The Case for Resurrecting the FTC Act’s Penalty Offense Authority
48 Pages Posted: 3 Nov 2020 Last revised: 16 Feb 2021
Date Written: October 29, 2020
This article details why the Federal Trade Commission should resurrect one of the key authorities it abandoned in the 1980s: Section 5(m)(1)(B) of the FTC Act, the Penalty Offense Authority. The Penalty Offense Authority is a unique tool in commercial regulation. Typically, first-time offenses involving unfair or deceptive practices do not lead to civil penalties. However, if the Commission formally condemns these practices in a cease-and-desist order, they can become what we call “Penalty Offenses.” Other parties that commit these offenses with knowledge that they have been condemned by the Commission face financial penalties that can add up to a multiple of their illegal profits, rather than a fraction.
Using this authority, the Commission can substantially increase deterrence and reduce litigation risk by noticing whole industries of Penalty Offenses, exposing violators to significant civil penalties, while helping to ensure fairness for honest firms. This would dramatically improve the FTC’s effectiveness relative to our current approach, which relies almost entirely on another authority, Section 13(b). Section 13(b) does not allow the Commission to seek penalties against wrongdoers, and it is now under threat in the Supreme Court.
We demonstrate in this article that in a number of key areas, including urgent concerns like online disinformation, the Commission can deploy the Penalty Offense Authority immediately. This can increase deterrence, since firms will pay a significant price for engaging in unfair or deceptive practices previously condemned by the Commission. We also outline how the Commission can deploy this authority to combat emerging harms, including illegal targeted marketing and deceptive data harvesting.
We close with a call for a broader rethinking of the Commission’s approach to combatting corporate misconduct. By inventorying its existing tools and deploying them strategically, the Commission can begin to turn the page on its checkered record and regain the public’s confidence.
Keywords: Federal Trade Commission, Corporate Misconduct, Civil Penalties, Unfair Practices, Deceptive Practices
JEL Classification: K20
Suggested Citation: Suggested Citation