On March 25th, the Federal Trade Commission (FTC) announced that the agency is creating a new and dedicated “rulemaking group” within the FTC’s Office of the General Counsel.  Currently, rulemaking within the FTC is decentralized and individual bureaus are responsible for promulgating particular rules.  With this new group in place, Acting Chairwoman Rebecca Slaughter explained, the FTC can take a harmonized approach to rulemaking across its different authorities in order to prohibit unfair and deceptive trade practices and unfair methods of competition.  This move is significant because, although the FTC has declined to engage in rulemaking for many years, it has signaled its desire for stricter enforcement for some time.  Just last year, the FTC promulgated a new “Made in USA” labeling rule in order to make the standards clear and to enable the Commission to seek civil penalties for any violations.

Historically, the FTC has relied on the Sherman and Clayton Act to police anticompetitive conduct and invoked Section 13(b) of the FTC Act to seek monetary relief for any violations of the Act on a case-by-case basis.  However, recently, the Supreme Court heard oral arguments in AMG Capital Management, LLC v. Federal Trade Commission and there is a risk that a decision in this case could restrict the FTC’s ability to seek restitutionary relief under Section 13(b). Thus, one outcome of the new centralized rulemaking group would be to position the FTC with more tools to prevent consumer harm through asserting violations of rules, which will invoke civil penalty authorities. See Sections 5 and 19 of the FTC Act.

The FTC has been criticized in the past for failing to provide sufficient notice of the standards expected of advertisers.  This is an expected outcome of “regulation through litigation,” i.e., the use of the adjudicatory process to send messages to industry about standards of compliance.  If the FTC begins to transition its use of power to the creation and enforcement of rules, that would be a fundamental change from its historical way of executing its mission.  While the FTC has created rules, they are few and far between, likely because of the onerous notice and comment process applicable uniquely to FTC rulemaking.  Unlike the informal rulemaking that characterizes the majority of federal agency procedure, the FTC must follow a more involved form of rulemaking under Section 18 of the Act.  Notably, Section 18 authorizes the Commission to issue “rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce” within the meaning of Section 5(a)(1) of the Act, but also requires an opportunity for informal hearings at which interested parties are accorded limited rights of cross-examination. Moreover, before commencing a rulemaking proceeding, the Commission must have reason to believe that the practices to be addressed by the rulemaking are “prevalent.” 15 U.S.C. Sec. 57a(b)(3).

Acting Chairwoman Slaughter said, “I believe that we can and must use our rulemaking authority to deliver effective deterrence for the novel harms of the digital economy and persistent old scams alike” and added that it “is also time for the Commission to activate its unfair methods of competition rulemaking authority in our increasingly concentrated economy, and I am excited for this new rulemaking group to explore all the possibilities.” While the new rules may take some time to come into effect, they will give the FTC enforcement authority that was not available under the FTC Act.  We will continue to monitor updates and inform clients on the impacts of any new rules that are promulgated.