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Home | BakerHostetler

July IP Litigation Newsletter

The Cloakroom with Peter Roskam

The Cloakroom with Peter Roskam: 2024 Republican National Convention

Elise Elam Moderates Panel at ACLI Compliance and Legal Sections Annual Meeting

James Sherer Speaks on Panel at The Masters Conference

Much like our grocery bills these days, the Federal Trade Commission (FTC or the Commission) maximum civil penalty amount just got pricier. The FTC announced its <a href="https://www.ftc.gov/news-events/news/press-releases/2024/01/ftc-publishes-inflation-adjusted-civil-penalty-amounts-2024?utm_source=govdelivery">annual increase of its civil penalty amounts</a>. Although penalty increases may not seem as exciting as some of our recent blog posts on <a href="https://www.adventures-in-law.com/blogs/how-many-junk-fees-does-it-take-to-create-a-dark-pattern/">junk fees and dark patterns </a>or the<a href="https://www.adventures-in-law.com/blogs/in-case-you-were-focused-on-the-holidays-and-not-the-ftc-its-coppa-and-facial-recognition-time/"> recent updates to the Children’s Online Privacy Protection Act (COPPA</a>), the Commission’s continued interest in Notice of Penalty Offense Authority and Trade Regulation Rule violations makes it a worthy topic to revisit.

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Let’s start with a reminder of why civil penalties have become an important topic for the FTC. The Supreme Court’s decision in AMG put an end to the FTC’s more than 40-year reliance on Section 13(b) of the FTC Act to obtain monetary relief in federal court. In the wake of this decision, the FTC began to reassess its “toolbox” and consider other ways to get monetary relief. Until AMG, the FTC typically deferred seeking penalties and instead relied on Section 13(b) of the FTC Act to obtain consumer redress, in part because there was a preference for getting money into the hands of consumers rather than seeking penalties that go straight to the U.S. Treasury.

The Commission can obtain civil penalties in a number of ways, such as for violations of trade regulation rules violation or FTC orders. One way the Commission can obtain civil penalties against a company is through its Penalty Offense Authority. As <a href="https://www.adventures-in-law.com/blogs/ftc-cracks-down-on-endorsements-and-reviews/">we previously covered</a>, Section 45(m)(1)(B) of the FTC Act permits the FTC to (1) notify companies that certain acts or practices have been found in administrative decisions, other than consent orders, to be deceptive or unfair and (2) having put those companies on notice, impose civil penalties should the companies engage in the same acts or practices. In the past several years, the FTC has issued these Notices to several companies. In April 2023, the FTC issued a<a href="https://www.ftc.gov/news-events/news/press-releases/2023/04/ftc-warns-almost-700-marketing-companies-they-could-face-civil-penalties-if-they-cant-back-their"> Notice of Penalty Offenses Concerning Substantiation on Product Claims</a> to almost 700 marketing companies. In October 2021, the FTC issued two sets of Notice of Penalty Offenses concerning <a href="https://www.ftc.gov/enforcement/notices-penalty-offenses/penalty-offenses-concerning-money-making-opportunities">money-making opportunities</a> and <a href="https://www.ftc.gov/enforcement/notices-penalty-offenses/penalty-offenses-concerning-endorsements">endorsements</a>.

Now turning back to the civil penalty amounts – the FTC is required by <a href="https://www.govinfo.gov/link/plaw/114/public/74">law</a> to adjust its civil money penalty levels for inflation no later than Jan. 15 of each year. This year, the maximum civil penalty amount increased from $50,120 to $51,744 for violations of Sections 5(l), 5(m)(1)(A) and 5(m)(1)(B) of the FTC Act. Future recipients of Notice of Penalty Offense Letters can now expect to be on notice that engaging in any of the conduct described in the notice could subject the company to civil penalties of up to $51,744 per violation. As a reminder, this is the maximum penalty amount that the FTC (or the DOJ) can seek if it is litigating against you in federal court. However, the civil penalty maximum is “per violation,” which could quickly ratchet up the number to an enormous amount.

So how are civil penalty amounts assessed? For rule violations, Section 5(m)(1)(C) provides that “[i]n determining the amount of such a civil penalty, the court shall take into account&nbsp;the degree of culpability, any history of prior such conduct, ability to pay, effect on ability to continue to do business, and such other matters as justice may require.” As my colleague Daniel Kaufman pointed out in a previous <a href="https://www.jdsupra.com/legalnews/understanding-the-ftc-penalty-box-7231651/">blog post</a>, the statute certainly gives parties a lot of latitude to develop arguments to help justify lower numbers. The statute also establishes a knowledge standard – the FTC must show the defendant had “actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule.”

My final conclusion on civil penalties? <a href="https://www.youtube.com/watch?v=5NPBIwQyPWE">Avril Lavigne’s 2002 hit song </a>encapsulates it best – it’s “complicated,” and companies should take note of the Agency’s newly invigorated interest in civil penalties.

Rise in Penalty Amounts to Kick Off the New Year

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