Court unanimously invalidates the FTC's long-held view that FTC Act Section 13(b) implicitly authorizes restitution or disgorgement of unlawfully obtained profits.
The Supreme Court ruled unanimously in AMG Capital Management v. FTC that Federal Trade Commission Act ("FTCA") Section 13(b) does not authorize the FTC to obtain monetary remedies such as restitution or disgorgement. The Court's decision is a significant setback for the FTC, particularly in consumer protection matters, where Section 13(b) monetary relief is among the FTC's primary tools. The ruling also affects antitrust enforcement in the pharmaceutical industry, where the FTC has pursued disgorgement amounts as high as $1.2 billion. Going forward, the FTC will be limited to injunctive relief in the vast majority of matters.
FTCA Section 5 authorizes the FTC, following a hearing, to order a person or corporation to cease and desist from using any unfair method of competition or any unfair or deceptive trade practice. FTC rules provide for a hearing before an FTC administrative judge, subject to appeal to the full commission, and a subsequent right of appeal to a U.S. court of appeals. Congress amended Section 13(b) of the FTCA, however, to permit the FTC to seek injunctive relief in federal district court. Specifically, if the FTC has reason to believe that any person or corporation "is violating, or is about to violate" the FTCA, it can seek an injunction pending resolution of the administrative proceeding. The court may grant such relief if it finds that an injunction would be in the public interest. And "in proper cases," the court may issue a permanent injunction.
Notably, the FTC and a number of lower courts interpreted Section 13(b)'s permanent injunction provision to include an implicit authorization to obtain restitution or disgorgement of unlawfully obtained profits. The Court rejected that interpretation, finding that Section 13(b)'s language authorizes only prospective injunctive relief, not retrospective monetary remedies. The Court also found it unlikely that Congress would have explicitly authorized "conditioned and limited" monetary relief in other parts of the FTCA if Section 13(b) authorized the FTC to obtain monetary relief without those conditions and limitations.
Going forward, the FTC can seek monetary remedies under the FTCA only in "conditioned and limited" circumstances, none of which apply to an initial violation of the statute. For example, the FTC can sue for civil penalties and equitable relief under Section 5 if a defendant violates a final FTC cease and desist order. In addition, the FTC can issue rules that define specific acts that are "unfair or deceptive," and then once it does so, seek remedies from violators in federal court.
While the FTC's ability to obtain injunctive relief is unaffected by the Court's decision, the threat to recover monetary remedies historically has been a significant lever at the FTC's disposal. Without this threat, we expect fewer settlements and more litigation in antitrust and consumer protection cases.
Even before the Court's decision, members of Congress introduced legislation that would grant the FTC (and Department of Justice) new authority to obtain monetary remedies or civil penalties. The Court's ruling will add fuel to that fire.
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