FTC Increases Maximum Civil Penalties for HSR Act, COPPA, and Other Violations from $16,000 to $40,000

by Wilson Sonsini Goodrich & Rosati
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On June 30, 2016, the Federal Trade Commission (FTC) issued an interim final rule that substantially increases the maximum civil penalties for violations of the competition and consumer protection laws enforced by the FTC that authorize the assessment of civil penalties.1 The increased amounts will apply to penalties assessed on or after August 1, 2016, even if the associated violation occurred before August 1, 2016.

The FTC has increased the maximum civil penalty from $16,000 to $40,000 for:

  • violations of the premerger notification and waiting-period obligations under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act");
  • violations of trade regulation rules and other laws enforced by the FTC with civil penalty provisions, such as the Children's Online Privacy Protection Act (COPPA), the Do Not Call Registry and other provisions of the Telemarketing Sales Rule (TSR), and the CAN-SPAM Act; and
  • violations of final FTC orders issued under Section 5(b) of the FTC Act for deceptive or unfair trade practices.

The maximum penalty for violating the HSR Act accrues per day in violation of the Act's notification and waiting-period requirements. The maximum penalty for violating trade regulation rules, other laws enforced by the FTC with civil penalty provisions, or final FTC orders issued under Section 5(b) of the FTC Act applies to each violation of the rule, law, or order.

The FTC has also increased the maximum penalty for knowing violations of Section 621(a)(2) of the Fair Credit Reporting Act (FCRA) from $3,500 to $3,756. Although this increase is more modest, its impact can be significant, as the FTC's FCRA enforcement actions typically allege numerous violations. For example, the FTC's 2014 settlements with InfoTrack Information Services and Instant Checkmate imposed civil penalties of $1 million and $525,000, respectively.2

More detail on increases to the maximum civil penalties for other laws enforced by the FTC is available in the Federal Register and on the FTC's website.

The FTC issued the interim final rule increasing the maximum civil penalties pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the "Adjustment Improvements Act"), which requires federal agencies, including the FTC, to implement a "catch-up" inflation adjustment by August 1, 2016. Going forward, the Adjustment Improvements Act requires the FTC to publish annual inflation adjustments in the Federal Register no later than January 15 of each year, starting in 2017, with the adjustment taking effect on the date of publication.

Impact on HSR Act Violations

Companies, and especially executives and other individuals receiving stock or option awards, should be mindful about HSR filing obligations, which apply to transactions—including option exercises, RSU vests, and other conversions of securities into voting stock—exceeding certain annually adjusted thresholds.3 Common HSR violations include failure to notify a reportable transaction (e.g., option exercises by executives and misapplication of the investment-only exemption by hedge funds), gun jumping (i.e., acquiring beneficial control prior to HSR clearance), and deficient filings (e.g., failing to produce required Item 4(c) documents or non-compliance with a Second Request investigation).

While the FTC—and Department of Justice, which has the sole authority to file the civil action for an HSR violation—often does not seek penalties for first-time inadvertent violations and takes mitigating factors (e.g., promptly reporting the violation) into account in assessing civil penalties, the antitrust agencies recently have required the maximum penalty to settle an alleged HSR violation. On August 20, 2014, the FTC announced that Berkshire Hathaway had agreed to pay the maximum civil penalty of $896,000 for changing convertible notes it owned in USG Corporation into 21.5 million voting securities.4 Given that penalties for violating the HSR Act accrue on a daily basis, the increase in maximum fines subjects companies to significant financial liability for violating the HSR Act. For example, under the new penalty amounts, Berkshire Hathaway would have been subject to a maximum civil penalty of $2.24 million (i.e., $40,000 for the 56 days it was alleged to be in violation of the HSR Act).

As noted in the Federal Register notice, the increased maximum penalty applies to any penalty assessed after August 1, 2016, regardless of whether the associated violation occurred prior to this date. Thus, companies aware of any prior HSR violations should be mindful that the increased penalties may apply to these prior violations.

Impact on Trade Regulations and Other Laws Enforced by FTC

Although not all violations of laws enforced by the FTC are subject to civil penalties, the FTC's jurisdiction is broad, and FTC enforcement of trade regulation rules and other laws often results in the assessment of substantial civil penalties. The increase of the maximum civil penalties for violations of these laws underscores how important it is for businesses to be aware of—and ensure compliance with—any applicable rules and laws enforced by the FTC with civil penalties. The FTC has demonstrated that enforcement of these laws—including COPPA and the Do Not Call Registry provisions of the TSR in particular—continues to be a high priority for the FTC.

The increase of the maximum civil penalties also magnifies the potential impact of settling or litigating allegations of deceptive or unfair trade practices that are not covered by a rule or law enforced by the FTC with civil penalties. While such deceptive or unfair trade practices are not subject to civil penalties in the first instance, they are subject to civil penalties when they are covered by an FTC order issued pursuant to a settlement or following litigation. Civil penalties imposed for violations of FTC orders—which typically last for 20 years—can be substantial. For example, in 2007, Bayer Corporation agreed to pay a civil penalty of $3.2 million to settle charges that it violated a 1991 order concerning advertising substantiation,5 and in 2011, Toys "R" Us agreed to pay a civil penalty of $1.3 million to settle charges that it violated a 1998 order concerning dealings with its suppliers.6


1 Adjustment of Civil Monetary Penalty Amounts, 81 Federal Register 42476 (June 30, 2016) (to be codified 16 C.F.R. pt. 1).
2See FTC Press Release, "Two Data Brokers Settle FTC Charges That They Sold Consumer Data Without Complying With Protections Required Under the Fair Credit Reporting Act," April 9, 2014, https://www.ftc.gov/news-events/press-releases/2014/04/two-data-brokers-settle-ftc-charges-they-sold-consumer-data.
3See WSGR Alert, "Federal Trade Commission Revises Hart-Scott-Rodino Thresholds," January 22, 2016, https://www.wsgr.com/WSGR/Display.aspx?SectionName=publications/PDFSearch/wsgralert-HSR-2016.htm.
4See FTC Press Release, "Berkshire Hathaway Inc. to Pay $896,000 to Resolve FTC Allegations That it Violated Premerger Filing Requirements: Company Failed to Report 2013 Acquisition of Voting Shares in USG Corporation," August 20, 2014, https://www.ftc.gov/news-events/press-releases/2014/08/berkshire-hathaway-inc-pay-896000-resolve-ftc-allegations-it.
5See FTC Press Release, "Federal Trade Commission Reaches New Years Resolutions with Four Major Weight-Control Pill Marketers," January 4, 2007, https://www.ftc.gov/news-events/press-releases/2007/01/federal-trade-commission-reaches-new-years-resolutions-four-major.
6See FTC Press Release, "Toys R Us to Pay $1.3 Million Penalty for Violating FTC Order," March 29, 2011, https://www.ftc.gov/news-events/press-releases/2011/03/toys-r-us-pay-13-million-penalty-violating-ftc-order.

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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