Filing Consumer Protection Claims Now Harder for FTC

Mar 21, 2019

The Third Circuit Court of Appeals recently issued a decision, limiting the Federal Trade Commission’s (FTC) ability to bring certain claims in both consumer protection and antitrust matters in federal court.

The federal court ruled in the FTC case against the big drug manufacturer, Shire Viropharma Inc., stating the commission can only bring cases under Section 13(b) of the FTC Act when the agency can offer up specific facts that show a defendant is breaking the law or is about to break it. The decision curbs the FTC’s ability to obtain damages from alleged violators. It also curtails the FTC’s decades-long tradition of going after allegedly unlawful past conduct.

Background on FTC v. Shire ViroPharma Inc.

The FTC filed a complaint in federal district court, claiming Shire ViroPharma Inc. violated antitrust laws by abusing government processes to delay generic competition to its branded prescription gastrointestinal drug, Vancocin HCl Capsules. According to the complaint, the ViroPharma waged a campaign of serial, repetitive, and unsupported filings with the U.S. Food and Drug Administration and courts to delay the FDA’s approval of a generic from of the drug to hinder competition. The FTC claimed that the drug manufacturer knew that it was the FDA’s practice to refrain from approving any generic applications until it resolved any pending relevant citizen petition filings. The FTC asked the court to permanently prohibit ViroPharma from submitting repetitive and baseless filings with the FDA and the courts, and from similar and related conduct, and sought monetary relief, including restitution.

Understanding the FTC Act

The FTC Act provides offers several ways for the agency to go after antitrust and consumer protection misdeeds. The agency can file a cease and desist order, and then file an action for consumer redress following a complete judicial review if the FTC can show that a reasonable person would find the actions fraudulent. Due to stay within the three-year statute of limitations, the FTC instead opted to seek an injunction and monetary relief under Section 13. The court ruled that the FTC could not continue to do this to address past misconduct. It is unclear whether the FTC will appeal the decision to the Supreme Court.

The Big Picture

The court’s decision is not only profound, but could significantly change the way the FTC brings cases to federal court. This is especially meaningful, when you look at FTC’s plans to take a hard-nosed approach against some sectors, including the payments industry, in 2019.

The FTC stated in a recent blog that was committed to go after those that sell products and services with unsubstantiated health claims. This is noteworthy to payment processors that work with businesses in these industries because they can pay the price if it is found that shoppers are buying supplements and such based on deceptive health claims.

In the same blog, the FTC also promised to continue to aggressively seek out merchants that promote free trials or those that violate the Restore Online Shoppers’ Confidence Act (ROSCA). The act prohibits any post-transaction third-party seller from charging any financial account in an online transaction without clearly disclosing all terms and getting the shopper’s consent to the transaction.

Also, the FTC promised to keep a close eye on the fintech industry, noting that “fraudsters often try to sneak in the side door” through new financial innovations that result in widespread consumer harm.

The Final Word

Now, that the FTC has had its ability to use past misconduct to get a case into federal court restricted, will be interesting to see if its agenda as it relates to the payment industry will change.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

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