If a message contains more than one type of content, the “primary purpose” of the email is the deciding factor. That’s a fuzzy concept and it depends on how a consumer views an email, but the FTC has stated that it considers two key factors in this analysis. A message will likely be deemed commercial if (1) the subject line would lead the recipient to think it’s a commercial message, or (2) if the bulk of the transactional or relationship part of the message doesn’t appear at the beginning.

Using these factors, marketers will often come up with subject lines that appear transactional and play around with how different types of content are presented in the email in order to avoid triggering the opt-out requirement. This week, the FTC announced a settlement with Experian over its email campaigns that demonstrates that the agency will look closely at emails that are purportedly transactional to make sure they aren’t actually commercial messages in disguise.

Some of the company’s emails told recipients that “this email was sent because it contains important information about your account” and others reassured them that “this is not a marketing email – you’re receiving this message to notify you of a recent change to your account.” Despite these statements, the FTC alleged that the emails were primarily designed to pitch new products or services – making the messages commercial – and that the emails did not include an unsubscribe link.

Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said: “You always have the right to unsubscribe from marketing messages, and the FTC takes enforcing that right seriously.” In addition to requiring Experian to comply with CAN SPAM, the proposed order requires them to pay a $650,000 penalty.

If you haven’t looked at your email marketing practices recently, now may be a good time to do that. In particular, make sure you’re careful about how you interpret what constitutes a “transactional” message and how you determine the “primary purpose” of an email. Regardless of how you present the email, if the primary purpose is commercial, you need to make sure that recipients have the ability to opt-out of receiving those messages.

BINT allegedly operated a deceptively marketed faith-based wealth building organization designed as a “blessing loom” during the COVID-19 pandemic that falsely promised investment returns as high as 800 percent. Victims of the scheme were allegedly promised a return of over $11,200 each, for their (refundable) investment of between $1,400 to $1,425, if they recruited other people to join. However, these investments did not pay off and customers were not provided refunds as promised.

Arkansas’ Attorney General Tim Griffin and the Federal Trade Commission jointly filed a Stipulated Order for Permanent Injunctive Relief with a $450,000 settlement (the monetary portion is contained in a separate “Monetary Judgment” between Arkansas and defendants). This settlement enjoins defendants from:

• Participating in or operating a Ponzi, chain referral, or “blessing loom” scheme (seemingly more akin to their alleged conduct).
• Making misrepresentations regarding income, costs or other material aspects of business ventures or investment opportunities (defined terms).
• Creating contracts terms that prohibit parties from leaving reviews, addressing allegations of violations of the Consumer Review Fairness Act (enforceable by states and the FTC).
• Violating the Arkansas DTPA including its specific prohibition against operating a “pyramid promotional scheme.”

While these terms generally track the allegations from the lawsuit, the FTC and states took it a step further by prohibiting BINT and its owners from operating or even participating in any “multi-level marketing program,” which the agreement defined broadly as a program that recruits others and receives payment based at least partly on activities of a “downline.” The expansion of this injunction beyond otherwise illegal “pyramid schemes” is a good reminder of the broad powers of the state and FTC and the significant negotiating leverage they can wield.

At the same time, the Office of the Attorney General in Texas announced that it secured $2,500,000 in restitution and $7,500,000 in penalties from BINT. Parties have agreed upon, however, a number of payment options that would satisfy the judgment and vary depending on the time of payment and the collective aggregate gross annual income and assets; it’s unclear how much BINT will ultimately pay, but the priority in the settlement is payment towards restitution.

These cases serve as a reminder that pure chain referral/pyramid schemes – where consumers are promised returns based on the recruitment of others and not the sale of goods or services — are generally illegal under state and federal law. But additionally, these orders highlight the continued collaboration among states and the FTC, which can take different forms. Notably here one state (Arkansas) chose to file a joint lawsuit and settlement with the FTC in federal court, while another (Texas) chose a separate, but coordinated, lawsuit and settlement in state court. The consumer protection enforcement community collaborates often on these efforts (even more so in the post-AMG world), which can result in multiple lawsuits filed in different courts throughout the country. This makes it vitally important to ensure your practices comply with the law and stay in front of any potential enforcement.

The press release (and articles) also emphasized the voluntary nature of the commitments, noting that the Administration is currently developing an executive order and will pursue bipartisan legislation, presumably to expand on the commitments and make them compulsory. Advocacy groups and some members of Congress, in turn, heralded the announcement as a “good first step” but stressed the need for guardrails that would actually be enforceable.

