The Supreme Court ruled unanimously against the FTC today, curtailing the Federal Trade Commission’s ability to obtain restitution payments from companies that practice deceptive marketing.
The court held that Section 13(b) of the Federal Trade Commission Act does not, in fact, give the FTC the right to seek restitution payments on behalf of consumers who were harmed by unlawful marketing practices. This marks a significant blow to the FTC, which has been seeking such damages for 40 years as a major part of its enforcement arsenal.
Justice Stephen Breyer did note that the FTC can still obtain restitution payments on behalf of consumers under other sections of the FTC Act.
What does this Supreme Court decision mean for the FTC?
Restitution payments have historically been a large part of the financial penalties that companies face when squaring off against the FTC. The FTC uses the threat of such damages to settle most cases out of court.
Additionally, it has been common practice for the FTC to initiate federal lawsuits with an ex parte order to freeze the offending company’s funds—essentially taking control of the company without warning in order to ensure funds remain available to pay for consumer damages.
How will the FTC enforce advertising laws going forward?
With this new blow to the FTC’s enforcement abilities, it is unclear how future cases will be impacted. One possibility is that the FTC will shift away from out-of-court settlements and refer more cases for criminal prosecution against companies with deceptive marketing practices.
One thing we know for sure is that the FTC is a formidable adversary regardless of today’s Supreme Court decision. For example, the FTC can still seek permanent injunctions against businesses that practice deceptive marketing to prevent further damage to consumers.
Although one of the Commission’s favorite enforcement tools may be gone, companies should still be careful to comply with FTC advertising laws!