Equitable Monetary Relief Under the Ftc Act: An Opportunity for a Marginal Improvement
| Author | James C. Cooper and Bruce H. Kobayashi |
| Position | Associate Professor of Law, Antonin Scalia Law School at George Mason University, and former Deputy Director for Economic Analysis, Bureau of Consumer Protection, Federal Trade Commission/Professor of Law, Antonin Scalia Law School at George Mason University, and former Director, Bureau of Economics, Federal Trade Commission |
| Pages | 645-695 |
EQUITABLE MONETARY RELIEF UNDER THE FTC
ACT: AN OPPORTUNITY FOR A MARGINAL
IMPROVEMENT
J
AMES
C. C
OOPER
B
RUCE
H. K
OBAYASHI
*
The Federal Trade Commission operates under a century-old statute, and
the strains of age are beginning to show.
1
The FTC’s authority to obtain equi-
table monetary relief in federal court under Section 13(b) of the Federal Trade
Commission Act
2
—an authority that has been presumed by the Commission,
and repeatedly affirmed by courts, for decades
3
—is under attack in three
circuits.
In FTC v. Credit Bureau Center, LLC, the Seventh Circuit reversed its
long-standing precedent and held that Section 13(b), which on its face entitles
the FTC to seek “injunctions” in federal court, does not also permit courts to
award the FTC equitable monetary relief, such as restitution, rescission, or
* James Cooper is Associate Professor of Law, Antonin Scalia Law School at George Mason
University, and former Deputy Director for Economic Analysis, Bureau of Consumer Protection,
Federal Trade Commission. Bruce Kobayashi is Professor of Law, Antonin Scalia Law School at
George Mason University, and former Director, Bureau of Economics, Federal Trade Commis-
sion. The authors would like to thank Bikram Bandy, Howard Beales, Tim Muris, Andrew
Stivers, and the editors of the Antitrust Law Journal for helpful comments.
1
15 U.S.C. §§ 41–58.
2
Id. § 53(b). Section 13(b), added in 1973, provides, in relevant part: “Upon a proper show-
ing that, weighing the equities and considering the [FTC’s] likelihood of ultimate success, such
action would be in the public interest, and after notice to the defendant, a temporary restraining
order or a preliminary injunction may be granted [by a federal court, and] . .. in proper cases the
[FTC] may seek, and after proper proof, the court may issue, a permanent injunction.”
3
For a discussion of the history and development of the Commission’s Section 13(b) author-
ity, see J. Howard Beales III & Timothy J. Muris, Striking the Proper Balance: Redress Under
Section 13(b) of the FTC Act, 79 A
NTITRUST
L.J. 1, 2 (2013); David M. FitzGerald, The Genesis
of Consumer Protection Remedies Under Section 13(b) of the FTC Act, Paper from the FTC
90th Anniversary Symposium (Sept. 23, 2004), www.ftc.gov/sites/default/files/documents/public
_events/FTC%2090th%20Anniversary%20Symposium/fitzgeraldremedies.pdf.
645
83 Antitrust Law Journal No. 3 (2021). Copyright 2021 American Bar Association. Reproduced
by permission. All rights reserved. This information or any portion thereof may not be copied
or disseminated in any form or by any means or downloaded or stored in an electronic
database or retrieval system without the express written consent of the American Bar
Association.
646
A
NTITRUST
L
AW
J
OURNAL
[Vol. 83
disgorgement.
4
As the Seventh Circuit stated, “restitution isn’t an injunc-
tion”—the only thing expressly authorized under Section 13(b).
5
The Ninth Circuit has not been quite as bold as the Seventh in overturning
precedent but nonetheless has raised similar questions about the FTC’s Sec-
tion 13(b) power. In FTC v. AMG Capital Management, LLC, the court relied
on stare decisis to reaffirm the FTC’s power to obtain equitable monetary
relief under Section 13(b), only to have a majority of the panel concur spe-
cially to explain why this interpretation of the FTC Act “is no longer
tenable.”
6
A second, but related, front involves the circumstances under which the
Commission can ask a federal court for injunctive relief in the first place. In
FTC v. Shire ViroPharma, Inc., an antitrust case, the Third Circuit held that
the “clear text” of Section 13(b) of the FTC Act limits the FTC to challenging
conduct that is ongoing or imminent.
7
One of the driving forces behind these recent challenges to the FTC’s au-
thority to seek equitable monetary relief is the Supreme Court’s decision in
Kokesh v. SEC, which held that the Securities and Exchange Commission’s
imposition of disgorgement was a “penalty” for purposes of the federal statute
of limitations.
8
The Court in Kokesh expressly punted on whether the SEC had
the authority to seek disgorgement, but in Liu v. SEC, it answered the question
in the affirmative—the SEC does indeed have that power, with limitations.
