An FTC defense attorney can provide legal assistance with enforcement actions against individuals and businesses charged with unfair and deceptive advertising and marketing practices or fraud. Penalties associated with FTC violations can have substantial monetary consequences.
The Federal Trade Commission (FTC) is a federal agency that is responsible for enforcing the prohibition of unfair or deceptive advertising and marketing practices by individuals and businesses. Its primary goal is to promote consumer protection and prevent or eliminate anti-competitive business practices, such as coercive monopolies. By overseeing and regulating specific guidelines, the FTC protects consumers against fraud. The Bureau of Consumer Protection works to stop unfair, deceptive and fraudulent business practices by:
- Collecting consumer complaints
- Conducting investigations on filed complaints
- Developing and enforcing rules that protect consumers
- Educating businesses and consumers on their rights and responsibilities
- Suing businesses and individuals that violate FTC regulations
According to FTC regulations, claims used in advertising and marketing must be truthful and based on facts and evidence. Endorsements used in advertising and marketing must meet the standards of the FTC Act. False advertising and marketing practices are deemed to be unfair or deceptive to consumers and constitute consumer fraud. Individuals and businesses charged with FTC violations and fraud are subject to serious penalties, often with life-long consequences.
Penalties for FTC Violations
Penalties associated with FTC violations can be substantial. In August 2016, the FTC approved final amendments to increase the maximum amount imposed for civil penalties to adjust for inflation. The maximum civil penalty amount has increased from $16,000 to $40,000. The new maximum for civil penalties applies to all affected violations, even if the violation date is prior to August 1, 2016. Moving forward, the maximum amount of civil penalties will be automatically adjusted each January to meet annual inflation rates.
Due to the way civil penalties are calculated by the FTC according to certain statutes, some violations will be highly impacted by increased maximums. Under provisions of the Clayton Act and HSR Act, the statute sets civil penalties on a daily basis, so the maximum total civil penalty of $40,000 could be multiplied by the number of days an individual or business is in violation. For violations that remain unresolved, the FTC considers each day as a separate violation of the statute. When determining civil penalties to be imposed, the court and the FTC will consider the history of previous violations or unethical conduct, the degree of culpability, the impact to the individual or business, and the ability to pay civil penalties. To reduce financial hardship, the FTC has a civil penalty leniency program for small businesses that are not in compliance with the law.
In addition to civil penalties, the FTC often seeks monetary restitution for consumers who have been harmed by unfair or deceptive practices. The FTC will often seek to disgorge a business’s net total revenue for the entire time that the offending practice was in use. An individual business owner may be held personally liable for restitution because a corporation does not shield decision-makers from deceptive business practices claims.
Temporary Restraining Orders
Most FTC enforcement actions are initially filed under seal along with an ex parte application for a Temporary Restraining Order (TRO). Typically, a TRO seeks to freeze all assets associated with merchant funds, and usually extends to all third parties in possession or control of such funds, such as banks and payment facilitators. Most TROs also seek appointment of a temporary receiver to take control of the marketer’s business and assets. This is done to prevent further consumer fraud and ensure that adequate funds are preserved for the purposes of consumer restitution.
Since most enforcement actions are filed under seal, an FTC attorney is essential for proper defense against enforcement actions. Once the court unseals a complaint, the action becomes a matter of public record, however, the defendants’ assets have already been frozen. The TRO is followed by a motion for a preliminary injunction that prohibits the individual or business from engaging in further deceptive practices and fraud. If the FTC prevails on the preliminary injunction motion, the defendant is often left with no funds to defend the action.
When the FTC is successful in proving unfair or deceptive advertising or marketing practices or fraud, the business charged with violations will usually agree to a permanent injunction that bans them from engaging in similar conduct and practices for life. To settle the action, the business or individual will be required to pay a substantial monetary judgment and file annual reports with the FTC regarding their future business activities for a period of at least ten years. An FTC attorney can create favorable settlement terms and negotiate reduced monitoring and reporting requirements in FTC litigation.