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

Three weeks ago, we informed you that the Louisiana Public Service Commission (PSC) had declared a state of emergency in light of Hurricane Ida, which meant that callers could not place any “telephonic solicitations” into the state, regardless of whether the calls were with the recipients’ prior express written consent, pursuant to an established business relationship, or even simply for collection purposes.  Today, the PSC downgraded the emergency status, which means that telephone calls can, once again, be placed into the state effective tonight (September 17, 2021) at 6:00 p.m. CST:

Effective Friday, September 17, 2021 @ 6PM CST, conditions of the storm will allow the release of the LPSC from mandatory [Emergency Operations Center] presence, and telephonic solicitations into the state will be permitted to resume in compliance with the general provisions of the LPSC Do Not Call Program General Order, LPSC General Order R-29617, at that time.

So, enjoy the weekend . . . and the calling.

Since the appointment of Chairwoman Khan to the FTC this past summer, the three Democratic commissioners have pushed through 15 omnibus resolutions authorizing staff to use compulsory processes without additional approval from the Commission. Although the use of blanket authorizations is old hat at the FTC, the practice remains controversial because it allows staff to issue civil investigative demands (CIDs) and subpoenas to companies and individuals without consulting with the Commission, as long as the investigation ostensibly relates to an existing omnibus resolution and one commissioner signs off. This gives staff extraordinary latitude and discretion, especially considering the sweeping nature of the resolutions.

Yesterday, the Commission announced eight such resolutions, covering broad swaths of the FTC’s consumer protection and antitrust jurisdiction—and the U.S. economy. They are:

  • Acts or Practices Affecting United States Armed Forces Service Members and Veterans;
  • Acts or Practices Affecting Children;
  • Bias in Algorithms and Biometrics;
  • Deceptive and Manipulative Conduct on the Internet;
  • Repair Restrictions;
  • Abuse of Intellectual Property;
  • Common Directors and Officers and Common Ownership; and
  • Monopolization Offenses.

Continue Reading Chairwoman Khan Driving the Omnibus

A recent decision in the Ninth Circuit sheds new light on whether, and the standard by which, a false advertising claimant must prove equitable damages under the Lanham Act. In Grasshopper House, LLC v. Clean & Sober Media, LLC, the Plaintiff obtained a jury verdict finding the Defendants liable for false advertising. But the district court cancelled the damages phase of the jury trial after the exclusion of Plaintiff’s damages expert, which the court reasoned was Plaintiff’s only evidence concerning actual losses as a result of Defendants’ misrepresentations. Therefore, the district court held a bench trial concerning equitable relief, where it entered a permanent injunction against Defendants’ false advertising, but denied Plaintiff’s requests for disgorgement of profits, attorneys’ fees, and costs.

Plaintiff appealed to the Ninth Circuit, and the appeals court affirmed the district court’s exclusion of Plaintiff’s damages expert and cancellation of the damages phase of the trial, but found that the Court had erred in denying Plaintiff’s requests for disgorgement of profits, attorneys’ fees, and costs. First, the appeals court found that after the Supreme Court’s subsequent decision in Romag Fasteners, Inc v. Fossil, Inc., the district court was now incorrect to require proof of willfulness to sustain a finding of disgorgement. Romag Fasteners, Inc. established that while mental state is a highly important consideration in determining whether to award disgorgement under the Lanham Act, there is no categorical rule that willfulness is necessary. Therefore, the appeals court here ordered the case remanded for the district court to consider “Defendants’ mental state – whatever that may be – when determining what award of profits is appropriate.”

Continue Reading Ninth Circuit Clarifies Standards for Equitable Damages in False Advertising Cases

On July 22, 2021, the Third Circuit ruled against the FTC in its case against Innovative Designs, a company that manufactures and sells a product called Insultex House Wrap, a weather-resistant barrier used in building construction. As we discussed last year, the FTC has targeted companies that produce insulation or building materials and make claims that these materials have more insulating power than they actually do. The court’s rejection of the FTC’s view on what constitutes reliable testing for purposes of substantiation underscores that courts often are more flexible than the FTC in determining whether an advertiser has a reasonable basis for a claim.

Originally, the FTC filed a complaint in the District Court for the Western District of Pennsylvania stating that Innovative Designs falsely claims that its products have a higher R-value than they do. An R-value is a measure of the product’s ability to restrict the flow of heat. So, the higher the R-value, the higher the product’s insulation power. According to the FTC a misleading R-value could prompt customers to purchase a product that will not perform in the way it was advertised. Furthermore, the FTC claimed that Innovative Designs did not use the proper standardized testing, ASTM C518, to make its claims about the product’s R-value.

Continue Reading FTC Put to the Test on Inadequate Testing Claims

Yes, I know, Shakespeare was English (which is about all I remember about him from the CliffsNotes I relied upon in high school), and Louisiana has French origins. But it’s Friday afternoon and I’m tired. This is about as creative as it gets right now.

Today, the Louisiana Public Service Commission (PSC) declared a state of emergency and announced, pursuant to its Do Not Call Program General Order, in no unclear terms, that “NO telephonic solicitor shall engage in ANY form of telephonic solicitation” is permitted during the state of emergency (at least while the Office of Homeland Security and Emergency Preparedness requires the PSC to report to the Emergency Operations Center). The PSC is not kidding around about this, as the emphasis in the announcement is its own. The state of emergency extends from August 26 through September 27, 2021, unless it is terminated sooner.

I have received a number of calls and emails from clients over the past few hours about what the PSC’s announcement actually means: are calls with the consumer’s prior express written consent permitted? What about calls pursuant to an established business relationship? And how about debt collection calls to Louisiana residents—are those allowed to be placed? The answer is no, no, and still no. Here’s why.

Continue Reading To Call, or Not to Call, in Louisiana During a State of Emergency: That Is the Question

Game developers and platform providers are increasingly integrating non-fungible tokens (NFTs), virtual currencies, and digital marketplaces into their games and platforms, creating seamless, novel, and interactive experiences. While the industry has moved ahead quickly, federal and state regulators are taking a much closer look at how these technologies fit within existing legal frameworks.

In a recent webinar, partner Ellen Berge and associate Chris Boone of Venable’s Advertising Law and Payments groups explored the latest regulatory developments and addressed how to spot and avoid compliance and regulatory risks associated with NFTs, virtual currencies, and other platform-based monetization mechanics. We received insightful questions from members of the audience, which our lawyers answer below.

Continue Reading You Asked, We Answered: NFTs and Virtual Currency in Games: Compliance Issues and Legal Risks

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.