Not enforceable? Actually, the FTC can enforce these pledges. True, the commitments provide wiggle room, using words like “developing” and “prioritizing” and, in some cases, reflecting practices that are already common among these companies. (See this critique in the New York Times.) And true, the tech companies only agreed to commitments they wanted to agree to – other issues may have been left on the cutting room floor. For example, there don’t appear to be commitments regarding the data inputs that “teach” the algorithm how to “think.”

However, the FTC can still enforce these pledges for what they are, using its authority under the FTC Act to challenge statements shown to be false or misleading to consumers. (I should note here that the States have virtually identical authority under their so-called “UDAP” laws.)

Consider the following:

• Here, high-level officials from each company (Amazon, Anthropic, Google, Inflection, Meta, Microsoft, and OpenAI) stood at the White House and publicly affirmed their agreement to eight principles published on the White House’s website. While many of the principles are indeed vague or refer to future actions, at least some of them are actionable now, such as the commitment to perform internal and external testing for a host of listed risks, and the commitment to publicly report system capabilities and limitations to users. (Note that the White House’s press release links to a more specific list of commitments.)
• At least some of the companies announced the commitments on their own websites, thus amplifying them and/or explaining how they apply to that particular company. See Microsoft website (includes commitments about, e.g., testing, cybersecurity, transparency, and compliance with the NIST AI Risk Management Framework); Google (discusses various frameworks and programs it has put in place to promote safe and secure AI); Open AI (posts commitments and explains their importance).
• Under the FTC Act, the Commission can take action against companies that make promises to consumers (whether in a privacy policy, terms of service, blogpost, public forum, or other means of communication) and then fail to deliver on them. This includes promises to adhere to voluntarily principles. For example, the FTC has brought numerous cases against companies that falsely claimed they complied with the (now-defunct) US-EU Safe Harbor and Privacy Shield programs governing the transfer of EU citizens’ data to the US. Similarly, the FTC has challenged companies’ statements that they complied with self-regulatory principles governing advertising. (See here and here). The FTC’s ability to challenge a company’s failure to adhere to voluntary pledges also underlies the FTC-administered Safe Harbor program under the Children’s Online Privacy Protection Act (COPPA).
• Finally, when interpreting the statements that companies make to consumers, the FTC will consider both “express” and “implied” claims; view such claims from the perspective of a “reasonable consumer”; and analyze the “net impression” of the statement(s) made. (See the FTC’s Policy Statement on Deception) In other words, even if there is wiggle room in the language, the FTC will examine the overall message conveyed to an ordinary consumer (not to a contracts lawyer). That is how the FTC has been able to bring hundreds of cases challenging statements in all of those privacy policies famous for being opaque and/or overly complex. (Admittedly, though, most of the FTC’s privacy cases are settlements.)

Now, I’m not saying that the voluntary commitments made by these AI companies are a substitute for legislation, regulation, or more specific requirements covering the full set of issues raised by AI. I’m just saying that the FTC can find ways to enforce them, and probably will. After all, the FTC has emphasized repeatedly, in one way or another, that it has the tools to regulate AI and it intends to use them. See, for example, the Joint Statement by DOJ, CFPB, EEOC, and FTC on AI; Lina Khan’s New York Times Op Ed; and the press leak revealing that the FTC is investigating OpenAI.

Specifically, the House has advanced two bipartisan proposals to limit such purchases. If even one of these proposals were enacted, it would represent one of the more significant privacy actions taken by Congress in a long time. Here are the details:

Privacy Amendment in the House NDAA Bill

Some of the last minute amendments to the National Defense Authorization Act (NDAA) bill passed by the House have generated a lot of controversy and concern. But a privacy amendment offered by Rep. Davidson (R-OH) slipped through largely unnoticed.

The amendment would prohibit the Department of Defense (DOD) from “acquir[ing] location information, web browsing history, Internet search history, and Fourth Amendment protected information” of US persons inside the US for (1) foreign intelligence purposes, except as permitted under the Foreign Intelligence Surveillance Act (FISA), or (2) law enforcement purposes, except with a warrant demonstrating probable cause.

The amendment would further require that, if the interception, compelled production, or physical search and seizure of information would require a warrant, court order, or subpoena under law, DOD may not obtain that information from a third party without obtaining the warrant, court order, or subpoena. There is an exception if the information being sought is aggregated or anonymized so that it “cannot reasonably be de-anonymized or otherwise linked to any individual or groups of individuals” and DOD does not disclose the information to any law enforcement agency or to the intelligence community.

The other sponsors of this amendment (seven of them) included Rep. Jacobs (D-CA). As readers may know, Jacobs is also the lead sponsor of the My Body, My Data Act, a bill that would limit how women’s reproductive and sexual health data may be collected, used, and shared with third parties.

