Lina Khan was appointed FTC Chair in June of this year, about five months ago as of this writing. Even before she arrived, she promised to bring bold new thinking to the agency and to change the way it does business. In previous blogposts, we highlighted Khan's vision for the agency, her plans for privacy, and the FTC's aggressive use of penalty offense warning letters, among many other topics. In this blogpost, we're focusing on how Khan is changing the process and tone at the agency.
First, a little background to remind our readers of our FTC “roots,” past and present. I was a longtime career official at the agency for 26 years, rising to become Director of its Bureau of Consumer Protection (BCP) for four years during the Obama Administration. Many of my colleagues are former longtime FTC'ers too – Bill MacLeod (another former BCP Director), Laura Riposo VanDruff, Aaron Burstein, and even our managing partner Dana Rosenfeld. Others (Christie Thompson, Alysa Hutnik, John Villafranco, Donnelly McDowell) have been practicing before the FTC for decades. We know the FTC and its powers and tools well, we're currently representing companies under FTC investigation, and we're watching the agency's actions closely. Here's what we've learned so far:
The FTC is in a hurry to get big, dramatic results.
Khan has styled herself as the new sheriff in town, eager to take on fights others have shied away from, and to rack up accomplishments like never seen before. So far, the agency has announced relatively few cases (as opposed to policy statements, plans, and process changes), creating ever more pressure on Khan and her appointees to speed things up and “think big.” In some instances, this has led the agency to take legal and procedural shortcuts that could backfire in the long run.
For example, even as an official review of FTC's Health Breach Notification Rule was pending, the agency suddenly issued a policy statement “clarifying” that the rule applies to a wide array of health and fitness apps, an interpretation never contemplated in the original rulemaking. This summer, the FTC approved (by 3/2 vote) numerous resolutions allowing one Commissioner, rather than all five, to consider and approve civil investigative demands in a host of new topic areas – a move decried by the two dissenting Commissioners as a way to bypass oversight by the full Commission. In addition, the speed of investigations has accelerated – not necessarily a bad thing unless, as we are experiencing, it means skipping the thorough analysis and vetting needed to understand the facts and apply appropriate legal theories.
The agency is laser-focused on obtaining significant civil penalties and other monetary relief.
Adding to the FTC's sense of urgency are recent limits imposed on its ability to obtain monetary relief in its law enforcement actions. In April, as we discussed here, the Supreme Court ruled that the FTC can't obtain monetary relief under Section 13(b) of the FTC Act. As a result, the agency is attempting to use other tools to obtain money in its cases, including by re-pleading and re-filing pending cases, as we've discussed here.
One of these tools is to blanket the marketplace with penalty offense warning letters (over 1800 sent so far) to lay the foundation for obtaining civil penalties in later cases – an aggressive use of a little-known legal provision that we believe is a big stretch under the law. Another is to allege rule violations (which trigger penalties and/or consumer redress), including by asserting overly broad interpretations of existing rules (e.g., the Health Breach Notification Rule, discussed above). Yet another is to partner with other federal agencies and state enforcers to enhance available remedies – a strategy that forces companies to navigate multiple agencies and multiple laws in a single investigation. Newly installed CFPB Director Rohit Chopra has already announced plans to collaborate with the FTC in this manner to address “business models that rely on harvesting and monetizing personal data.”
Much of this activity is designed to give FTC staff a basis for demanding large sums from companies and individuals in consent negotiations, before a case goes to court. And indeed, some of the FTC's penalty demands have increased substantially in recent months, with the new amounts seeming to bear little or no relation to prior cases or the number and seriousness of the alleged violations. In certain instances, these heightened demands appeared suddenly after Khan joined the agency. FTC staff are often at a loss to explain their positions and seem to have little authority to alter them.
Many agency decisions are “top down,” in contrast to prior practice.
And that brings us to our next big observation – “top down” management. For as long as we can remember, most FTC cases and initiatives have filtered up to the Commission from career staff, both to ensure decisions on the merits (by nonpolitical staff with deep expertise) and maintain an organized deliberative process. In contrast, most decisions today appear to be coming from the top. As a result, it's difficult to make progress simply by talking to career staff, who are not empowered or “in the know.”
In addition, many decisions appear to be driven by a desired outcome, not built from the evidence and governing law. For example, the FTC appears to be naming individuals as defendants reflexively, even though the law requires proof of participation or control over the alleged violations.
The agency, at least for now, has abandoned its bipartisan traditions.
In contrast to the FTC's longstanding practice of developing policy and cases through consensus, many votes today are 3/2 – including those involving a reported 20 “zombie” votes that former Commissioner Chopra cast the day before his departure, which are still being counted weeks later to create a majority. This means there is less deliberation to consider different arguments and reach the best outcome, as Commissioners Christine Wilson and Noah Phillips have repeatedly argued. Although Biden's nominee to replace Chopra – Alvaro Bedoya, a respected academic – could change the interpersonal dynamics when he arrives, he seems very likely to vote with the majority, continuing the 3/2 trend.
So what does this mean for companies and individuals being investigated by the FTC?
With an aggressive and unpredictable FTC, whose positions may not always comport with sound law and policy, the need for advocacy and strategy has never been greater. Clients need to know what arguments to make, when to make them, and who are the decision-makers. They also will need to carefully evaluate their options as they engage with agency, including:
- Settle or litigate?
- Take it slow or speed it up?
- Meetings, letters, and/or White Papers?
- Deal with staff or escalate to the Commission?
These are the types of judgments and recommendations this team has made for years, and we encourage clients to call us with any questions, large or small. We will continue to monitor FTC developments and post updates as they occur.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
