Fifth Circuit Ruling on FTC’s False Advertising Claim

The Fifth Circuit has determined that the FTC’s claim regarding false advertising “represents a traditional exercise of law and equity, thereby enabling a private right to seek judgment in an Article III court.” The court dismissed the FTC’s stance that these claims are tied to public rights that could be managed by an administrative agency.

The court stated, “Overall, there is significant evidence indicating that Section 5 of the FTC Act does not impose a new obligation on sellers to avoid false advertising.” It continued, explaining that the responsibility to refrain from misleading advertising has existed well before the FTC Act and could be upheld by private entities in common law or equity actions related to fraud, deception, or unfair competition.

Risks to FCC’s Fine-Imposing Authority

In a separate but related context, the Supreme Court ruled that issues surrounding private rights cannot be taken out of an Article III court. If an action resembles a common law proceeding, it is generally regarded as a matter of private rights, necessitating a decision by an Article III court.

On the other hand, matters concerning public rights can be managed solely by the executive and legislative branches, bypassing court involvement. Public rights encompass areas like “revenue collection, customs law, immigration, relations with Indian tribes, public land management, and distribution of public benefits.”

This ruling is central to a lawsuit targeting the FCC’s ability to impose fines on AT&T, Verizon, and T-Mobile for selling customers’ location data without their consent, a situation that will be evaluated by the Supreme Court.

Current FCC Chairman Brendan Carr opposed the prior administration’s fines against cell phone carriers. The FCC is urging the Supreme Court to reaffirm its authority to impose penalties on these companies. According to the FCC, if the government pursues fines, companies may resist payment and could ultimately demand a jury trial.

The FCC emphasized, “Forfeiture is a critical enforcement mechanism for us.” It warned the Supreme Court that invalidating such fines could result in the neglect of essential regulations, such as privacy protection, combatting robocalls, and overseeing broadcasting practices.