Striking the Proper Balance: Redress Under Section 13(B) of the FTC Act

47 Pages Posted: 26 Apr 2016 Last revised: 29 Apr 2016

See all articles by Howard Beales

Howard Beales

George Washington University - School of Business

Timothy J. Muris

George Mason University, Antonin Scalia Law School

Date Written: 2013

Abstract

Since 1981, the FTC has attacked fraud systematically, successfully using the authority under Section 13(b) to obtain a permanent injunction “in proper cases” to freeze assets ex parte and to force disgorgement of ill-gotten gains. More recently, the Commission has asserted the authority to obtain redress routinely, including cases in which established national firms allegedly lack substantiation for their advertising claims. FTC efforts to obtain redress under 13(b) must confront other legislation passed in the 1970s, in particular, Section 19, which limits monetary relief to conduct a reasonable person would know is dishonest or fraudulent. Both injunction and redress authority were included as separate provisions in a bill that passed the Senate in 1971. Although an amended Section 13 was enacted in 1973, and Section 19 was enacted two years later, the inescapable inference from their common origin and the entire legislative history is that Congress did not intend to give the Commission blanket authority to obtain redress. Nevertheless, we argue that the use of 13(b) against fraud respects the carefully constructed congressional grant of authority to the Commission in part because fraud meets the knowledge test of Section 19. Moreover, using Section 19 alone would require three separate actions to attack a fraud successfully -- a preliminary injunction to freeze assets, an administrative action to determine liability, and then another, independent district court action to seek redress. As Congress itself recognized, district courts may be reluctant to grant preliminary relief when they cannot assure an expeditious resolution of the matter. Accordingly, we argue that fraud cases are “proper” under Section 13(b), but routine use of Section 13(b) to seek redress would read “proper” out of the statute.

Keywords: Cease, civil penalties provisions, Commerce Committee, commercial speech, competition, consumer protection, deceptive , desist, equitable remedies, fraud prevention, free flow, section 13(b), FTC, litigation, monetary relief, proper cases, redress, rule making authority, section 5, solvency, unfair

JEL Classification: K1, K21, K23, L4

Suggested Citation

Beales, Howard and Muris, Timothy J., Striking the Proper Balance: Redress Under Section 13(B) of the FTC Act (2013). Antitrust Law Journal, Vol. 79, No. 1, pp. 1-45, 2013, George Mason Law & Economics Research Paper No. 16-17, Available at SSRN: https://ssrn.com/abstract=2764456

Howard Beales

George Washington University - School of Business ( email )

Washington, DC 20052
United States

Timothy J. Muris (Contact Author)

George Mason University, Antonin Scalia Law School ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-9421 (Phone)
703-993-8088 (Fax)

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