The House’s “The Fourth Amendment is Not for Sale” Act

Just as the NDAA was passing the House, Rep. Davidson also introduced a bill (HR. 4639) to place similar limits on how the government (not just DOD) acquires consumer data from electronic communications providers (e.g., providers of phone and email service). The bill is co-sponsored by House Judiciary Ranking Member Nadler (D-NY), as well as Rep. Jacobs and other supporters of the NDAA amendment. Like the NDAA amendment, the bill provides protections for consumers’ location information, web browsing history, Internet search history, and Fourth Amendment protected information.

In brief, and as summarized here, the bill amends portions of the Electronic Communications Privacy Act of 1986 (ECPA), which restricts how the government can obtain people’s communications from electronic service providers. Among other things, the House bill requires the government to obtain a court order to obtain consumer data from data brokers. It also “closes the loophole” that has allowed the government to purchase data from data brokers and other sellers without obtaining a warrant, court order, or subpoena as required under ECPA and FISA. On July 19, the House Judiciary Committee marked up the bill, with broad support from both sides of the aisle. The next step will be a vote on the House floor.

Rep. Davidson’s bill is similar to a proposal (also called the Fourth Amendment is Not for Sale Act) that Sen. Wyden (D-OR) introduced last year in the Senate, with support from a number of bipartisan co-sponsors. Wyden has told the press (in an article behind a pay wall) that he doesn’t intend to reintroduce that bill this year, but that he plans to incorporate similar protections into a comprehensive surveillance reform bill that he is developing.

Why is this Significant?

The data privacy limits proposed here reflect simmering concerns about the ease with which the government can purchase consumers’ sensitive data from data brokers and other sellers to get around the privacy restrictions imposed under the Constitution and US laws. The repeal of Dobbs has added to these concerns, raising fears that government entities in anti-abortion states will purchase information revealing details about women’s health and location and use it for law enforcement purposes.

As noted above, federal laws (including FISA and ECPA) impose limits on the ability of the government to obtain consumer information from certain entities and/or for certain activities without a warrant, court order, or subpoena. Further, in US v. Carpenter, the Supreme Court held that the government’s acquisition of a person’s cell phone records from a wireless carrier (which can reveal a person’s precise location over time) was a 4^th amendment protected search, requiring a warrant supported by probable cause.

However, several years ago, the Wall Street Journal and other news outlets started reporting that the government was getting around these restrictions by purchasing consumer data from data brokers and other sellers, rather than seeking it directly, pursuant to federal laws. This prompted efforts in Congress to close this “loophole” through legislation such as Sen. Wyden’s bill. Now, with these two House proposals, these efforts appear to be gaining bipartisan steam.

It’s far from certain that these proposals will end up becoming law. The House NDAA must now be reconciled with the version passed in the Senate, which doesn’t include Davidson’s amendment language. Further, if Wyden doesn’t re-introduce his bill in the Senate, but instead incorporates its protections in broader and potentially more controversial legislation, it could get tied up and fail to advance. Nevertheless, the bipartisan support that these proposals have received in the House could be a sign of more to come.

An implacable Lina Khan fended off four hours of hostile questions from members of the House Judiciary Committee, who criticized her ethics and performance as FTC Chair and then proceeded to attack FTC career staffers, each other, and Congress itself at a grueling oversight hearing on July 13. Accusations of mismanagement, cover-ups, conflicts of interest, and partisanship made good theatre and national news, but a potentially devastating development for the FTC went almost unmentioned and unreported.

Midway through the hearing, the headline of the day was revealed by Rep. Cline (R-VA), who reported that the House Appropriations Committee had just voted to cut the Commission’s budget by 25 percent. The reduction, he said, was the consequence of the FTC’s misguided enforcement and disdain of Congress. If the budget proposal survives, it would mean massive layoffs and gutted programs at the Commission.

The hostilities came as no surprise, given the Committee’s preview of the hearing as an examination of “mismanagement of the FTC and its disregard for ethics and congressional oversight under Chair Lina Khan.” And if you follow our blog, Ad Law Access, you know that at the last Oversight and Appropriations hearings, members aired similar grievances. But unlike other hearings, the tension between members of the Committee and dissatisfaction with Khan were extraordinarily front and center.

Along with the drama (which we will leave to other reporters) members of the Committee raised many substantive concerns that are bound to affect FTC policy and activity. So without further ado, here is our rundown of the issues on the House Judiciary Committee’s radar and the Chair’s responses:

Opening Remarks

Committee Chair Rep. Jordan (R-OH) minced no words while describing Khan’s approach to antitrust reform as a “disaster” and a “costly” departure from decades of bipartisan consensus. He attacked her approach to big tech and the methods by which the FTC has demanded information during investigations.

