WASHINGTON, DC — TechFreedom has joined an amicus brief chiefly authored by the New Civil Liberties Alliance in the Court of Appeals for the Ninth Circuit. The two non-profit, non-partisan groups support Axon’s challenge to a district court decision holding that no federal court could hear Axon’s constitutional defenses against an FTC antitrust enforcement action until after (1) an administrative law judge had ruled on the Commission’s suit to block Axon’s acquisition of a small competitor and (2) the full Commission had ruled on that decision, an expensive process that could take well over a year. NCLA’s press release explains the legal issues in detail.

“A win for Axon won’t solve the lack of due process at the FTC, but a loss will make it even more unlikely that anyone will ever succeed in getting a court to address that problem,” said Berin Szóka, Senior Fellow at TechFreedom. “This applies for all issues the FTC handles, from antitrust to consumer protection, but it’s especially problematic on data security, privacy, product design and other issues the FTC has handled as the Federal Technology Commission — the de facto regulator of some of the most important policy issues in America today. The FTC will continue inventing regulatory regimes out of whole cloth, one settlement at a time, until either the courts or Congress provide some clear grounding to the FTC’s enforcement actions, and create at least minimal procedural safeguards to ensure that, ultimately, it’s the courts, not the FTC, that ultimately decide what the law is.”

“No defendant should have to wait to challenge the FTC’s process until the process wrings them dry,” concluded Szóka. “For nearly two decades, the FTC has policed data security using its broad powers over unfair and deceptive practices — but without ever giving clear guidance to companies as to how to comply with the law. Out of hundreds of cases, only LabMD slogged all the way through the FTC’s administrative process and fought on. By then, the small cancer testing lab was bankrupt and was able to keep fighting only through pro bono representation. The FTC’s own administrative law judge ruled that the Commission had not provided constitutionally adequate fair notice as to what the FTC Act required from the company. The Commission reversed, ruling for itself — as it literally always does — and only then was LabMD able to make its due process arguments in federal court. Ironically, the Eleventh Circuit ruled in LabMD’s favor, but on other grounds, leaving the fair notice question unresolved.”

“Ultimately, the FTC’s process is the punishment,” continued Szóka. “Wyndham Hotels spent over $5 million over three years responding to the FTC’s subpoenas. If the FTC’s investigation itself doesn’t force a company to settle, having to litigate before an ALJ and then invariably losing before the Commission almost always will. The FTC Act allows the FTC to choose whether to sue before its ALJ or in federal court, depending on the remedies it seeks. But even when the FTC brings a data security case directly in federal court, no company has ever fully litigated important constitutional questions: Wyndham gave up at the earliest state of district court litigation after the Third Circuit rejected most of its arguments on an interlocutory appeal. Wyndham settled even though the appeals court explicitly recognized that it might have to address Wyndham’s fair notice arguments if, at trial, the FTC relied on its informal guidance materials as providing ‘fair notice’ of the agency’s previous interpretations of Section 5. It’s not surprising that Wyndham gave up. D-Link didn’t even get that far — and the FTC offered both companies uniquely favorable settlements. Thus has the FTC managed to avoid constitutional review.” 

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Read the panel decision here. We can be reached for comment at media@techfreedom.org. See our other work on the FTC:

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