FTC Authority Under Challenge at Supreme Court: What’s At Stake

On July 9, the Supreme Court took up a critical issue for the Federal Trade Commission (FTC): the ability of the FTC to seek monetary relief in federal court cases.  The FTC sought and obtained review of the Seventh Circuit decision in FTC v. Credit Bureau Center, which was consolidated with another case from the Ninth Circuit.  The question in the cases is whether a specific provision of the FTC Act – Section 13(b) – permits the FTC to obtain equitable monetary relief when it sues in federal court.  The outcome will determine the FTC’s ability to obtain monetary awards of both restitution and disgorgement in a wide range of cases.

The FTC’s Authority to Obtain Money in Enforcement Cases

One important backdrop to the Supreme Court case is that the FTC’s authority to obtain money in enforcement actions is relatively limited.  The FTC can seek civil penalties only in specific circumstances, such as when companies violate an existing FTC rule, an order already entered against them, or specific statutes (like the Children’s Online Privacy Protection Act, or COPPA).  In cases in which it can seek civil penalties, the agency has wide discretion to calculate and demand penalty amounts that it believes are appropriate.

In other cases involving FTC Act violations, when the FTC has alleged that companies have engaged in “unfair or deceptive acts and practices,” it has relied on Section 13(b) of the FTC Act, 15 U.S.C. § 53(b).  That provision authorizes the FTC to seek and obtain a “permanent injunction” in federal court.  In a series of cases spanning decades, courts have held that the power to seek an injunction includes ancillary equitable relief – including obtaining restitution for injured consumers or disgorgement of unlawfully obtained funds.  The FTC’s position, as framed in its cert petition, is that it can seek “an injunction that orders the return of unlawfully obtained funds.” 

The fact that the FTC often must seek equitable relief, rather than civil penalties, limits the FTC’s authority to obtain money from defendants in many cases – including where monetary relief is hard to quantify or non-existent.  Indeed, for years, the FTC has rarely sought money in privacy cases outside of areas like COPPA or order violations.  And as we’ve discussed, the Supreme Court’s decision this Term in SEC v. Liu is likely to further limit the FTC’s ability to obtain monetary awards even under a disgorgement theory.

The FTC’s string of victories on equitable relief ended with the Seventh Circuit decision in Credit Bureau Center.  That case challenged the foundation of seeking money under Section 13(b) altogether: does the ability to seek an “injunction” authorize the agency to seek money that the defendants have collected?  The defendants pointed to the text and argued that the statute grants no additional equitable powers to seek monetary relief.  The Seventh Circuit agreed.  The result is that defendants owe nothing to the agency for their FTC violations – they are just subject to an injunction.

The Grant Throws FTC Investigations Into Limbo

While it will be many months until a final outcome, the fact that the Court has granted review has thrown a wide range of FTC enforcement actions and investigations into limbo.  The FTC’s options for seeking and obtaining monetary relief without Section 13(b) are much more constrained.  How companies negotiate investigations or a potential settlement in the face of such uncertainty is an open question.  Until the case is decided, companies may be wary to reach a settlement, yet the agency may well decide to file and litigate cases in the meantime.

On the flip side, if the FTC ultimately prevails, it may attempt to push its demands for monetary awards under Section 13(b) – for example, by seeking disgorgement even in cases where there is no clear evidence of financial harm to consumers.  For example, the FTC recently obtained a $1 million settlement in a case alleging that products were falsely advertised as being “Made in the USA” – which was likely based on a disgorgement theory rather than a theory of consumer harm   Could alleged privacy violations be next? 

In any event, the Supreme Court will have a huge role to play in how the FTC resolves a wide range of cases going forward.