Ranking Member Rep. Nadler (D-NY) was quick to come to Khan’s defense, touting the FTC’s return of $430 million to consumers in the past year. He praised the agency for pronouncing the “party” over for irresponsible corporations. This was the real reason, he said, that his Republican Colleagues were taking aim at the agency.

Khan’s opening remarks focused on the FTC’s initiatives and accomplishments, including major merger challenges, antitrust actions for farmers and small businesses, proposed rules against non-compete clauses and junk fees, scrutiny of dark patterns, and a major judgment for kids’ privacy. The FTC, she said, was guided by a North Star of preventing dangerous concentrations of private power, and she assured the committee that the agency “was firing on all cylinders.”

A Brief Ethics Undercard

Before the committee could delve into the FTC’s record, members carped at Khan and each other over ethical concerns. First up was Khan’s refusal to recuse herself from matters involving companies and practices she had criticized in the past. Rep. Hageman (R-WY) asked why the Chair had not recused herself from a matter after an FTC ethics official recommended she do so. Khan explained that the recommendation had left the decision to her, since the law did not require recusal.

Committee Democrats rushed to Khan’s defense by attacking the FTC official who had advised her. For good measure, Rep. Buck (R-CO) suggested that Congress itself could be bought, railed against lobbyists and think tanks that defended big tech, and fingered prominent members of the House and Senate for connections with the tech sector while managing legislation to reign it in. Khan relaxed during the members’ contretemps and took several opportunities to defend the integrity of the ethics official and other FTC staffers. Eventually the personal slights subsided without apparent effect.

Competition Cases Failing in Court

When the hearing moved to substance, critics pounced and defenders retreated. Just two days earlier, a Biden-appointed federal judge had thrown out the FTC’s effort to enjoin the Microsoft-Activision merger, which prompted Rep. Kiley (R-CA) to describe Khan as 0-for-4 record in merger trials in Federal Court and to ask her, “Why are you losing so much?…Are you losing on purpose?” He suggested the answer might lie in a New York Times article quoting Khan explaining the benefits of losing in court. Losses, she said, could signal to Congress the need for new antitrust laws.

Rep. Kiley also attacked the FTC’s plan to appeal the Microsoft decision, which he predicted would be upheld, and to spend more taxpayer dollars pursuing the action in front of an FTC administrative law judge. Khan responded by recalling the Commission’s prosecution of Martin Shkreli, the pharmaceutical executive notorious for price gouging. She did not have an answer for the merger losses, beyond praise for her intrepid but outnumbered trial lawyers. Hardly a member was heard rising to her defense.

Rep. Issa (R-CA) accused Khan of turning the FTC into a bully that would make America less competitive. Also citing the failed case against Microsoft, he argued that FTC challenges were undermining American companies that had to compete worldwide. FTC overreach could ultimately end up hurting consumers, Rep. Issa argued, pointing to another case in which the FTC ordered that Illumina divest cancer detection test maker GRAIL. This, he said, could frustrate the development of life-saving technology.

Expanding on the theme of overreach, Rep. Fitzgerald (R-WI), Rep. Johnson (R-LA), Rep. Van Drew (R-NJ), and Rep. Biggs (R-AZ), all asked about statements by FTC Commissioner Rebecca Slaughter that the Commission would apply an “equity focus lens” on its competition policy agenda while incorporating antiracist thinking into anti-trust law. Was it wise to protect interest groups instead of consumers? Khan declined to speak for Slaughter, but the members pressed. Would Khan require merger approvals to be contingent on companies’ ESG (environmental, social, and corporate governance) principles? Was there a gender lens to antitrust? Did she agree with a senior staffer quoted as saying that merger policy was industrial policy and that startups should go public rather than get acquired? Khan endorsed none of it, committed to following the law, and emphasized that factors outside of the statutes are irrelevant to the Commission.

Switching to offense, Khan repeated her oft-expressed criticism of her predecessors’ antitrust enforcement, claiming that for decades the government had been allowing markets to consolidate and competition to erode. It was under-enforcement that was making it difficult for domestic firms to compete internationally, she maintained. Inadequate antitrust was even threatening national security, she contended, citing concentration of military contractors.

But Khan would not explain what standard she applied to enforcement. Rep Bentz (R-OR), pointing to her rejection of the consumer welfare standard, asked her what approach she followed. She responded that she followed the law. He wanted to hear more than the law. What was the standard? She referred him again to the statutes and the Commission’s Policy Statement on Unfair Methods of Competition (which has been criticized for eschewing an overarching policy). Notably, she did not remind him of concentration prevention, the North Star she had claimed as her guide in her opening statement.

