In a prior post, I made the important if wholly unoriginal point that the Federal Trade Commission’s (FTC) recent policy statement regarding unfair methods of competition (UMC)—perhaps a form of “soft law”—has neither legal force nor precedential value. Gus Hurwitz offers a more thorough discussion of the issue here.
But policy statements may still have value as guidance documents for industry and the bar. They can also inform the courts, providing a framework for the commission’s approach to the specific facts and circumstances that underlie a controversy. That is, as the 12th century sage Maimonides endeavored in his own “Guide for the Perplexed,” they can elucidate rationales for particular principles and decisions of law.
I also pointed out (also unoriginally) that the statement’s guidance value might be undermined by its own vagueness. Or as former FTC Commissioner and Acting Chairman Maureen Ohlhausen put it:
While ostensibly intended to provide such guidance, the new Policy Statement contains few specifics about the particular conduct that the Commission might deem to be unfair, and suggests that the FTC has broad discretion to challenge nearly any conduct with which it disagrees.
There’s so much going on at (or being announced by) my old agency that it’s hard to keep up. One recent development reaches back into FTC history—all the way to late 2021—to find an initiative at the boundary of soft and hard law: that is, the issuance to more than 700 U.S. firms of notices of penalty offenses about “fake reviews and other misleading endorsements.”
A notice of penalty offenses is supposed to provide a sort of firm-specific guidance: a recipient is informed that certain sorts of conduct have been deemed to violate the FTC Act. It’s not a decision or even an allegation that the firm has engaged in such prohibited conduct. In that way, it’s like soft law.
On the other hand, it’s not entirely anemic. In AMG Capital, the Supreme Court held that the FTC cannot obtain equitable monetary remedies for violations of the FTC Act in the first instance—at least, not under Section 13b of the FTC Act. But there are circumstances under which the FTC can get statutory penalties (up to just over $50,000 per violation, and a given course of conduct might entail many violations) for, e.g., violating a regulation that implements Section 5.
That serves as useful background to observe that, among the FTC’s recent advanced notices of proposed rulemakings (ANPRs) is one about regulating fake reviews. (Commissioner Christine S. Wilson’s dissent in the matter is here.)
Here it should be noted that Section 5(m) of the FTC Act also permits monetary penalties if “the Commission determines in a proceeding . . . that any act or practice is unfair or deceptive, and issues a final cease and desist order” and the firm has “actual knowledge that such act or practice is unfair or deceptive and is unlawful.”
What does that mean? In brief, if there’s an agency decision (not a consent order, but not a federal court decision either) that a certain type of conduct by one firm is “unfair or deceptive” under Section 5, then another firm can be assessed statutory monetary penalties if the Commission determines that it has undertaken the same type of conduct and if, because the firm has received a notice of penalty offenses, it has “actual knowledge that such act or practice is unfair or deceptive.”
So, now we’re back to monetary penalties for violations of Section 5 in the first instance if a very special form of mens rea can be established. A notice of penalty offenses provides guidance, but it also carries real legal risk.
Back to pesky questions and details. Do the letters provide notice? What might 700-plus disparate contemporary firms all do that fits a given course of unlawful conduct (at least as determined by administrative process)? To grab just a few examples among companies that begin with the letter “A”: what problematic conduct might be common to, e.g., Abbott Labs, Abercrombie & Fitch, Adidas, Adobe, Albertson’s, Altria, Amazon, and Annie’s (the organic-food company)?
Well, the letter (or the sample posted) points to all sorts of potentially helpful guidance about not running afoul of the law. But more specifically, the FTC points to eight administrative decisions that model the conduct (by other firms) already found to be unfair or deceptive. That, surely, is where the rubber hits the road and the details are specified. Or is it?
The eight administrative decisions are an odd lot. Most of the matters have to do with manufacturers or packagers (or service providers) making materially false or misleading statements in advertising their products or services.
The most recent case is In the Matter of Cliffdale Associates, a complaint filed in 1981 and decided by the commission in 1984. For those unfamiliar with Cliffdale (nearly everyone?), the defendant sold something “variously known as the Ball-Matic, the Ball-Matic Gas Saver Valve and the Gas Saver Valve.” The oldest decision, Wilbert W. Haase, was filed in 1939 and decided in 1941 (one of two decided during World War II).
The decisions make for interesting reading. For example, in R.J. Reynolds, we learn that:
…while as a general proposition the smoking of cigarettes in moderation by individuals not allergic nor hypersensitive to cigarette smoking, who are accustomed to smoking and are in normal good health, with no existing pathology of any of the bodily systems, is not appreciably harmful-what is normal for one person may be excessive for another.
I’ll confess: In my misspent youth, I did some research at the National Institutes of Health (NIH), but I did not know that.
Interesting reading but, dare I suggest, not super helpful from the standpoint of notice or guidance. R.J. Reynolds manufactured, advertised, and sold cigarettes and other tobacco products; and they advertised that “the effect that the smoking of its cigarettes was either beneficial to or not injurious to a particular bodily system.” So, “not appreciably harmful,” but that doesn’t mean therapeutic.
A few things stand out. First, all of the complaints were brought prior to the birth of the internet. Second, five of the eight complaints were brought before the 1975 Magnuson-Moss Act amendments to the FTC Act that, among other things, revised the standards for finding conduct “unfair or deceptive” under Section 5. Third, having read the cases, I have no idea how the old cases are supposed to provide notice to the myriad recipients of these letters.
Section 5 provides that “unfair methods of competition” and “unfair or deceptive acts or practices in or affecting commerce” are unlawful. Section 5(n)—courtesy of the 1975 amendments—qualifies the prohibition:
The Commission shall have no authority under this section … to declare unlawful an act or practice on the grounds that such act or practice is unfair unless the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. … the Commission may consider established public policies as evidence to be considered with all other evidence. Such public policy considerations may not serve as a primary basis for such determination.
As Geoff Manne and I have noted, the amendment was adopted by a Congress that thought the FTC had been overreaching in its application of Section 5. Others have made (and expanded upon) the same observation: former FTC Chairman William Kovacic’s 2010 Senate testimony is one excellent example among many. Continued congressional frustration actually briefly led to a shutdown of the FTC.
Here’s my take on the notice provided by the Notices of Penalty Authority: they might as well tell firms that the FTC has found that violating Section 5’s prohibition of unfair or deceptive acts or practices violates Section 5’s prohibition of unfair or deceptive acts or practices and (b) we’re not saying you violated Section 5, and we’re not saying you didn’t, but if you do violate Section 5, you’re subject to statutory monetary penalties, statutory and judicial impediments to monetary penalties notwithstanding.
What sort of notice is that? Might the federal courts see this as an attempt at an end-run around statutory limits on the FTC’s authority? Might Congress? If you’re perplexed by the FTC’s mass notice action, which authority will provide you a guide?