More than four decades after the Federal Trade Commission (FTC) began filing consumer protection actions in federal court for retroactive monetary relief without first completing an administrative proceeding, and more than two decades after it began using this same approach in antitrust cases, the Supreme Court has finally weighed in on the practice, unanimously declaring that it has never been authorised by law. The long-anticipated decision came down on 22 April 2021, holding that the FTC's commonly used process of relying on Section 13(b) of the FTC Act to seek disgorgement of ill-gotten gains in federal court was not permitted by the act. The opinion in AMG Capital Management, LLC v Federal Trade Commission (authored by Justice Breyer) means that, going forward and under current law, the FTC is permitted to seek retrospective remedies, such as disgorgement and restitution to victims, only after it has pursued and obtained a final order using its administrative process for seeking cease-and-desist orders. However, the Supreme Court suggested that Congress could easily act to amend the FTC's enabling legislation to permit the FTC to pursue retrospective remedies in federal court without pursuing an administrative proceeding; the current climate in the United States regarding antitrust law enforcement makes pursuit of congressional blessing for the FTC's previous process of seeking retrospective relief in federal court a likely next step for the FTC.
FTC Act and historical enforcement practices
The FTC has long been permitted to enforce the FTC Act in administrative proceedings, but nearly 50 years ago Congress enacted Section 13(b) of the FTC Act (codified at 15 US Code (USC) Section 53(b)), granting the FTC the additional ability to seek some remedies in federal court. Section 13(b) permits the FTC to seek temporary restraining orders or preliminary injunctive relief in district courts pending the issuance or termination of an administrative proceeding and provides that "in proper cases the Commission may seek, and after proper proof, the court may issue, a permanent injunction".
Section 19 of the FTC Act (codified at 15 USC Section 57b) permits the FTC to seek retrospective monetary relief for violations of the FTC Act in federal court, but only in limited circumstances. Prior to seeking relief in federal court under Section 19, the FTC must have engaged in its full administrative process and have issued a final cease-and-desist order regarding the conduct for which it seeks relief. In addition, the FTC must demonstrate to the federal court that the challenged practice "is one which a reasonable man would have known under the circumstances was dishonest or fraudulent" – a standard that seems more clearly applicable to consumer protection cases than competition cases.
Since the late 1970s, presumably due to its efficiency and broader applicability compared with Section 19, the FTC has used Section 13(b) in consumer protection cases to seek not only injunctions, but other forms of equitable relief, including restitution. Its claimed authority for pursuing such relief was Section 13(b)'s "permanent injunction" language, which the FTC contended, relying on court decisions analysing other statutes, was broad enough to encompass a wide array of equitable relief. The FTC adopted the same approach in competition cases in the 1990s, again pointing to Section 13(b)'s permanent injunction language when seeking restitution and disgorgement in federal court for antitrust claims without having brought an administrative proceeding.
Within the FTC, views on using Section 13(b) to obtain monetary relief have shifted multiple times over the past two decades, particularly in competition cases. While the FTC began using Section 13(b) for this purpose in the late 1990s, it issued a policy statement in 2003 explaining that in competition cases going forward, it would seek restitution or disgorgement under Section 13(b) only in exceptional cases, and listed factors which it would consider when determining whether a case was 'exceptional'. However, nine years later, the FTC withdrew that guidance, explaining that "the practical effect of the Policy Statement was to create an overly restrictive view of the Commission's options for equitable remedies". In the decade since that withdrawal, the FTC's pursuit of equitable monetary remedies in federal court under Section 13(b) became more frequent than its pursuit of administrative actions in consumer protection and competition cases.
During the decades between the FTC's initial use of Section 13(b) to seek compensatory relief and the Supreme Court's ruling in AMG Capital Management, a majority of circuit courts of appeals issued decisions agreeing with the FTC that Section 13(b) permits the award of restitution or disgorgement in federal court, despite monetary awards not being referenced in the statute. In 2019, for the first time, a court of appeals (the Seventh Circuit) held that Section 13(b) could not be read broadly to permit monetary relief in federal court, overruling its own precedent from the 1980s in which it had held that 13(b) did authorise monetary equitable relief. The Third Circuit followed suit in 2020, reconsidering its prior dicta to the contrary. In other words, until two years ago, the eight circuit courts that had opined on Section 13(b) had unanimously agreed with the FTC's interpretation – an interpretation that has now been unanimously rejected by the Supreme Court.
Supreme Court decision and practical implications
The AMG Capital Management decision has a clear underlying theme: regardless of the public policy benefits, the text and structure of an act of Congress are the most important factors in determining when an agency is authorised to take a particular action. The Supreme Court acknowledged that using Section 13(b) to circumvent administrative proceedings and seek monetary relief in federal court may be desirable from a policy perspective, and that doing so had reportedly returned billions of dollars to consumers. However, the court pointed out that if that is the case, the mechanism for securing the authority to seek monetary relief is seeking Congress's revision to the FTC Act – not a judicial revision of the clear language of the statute. This decision may portend future narrowing of longstanding agency practices by a Supreme Court that has increasingly leaned towards strict textualism in construing asserted statutory delegations of authority to administrative agencies.
Consistent with the Supreme Court's statements, some lawmakers have already acted quickly in proposing legislative fixes for the recently confirmed gap in the FTC's powers under Section 13(b), and the FTC's acting chair, Rebecca Kelly Slaughter, has already begun urging lawmakers to pass such legislation. On 27 April 2021 the House Subcommittee on Consumer Protection and Commerce began hearings on proposed legislation. However, unless and until a legislative change is passed and signed into law, the FTC can still seek monetary relief from alleged violators of the FTC Act in the narrow circumstances covered by Section 19, but it must first engage in and complete its (often lengthy) administrative proceeding process before it can move to federal court and seek monetary or other relief for violations of the act.
For now, entities and people who are the subject of FTC proceedings, whether in a consumer protection or competition context, can anticipate any attempt at seeking monetary relief to come much later in the process and only after the FTC has issued a final order as part of its administrative proceeding. In addition, the FTC will need to establish that the challenged practice was one which a "reasonable man" would know was "dishonest or fraudulent" under Section 19 – a standard that may be difficult for the FTC to meet in antitrust cases.
This development also deprives the FTC of the significant tactical advantage of being able to select the forum of its choice. When the FTC is filing suit to seek retrospective monetary relief, it is choosing the federal court venue for its suit and any potential appeal. When it is using its own administrative process, respondents can select the first federal venue when they appeal the FTC's cease-and-desist order in a federal court of appeals. Under Section 5(c) of the FTC Act, a respondent can appeal to a court of appeals "within any circuit where the method of competition or the act or practice in question was used or where such person, partnership, or corporation resides or carries on business". Respondents may therefore have significantly more discretion in which a circuit court hears their appeal and therefore in what precedent might apply to their case. In suits challenging conduct, such as patent licensing practices, this choice of jurisdictions could make a substantial difference (for further details please see "Conceding the battle, but still waging the war: FTC will continue to target patent licensing practices").
