Congress is mulling amendments to the Federal Trade Commission Act that, if enacted, could significantly increase the FTC’s authority to censor commercial speech.  Henry Waxman, through his Energy and Commerce Committee, proposed amendments (styled “improvements”) to the FTCA that seek to expand the FTC’s enforcement and rulemaking power.  House Bill 4173 expressly repeals the rulemaking provisions of the Magnuson-Moss Act and streamlines the FTC’s rulemaking process.  The related Senate Bill, S. 3217, did not include the controversial amendments to the FTCA.  The Senate struck the FTCA changes in their entirety.

The sweeping changes are contained in less than 620 words, mostly striking statutory sections and inserting qualifying language.  The proposed amendments can be read here.  Perhaps most troubling was FTC Chairman Jon Leibowitz’s testimony before the Energy and Commerce Committee in which he pleaded for an expansion of authority.  Mr. Leibowitz testified before the Committee on Energy and Commerce in March 2009.  He stated that the FTC was a “tiny agency” that has been “hamstrung by the Magnuson-Moss rulemaking process” and lacks “fining authority.”  See House Committee on Energy and Commerce, Subcommittee on Commerce, Trade, and Consumer Protection, Testimony of John Leibowitz, Hearing on Consumer Credit and Debt:  The Role of the Federal Trade Commission in Protecting the Public, 111th Cong. (Mar. 24, 2009).

The changes are broad.  The statutory purpose is to remove the Magnuson-Moss rulemaking procedures.  See Consumer Financial Protection Agency Act of 2009, Committee Explanation of Purpose, Section 201, H. Rep. 111-367 (“the FTC is given authority to conduct across-the-board rulemakings under the expedited Administrative Procedure Act, rather than under the present Magnuson-Moss rulemaking procedures”).  “These procedures would replace the burdensome Magnusson-Moss procedures.”  See id. (explaining purpose of Section 201(c)).

 

The Magnusson-Moss amendment was codified, in most part, under 15 U.S.C.  § 57a (Unfair or deceptive acts or practices rulemaking proceedings).  Thus, the bulk of revisions directly affect 15 U.S.C.  § 57a (Section 18 of the FTCA).  In addition, H.R. 4173 drastically increases the FTC’s authority to act against advertising.  The statutory amendments in H.R. 4173:

  • Enables the FTC to seek penalties in enforcement actions against violations of the FTC Act, not just violations of rules and orders, as the FTC Act currently allows;  seeH.R. 4173, § 4901(a)
  • Enables the FTC to enforce against those who knowingly or recklessly provide substantial assistance to entities that violate the FTC Act or any other laws enforceable by FTC relating to unfair or deceptive practices.  See H.R. 4173, §  4901(b);
  • Enables the FTC to promulgate rules relating to unfair or deceptive acts or practices using the procedures required by the Administrative Procedure Act (5 U.S.C. § 553), rather than the Magnusson-Moss procedures.  See H.R. 4173 § 4901(c);
  • Strengthens the authority of the FTC to litigate its own cases when it seeks civil penalties against fraudulent actors.  Under current law, if the FTC wants to seek civil penalties in an enforcement action, it must first refer the case to the U.S. Department of Justice.  The DOJ has 45 days to decide whether to take the case on FTC’s behalf.  FTC can only litigate if the, at the end of the 45 days, the DOJ decides not to take action.  H.R. 4173 would give FTC the authority to bring civil penalty actions without delay.  See H.R. 4173, § 4901(d).

It is hard to grasp why FTC should receive such empowerment.  Even under present conditions, the agency maintains a constant press against free speech.  In deceptive advertising enforcement actions, the FTC’s “competent and reliable” standard remains one of the more subjective, malleable legal burdens.  Moreover, unlike sister agencies like FDA (with jurisdiction over specific goods and practices), the FTC’s jurisdiction over advertising and consumer protection reaches all areas of commerce.  With such broad jurisdiction, Mr. Leibowitz’s description of a “tiny agency” seems misleading.

The FTC is an aggressive agency.  Indeed, in the Magnuson-Moss amendment, Congress restricted FTC’s ability to promulgate rules to certain narrow circumstances after the agency had become overzealous in the 1970s.  There has been no showing that the Magnuson-Moss requirements have hindered the FTC from carrying out a rulemaking it sought to pursue.  If the agency receives general APA rulemaking authority, the FTC could quickly promulgate rules that touch upon all aspects of commerce.  The Magnusson-Moss procedures were enacted to prevent that “sneak-attack” approach on industry.

By repealing the Magnuson-Moss procedures, H.R. 4173 also eliminates the requirement that unfair or deceptive practices be “prevalent,” and eliminates the requirement for the FTC’s Statement of Basis and Purpose to address the economic effect of the rule.  See 15 U.S.C. § 57a (d)(1); H.R. 4173 § 4901(b)(4) (striking provisions in Section 18 of the FTCA).  The changes also affect the standard for judicial review, “eliminating the court’s ability to strike down rules that are not supported by substantial evidence in the rulemaking record taken as a whole,” and repealing the “current restrictions on the Commissioners’ meetings with outside parties and the prohibition on ex parte communications with Commissioners.”  Dissenting Views, supra.

Certain members of the Energy and Commerce Committee clearly thought the amendments were overbroad.  Dissenters did not “believe the FTC requires both general civil penalty authority and general rulemaking authority.”  Id. “With a faster rulemaking process, there is no justification for empowering the FTC to impose civil penalties on someone who has no notice that his or her conduct is illegal.”  Id.

Without any showing that FTC has been disadvantaged by its current authority, members of the House proposed to grant FTC general civil penalty authority under the 15 U.S.C. § 45 standard of unfair or deceptive acts or practices, eliminating prior notice requirements currently in place.  Under current law, the “FTC may only seek civil penalties where the party in question is on notice that his or her conduct is unlawful, unfair, or deceptive.  A party is considered on notice where there is an existing rule clearly defining conduct that is permitted, or, alternatively, where the Commission issued a formal cease and desist order in instances where no law or regulation exists to clearly define permissible and impermissible conduct.”  See id.

The FTC lords over a strict liability regime.  The agency’s current civil penalty authority stands at $16,000 per violation, with each day considered a new violation.  With such significant penalties looming, small companies are potentially crippled by FTC enforcement without even knowing that FTC considered their conduct unfair.

The Senate struck the proposed FTCA amendments from the Senate version of H.R. 4173.  Now the two versions remain in a reconciliation committee.  Fortunately, inside sources indicate that the FTCA amendments are unlikely to survive reconciliation.

Check back for updates.   Do not hesitate to contact Emord & Associates with questions for our attorneys.

 

 

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