The Federal Trade Commission (FTC) announced an enforcement action against Evolv Technologies, alleging that the company made deceptive claims about the capabilities of its AI-powered security screening system, including in school settings. Among other allegations, the complaint alleged that Evolv advertised that its systems could reliably detect all weapons, but the systems consistently failed to detect guns and knives and routinely gave false alarms.
The FTC also announced a proposed settlement. Interestingly, the two sitting Republican commissioners, one of whom will likely be the acting chair after January 20, disagreed on the scope of the proper remedy under Section 13(b) of the FTC Act. While commissioners Andrew Ferguson and Melissa Holyoak both supported the FTC's settlement with Evolv, they disagreed on the FTC's authority to provide relief in the form of contract cancellation for school customers.
Holyoak disagreed with the agency's decision to order Evolv to notify its school customers of their right to unilaterally cancel multi-year subscription contracts with Evolv. Citing the Supreme Court's decision in AMG Capital Management, Holyoak argued that rescission (invalidating a contract and restoring parties to their pre-contract positions) and consumer redress are outside the FTC's Section 13(b) authority. Rather, Section 13(b) only permits prospective relief in the form of injunctions to prevent future violations, while rescission and redress are explicitly authorized under Section 19(b).
Ferguson agreed that the FTC could allow customers to withdraw from contracts but that the remedy was on the "very edge" of the FTC's authority. Ferguson distinguished the contract cancellations from rescission because the agency was not providing retrospective relief. Rather, the order allowing customers to cancel their contracts with Evolv acted as a "permanent injunction" to address the ongoing violation of the FTC Act's prohibition on deception because Evolv continues to benefit from contracts obtained through misrepresentations.
Under chair Lina Khan, the FTC has taken a very aggressive view of its remedial authority, with Republican commissioners often dissenting. Observers will be curious to see who will be named acting chair, and what if anything that will mean for how the FTC interprets its remedial authority.
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