Today, the Supreme Court unanimously ruled that the Federal Trade Commission exceeded its statutory authority by using the wrong provision of the FTC Act to obtain monetary relief for consumers. The Court ruled that Section 13(b) allows the FTC only to obtain prospective injunctive relief, such as stopping harmful business practices, but that the agency must use Section 5 or Section 19 to obtain refunds and other monetary relief for consumers. This is exactly the position TechFreedom took in our amicus brief. The case is AMG Capital Management v. FTC, No. 19-508.

“The FTC has long overstepped its authority in ways that bypass basic due process protections built into the FTC Act,” said Berin Szóka, President of TechFreedom. “The text of the Act is clear: Section 13(b) allows the agency to stop deceitful or fraudulent conduct quickly, so that the conduct is not ongoing while the agency then completes a more rigorous process for clawing back ill-gotten gains. This process ensures a balance: fraudsters’ misconduct is promptly shut down, but the agency is forced to prove that its target is indeed engaged in fraud before taking money from it. Although the agency (and several Senators) have recently emphasized how important the agency’s Section 13(b) authority is for obtaining consumer redress, it is only important because the agency has made it so, by convincing courts to let the agency misuse it for that purpose.”

“Congress should amend Section 13(b) to authorize monetary relief when a reasonable person would have known the conduct was dishonest or fraudulent,” proposed Szóka. “This is the standard in Section 19. It ensures that the Commission can make consumers whole when they are clearly cheated, but also that companies are not punished for making honest mistakes. As the de facto Federal Technology Commission, the agency must increasingly grapple with line-drawing in gray areas. Technological change forces companies to experiment with new ways of doing business, right down to making small changes to the user interface on apps and websites. In such gray areas, the FTC should be able to stop practices that it decides do more harm than good, but it shouldn’t be able to impose massive financial costs. The standard of Section 19 will not unduly constrain the agency: it has been seldom used not because it is so hard to meet, but because the agency has defaulted, unlawfully, to using Section 13(b).”

“Legislation should address other egregious violations of due process at the FTC,” concluded Szóka. “For nearly two decades, the agency has built what it calls a ‘common law’ in privacy and data security purely through unadjudicated consent decrees rather than judicial decisions on the merits. The FTC holds all the cards in the investigation and enforcement processes — and uses that power, the expense of litigating, and the threat of negative publicity, to coerce companies into settling essentially every case. For example, Wyndham Hotels spent over $5 million over three years just responding to the FTC’s subpoenas. Few companies have the courage to do what LabMD did — challenge FTC subpoenas — because current law allows the Commission to make such a challenge public. Congress should amend the Act to allow companies to challenge overly broad subpoenas without enduring negative press. This would not hamstring the agency at all, but it would allow defendants to stand up for themselves. The FTC Act has not been reauthorized since 1996. It’s long past time that Congress updated it.”

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