A hallmark of Chair Lina Khan’s tenure thus far at the FTC has been her effort to stoke fear to try to deter conduct that she does not like.  The FTC’s recent Penalty Offense Notices and the Enforcement Statement on Negative Option Marketing provide examples.  Last week, during the Commission’s open meeting on November 18 the Commission engaged in more sabre rattling by issuing a “Commission Statement Regarding Criminal Referral and Partnership Process.”  This statement outlines the FTC’s renewed commitment to continue to expand its criminal referral program.  At the open meeting, however, the Commissioners stressed that this is not a new policy and that the statement merely reflects what FTC Staff have already done for approximately the past 20 years.  Since 2003, the FTC’s Criminal Liaison Unit (CLU) has worked with federal, state, and local criminal law enforcement to refer those matters that implicate criminal activity.  On occasion, the FTC has even referred cases to international criminal law enforcement partners.

Chair Khan noted that the FTC is redoubling its efforts to deter corporate crime that most harms consumers because civil fines are not doing enough, and that major corporations are likely to be repeat offenders due to their resources and scale.  Also, Commissioner Slaughter mentioned that a lower stock price or a visit from the FTC are not the only things that these offenders should fear.  In other words, the Commission hopes that with the help of criminal law enforcement, a company will see the light of day that crime does not pay.


Continue Reading Chair Kahn says Don’t Do the Crime If You Can’t Do the Time

Last week two different bills were noticed by the House of Representatives that would provide additional remedial tools to the FTC to restore or replace some of what the agency lost when the Supreme Court struck down the agency’s ability to obtain equitable monetary relief under Section 13(b) of the FTC. Whether any of these

As the bustling holiday season quickly approaches, and in light of COVID-19’s impact on global supply chains, retailers face many challenges in their business operations, but also in maintaining regulatory compliance relating to shipping—and shipping representations. This is especially true for retailers selling goods online, by phone, or by mail, who must be mindful of both federal and state regulations.

Major state regulators are already cracking down. Four California county district attorneys recently filed suit against Kanye West’s Yeezy Apparel brand, alleging violations of California Business & Professions Code, Section 17538, which requires in pertinent part that businesses selling goods online (or by mail or telephone) to California customers must ship the goods within 30 days of a completed order or provide a full refund, send written notice of the delay and offer a refund, or provide substitute goods and offer a refund. The law allows the state to seek civil penalties of $2,500 for each violation.


Continue Reading ‘Tis the Season—to Update Your Shipping Representations

The Federal Trade Commission (FTC) recently issued Notices of Penalty Offenses regarding for-profit education, endorsements and testimonials, and money-making opportunities. Prior to this year, the FTC had used its Penalty Offense authority only once in this century. So why the sudden rebirth? In this webinar, Venable attorneys examined the FTC’s authority in this area, the substance of the notices, and their broad implications.

What Is a Penalty Offense?

Under the Penalty Offense authority, the FTC can seek civil penalties against a company or individual if it proves that they had actual knowledge that the FTC had already issued a written decision (after an administrative trial) against another entity that the same conduct was unfair or deceptive in violation of Section 5(m)(1)(b) of the FTC Act. Section 5 enables the FTC to hold the person, partnership, or corporation liable for a civil penalty of up to $43,792 per violation.

In the last few weeks, the FTC has sent out three different notices. The purpose of these notices was to allow the FTC to argue that the recipients had actual knowledge that the FTC had previously ruled certain acts or practices to be unfair or deceptive. Each of the letters specifies that the FTC is not singling out recipients or suggesting recipients are violating the law, which signifies that this is part of an effort to effect broad changes in industry behavior.


Continue Reading FTC’s Notice of Penalty Offenses: What Do They Mean for You?

With Halloween just days away, it is perhaps fitting that the FTC has issued a new enforcement policy statement warning companies not to employ dark patterns to trick customers into a subscription plan. As we covered previously, the FTC has identified dark patterns—or website design features used to deceive consumers—as a priority for both rulemaking and enforcement actions. The timing of the announcement is a bit curious as the FTC is in the middle of a rule making on negative option marketing. More below from Commissioner Wilson on that.

The enforcement policy statement in many ways reflects the requirements of the Restore Online Shoppers Confidence Act (ROSCA) and established FTC precedent regarding negative option marketing. The FTC has been active against companies who hide their subscription programs behind links, have made customers undergo several attempts to cancel their subscription, or companies who failed to disclose that the benefits of their subscription did not exist anymore.


Continue Reading FTC Issues Dark Forecast for Dark Patterns in Subscription Auto-Renewal

With the complexity of product safety requirements, the changing regulatory environment, and the ferocious plaintiffs’ bar, it is more important than ever for importers, manufacturers, and retailers to understand their obligation to comply with product safety laws and standards. In this recent webinarMelissa L. Steinman, a partner in Venable’s Advertising and Marketing practice, explored current developments in product safety and warranty laws and examined common issues and pitfalls that organizations need to be aware of relating to product standards and safety. She also addressed some follow-up questions.

