The Essential Guide to FTC Compliance, Investigations, and Enforcement

If an FTC investigation reveals violations of laws or regulations, the FTC has the power to bring an enforcement action, either in federal court or as an administrative action. Under Section 3 of the FTC Act, the Commission may "prosecute any inquiry necessary to its duties in any part of the United States.”

Whether filed in court or administratively, FTC enforcement actions are a serious legal matter. FTC enforcement actions are different than garden-variety litigation, and the defense thereof requires the assistance of an attorney experienced in dealing with the FTC. As explained more fully below, the FTC has powers in an FTC enforcement action that a standard plaintiff does not. Moreover, only an experienced attorney will know that the FTC has a pattern of resolving enforcement actions differently, depending on the type of action and the defendant. For example, you may have read about the FTC assessing fines against large corporations such as Amazon and Google. However, a business engaging in one of the high-risk verticals or advertising practices described above is highly unlikely to resolve the case with a mere fine—instead, the FTC is looking to close down the business and seize all assets—including personal assets—of those in charge. If you learn you are a defendant or potential defendant in an FTC enforcement action, you must seek experienced legal counsel immediately.

When it comes to avoiding FTC lawsuits, many ask whether they are immune to such an action because the business, the business owners, and/or the business assets are located outside the United States. The answer is that there is probably not immunity in these circumstances, so long as U.S. customers were affected by the alleged violations of the FTC Act. Our firm has worked on several FTC enforcement actions where the FTC obtained the cooperation of governmental agencies local to the defendant. Thus, if you are located abroad, you should not count on your international location to protect you against the reach of the FTC.

While international businesses may question whether the FTC Act and related statutes have extraterritorial application, the FTC has sought to use enforcement powers over claimed unfair or deceptive acts or practices that cause or are likely to cause reasonably foreseeable injury within the United States, or involve material conduct occurring within the United States. In addition, the FTC works with more than 100 foreign competition and consumer protection authorities around the world, and cooperates with foreign authorities on enforcement and policy i.e., matters through formal and informal agreements. This notwithstanding, companies that have international sales or offshore accounts should work with counsel, potentially in and outside the United States, to appropriately weigh risks and legal issues. This will lead to an understanding of what changes in business practices may decrease the risk of the FTC alleging jurisdiction over international operations.

Federal lawsuits are conducted before a district court judge or magistrate according to traditional federal court rules. For example, federal lawsuits include the filing of a complaint and response to a complaint, discovery between the parties and with third parties, and potential settlement of the claims in the form of a final stipulated judgment. As in any lawsuit, the defendants have a range of defenses available to them.

One important hallmark of a federal case is that, for the most part, all filings in the lawsuit are publically available and searchable through the federal courts’ PACER and ECF online dockets and filing systems. This means that if you are a defendant in a federal enforcement action, details about the FTC’s allegations against you are available to anyone, including the press and your acquaintances. Even after the case is resolved, the case filings remain accessible online. Of course, as a government agency, non-public records of the FTC, with the exception of any records still associated with ongoing investigations, can be obtained through a Freedom of Information Act, or “FOIA” request. However, FOIA requests take months to process, as opposed to the few seconds required for a PACER search.

Thus, federal lawsuits implicate publicity and reputational concerns and can be expensive to defend. Accordingly, defendants involved in federal lawsuits should immediately consult with experienced legal counsel to determine strategy and next steps.

A federal lawsuit is a serious matter and involves questions of monetary remedies (i.e., money the defendant is required to pay) as well as injunctive relief (i.e., things the defendant is required to do or is barred from doing). But lawsuits can take a toll on defendants that exceeds the ultimate judgment, as addressed below.

Lawsuits in federal court are a serious matter that typically require retention of experienced FTC defense attorneys. This may be difficult if there is an asset freeze or limited funds. However, if there is an asset freeze, counsel may be able to obtain a carve-out for the payment of legal fees and/or living expenses of the defendants. Attorneys can also work with their clients on creating an estimated litigation budget and strategy plan so that clients generally have an idea about projected defense costs. Importantly, litigation with the FTC involves specialized knowledge about FTC litigation and settlement practices, which are especially important when the future of a business, and the personal assets of the defendants, are at risk.

