FTC and DOJ File First Action Under COVID-19 Consumer Protection Act

Shook, Hardy & Bacon L.L.P.

Shook, Hardy & Bacon L.L.P.

The Federal Trade Commission (FTC) and the Department of Justice recently filed the first enforcement action under the new COVID-19 Consumer Protection Act (COVID-19 Act) in Missouri federal court. The complaint alleges that a chiropractor, Eric Nepute, and his business, Quickwork LLC, made unsubstantiated claims that their vitamin D and zinc products can treat and even prevent COVID-19. The defendants also allegedly claimed that the products provide equal or greater protection than the COVID-19 vaccines. The complaint notes that Nepute received a warning letter from FTC in May 2020 for COVID-19 treatment claims related to another product.

Besides being the first action filed under the COVID-19 Act, this case reminds us that FTC can still seek significant monetary relief in federal court despite the Supreme Court’s recent ruling limiting the agency’s ability to seek financial remedies such as restitution and disgorgement. The COVID-19 Act was passed and signed into law this past December. It prohibits deceptive acts or practices associated with the treatment or prevention of COVID-19 during the pendency of the COVID-19 public health emergency. A violation of the Act will be treated as a violation of a rule issued by FTC under Section 18 of the FTC Act, thereby subjecting a defendant to financial penalties of up to $43,792 for each violation.

Context of Complaint in Terms of AMG Capital v. FTC

Typically, in order to get financial relief for alleged deceptive behavior, FTC would bring an action like this under Section 13(b) of the FTC Act. FTC broadly interpreted its authority to directly seek permanent injunctions in federal court under Section 13(b) as also giving it authority to seek other equitable relief, such as financial restitution or disgorgement. And the courts, including federal courts of appeal, mostly backed this expansive interpretation.

However, the Supreme Court’s April ruling in AMG Capital narrowed FTC’s powers under Section 13(b) to simply injunctive relief, excluding monetary relief. FTC can still seek monetary relief for deceptive practices under Section 19 of the FTC Act, but only after it has first gone through the lengthy internal process of obtaining an administrative cease and desist order. Also, under Section 18 of the FTC Act, FTC can issue rules dealing with a specific type of deceptive or unfair business practice(s). FTC can then directly seek civil penalties in federal court for violations of such rules. Until April, Section 13(b) provided FTC with a sort of “catch-all” tool to quickly seek monetary remedies from defendants for alleged misrepresentations that may not fit under a specific rule.

FTC officials have expressed concern that AMG Capital has taken a powerful enforcement tool away from the agency in its ability to obtain quick and significant financial relief through Section 13(b). The COVID-19 Act, however, provides a new tool for FTC to directly seek financial relief in federal district court, albeit limited to products and services dealing with COVID-19.

Aside from advocating for a legislative “fix” to Section 13(b), watch for the agency to use its rulemaking authority to encompass more types of behaviors and industries within its power to seek financial penalties under its rules. Just prior to the expected ruling by the Supreme Court, FTC announced the creation of a new rulemaking group within its Office of General Counsel.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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