Continue Reading You Asked, We Answered – Consumer Product Safety and Warranties

Just days after the FTC announced that it was resurrecting its Penalty Offense Authority to crack down on for-profit higher education institutions’ false promises about graduates’ career opportunities and earnings prospects, the FTC is invoking this authority to “blanket[] industry with a clear message” about fake online reviews and other deceptive endorsements.

The FTC has revived this dormant authority—the latest example of its creative use of different enforcement tools to obtain monetary relief in the wake of the Supreme Court’s AMG opinion—to hold companies accountable, via significant financial penalties, for unfair and deceptive business practices.

As we previously wrote, former FTC Commissioner Rohit Chopra had championed the use of this authority and identified for-profit colleges as one possible industry for use of this enforcement tool, while identifying other targets like multilevel marketing programs, gig economy networks, and fake review and influencer fraud.

The FTC now has quickly turned its attention to fake online reviews and other deceptive endorsements, sending a Notice of Penalty Offenses to more than 700 companies, representing an array of leading retailers, consumer product companies, and ad agencies. In doing so, the Commission advises recipients of significant potential civil penalties—up to $43,792 per violation—they could incur if they use endorsements in ways that were found to be illegal in FTC administrative decisions rendered in the 1940s through the 1980s. Under Section 5(m) of the FTC Act, the FTC can obtain penalties against other entities not party to the original proceeding if it can show the entity had actual knowledge that the act had been found to be unfair or deceptive. However, the FTC points out that a company’s inclusion on the list of recipients is not an indication the company has acted illegally.


Continue Reading FTC “Blankets Industry” with Notice of Penalty Offenses Concerning Deceptive Reviews and Endorsements

In the latest example of its creative use of different enforcement tools to obtain monetary relief in the wake of the Supreme Court’s AMG opinion, the FTC has resurrected a dormant authority to hold companies accountable, via significant financial penalties, for unfair and deceptive business practices.

This week the FTC announced that it has put 70 for-profit higher education institutions—including some of the largest for-profit colleges and vocational schools across the country—on notice that the agency is scrutinizing false promises made about graduates’ job opportunities, earnings prospects, and other career outcomes.

The FTC is resurrecting its Penalty Offense Authority, found in Section 5(m) of the FTC Act, “to deter wrongdoing and hold accountable bad actors who abuse students and taxpayers,” according to FTC Chair Lina M. Khan. Under this section of the statute, the FTC can obtain penalties against other entities not party to the original proceeding if it can show the entity had actual knowledge that the act had been found to be unfair or deceptive.


Continue Reading FTC Invokes Penalty Offense Authority to Crack Down on For-Profit Education Industry

Federal Trade Commission (FTC) Chairwoman Lina Kahn, who took over the reins of the FTC in June, is making it clear that she is no fan of the direction some private equity-owned businesses have taken in recent years. She takes particular issue with, “extractive business models” that “centralize control and profits while outsourcing risk, liability, and costs.” She went on to say these business models, “warrant particular scrutiny, given that deeply asymmetric relationships between the controlling firm and dependent entities can be ripe for abuse.”

Kahn circulated a memo to commission staff and commissioners regarding the vision and priorities for the agency. In the memo, Kahn writes, “[t]he growing role of private equity and other investment vehicles invites us to examine how these business models may distort ordinary incentives in ways that strip productive capacity and may facilitate unfair methods of competition and consumer protection violations.”

By tying private investment to extractive business—and specifically to abuses that effect on marginalized communities—the chairwoman has put a target on these firms’ backs.


Continue Reading Should Private Equity Worry About Consumer Protection Investigations?

On September 22, 2021, FTC Chairperson Lina Khan published a memorandum to FTC staff urging the agency to unite behind her vision and priorities for the agency, and announcing that the elite vanguard leading Khan’s effort will be acting Bureau Directors Sam Levine and Holly Vedova, both of whom will become permanent directors of the Bureau of Consumer Protection and the Bureau of Competition, respectively. Khan has previously indicated that the FTC needs to throw off its bureaucratic chains of past approaches and practices and be more aggressive in enforcing both consumer protection and competition laws. Given the implicit and explicit criticism in her prior communications, the memorandum appears to be an effort to gather support among FTC staff for her approach. An overarching theme of the memorandum is that the FTC may be blurring the lines between the FTC’s consumer protection and competition missions by increasing collaboration between the Bureau of Consumer Protection and the Bureau of Competition. While many prior chairpersons have expressed this ambition, Khan appears ready to make that aspiration operational.

Chairperson Khan starts her strategic discussion by announcing that the agency will be taking a “holistic approach to identifying harms.” In elaborating on this “holistic approach,” she frequently combines references to individual consumers and businesses, and highlights nontraditional harms of anti-competitive activity, many of which are familiar to consumer protection, for example, disparate impact, privacy violations, and asymmetrical bargaining power. Her message is clear: the distinction between antitrust and consumer protection will no longer be as defined as it was in the past. Also clear are the consequences: once this boundary is eliminated, the FTC can use the merger review process to conduct discovery on consumer protection violations, perhaps hoping the cost and threat of that inquiry will deter merger activity.


Continue Reading The Khan Manifesto