In Law360 - "Congress Should Curb FTC Pattern of Consent Order Abuse"

The below was published in Law360 on July 11, 2023. Although the article is behind a paywall, Law360 allows authors to share on their own social media. So, enjoy!

Congress Should Curb FTC Pattern Of Consent Order Abuse

By Neil Chilson (July 11, 2023)

On July 13, the influential House Judiciary Committee, led by Rep. Jim Jordan, R-Ohio, will hear testimony from Federal Trade Commission Chair Lina Khan.

The committee is expected to scrutinize the agency's escalating investigation of Twitter Inc. following Elon Musk's purchase of the company.

The committee should recognize this overreach as part of an expanding pattern of abuse by the FTC of its so-called consent orders.

Last fall, after Musk bought Twitter, the FTC bombarded the company with 12 separate letters containing at least 350 specific demands for information about its business practices.

The FTC justified this onslaught by saying Twitter agreed to such interrogations when it settled alleged privacy and data security violations in a spring 2022 consent order.

The FTC's intrusive demands have drawn Congress' attention, as the hearing announcement indicates.

Consent orders are negotiated written settlements between the FTC and a company. Instead of litigating, a company that has allegedly violated the law will agree to cease some practices and adopt other practices, including procedures for how the FTC will ensure future compliance.

Such orders offer advantages for each party. For the company, a consent order avoids expensive litigation and creates a bright line for lawful conduct. The agency saves resources and avoids setting negative precedents.

Consent orders allow the agency to showcase its preferred best practices. The FTC also gains the ability to fine companies for violating consent orders — important given recent court-imposed limits on the FTC's authority to compel monetary relief.

Despite their advantages, the FTC's consent orders have also faced much criticism. They're lengthy — usually 20 years — and impose practices that are not mandated by law. They can exclude millions of affected stakeholders because they are negotiated between the company and the FTC. And they're treated as precedents by the agency, creating a pseudo-regulatory environment without rulemaking's procedural protections.

The FTC, however, has recently pioneered new misuses of existing consent orders.

Consider Twitter's 2022 consent order. It includes standard compliance-monitoring provisions. The FTC should use such provisions to ensure the company sticks to the promises in the order. Instead, the FTC is probing wholly unrelated practices, propelled by opponents to Musk's ownership.

For example, the FTC has demanded all internal communication related to Musk, the reasons behind certain staffing decisions, and details about information-sharing practices with journalists. The FTC even asked if Twitter plans to sell any office furniture.

The Twitter incident matches the FTC's larger pattern of consent order abuse. The agency is negotiating settlements and then ex post extending their reach. This is ironic, given that the FTC is charged with preventing deceptive acts and practices.

Such abuse harms consumers and wastes taxpayer dollars. It also undermines the FTC's own future effectiveness. Congress should step in to constrain the agency by adopting consent order reform.

On May 3, the agency unilaterally reopened a consent order with Meta Platforms Inc. The 2020 consent decree included a $5 billion penalty and a new privacy protection framework evaluated by an independent assessor. Now, the FTC wants to break the deal to add new requirements — such as bans on using children's data — which are unrelated to the original alleged violations.

The FTC sprang this demand on Meta hours before a scheduled call to discuss the independent assessor's views on Meta's progress toward the agreed framework. It's akin to failing a student five minutes before they are required to submit the exam.

These new abuses obviously harm the subject companies by reducing certainty and adding unknown compliance costs. But this overreach will also hurt the agency's work.

Visibly reopening a settled consent order undermines the incentive for other companies to settle in the future. Why bother negotiating an agreement that the FTC can reopen on a whim? More companies will take their chances in court, costing the FTC, and ultimately taxpayers, more money.

Fewer settlements also mean less ability to incrementally apply consumer protection law in new areas, as the FTC has done with privacy and data security.

And, given the courts' recent hostility to the FTC's litigation efforts — such as the FTC's loss in the Meta-Within merger case and the U.S. Supreme Court's unanimous 2021 ruling in AMG Capital Management LLC v. FTC, rejecting the commission's authority to compel monetary relief — the FTC may soon find itself wishing it still had the credibility to negotiate consent orders.

Members at the coming House Judiciary hearing should seek Khan's views on the agency's authority to enforce its hundreds of consent orders with companies across many industries.

Is the agency bound by such consent orders, or only the companies? Do consent orders permit fishing expeditions within companies? Will current enforcement of consent orders undermine the FTC's ability to bring future cases?

Going forward, Congress should build on its FTC oversight by reforming the FTC's consent order authority. Such reforms should:

• Require the FTC to evaluate the effect on nonparties to the agreement;

• Limit the duration of consent agreements to 10 years;

• Require any remedies to directly address the alleged violations;

• Curtail information requests to those necessary to ensure compliance with the order; and

• Position independent courts to oversee FTC's consent order negotiations and enforcement.

Twitter is the canary in the coal mine. The FTC's historically successful consent order enforcement has benefited from the agency's reputation for negotiating in good faith and honoring its commitments. The current FTC is squandering that reputation by applying existing consent orders in a manner never agreed upon. But if the U.S.'s primary enforcer against deception can't keep its word, Congress should step in.

Neil Chilson is a senior research fellow with the Center for Growth and Opportunity at Utah State University. He previously served as the chief technologist for the FTC.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.