Rep. Lee (R-FL), apparently not persuaded by denials that social engineering was affecting law enforcement, asked why the new premerger notification rules were demanding so much information that it would take a hundred more hours to prepare a notice and why merging companies’ now had to report on their labor relations and employee demographics. He did not seem impressed with her answer that asking for more information up front would obviate subsequent inquiries. A wider net would open up more avenues for investigation while raising costs across the board that small businesses could least afford.

Khan had another chance to address policy when Rep. McClintock (R-CA) asked her for her view of capitalism? She answered that we enforce laws. Asked again for her view, she denied that it was the role of government to interpose in market decisions. It is the FTC’s job to protect markets and their participants, she said. The agency’s role is to be the referee. Her responses in these policy dialogs reflect a more modest role for the Commission than it has suggested in the past.

Rep. Jordan grilled Khan on the investigation of Twitter, which he called harassment. The exchange gave her an easy opening and she took advantage of it with a predictable response. First she recounted Commission allegations against Twitter, then she denied any impropriety, and finally she rose to the defense the career staff of the Commission. Attacks on pending investigations seldom gain traction, and this one was no exception.

But Khan could only promise to do better when members turned to her treatment of FTC staff. Rep. Cline bemoaned the resignations of Commissioner Philips and Wilson and reports that dispirited FTC staffers had departed in droves, including 71 senior attorneys leaving in 2021 to 2022. Rep. Fry (R-SC) also raised the annual Federal Employee Viewpoint Survey, which found that the percent of FTC employees who strongly agreed that the senior leaders “maintain high standards of honesty and integrity” had dropped from 57.6% in 2020 to 22.5% in 2022. Until her arrival, FTC scores typically topped the rankings. Members wanted to know what Khan was doing to improve morale. She admitted to management mistakes early in her tenure, and reported corrections such as streamlining decision making and holding more meetings with staff.

Bipartisan Support for Data Privacy

In one of the rare moments of bipartisanship, both Rep. Buck and Rep. Gaetz (R-FL) raised concerns about American’s data privacy and the lack of regulation around data brokers. Khan agreed with the need for national legislation and also noted the FTC’s filing of an amended complaint against data broker Korchava, which allegedly sold Americans’ sensitive personal information. Rep. Bishop (R-NC) asked about the CID recently issued to OpenAI. Khan refrained from addressing it specifically, but she expressed general alarm over AI chatbots accumulating and disseminating a huge trove of data without any quality checks, potentially leading to misinformation, libel, and disclosure of people’s sensitive information. None of the members disagreed.

Rulemakings

Members gave mixed reviews of the rulemaking activity at the FTC, with the consumer protection rules faring better than the first competition rule of Khan’s tenure:

• Non-competes – Rep. Johnson asked whether it was fair to prohibit a small business from protecting its investment in employees by preventing them from jumping to competitors. Rep. Bishop, who once litigated employment contracts, reflected on the variety of state rules that had evolved over the centuries to address non-compete clauses. Khan, he said, would displace them with one national rule. Her concern about concentration in business did not seem to apply to concentration of legal power. Khan assured him that the rulemaking had to observe extensive procedural protections. She expressed eagerness to seeing the feedback from comments to the proposed rule, which you can read more about here.
• Motor Vehicle Rule – Relying on an outside expert’s report, Rep. Hunt (R-TX) expressed concern that the proposed Motor Vehicle Rule would cost $38 billion over 10 years. Khan committed to examining the evidence. You can find the proposed rule here.
• Click-to-Cancel – Khan addressed concerns of members, such as Rep. Cohen (D-TN), whose constituents are bombarded with unwanted subscriptions offers and renewals by explaining the proposed Click-to-Cancel Rule that would require services to make cancelling a subscription as easy as signing up for it. You can read more about the proposed rule here.
• Junk Fees – while touting successes during her tenure, Khan referenced the proposed rule on junk fees and addressed concerns from Rep. Balint (D-VT) about dark patterns, which you can also read more about here.

Consequential Conversations

Chair Khan may have delivered the line that best sums up the oversight hearing when she explained how losing in court could reap benefits in Congress for the FTC. She characterized the history of antitrust as a series of conversations among prosecutors, courts and lawmakers.

Nobody, not even Khan, denied that the conversation between the FTC and the courts has gone poorly for the Commission under her leadership.

As it became painfully obvious over the course of the hearing, the conversation with Congress is not faring much better. Although she received praise, some of it bipartisan, for some of the Commission’s efforts, criticism outweighed compliments, and Khan did not rebut much of it. Indeed, she often declined to engage with member’s questions, choosing instead to resort to anodyne evasions that reinforced their suspicions.

On occasion, friendly members came to her defense. Ethical attacks failed to register, and consumer protection garnered more praise than rebuke. But too often on competition policy, she left her inquisitors frustrated with vagaries that gave her supporters little to work with.

