FTC Commissioners Ponder Future of Section 13(b) and Alternative Enforcement Mechanisms

Nearly a year after the Supreme Court stripped the FTC of its ability to obtain equitable monetary relief under Section 13(b) of the Federal Trade Commission Act (FTCA) in AMG Capital Management LLC v. FTC, the Commission convened an open meeting to discuss the impact of this decision on their activities, as well as potential legislative fixes.^[1]

The statements from the FTC commissioners and staff highlighted that losing 13(b) authority had a large impact on the agency’s enforcement efforts. All Commissioners professed support for a congressional fix to 13(b), but the open meeting indicated they may have competing visions of what that fix should be.

Trajectory of Section 13(b)

Section 13(b) was enacted in the 1970s to provide the FTC with a means to obtain injunctive relief for violations of the FTCA, but the provision is silent on the Commission’s ability to obtain equitable monetary relief. Nevertheless, after Section 13(b) was enacted, the FTC began using this provision as its primary enforcement tool to pursue restitution and disgorgement of profits from companies that have allegedly violated the FTCA. From 2016 to 2020, the FTC obtained more than $11 billion in equitable monetary relief.

However, in AMG, the Supreme Court unanimously held that Section 13(b) did not, in fact, grant authority to the FTC to obtain monetary relief. The Supreme Court’s decision relied on the structure of the provision, and the fact that Section 5(l) and Section 19 both refer to equitable monetary relief, while Section 13(b) is silent. In particular, Section 19 allows the FTC to pursue monetary relief for an unfair or deceptive practice, but only if it first files for a cease-and-desist order through its administrative adjudication and goes through administrative and appellate review. Section 19 also creates liability for violating an FTC rule, irrespective of one’s knowledge of the rule.

Shifting enforcement approaches in the wake of AMG

Many of the speakers at the agency’s open meeting discussed how the FTC has had to pivot its enforcement efforts in the year following AMG.

FTC Chair Lina Khan described Section 13(b) as the “key engine” of the Commission’s previous enforcement and noted that the agency now is required to more frequently use its enforcement power under Section 19 of the FTCA. In addition, the FTC is undertaking new rulemakings “to codify conduct that courts had already determined was unfair or deceptive.” It has also pursued more FTC administrative proceedings and partnered with state attorneys general to obtain monetary relief through their state law powers. Still, Khan described the lack of 13(b) authority as a major gap in the FTC’s ability to make consumers whole and ensure lawbreakers aren’t profiting from unlawful practices.

In her comments, Commissioner Rebecca Kelly Slaughter highlighted that the loss of 13(b) enforcement authority has meant that companies are able to settle for less money and consumers are receiving less relief. Slaughter cited enforcement actions against entities where alleged violations that cost consumers hundreds of millions of dollars were settled for only a fraction of those sums. Slaughter estimated the lost consumer equitable relief in the year after AMG at $1.5 billion.

The FTC Bureau of Consumer Protection’s Acting Deputy Director Audrey Austin provided further insight into what the FTC views as the limitations of its Section 19 authority.

Narrower coverage: Unlike 13(b), Section 19 provides no protection for consumers in antitrust cases, covering only a narrower class of conduct, largely in the consumer protection purview of the FTC. Even in the consumer protection context, the Commission’s authority under Section 19 only extends as far as there is a rule regarding the behavior, but not every unfair or deceptive practice under Section 5 of the FTCA has been codified as such.
Statute of limitations: Section 19 comes with a three-year statute of limitations, which 13(b) did not have. As Austin explained, many FTC actions involve schemes that have operated for years and are investigated prior to legal action. Because of the three-year limit, the FTC may not be able to obtain relief under this provision for those consumers who were early victims (and who are often the ones whose complaints prompt an initial investigation).
Longer timeline to recovery: Austin pointed out that the timeline for consumer refunds under Section 19 has proven far longer (seven to 12 years) than through 13(b) (two to four years). This time lag is compounded in the FTC’s view by the US Court of Appeals for the Third Circuit’s decision in FTC v. Shire ViroPharma, Inc., where the court held that the Commission can only obtain an injunction for unlawful conduct that is ongoing or impending. Austin argued that, taken together, the length of the FTC process under Section 19 means fewer injunctions and, therefore, less monetary relief, because defendants will simply stop their unlawful conduct once they learn of an investigation.

Vision(s) of the future

Every Commissioner voiced support for restoring some version of Section 13(b) enforcement authority through congressional action, but diverged in their views on how to accomplish that goal and how the agency should proceed in the interim. While the Democratic appointees, Khan and Slaughter, were unequivocal in their support for the full restoration of 13(b), including the House proposal that passed last year, the Republican-appointed Commissioners both voiced their support with qualifications.

In particular, Commissioner Christine Wilson highlighted several concerns she had with a full restoration of the FTC’s prior power under Section 13(b). First, she cited the absence of a statute of limitations in the Commission’s previous 13(b) authority and suggested one should be added. Second, she noted concern about the unbounded use of 13(b) for disgorgement in antitrust cases and proposed that the FTC issue guiding principles on when disgorgement will be sought in antitrust case akin to the rescinded 2003 policy statement, which characterized disgorgement as a tool to use in “exceptional cases” only where the violation is clear, there is a reasonable basis for calculating restitution, and “other remedies are likely to fail to accomplish fully the purposes of the antitrust law.” Wilson also raised a third concern that 13(b) would be too broadly applied, and that without limitations, the FTC would apply it to “consumer protection cases that involve not fraud, but legitimate companies selling legitimate products, albeit with deceptive claims.” For those instances, Wilson recommended that Congress create a framework that would allow courts to assess “the value that consumers may have retained from the product or service, despite the deception.”

In addition, Wilson raised a general concern that the FTC’s creative use of its existing authorities, such as Section 19, after the AMG decision stretched its power in ways that went beyond the underlying statutes. In thinking about a potential legislative restoration of 13(b), Wilson cautioned that pushing the boundaries of the agency’s jurisdiction would make those in Congress less inclined to reinstate 13(b).

Key insights

The open meeting discussion left observers with several important takeaways on the future of FTC enforcement action and the shape of future reform to the provision.

New enforcement approaches: Because of the shift from 13(b) to Section 19 as grounds for enforcement, investigations and the related penalties may follow a different path than they did in the past. Companies should be paying special attention to the FTC’s rulemaking activity, as this will likely forecast the Commission’s enforcement priorities in the consumer protection space.
Federal-state collaboration: Khan’s comments also indicate that we will continue to see high levels of collaboration between state attorneys general and the FTC.
No consensus on how to revive 13(b): While the FTC unanimously supports restoring some form of its 13(b) power, and we will likely continue to see a focus on legislative reform, the scope and extent of that reform are not clear.
New Commissioner may shift balance: At the time of the open meeting, the agency only had four Commissioners – two Democrats and two Republicans – meaning enforcement decisions that required a full FTC vote had to have support across the aisle. With the recent confirmation of Commissioner Alvaro Bedoya, the balance of power has now shifted back to the Democratic Commissioners, and we can expect aggressive use of the FTC’s enforcement tools while the future of 13(b) hangs in the balance.