Indictments Do Not a Common Law Make: A Critical Look at the FTCCs Consumer Protection 'Case Law'

Abstract

FTC Commissioners have increasingly described the Commission’s settlements of privacy, data security and other IT-related consumer protection enforcement actions as a “common law.” Dan Solove and Woody Hartzog defend this approach in their article “The FTC and the New Common Law of Privacy,” and in another forthcoming paper. This paper examines enforcement actions brought by the FTC dating back to the mid-90s and asks a series of questions: How did the FTC analyze the elements of its deception and unfairness claims? How does that analysis compare with what the FTC’s policy statements on both seem to require, with the level of analysis typically performed by courts, and with the FTC’s own analysis in the few cases where it has actually appeared in court, primarily to seek preliminary injunctions? Has the FTC fulfilled the promise it made to Congress in the Unfairness Policy Statement that the “meaning and application” of unfairness (deception) would emerge through “the gradual process of judicial inclusion and exclusion,” and that the Commission would, in “identifying unfair trade practices,” operate “subject to judicial review? In short: does the FTC’s approach really resemble a common law process?Thus far, my research strongly indicates that the FTC has done little to develop the core elements of either deception or unfairness outside of traditional marketing contexts. This is chiefly because companies so rarely challenge enforcement actions and when the Commission settles an enforcement action, Section 5(b) requires only that (a) the Commission has “reason to believe” a violation of law has occurred and (b) believes that opening the enforcement action would be in the public interest. Section 5(b) does not require any justification or process for settling a case unless the Commission seeks a monetary penalty (e.g., for violations of existing consent decrees). Thus, the settlements cited by the Commission as “guidance” do not even, by their own terms, purport to reach the merits of underlying issues and involve significantly less analysis than in judicial motions for preliminary injunctions. I survey major doctrinal leaps made with little analysis other than the occasional dissent. Most notably, the FTC has pushed the boundaries of deception by (1) unquestioningly extending the strong (and logical) presumption that marketing statements are material to non-marketing statements such as privacy policies and help pages and (2) by policing business-to-business conduct without assessing whether the greater sophistication of businesses makes it “reasonable” for them not to exercise greater caution or self-help. Even more troublingly, the Commission offers little (if anything) more than cursory assertions as to the elements of unfairness, which the Commission is applying more broadly. Most notably, the Commission has failed to articulate a coherent methodology for weighing costs and benefits of ambiguous practices. In both areas, the Commission has imposed the same boilerplate conditions in its consent decrees, with no evident tailoring of remedies to harms. The ultimate purpose of the paper is to consider a range of changes to Section 5 or FTC practice that could make the FTC’s approach more like a common law — and ensure that the FTC spends its limited enforcement resources on interventions that will actually benefit consumers. This might include having litigate in Federal court, better explaining its analyses, a greater role for individual Commissioners and the Bureau of Economics in forcing doctrinal analysis, and removing structural biases that encourage companies to settle rather than litigating. Litigation, after all, is the fountainhead of true common law.