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Home | BakerHostetler

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How FTC History Did Not Affect the FTC’s Approach to Non-Competes (but Should Have?): From the Nader Report to the Present

The other week, the Federal Trade Commission (FTC) issued a <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/p238400_ftc_collaboration_act_report.pdf">Report to Congress</a> under the FTC Collaboration Act that requires the FTC to conduct a study on its efforts with state attorneys general to combat fraud across the United States. While the bulk of the report spoke to those efforts, it was the final section detailing the FTC’s legislative recommendations that struck us as most notable.

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In the report, the FTC made three recommendations: (1) restore the ability to obtain equitable monetary relief; (2) provide independent authority to seek civil penalties; and (3) expand liability for those who assist or facilitate wrongdoing.

First, the FTC reiterated its request of Congress to restore the agency’s authority to obtain equitable monetary relief under Section 13(b) of the FTC Act. This has been an oft-beaten drum since the 2021 Supreme Court decision in <em>AMG</em> and is not all that surprising. (Though the agency was creative in positioning this as a state collaboration issue, noting that the lack of authority impacts its ability to obtain consumer redress at a national level, given that certain states lack the ability to obtain nationwide relief, and made some logistical arguments about the lack of a nationwide redress office.)

Second, the FTC requested the ability to go straight to court to obtain civil penalties, without first having to engage the Department of Justice (DOJ). Here, the FTC takes issue with the existing process whereby the FTC must first refer to the DOJ any complaint (and proposed settlement if there is one) for civil penalties, after which the DOJ has 45 days to either file the case itself, return it to the FTC for litigating, or settle it on its own. The report noted that this process results in unnecessary delay and duplicates efforts and asked that the FTC be treated like an adult and allowed to bring its own cases for civil penalties in federal court, just as it can in other types of cases.

Commissioner Rebecca Kelly Slaughter filed a <a href="https://www.ftc.gov/legal-library/browse/cases-proceedings/public-statements/statement-commissioner-rebecca-kelly-slaughter-regarding-collaboration-act-report">separate statement</a> on just this issue. In it, she echoes the belief that the current civil penalty process is badly broken, but she takes some aim at the DOJ (and airs the purported grievances of FTC staff) in the process.

It is quite remarkable for one agency official to criticize another agency so publicly. However, on the one hand, Slaughter questions whether the DOJ appropriately defers to the FTC’s recommendations and expertise and highlights as a risk that the DOJ could take a position contrary to the FTC (for example, settle on different terms than the FTC agreed to). But in <a href="https://www.ftc.gov/system/files/documents/public_statements/1536918/182_3109_slaughter_statement_on_facebook_7-24-19.pdf">previous comments</a> on this same issue, she noted that the DOJ has rarely opted to renegotiate settlements the FTC had voted to approve and further acknowledged that even when the DOJ elected to litigate cases on the FTC’s behalf, it often worked closely with the FTC in the process. Perhaps things have turned south since 2019.

In her statement, Slaughter also suggested that the agency consider making public those cases it refers to the DOJ at the time of referral rather than after the DOJ makes its decision on how it will proceed.

Still, interagency dynamics aside, given the FTC’s ambitious agenda and the limitations on one of its long-standing enforcement tools in the form of consumer redress, it is not surprising that the agency would want a quicker and more direct path to obtaining civil penalties, without having to ask for permission first.

The third and final recommendation of the report is for expanded authority under the FTC Act to pursue those who assist or facilitate deceptive acts or practices, a theory of liability that currently exists under the Telemarketing Sales Rule (TSR). Under the TSR, this type of liability applies where an individual provides both substantial assistance or support to the wrongdoing and knows or consciously avoids knowing of the violative conduct.

Given the expansive scope of conduct the FTC challenges as deceptive or unfair and its aggressive enforcement posture, the addition of this type of authority without meaningful restrictions would greatly expand entities’ risk of liability, particularly for online platforms and third-party service providers. And while FTC Chair Lina Khan’s <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/chair_khan_statement.collabact.pdf">statement</a> accompanying the report framed this authority as enabling the FTC to challenge “sophisticated, multiparty frauds and scams,” the authority sought in the report was not so confined.

To be clear, the odds of any of these recommendations becoming reality anytime soon are slim. But it is always worth keeping a tab not just on the FTC’s enforcement priorities but on its legislative ones as well.

In Recent Report to Congress, FTC Makes Clear: Let Us Go Directly to Court, on Our Own, for Money

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