Discovery is the process by which parties obtain evidence for the case. There are various forms of discovery in a federal lawsuit, including written requests (interrogatories and requests for admission) to the other party, requests for production of documents or other tangible things, and notices to depose a party. Discovery may also include subpoenas to third parties to obtain documents and/or oral testimony. Attorneys prepare discovery documents and take depositions, in addition to asserting written objections, preparing any necessary discovery motions, and preparing for and defending clients’ depositions.

One of the most critical components of discovery, which must be put in place long before an enforcement action is filed, is preservation of evidence. Many times, defendants believe the FTC’s allegations of their misconduct are exaggerated—such as when the FTC’s entire complaint is based on a screenshot of a webpage that did not receive much traffic. Problems arise, however, when the defendant did not preserve adequate records of its webpages, advertisements, or sales such that it can disprove the FTC’s allegations with the required level of certainty.

In most cases, the FTC is open to settlement as a way to preserve time and resources. In fact, the FTC’s Operating Manual states that the FTC’s policy is to secure an effective order by consent if feasible, and only by litigation “if necessary.” Often, settlement discussions begin before a complaint is even filed or shortly thereafter. Unlike private litigation, cases involving settlement agreements with the FTC will often be public and available through the FTC website, as noted above. The FTC will also review whether defendants comply with settlement agreements and may file a motion for contempt if defendants are in violation of a final settlement order.

There usually are no private settlement agreements with the FTC. Instead, the terms of settlement agreements are embodied in final court orders, signed by the judge. So the words, “settlement with the FTC,” in this guide refer to the negotiations and finalization of a final court order, which a judge will sign.

The FTC always tries to settle cases, and if a defendant fails to make an appearance in court, the FTC will obtain a default judgment. After the litigation starts, the FTC will eventually move for summary judgment against a defendant. However, if a case is not resolved with a settlement, default judgment, or summary judgment, the FTC will conduct a traditional trial in front of a federal judge on all the claims. The FTC must follow the federal rules of civil procedure and the federal rules of evidence for any trial it conducts in federal district courts around the country. Upon a final judgment, either side may appeal the judgment to a federal Circuit Court.

In contrast to lawsuits brought in federal district courts, an FTC administrative action is an administrative adjudication under administrative rules. Administrative actions are typically sought to obtain, and result in, a cease-and-desist order for allegedly unfair and deceptive acts or violations of other laws (and the parties may settle for restitution). Under Section 5(b) of the FTC Act, the Commission may challenge unfair or deceptive acts or practices, or violations of other consumer protection statutes, through an administrative adjudication. An administrative action begins with the FTC filing a complaint upon an affirmative vote of the Commission to initiate the complaint. The target of the action is called a respondent. If the respondent elects to settle the charges, the respondent may sign a consent agreement without admitting liability, agree to the entry of a final order, and waive all right to appeal. If the Commission accepts such a proposed consent agreement, it places the order on the public record for thirty days of public comment before determining whether to make the order final.

If the respondent does not settle and contests the charges, the matter is adjudicated in front of an administrative law judge. The result of a trial before an administrative law judge is a decision containing findings of fact and conclusions of law, and recommending either entry of an order to cease and desist or dismissal of the complaint. The Commission receives briefs, holds oral argument, and thereafter issues its own final decision and order. If a respondent violates a final order, it is liable for a civil penalty for each violation. Final administrative orders are enforced in federal courts, which can assess civil penalties and issue mandatory injunctions.

Whether defendants have settled a case with the FTC, or are bound by a judgment after contesting FTC claims, defendants need to engage in a significant amount of planning to comply with any final orders of a court and to minimize the possibility of future violations of court orders. Importantly, a final judgment does not end a defendant’s requirements to tend to the dispute with the FTC, as many requirements extend years into the future. Experienced counsel can help establish a game plan to minimize any future problems and keep a defendant off the radar of the FTC.

If you have an FTC legal matter, call us at 415-955-1155, ext. 120, or contact an FTC defense attorney at our firm directly.