9
Although animated by the distinction between legal and equitable remedies,
4
937 F.3d 764, 767 (7th Cir. 2019). In 2020, the Supreme Court granted certiorari in Credit
Bureau and consolidated the case with FTC v. AMG Capital Management, LLC, but later vacated
its grant of certiorari in FTC v. Credit Bureau Center, LLC, 141 S. Ct. 194 (2020) (mem.),
vacated, No. 19-508. 2020 WL 6551765 (U.S. Nov. 9, 2020). The Supreme Court heard oral
argument in AMG Capital earlier this year.
5
Credit Bureau, 937 F.3d at 771.
6
194 (2020) (mem.), argued, No. 19-508 (U.S. Jan. 13, 2021).
7
917 F.3d 147, 150 (3d Cir. 2019). The FTC chose not to seek certiorari in Shire
ViroPharma. See also FTC v. AbbVie Inc., 976 F.3d 327 (3d Cir. 2020) (holding that district
courts lack the power to order disgorgement under Section 13(b)). This article focuses on equita-
ble monetary relief in deception cases and does not address the economics of antitrust remedies
or the FTC’s use of Section 13(b) in antitrust cases such as Shire ViroPharma and AbbVie. For
an analysis of the welfare effects of reverse payments used to settle litigation involving pharma-
ceutical patents, see Bruce H. Kobayashi et al., Actavis and Multiple ANDA Entrants: Beyond
the Temporary Duopoly, A
NTITRUST
, Spring 2015, at 89. For an analysis of remedies in price-
fixing cases, see Michelle M. Burtis & Bruce H. Kobayashi, Regarding the Optimality of Cartel
Fines, ABA A
NTITRUST
L
AW
S
ECTION
C
ARTEL
& C
RIM
. P
RAC
. C
OMM
. N
EWSL
., Spring 2017, at
22. For a comprehensive discussion of these issues, see ABA A
NTITRUST
L
AW
S
ECTION
, P
ROV-
ING
A
NTITRUST
D
AMAGES
: L
EGAL AND
E
CONOMIC
I
SSUES
(3d ed. 2017).
8
Kokesh’s reasoning to equitable monetary relief under the FTC Act and found it to be a penalty.
AMG Capital, 910 F.3d at 429.
9
Liu v. SEC, 140 S. Ct. 1936, 1949–50 (2020).
2021]
E
QUITABLE
M
ONETARY
R
ELIEF
647
not economics, Liu’s requirements that disgorgement focus on profits rather
than revenue and not include items that “have value independent of fueling a
fraudulent scheme” is largely consonant with the economic framework
presented in this article.
10
Although it is far from clear how the Supreme Court will dispose of these
challenges to the FTC’s power in AMG Capital, the challenges certainly pre-
sent a heightened threat to the FTC’s longstanding use of Section 13(b) to
obtain monetary relief in federal court without first having an administrative
hearing.
11
If the FTC were to lose this power, it would severely curtail or even
eliminate its ability to address pure fraud—“the consumer protection analog
to price fixing in antitrust”—which has become a core part of the FTC’s con-
sumer protection work since the inception of the “Fraud Program” in the early
1980s.
12
In our view, this existential threat to the FTC’s ability to obtain equitable
monetary relief in federal court is neither a cause for alarm nor a call to de-
fend the current regime. Rather, we view it as an opportunity to reexamine the
judicially-created superstructure around Section 13(b) and to erect an im-
proved and economically coherent remedial framework. Toward that end, in
this article we are agnostic about the FTC’s legal authority under Section
13(b). We focus our attention on excavating the jurisprudential foundations of
the current state of law, which allows the FTC to impose sanctions out of
proportion to consumer harm when dealing with legitimate products—defined
as those with significant positive demand absent deception. After identifying
the problem, we offer some solutions grounded in the law and economics of
optimal sanctions. Our suggestions to bring economic coherence to the FTC’s
remedial authority may have the collateral benefit of helping to preserve an
important tool in the FTC’s arsenal to protect consumers from the most harm-
ful types of fraud.
10
Id. at 1950.
11
AMG Capital, 910 F.3d 417. See J. Howard Beales III, Benjamin M. Mundel & Timothy J.
Muris, Section 13(b) of the FTC Act at the Supreme Court: The Middle Ground, A
NTITRUST
S
OURCE
(Dec. 2020), www.americanbar.org/content/dam/aba/publishing/antitrust_source/2020/
dec-2020/v20_i3_dec2020_beales.pdf. As discussed in more detail infra, the FTC Act allows the
FTC to use Section 19, 15 U.S.C. § 57b, to obtain monetary remedies in federal court against
certain defendants found liable in an administrative proceeding.
12
Beales & Muris, supra note 3, at 2. The Fraud Program arose in the early 1980s when the
FTC began to use its new powers under Section 13(b) to simultaneously obtain an asset freeze
and return these ill-gotten gains to consumers against defendants engaged in “fraud, near fraud,
or [selling] worthless products.” Id. at 22. Further, when using Section 13(b), the FTC tended to
adhere to the limits found in Section 19, which allowed monetary relief only for conduct that a
reasonable person would have known was “fraudulent or dishonest.” Id. at 30; see also id. at
22–23.
To continue reading
Request your trial