Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—8th Cir.: Consumers denied intervention in FTC suit against Bitcoin mining machine seller, (Aug 25, 2015)

By Jeffrey May, J.D.

The U.S. Court of Appeals in St. Louis will not allow two consumers to intervene in an FTC enforcement action against a marketer of “Bitcoin mining machines.” The consumers lacked standing to intervene and did not meet the requirements of Rule 24(a) of the Federal Rules of Civil Procedure for purposes of their motion to intervene of right (FTC v. Johnson, August 25, 2015, Benton, D.).

The FTC filed a complaint in 2014 against BF Labs, Inc. for engaging in deceptive marketing of specialized computers designed to mine Bitcoins. Bitcoins, sometimes referred to as “virtual currency,” can be traded for goods, services, or physical currency. At the time the agency's complaint was announced, the FTC explained that Bitcoins can be “mined” using computers to calculate increasingly complex algorithmic formulas. When a user solves a formula, the Bitcoin system awards that user a set number of Bitcoins. As more algorithmic formulas are solved, the codes become harder to crack and require more powerful computers to solve them. BF Labs allegedly misrepresented their computers, which they called BitForce, as cutting-edge, powerful and efficient, when they were actually useless for their intended purpose, according to the agency.

At the FTC's request, the district court granted a temporary restraining order, establishing a receivership and staying all suits against BF Labs. The receivership has now been wound down and the stay has been lifted; however, there has been no adjudication of the FTC’s claims.

Two consumers who filed a class action against BF Labs five months before the filing of the FTC complaint moved to intervene permissively and of right in the FTC action. The consumers argued that a successful FTC suit “will eliminate class members’ contractual right to obtain possession of the Bitcoin mining equipment . . . and will extinguish class members’ ability to recover damages . . . .”

The consumers’ motion was denied because the movants lacked standing to intervene. Their purported injury was not actual or imminent. Instead, it was conjectural and hypothetical, in the court’s view. The injury was contingent on several conditions: the FTC prevailing; the court awarding award relief that precluded a consumer recovery; the certification of the consumers’ class; and the class prevailing.

Even if the consumers had standing to intervene, they failed to satisfy Rule 24(a) requirements that they have (1) a recognized interest in the subject matter of the litigation that (2) might be impaired by the disposition of the case and that (3) would not be adequately protected by the FTC. The consumers have not made the necessary “strong showing of inadequate representation.” The court explained that the movants’ interests were subsumed within the public interest because the FTC was seeking relief for the same “deceptive and unconscionable business practices” alleged by the consumers.

The case is No. 14-3286.

Attorneys: Michael Daniel Bergman for FTC. Andrea M. Chase (Spencer & Fane) for Eric L. Johnson. Miriam Elisabeth Bailey (Polsinelli, PC) for BF Labs, Inc.

Companies: BF Labs, Inc.

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