For many years, the Federal Trade Commission (FTC) leaned on Section 13(b) of the FTC Act to extract monetary penalties from companies, as it did with Herbalife, Vemma and AdvoCare. But after the Supreme Court ruled in 2021 that the FTC was incorrectly wielding 13(b), citing that the agency did not in fact have the authority to use it to seek monetary relief or restitution, the FTC radically altered its approach. Instead, it sought to pursue companies using Section 5(a) of the FTC Act, accelerating its rulemaking process and giving itself more cushion to decide what was considered “unfair or deceptive practices.”
Soon after the 2021 ruling, the FTC embarked on a blanket letter campaign, issuing notices to more than 700 companies, including a large number of direct selling brands, saying it would “be ready to hold them responsible with every tool at its disposal” for their alleged use of deceptive endorsements, specifically income and earnings claims. Last month, the agency also announced it was proposing changes to impose stricter regulations around auto-renewal programs.
These rapid changes are believed by some legal experts to be an effort on the FTC’s part to expedite rulemaking around its own enforcement authority and the broadening of Section 5(a), as well as to bring its cases before an FTC-appointed judge.
In a unanimous ruling last week, the Supreme Court stated that the FTC has limited powers. In Axon v. FTC and SEC v. Cochran, the highest court looked at the constitutionality of both the prosecutorial and judicial functions residing within the same agency. MLM Attorney Brent Kugler wrote in an online post: “Both defendants challenged the constitutionality of having their cases decided by administrative law judges employed by the agencies bringing the enforcement actions against them. In its decision, the Supreme Court held that people and businesses subjected to administrative proceedings at the FTC (or SEC) can seek to enjoin those proceedings by suing in District Court without first having to exhaust appeals in the administrative tribunal run by the agencies bringing the enforcement action.”
