any such act or practice.

See our past post on the history surrounding this statute here.

As a result of the Shire decision, the defendants in Hornbeam filed a motion to dismiss for lack of subject matter jurisdiction, arguing that the complaint only challenged past conduct. (In the interest of full disclosure, the authors represent some of the defendants in this matter.) The court denied that motion but allowed the defendants to renew their motion to dismiss on the same grounds. The defendants argued that where the FTC proceeds under Section 13(b) of the FTC Act seeking relief in federal courts, the FTC had to plead facts supporting its reason to believe that the defendants were violating or about to violate the law. The defendants pointed out that the complaint did not, and could not, make such allegations.

The FTC opposed the motion, arguing that the “reason to believe” question was one of prosecutorial discretion not subject to review by the court. The FTC also argued that the potential threat that the defendants might at some point in the future violate the law was sufficient to meet its burden.

In his Order Judge Batten rejected both of the FTC’s arguments and found that the plain language of the statute supported defendants’ argument. Thus, the court ruled that the FTC must allege facts supporting the allegation that it has a reason to believe that the defendants are violating or about to violate the law; and that the court could not accept a mere conclusory allegation that the FTC has such a reason to believe. The court then found that while the FTC might be entitled to get an injunction based on a concern that illegal conduct might recur in the future, such a showing was insufficient to satisfy the requirements of 13(b). The court gave the FTC 21 days to amend its complaint to fix the defects the court found. In the Shire case, the FTC declined a similar invitation to amend and sought an appeal. It will be interesting to see if the FTC does so here.

FTC leadership has been mentioning rethinking remedies and how it uses them. Throughout his opinion, Judge Batten noted how the FTC’s use of the power given it in Section 13(b) has gradually increased to a point beyond the language in the statute itself. How the FTC’s desire for even more remedial power and the limits recognized by the court in this matter end up intersecting should make for interesting viewing.

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Photo of Leonard L. Gordon Leonard L. Gordon

Len Gordon, chair of Venable’s Advertising and Marketing Group, is a skilled litigator who leverages his significant experience working for the Federal Trade Commission (FTC) to help protect his clients’ interests and guide their business activity. Len regularly represents companies and individuals in…

Len Gordon, chair of Venable’s Advertising and Marketing Group, is a skilled litigator who leverages his significant experience working for the Federal Trade Commission (FTC) to help protect his clients’ interests and guide their business activity. Len regularly represents companies and individuals in investigations and litigation with the FTC, state attorneys general, the Department of Justice (DOJ), and the Consumer Financial Protection Bureau (CFPB). Len also represents clients in business-to-business and class action litigation involving both consumer protection and antitrust issues. He also counsels clients on antitrust, advertising, and marketing compliance issues.

Mary M. Gardner

Mary M. Gardner helps clients identify, evaluate, and prioritize their risks; implement practices to minimize, monitor, and control those risks; and find satisfactory outcomes when those risks turn into potential liabilities. Mary is a versatile counselor, litigator, and negotiator, representing companies in all…

Mary M. Gardner helps clients identify, evaluate, and prioritize their risks; implement practices to minimize, monitor, and control those risks; and find satisfactory outcomes when those risks turn into potential liabilities. Mary is a versatile counselor, litigator, and negotiator, representing companies in all aspects of risk management, including litigation, arbitration, mediation, and counseling.