The Federal Trade Commission operates under a century-old statute, and the strains of age are beginning to show. The FTC’s authority to obtain equitable monetary relief in federal court under Section 13(b) of the Federal Trade Commission Act—an authority that has been presumed by the Commission, and repeatedly affirmed by courts, for decades—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 disgorgement. As the Seventh Circuit stated, “restitution isn’t an injunction”—the only thing expressly authorized under Section 13(b).
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 Section 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 specially to explain why this interpretation of the FTC Act “is no longer tenable.”
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.
One of the driving forces behind these recent challenges to the FTC’s authority 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. 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.Although animated by the distinction between legal and equitable remedies, 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.