Disputes in courts typically reach clear and quick resolutions in the form of judgments and orders. Indeed, a day after the Commission noticed its appeal in the Microsoft-Activision case, the Ninth Circuit summarily rejected it.

In Congress, consequences percolate more slowly, but they can be much more momentous, as the FTC may soon discover. While Khan jousted with Judiciary members, ominous signals of a crisis for Commission issued from a sedate House Appropriation Committee. In the GOP controlled House, the agency is facing the prospect of a 25 percent budget cut, rather than the one-third increase it requested. Beyond the budget cut, the funding bill would corral the Bureau of Competition and erase Khan’s signature initiative – her redefinition of unfair methods of competition. Among other restrictions, the bill provides:

• Not more than $165,000,000 shall be for the Bureau of Competition;
• None of the funds made available for the Bureau of Consumer Protection shall be reprogrammed to the Bureau of Competition; and
• No funds may be used to implement, administer, or enforce the Withdrawal of the Statement of Enforcement Principles Regarding “Unfair Methods of Competition.”

Of course, the budget is far from settled. The Commission has plenty of time and another chamber to avoid the worst. In the Senate, the situation is not dire; appropriators have voted to give the agency enough funds to cover inflation. But as the bidding now stands on Capitol Hill, the FTC stands somewhere between a massive budget cut and the status quo. That is a perilous place to be.

Other members in attendance included Rep. Lofgren (D-CA), Rep. Scanlon (D-PA), Rep. Johnson (D-GA), Rep. Massie (R-KY), Rep. Ivey (D-MD), Rep. Roy (R-TX), Rep. McBath (D-GA), Rep. Tiffany (R-WI), Rep. Bush (R-MO), Rep. Spartz (D-IN), Rep. Gooden (R-TX), Rep. Schiff (D-CA), Rep. Jayapal (D-WA), Rep. Neguse (D-CO), Rep. Dean (D-PA), Rep. Ross (D-NC), and Rep. Moran (R-TX).

* * *

That’s our summary for now. Stay tuned as we continue to track updates from the FTC.

“Why are you losing so much? Are you losing on purpose?”

An implacable Lina Khan fended off four hours of hostile questions from members of the House Judiciary Committee, who criticized her ethics and performance as FTC Chair and then proceeded to attack FTC career staffers, each other, and Congress itself at a grueling oversight hearing on July 13. Accusations of mismanagement, cover-ups, conflicts of interest, and partisanship made good theatre and national news, but a potentially devastating development for the FTC went almost unmentioned and unreported.

Midway through the hearing, the headline of the day was revealed by Rep. Cline (R-VA), who reported that the House Appropriations Committee had just voted to cut the Commission’s budget by 25 percent. The reduction, he said, was the consequence of the FTC’s misguided enforcement and disdain of Congress. If the budget proposal survives, it would mean massive layoffs and gutted programs at the Commission.

The hostilities came as no surprise, given the Committee’s preview of the hearing as an examination of “mismanagement of the FTC and its disregard for ethics and congressional oversight under Chair Lina Khan.” And if you follow our blog, Ad Law Access, you know that at the last Oversight and Appropriations hearings, members aired similar grievances. But unlike other hearings, the tension between members of the Committee and dissatisfaction with Khan were extraordinarily front and center.

Along with the drama (which we will leave to other reporters) members of the Committee raised many substantive concerns that are bound to affect FTC policy and activity. So without further ado, here is our rundown of the issues on the House Judiciary Committee’s radar and the Chair’s responses:

Opening Remarks

Committee Chair Rep. Jordan (R-OH) minced no words while describing Khan’s approach to antitrust reform as a “disaster” and a “costly” departure from decades of bipartisan consensus. He attacked her approach to big tech and the methods by which the FTC has demanded information during investigations.

Ranking Member Rep. Nadler (D-NY) was quick to come to Khan’s defense, touting the FTC’s return of $430 million to consumers in the past year. He praised the agency for pronouncing the “party” over for irresponsible corporations. This was the real reason, he said, that his Republican Colleagues were taking aim at the agency.

Khan’s opening remarks focused on the FTC’s initiatives and accomplishments, including major merger challenges, antitrust actions for farmers and small businesses, proposed rules against non-compete clauses and junk fees, scrutiny of dark patterns, and a major judgment for kids’ privacy. The FTC, she said, was guided by a North Star of preventing dangerous concentrations of private power, and she assured the committee that the agency “was firing on all cylinders.”

