15 Sep 23

The FTC’s Investigative and Enforcement Process

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Last Updated on: 19th September 2023, 05:27 pm

The FTC’s Investigative and Enforcement Process: A Helpful Overview

The Federal Trade Commission, commonly referred to as the FTC, serves an important role in protecting consumers and promoting competition. As part of its mission, the FTC regularly conducts investigations into potential violations of consumer protection and antitrust laws. If any violations are uncovered, the FTC may pursue enforcement actions through administrative proceedings or by filing cases in federal court.

The FTC’s authority to carry out investigations and bring enforcement actions stems from several key laws, most notably the Federal Trade Commission Act, the Clayton Act, and the Sherman Act [1]. This article aims to provide a helpful overview of how the FTC investigates allegations of wrongdoing and the process for taking enforcement action when violations are found.

How Investigations Get Started

There are several ways an FTC investigation can begin:

  • Consumer complaints submitted directly to the FTC
  • Referrals from other government agencies
  • Proactive monitoring of concerning industry practices by FTC staff
  • Tips or concerning media reports brought to the FTC’s attention

For instance, a surge of complaints from consumers about a company’s potentially deceptive business practices could trigger an FTC investigation [1]. The FTC also initiates industry-wide investigations of particular practices that may be unfair or harmful to consumers and the competitive marketplace.

How the FTC Gathers Evidence in Investigations

During an investigation, FTC staff utilize various tools to gather evidence relating to possible legal violations [1]:

  • Civil investigative demands (CIDs) – These are requests for information similar to subpoenas. CIDs can require a company or individual to provide documents, written reports, answers to questions, or oral testimony.
  • Compulsory process – This includes orders that compel a company or person to furnish information or allow inspection of records [2].
  • Subpoenas – The FTC has authority to issue subpoenas to obtain documents, testimony, or other relevant information.

If a company fails to comply with an FTC request for information, the FTC can go to court to seek an order enforcing compliance. Those who knowingly violate such court orders may face being held in contempt of court [2].

Maintaining Confidentiality During Investigations

Information provided to the FTC over the course of an investigation is required to be kept confidential. This prohibits companies under investigation from disclosing that an investigation is underway or revealing any related information furnished to the FTC.

However, the FTC is permitted to share confidential investigative materials with other law enforcement agencies as needed to facilitate cooperation on related investigations and avoid duplication of efforts [1].

How Investigations Get Closed

There are several potential outcomes when an FTC investigation wraps up:

  • The FTC may decide to initiate an enforcement action if evidence of legal violations is found.
  • The FTC could close an investigation by accepting voluntary commitments from a company to alter problematic practices.
  • An investigation may be closed without further action if no violations are identified.

Even when an investigation is closed without enforcement action, the FTC reserves the right to reopen matters if new evidence comes to light or circumstances change [3].

Enforcement Options When Violations Are Found

If an FTC investigation uncovers evidence that a company has broken the law, the agency may pursue enforcement actions such as:

  • Administrative proceedings – The FTC prosecutes cases before an administrative law judge. If violations are proven, the judge can order remedies like monetary relief for harmed consumers or changes to problematic business practices.
  • Federal court litigation – For certain types of violations, the FTC can file lawsuit cases directly in federal court seeking injunctions, monetary redress for consumers, disgorgement of ill-gotten profits, and imposition of civil penalties.

Before initiating any enforcement action, the FTC must have “reason to believe” the law has been violated [4]. The specific processes differ depending on whether administrative proceedings or federal court litigation is utilized.

Administrative Enforcement Process Walkthrough

Here are the typical steps in an FTC administrative enforcement action:

  1. The FTC issues an administrative complaint laying out the charges against the company.
  2. The case is tried in a trial-like hearing before an FTC administrative law judge as per the Federal Rules of Civil Procedure[1]. This involves procedures like motions, discovery, and presentation of evidence as in a typical civil court case.
  3. The administrative law judge oversees the proceedings and makes evidentiary and procedural rulings as needed[2].
  4. After both sides present their cases, the judge issues an initial decision determining whether any law violations occurred[3]. This decision may include findings of fact and conclusions of law[4].
  5. If either party disagrees with the initial decision, they can file an appeal to have the case reviewed by the full Federal Trade Commission[5].
  6. If no appeal is filed, or if the Commission upholds the initial decision, the FTC will issue a final order detailing any remedies or sanctions based on the findings of violations[6].

Potential remedies ordered at the conclusion of the administrative process can include refunds or other redress for consumers, injunctions forcing the company to cease illegal practices or make changes to comply with the law, and requirements to submit compliance reports. It is also possible for companies to reach a settlement resolving the charges before an initial decision is rendered[3].

Overview of the Federal Court Litigation Process

When the FTC pursues violations through federal court litigation, the key steps typically include:

  1. The FTC files a complaint in federal district court alleging violations of law by the company.
  2. The company has 21 days to file an answer responding to the complaint’s allegations.
  3. The discovery process begins, where both sides can request documents and take depositions to gather evidence.
  4. The court may hold pre-trial hearings to resolve any motions filed by the parties.
  5. If no settlement is reached, a bench trial is held before a federal judge (no jury).
  6. The judge issues findings of fact and conclusions of law determining if any violations occurred.
  7. If violations are found, the court can impose injunctions, monetary relief for consumers, and civil penalties.
  8. After a final judgment, either party can appeal the decision to a federal appeals court.

In federal court cases, the FTC must prove violations by a preponderance of the evidence. Companies cannot directly appeal an FTC administrative complaint in court – they must go through the full administrative process first[5].