Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: Supreme Court petition challenges FTC's use of Sec. 13(b) of the FTC Act to add monetary damages to injunctive relief, (Jun 2, 2014)

By Edward L. Puzzo, J.D.

The U.S. Supreme Court has been asked to review a decision of the U.S. Court of Appeals in Richmond, Virginia, that upheld an FTC assessment of over $163 million in monetary damages jointly and severally against Innovation Marketing, Inc. (IMI), and IMI executive Kristy Ross, for the company's deceptive advertising. The petition for certiorari was filed on May 27, 2014 (Ross v. FTC, Dkt. 13-1426).

The FTC had charged IMI and several of its high-level executives and founders with running a deceptive internet “scareware” scheme that tricked consumers into purchasing computer security software in violation of the FTC Act. The advertisements stated that a scan of consumers’ computers had been performed and detected viruses, spyware, and “illegal” pornography when no such scans were ever conducted.

The district court enjoined the IMI executive from participating in the deceptive practices. In addition, the court held that an individual could be held liable under the FTC Act if the FTC proves that the individual (1) participated directly in the deceptive practices or had authority to control them, and (2) had knowledge of the deceptive conduct. The court therefore held Ross, IMI's Vice President of Business Development, jointly and severally liable for equitable monetary consumer redress in the amount of $163,167,539.

In affirming the district court’s findings, the appellate court stated that to rule in Ross’ favor “would effectively leave the Commission with the ‘futile gesture’ of obtaining ‘an order directed to the lifeless entity of a corporation while exempting from its operation the living individuals who were responsible for the illegal practices’ in the first place.”

Ross' petition to the Supreme Court alleges that the courts have allowed the FTC to read Section 13(b) of the FTC Act to seek monetary remedies in consumer protection cases, when that Section only contains express authorization for injunctions. Section 19 recites restraints on monetary relief, the petition continues, which the FTC "evades" each time it seeks monetary remedies under Section 13(b) alone. The petition further alleges that the FTC has transformed Section 13(b) from an injunctive tool into "a powerful weapon for monetary remedies and business-settlement extractions, contrary to the specific intent of Congress and the manifest statutory purpose." The petition argues that the case presents an ideal vehicle to "stop the FTC's abuse of power."

The petitioner argues that the enforcement provisions authorizing monetary relief under Section 19 of the FTC Act preclude the inclusion of monetary remedies into the "purely injunctive" language of Section 13(b) of the FTC Act.

Attorneys: Robert P. Greenspoon and William W. Flachsbart (Flachsbart & Greenspoon, LLC) for Kristy Ross.

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