Flexing The Agency's Muscles: What FTC Notice Of Penalty Offenses Really Means For Advertisers

• Published date: 11 January 2022
• Subject Matter: Consumer Protection, Intellectual Property, Media, Telecoms, IT, Entertainment, IT and Internet, Consumer Law, Copyright, Patent, Trademark, Advertising, Marketing & Branding
• Law Firm: Kelley Drye & Warren LLP
• Author: Mr William C. MacLeod and John E. Villafranco

Over the course of 10 days a few months ago, 700 companies and 70 for-profit colleges received notice of the intent of the Federal Trade Commission ("FTC" or "Commission") to pursue civil penalties under Section 5(m)(1)(b) of the FTC Act if these companies and colleges engage in certain conduct deemed by the FTC to be unfair or deceptive.

The notices sought to achieve two important FTC objectives:

• First, force addressees to consider their marketing messages and compliance programs; and
• Second, reintroduce (or reinforce) the threat of significant monetary penalties for those who need discipline.

The warnings will undoubtedly alter the dynamic of new investigations as parties consider the costs and benefits of negotiating consent orders that include payment of consumer redress.

But what if parties resist and the FTC were forced to litigate? There, a third objective - to convince a court that the FTC's Penalty Offense Authority entitles it to civil penalties based on these notices - is much less likely to be realized.

UNITED STATES V. DODGE

United States v. Hopkins Dodge, Inc., ¹ is on point, and it is not favorable to the FTC. In that case, the U.S. Court of Appeals for the First Circuit affirmed the district court's motion for summary judgment "on the ground that the F.T.C. had failed to make specific findings as required by 15 U.S.C. 45(m)(1)(B)."

Why does it matter here? Well, have a look at the language of 5(m)(1)(b):

(B) If the Commission determines in a proceeding under subsection (b) of this section that any act or practice is unfair or deceptive, and issues a final cease and desist order, other than a consent order, with respect to such act or practice, then the Commission may commence a civil action to obtain a civil penalty in a district court of the United States against any person, partnership, or corporation which engages in such act or practice -

Here is the critical passage in 5(b):

If upon such hearing the Commission shall be of the opinion that the method of competition or the act or practice in question is prohibited by this subchapter, it shall make a report in writing in which it shall state its findings as to the facts and shall issue and cause to be served on such person, partnership, or corporation an order requiring such person, partnership, or corporation to cease and desist from using such method of competition or such act or practice.

In both civil penalty notices the FTC sent out, it cited a case that should not support civil...