A Brief Ethics Undercard

Before the committee could delve into the FTC’s record, members carped at Khan and each other over ethical concerns. First up was Khan’s refusal to recuse herself from matters involving companies and practices she had criticized in the past. Rep. Hageman (R-WY) asked why the Chair had not recused herself from a matter after an FTC ethics official recommended she do so. Khan explained that the recommendation had left the decision to her, since the law did not require recusal.

Committee Democrats rushed to Khan’s defense by attacking the FTC official who had advised her. For good measure, Rep. Buck (R-CO) suggested that Congress itself could be bought, railed against lobbyists and think tanks that defended big tech, and fingered prominent members of the House and Senate for connections with the tech sector while managing legislation to reign it in. Khan relaxed during the members’ contretemps and took several opportunities to defend the integrity of the ethics official and other FTC staffers. Eventually the personal slights subsided without apparent effect.

Competition Cases Failing in Court

When the hearing moved to substance, critics pounced and defenders retreated. Just two days earlier, a Biden-appointed federal judge had thrown out the FTC’s effort to enjoin the Microsoft-Activision merger, which prompted Rep. Kiley (R-CA) to describe Khan as 0-for-4 record in merger trials in Federal Court and to ask her, “Why are you losing so much?…Are you losing on purpose?” He suggested the answer might lie in a New York Times article quoting Khan explaining the benefits of losing in court. Losses, she said, could signal to Congress the need for new antitrust laws.

Rep. Kiley also attacked the FTC’s plan to appeal the Microsoft decision, which he predicted would be upheld, and to spend more taxpayer dollars pursuing the action in front of an FTC administrative law judge. Khan responded by recalling the Commission’s prosecution of Martin Shkreli, the pharmaceutical executive notorious for price gouging. She did not have an answer for the merger losses, beyond praise for her intrepid but outnumbered trial lawyers. Hardly a member was heard rising to her defense.

Rep. Issa (R-CA) accused Khan of turning the FTC into a bully that would make America less competitive. Also citing the failed case against Microsoft, he argued that FTC challenges were undermining American companies that had to compete worldwide. FTC overreach could ultimately end up hurting consumers, Rep. Issa argued, pointing to another case in which the FTC ordered that Illumina divest cancer detection test maker GRAIL. This, he said, could frustrate the development of life-saving technology.

Expanding on the theme of overreach, Rep. Fitzgerald (R-WI), Rep. Johnson (R-LA), Rep. Van Drew (R-NJ), and Rep. Biggs (R-AZ), all asked about statements by FTC Commissioner Rebecca Slaughter that the Commission would apply an “equity focus lens” on its competition policy agenda while incorporating antiracist thinking into anti-trust law. Was it wise to protect interest groups instead of consumers? Khan declined to speak for Slaughter, but the members pressed. Would Khan require merger approvals to be contingent on companies’ ESG (environmental, social, and corporate governance) principles? Was there a gender lens to antitrust? Did she agree with a senior staffer quoted as saying that merger policy was industrial policy and that startups should go public rather than get acquired? Khan endorsed none of it, committed to following the law, and emphasized that factors outside of the statutes are irrelevant to the Commission.

Switching to offense, Khan repeated her oft-expressed criticism of her predecessors’ antitrust enforcement, claiming that for decades the government had been allowing markets to consolidate and competition to erode. It was under-enforcement that was making it difficult for domestic firms to compete internationally, she maintained. Inadequate antitrust was even threatening national security, she contended, citing concentration of military contractors.

But Khan would not explain what standard she applied to enforcement. Rep Bentz (R-OR), pointing to her rejection of the consumer welfare standard, asked her what approach she followed. She responded that she followed the law. He wanted to hear more than the law. What was the standard? She referred him again to the statutes and the Commission’s Policy Statement on Unfair Methods of Competition (which has been criticized for eschewing an overarching policy). Notably, she did not remind him of concentration prevention, the North Star she had claimed as her guide in her opening statement.

Rep. Lee (R-FL), apparently not persuaded by denials that social engineering was affecting law enforcement, asked why the new premerger notification rules were demanding so much information that it would take a hundred more hours to prepare a notice and why merging companies’ now had to report on their labor relations and employee demographics. He did not seem impressed with her answer that asking for more information up front would obviate subsequent inquiries. A wider net would open up more avenues for investigation while raising costs across the board that small businesses could least afford.

Khan had another chance to address policy when Rep. McClintock (R-CA) asked her for her view of capitalism? She answered that we enforce laws. Asked again for her view, she denied that it was the role of government to interpose in market decisions. It is the FTC’s job to protect markets and their participants, she said. The agency’s role is to be the referee. Her responses in these policy dialogs reflect a more modest role for the Commission than it has suggested in the past.

