If The Ad Is Misleading, We’ll Just Take It Down, RIGHT?
by Jamie Rubin
About one year ago, on April 22, 2021, the U.S. Supreme Court dealt a blow to the Federal Trade Commission’s ability to obtain monetary relief for consumers. In AMG Capital Management, LLC v. Federal Trade Commission, the court unanimously held that Section 13(b) of the FTC Act does not allow the agency to recover restitution (compensation for loss) or disgorgement of profits. The FTC has since petitioned Congress to restore this 13(b) authority. In the meantime, however, like a game of Whac-A-Mole, the agency is well underway pursuing an alternate approach to obtain similar remedies. Re-enter the Penalty Offense Authority, which we previously reported on last October. It sounds ominous, doesn’t it? Indeed, the Penalty Offense Authority enables the FTC to seek civil penalties from a company provided that:
“1) the company knew the conduct was unfair or deceptive in violation of the FTC Act; and 2) the FTC had already issued a written decision that such conduct is unfair or deceptive.”
In essence, the FTC can put companies on notice that a practice is problematic and then, if a company engages in that problematic activity, the FTC can once again pursue civil penalties. Late last year, the FTC re-started sending out what can only be characterized as mass mailings to thousands of companies notifying them of certain activities the FTC deems to be deceptive and misleading. In October, we reported that the FTC sent over 700 Notice of Penalty Offenses to companies in various sectors about illegal practices in the use of endorsements and testimonials. Two weeks later, the FTC sent over 1100 Notice of Penalty Offenses to businesses that pitch money-making ventures about deceptive and misleading potential earnings claims. In a one-two punch maneuver, the notice about false money-making claims enclosed the prior endorsement and testimonial notice too. Very shrewd, but, of course, the FTC does not stop there and the plot thickens. In early April of this year (2022), the FTC announced an action against Kohl’s in connection with allegedly mislabeling rayon products as bamboo. In this action, the FTC secured $2.5 million in civil penalties under its Penalty Offense Authority based on prior letters and actions from the FTC. Here’s where things get truly ominous. In the Kohl’s action press release, the FTC announced that it intends to use Notices of Penalty Offenses that were issued in the 1970s and 1980s to pursue civil penalties for violations of those old notices. It is not entirely clear if the FTC intends to resend out old notices to new businesses (to put them on notice) or if the FTC intends to claim that those old notices are simply effective notice for purposes of seeking civil penalties -- by the mere fact the notices exist. For now, the FTC left us with this: “Businesses in these industries should familiarize themselves with the Commission’s determination in these areas.”
Regardless of what the FTC attempts here, it is clear that the FTC’s ability to secure monetary relief arising out of deceptive or misleading practices is not dead. And, taking down an ad is unlikely to be the only issue to deal with if the FTC comes knocking. So stay tuned and make sure you’re consulting a lawyer who understands the FTC rules that impact your business – like us!