The FTC Needs to Slow Down in Pursuing Consumer Redress for Privacy Breach and Other Harmful Acts

If you care about privacy when the shift to an online world makes it more and more difficult to maintain privacy of any kind, you probably are or should be aware of the role of the Federal Trade Commission (FTC) in the privacy protection efforts of the United States. As a result of a recent Supreme Court decision, the FTC is expected to slow down in pursuing consumer compensation for privacy violation and other acts hurtful to consumers.

FTC and Privacy Law

The FTC was founded in 1914 to enforce antitrust laws, and its general consumer protection mission was established in 1938. Section 5 of the FTC Act (15 U.S.C. § 45) states that “unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful”. The application of Section 5 to privacy or information security has been clearly established today, as Section 5 turns out to be perhaps the single most important piece of U.S. privacy law. Examples of unfair or deceptive acts or practices in privacy or information security include failing to maintain a promise that subscriber information would be kept confidential or that information collected from the website would not be sold or distributed without user consent.

FTC’s Enforcement Authority

Section 5 of the FTC Act grants enforcement authority to the FTC regarding consumer protection, under which privacy and computer security issues are an important part today.

Through administrative adjudication under Section 5 of the FTC Act, FTC “complaint counsel” prosecutes a matter before an administrative law judge, who can then issue an initial decision setting forth his or her findings of fact and conclusions of law and recommend an order to cease and desist. Upon appeal of an initial decision and further determination that a practice is unfair or deceptive, the FTC can then issue a final decision with an order to cease and desist, which may be reviewed by a U.S. court of appeal. Upon entry of the final order, Section 19 of the FTC Act (15 U.S.C. § 57) allows the FTC to seek consumer redress (compensation) from the respondent in a federal district court for consumer injury suffered in a violation of the final order[i].

On the other hand, Section 13(b) of the FTC Act (15 U.S.C. § 53(b)) allows the FTC to seek preliminary and permanent injunctions to remedy any provision of law enforced by the FTC without first making a determination that a practice is unfair or deceptive through administrative adjudication. In this case, the FTC could directly challenge a potentially unfair or deceptive practice in a federal district court[ii].

Since the late 1970’s, however, the FTC has increasingly used Section 13(b) of the FTC Act, and in particular the words “permanent injunction”, to directly seek equitable monetary relief in a federal district court without prior use of administrative proceedings. Such an interpretation of Section 13(b) was accepted by at least eight circuits of appeal, including the Ninth Circuit[iii]. In applying such an interpretation, the FTC emphasized that policy-wise, it would be undesirable simply to enjoin those who violate the FTC Act while leaving them with profits earned at the unjustified expense of consumers. Indeed, in fiscal year 2019, for example, the FTC returned more than $700 million to consumers as a result of its Section 13(b) effort[iv].

Changing Scope of FTC’s Enforcement Authority

Given the lack of total agreement among the courts of appeal, the Supreme Court decided to hear arguments for the question of whether Section 13(b) of the FTC Act allows the FTC to directly seek equitable monetary relief in a federal district court on writ of certiorari to the Ninth Circuit. The Court ultimately ruled that Section 13(b) does not authorize the FTC to seek, or a court to award, equitable monetary relief such as restitution or disgorgement in AMG Capital Management, LLC, et al., v. Federal Trade Commission, 593 U.S. ___ (2021). Given that Section 19 of the FTC Act was enacted two years after Section 13(b), the Court did not believe that Congress would have enacted Section 19’s provisions expressly authorizing monetary relief if Section 13(b) already implicitly allowed the FTC to obtain the same monetary relief without satisfying Section 19’s conditions and limitations. The Court also indicated, though, that if the FTC “believes that authority [under Section 5 and Section19] too cumbersome or otherwise inadequate, it is, of course, free to ask Congress to grant it further remedial authority”.

As pointed out by the Court, the FTC had recently asked Congress for that very authority. In the wake of the Court’s ruling, the Senate Commerce Committee also called for new legislation. While the Court’s ruling was in favor of the “scam artist” who the FTC believed had violated the FTC Act, the ruling might accelerate the codification of the FTC’s authority to directly seek equitable monetary relief through judicial enforcement.

To anyone who cares about privacy, the Court’s ruling means that despite the FTC being hard at work, obtaining consumer redress for privacy breach or infringement might take longer than usual for now. However, the ruling could also be shining a spotlight on the FTC’s role amid the ever-increasing privacy concerns and thus enhancing the FTC’s authority to enforce consumer protection against privacy invasion in the longer run.

[i] 15 U.S.C. Sec. 57b states that “[s]uch relief may include, but shall not be limited to, rescission or reformation of contracts, the refund of money or return of property, the payment of damages, and public notification respecting the rule violation or the unfair or deceptive act or practice, as the case may be”.

[ii] 15 U.S.C. Sec. 53b states that “[u]pon a proper showing that, weighing the equities and considering the Commission’s likelihood of ultimate success, such action would be in the public interest, and after notice to the defendant, a temporary restraining order or a preliminary injunction may be granted without bond: Provided, … That in proper cases the Commission may seek, and after proper proof, the court may issue, a permanent injunction”.

[iii] See FTC v. Commerce Planet, Inc., 815 F. 3d 593, 598 (2016); see also FTC v. H. N. Singer, Inc., 668 F. 2d 1107, 1113 (CA9 1982).

[iv] See FTC, Fiscal Year 2021 Congressional Budget Justification 5 (Feb. 10, 2020), https://www.ftc.gov/system/files/documents/reports/fy-2021-congressional-budget-justification/fy_2021_cbj_final.pdf.

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