CPB is responsible for civil and criminal actions brought under the Federal
Trade Commission Act, 15 U.S.C. Â§Â§ 41-58 ("FTC Act"). These cases generally
fall into three categories: 1) enforcement actions for civil penalties and
injunctive relief based on violations of final orders issued by the FTC;
2) enforcement actions for civil penalties and injunctive relief based on
violations of FTC trade regulation rules; and 3) prosecutions for criminal
violations of the FTC Act, and for violations of district court orders obtained
under the FTC Act.
A. Referral of Cases
In general, under the FTC Act, the FTC must notify the Attorney General
of its intention to commence, defend, or intervene in any civil penalty
action under the Act. 15 U.S.C. Â§ 56(a)(1). The Department of Justice ("Department")
then has 45 days, from the date of the receipt of notification by the Attorney
General, in which to commence, defend or intervene in the suit. Id. If the
Department does not act within the 45-day period, the FTC may file the case
in its own name, using its own attorneys. Id.
However, the Department may commence, defend or intervene in the suit
even after the 45-day period expires, during which time the Department
and the FTC have concurrent authority. United States v. Restland
Funeral Home, Inc., 51 F.3d 56 (5th Cir. 1995), cert. denied,
116 S. Ct. 772 (1996).
Notification under 15 U.S.C. Â§ 56 is made directly to the Attorney General
and transmitted to CPB for review. The FTC frequently asks the Department
to decline to handle, and thus permit the FTC to file in its own name, cases
alleging violations of antitrust orders. The Department acquiesces in these
requests if nothing about the case suggests that CPB's participation is
needed, such as a potential for criminal violations.
Other than the cases discussed above, the Department generally files all
cases that are referred. After CPB reviews the case, the appropriate pleadings
are transmitted to the United States Attorney's Office for final review
and filing. In general, CPB personally handles these FTC cases.
B. Actions for Civil Penalties and Injunctive Relief for Violations of
Final Orders Issued by the FTC
These actions are primarily brought under two sections of the Act:
(1) Section 45(l) for violations of orders previously entered by the
FTC against the defendant under the FTC Act; and (2) Section 45(m)(1)(B)
for violations of orders previously entered by the FTC against entities
other than the defendant under the FTC Act. Both sections authorize
civil penalties of up to $10,000 per violation. United States v.
Reader's Digest Association, Inc., 494 F. Supp. 770 (D. Del. 1980),
aff'd, 662 F.2d 955 (3d Cir. 1981), cert. denied, 455 U.S.
908 (1982), discusses criteria that have been used to assess such penalties.
In 1995, CPB obtained injunctive relief and a civil penalty of $2.75 million
against Dahlberg, Inc., for violations of an FTC order that precluded
the company from falsely advertising its "Miracle Ear" hearing aid.
United States v. Dahlberg, Inc., No. 4-94-CV-165 (D. Minn., decree
entered November 22, 1995). The false claims involved the device's alleged
ability to amplify only desired conversation, filtering out unwanted
background noise. The civil penalty is the largest ever collected for
violations of a consumer protection administrative order.
A defendant in a civil penalties action has a right to a jury trial on
the issue of liability. In 1998, a jury found the defendant in United
States v. National Talent Associates, et al., No. 96-CV-2617 (D.
N.J.), liable for over 20,000 violations. The violations involved claims
made in home sales presentations that were forbidden by an FTC order.
A Dateline NBC story that aired shortly before trial showed a salesman,
who testified at trial, making such claims.
C. Actions for Civil Penalties and Injunctive Relief for Violations of
FTC Trade Regulation Rules
These cases are brought under 15 U.S.C. Â§ 45(m)(1)(A) for violations
of FTC trade regulation rules regarding unfair or deceptive acts or
practices. Regulated firms are liable for violations if they act with
actual knowledge that their acts or practices are unfair or deceptive
and prohibited by the rule; or with such knowledge fairly implied on
the basis of objective circumstances. This section also authorizes civil
penalties of up to $10,000 per violation. For a discussion of the criteria
used to assess such penalties, see, United States v. Building Inspector
of America, Inc., 894 F. Supp. 507, 521 (D. Mass. 1995), a case
involving violations of the FTC's Franchise Rule.
CPB, frequently cooperates with the FTC and other federal and state agencies
in bringing numerous civil cases as part of a "sweep" involving a particular
type of consumer rip-off. Several of these sweeps have involved violations
of the FTC's Franchise Rule, which requires specific disclosures to consumers
before they invest in a franchise operation. In one of these sweeps, CPB
filed 22 complaints naming 50 defendants in eight jurisdictions. CPB collected
over $200,000 in civil penalties, and obtained injunctions by consent in
all of the cases except one. In the remaining case, the court found on summary
judgment that the defendant had violated the Franchise Rule.
D. Criminal Actions
There are potential criminal penalties for violations of certain sections
of the FTC Act. For instance, 15 U.S.C. Â§ 50 creates a misdemeanor for
the refusal by a subpoenaed witness to testify at an FTC proceeding,
or making a false entry or statement in a report that is submitted to
the FTC. In addition, 15 U.S.C. Â§ 54, creates a misdemeanor for disseminating
a false advertisement relating to a food, drug, device, or cosmetic.
Pursuant to 18 U.S.C. Â§ 401(3), CPB, with USAOs, brings criminal contempt
actions for violations of district court orders obtained under the FTC
Act or other acts the FTC enforces. See, e.g., United States v. Vlahos,
33 F.3d 758 (7th Cir. 1994) (procedural ruling in case alleging violations
of order prohibiting deceptive acts related to advertising of government
repossessed cars); United States v. Vlahos, 95 F.3d 1154 (table)
1996 WL 459937 (7th Cir. 1996) (affirming conviction after bench trial).
In recent criminal contempt actions, CPB has obtained sentences of four
to five years' imprisonment for violations of final judgments in FTC cases.
This has resulted from analysis under the Sentencing Guidelines which takes
into account the amount of fraudulent behavior the defendant engaged in
that violated the Order.