The Supreme Court Rules that Disgorgement is not an Available Remedy Under the FTC Act – What Comes Next?
We blogged last October (here) about the Third Circuit’s decision in FTC v. AbbieVie Inc., holding that Section 13(b) of the Federal Trade Commission Act, which expressly gives the FTC authority to obtain injunctive relief, does not allow a district court to order disgorgement or restitution. We also noted that the Supreme Court had granted certiorari to hear an appeal of the 9th Circuit’s decision in AMG Capital Management, LLC v. FTC, where the 9th Circuit upheld the Commission’s right to seek equitable monetary remedies pursuant to Section 13(b) of the FTC Act, while the 3rd and 7th Circuit’s had ruled otherwise. We predicted that with the passing of Justice Ginsberg, the appointment of Amy Cooney Barret, and the Court’s general rightward drift, it was likely that the FTC would be relieved of that particular arrow in its quiver.
Our prediction was prescient, and last week, the Supreme Court, in a unanimous opinion authored by Justice Breyer, overruled the 9th Circuit and held that Section 13(b) of the FTC act does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement. A copy of the Supreme Court’s decision can be found (here). Not surprisingly, the Court took a purely textualist approach. As Justice Breyer put it, “the question presented is whether [Section 13(b) of the FTC Act] authorizes the Commission to seek, and a court to award, equitable monetary relief such as restitution or disgorgement. We conclude that it does not.”
This is a tremendous reversal of fortune for the FTC. The Commission’s Bureau of Consumer Protection has recovered billions of dollars in restitution and disgorgement over the last thirty years. In that regard, between 2016 and 2020 alone, the FTC collected $11.2 billion dollars. In AMG Capital Management, the case the Supreme Court just overturned, the Commission obtained an award of $1.27 billion dollars. Before the Supreme Court’s reversal, it was the largest litigated judgment ever recovered by the FTC.
For more than 30 years, Federal Circuit Courts had upheld the FTC’s ability to seek restitution and disgorgement under Section 13(b). Indeed, David Vladeck, a former Director of the FTC’s Bureau of Consumer Protection, and a current professor at Georgetown University Law Center published an article in the Fall 2016 edition of ANTITRUST that concluded that the argument that the FTC lacks authority to obtain monetary relief pursuant to Section 13(b) “has been repeatedly and uniformly rejected by every court to address it” and “this is not going to change.”
Professor Vladeck was right about the former, but not the latter. So what happens now that disgorgement and restitution are off the table? A look at new civil penalty authority recently provided to the FTC relative to COVID-19 related advertising provides a clue. Buried in the 2124 pages of the 2021 Appropriations Bill was the authority for the FTC to seek civil penalties for deceptive COVID-related advertising. (Titled the COVID-19 Consumer Protection Act, a copy of the Act can be found here on page 2094). The civil penalty authority is granted through the duration of the current public health emergency. The current maximum civil penalty amount per violation is $43,280.
This is significant because the FTC did not previously have the authority to seek civil penalties for a first violation of the FTC Act. That is the reason, consequently, why the FTC previously would seek restitution and disgorgement under Section 13 (b)). Penalties were only available where a company or individual was already subject to an order and violated that order. With the authority granted in the COVID-19 Consumer Protection Act, the FTC can identify false or misleading advertising related to COVID-19 and seek civil penalties for that violation. A logical “fix” for the FTC would be to ask Congress for an extension of this authority to apply to all misleading advertising.
The law does not specify how penalties for each violation will be calculated, but a representative of the FTC suggested at a recent webinar that “Every ad is a separate violation and every day that ad runs or is disseminated to the public is a separate violation.”
Given the Supreme Court’s ruling in AMG Capital Management, it would not be surprising to see the FTC lobby Congress to amend the FTC Act to either expressly grant the Commission the authority to obtain monetary relief in Federal Court or expand its ability to obtain civil penalties under the Act to include not just COVID-19 related advertising, but any advertising the agency considers deceptive per Section 5 of the FTC Act and seek civil penalties for that violation.