Rep. Jordan grilled Khan on the investigation of Twitter, which he called harassment. The exchange gave her an easy opening and she took advantage of it with a predictable response. First she recounted Commission allegations against Twitter, then she denied any impropriety, and finally she rose to the defense the career staff of the Commission. Attacks on pending investigations seldom gain traction, and this one was no exception.

But Khan could only promise to do better when members turned to her treatment of FTC staff. Rep. Cline bemoaned the resignations of Commissioner Philips and Wilson and reports that dispirited FTC staffers had departed in droves, including 71 senior attorneys leaving in 2021 to 2022. Rep. Fry (R-SC) also raised the annual Federal Employee Viewpoint Survey, which found that the percent of FTC employees who strongly agreed that the senior leaders “maintain high standards of honesty and integrity” had dropped from 57.6% in 2020 to 22.5% in 2022. Until her arrival, FTC scores typically topped the rankings. Members wanted to know what Khan was doing to improve morale. She admitted to management mistakes early in her tenure, and reported corrections such as streamlining decision making and holding more meetings with staff.

Bipartisan Support for Data Privacy

In one of the rare moments of bipartisanship, both Rep. Buck and Rep. Gaetz (R-FL) raised concerns about American’s data privacy and the lack of regulation around data brokers. Khan agreed with the need for national legislation and also noted the FTC’s filing of an amended complaint against data broker Korchava, which allegedly sold Americans’ sensitive personal information. Rep. Bishop (R-NC) asked about the CID recently issued to OpenAI. Khan refrained from addressing it specifically, but she expressed general alarm over AI chatbots accumulating and disseminating a huge trove of data without any quality checks, potentially leading to misinformation, libel, and disclosure of people’s sensitive information. None of the members disagreed.

Rulemakings

Members gave mixed reviews of the rulemaking activity at the FTC, with the consumer protection rules faring better than the first competition rule of Khan’s tenure:

• Non-competes – Rep. Johnson asked whether it was fair to prohibit a small business from protecting its investment in employees by preventing them from jumping to competitors. Rep. Bishop, who once litigated employment contracts, reflected on the variety of state rules that had evolved over the centuries to address non-compete clauses. Khan, he said, would displace them with one national rule. Her concern about concentration in business did not seem to apply to concentration of legal power. Khan assured him that the rulemaking had to observe extensive procedural protections. She expressed eagerness to seeing the feedback from comments to the proposed rule, which you can read more about here.
• Motor Vehicle Rule – Relying on an outside expert’s report, Rep. Hunt (R-TX) expressed concern that the proposed Motor Vehicle Rule would cost $38 billion over 10 years. Khan committed to examining the evidence. You can find the proposed rule here.
• Click-to-Cancel – Khan addressed concerns of members, such as Rep. Cohen (D-TN), whose constituents are bombarded with unwanted subscriptions offers and renewals by explaining the proposed Click-to-Cancel Rule that would require services to make cancelling a subscription as easy as signing up for it. You can read more about the proposed rule here.
• Junk Fees – while touting successes during her tenure, Khan referenced the proposed rule on junk fees and addressed concerns from Rep. Balint (D-VT) about dark patterns, which you can also read more about here.

Consequential Conversations

Chair Khan may have delivered the line that best sums up the oversight hearing when she explained how losing in court could reap benefits in Congress for the FTC. She characterized the history of antitrust as a series of conversations among prosecutors, courts and lawmakers.

Nobody, not even Khan, denied that the conversation between the FTC and the courts has gone poorly for the Commission under her leadership.

As it became painfully obvious over the course of the hearing, the conversation with Congress is not faring much better. Although she received praise, some of it bipartisan, for some of the Commission’s efforts, criticism outweighed compliments, and Khan did not rebut much of it. Indeed, she often declined to engage with member’s questions, choosing instead to resort to anodyne evasions that reinforced their suspicions.

On occasion, friendly members came to her defense. Ethical attacks failed to register, and consumer protection garnered more praise than rebuke. But too often on competition policy, she left her inquisitors frustrated with vagaries that gave her supporters little to work with.

Disputes in courts typically reach clear and quick resolutions in the form of judgments and orders. Indeed, a day after the Commission noticed its appeal in the Microsoft-Activision case, the Ninth Circuit summarily rejected it.

In Congress, consequences percolate more slowly, but they can be much more momentous, as the FTC may soon discover. While Khan jousted with Judiciary members, ominous signals of a crisis for Commission issued from a sedate House Appropriation Committee. In the GOP controlled House, the agency is facing the prospect of a 25 percent budget cut, rather than the one-third increase it requested. Beyond the budget cut, the funding bill would corral the Bureau of Competition and erase Khan’s signature initiative – her redefinition of unfair methods of competition. Among other restrictions, the bill provides:

• Not more than $165,000,000 shall be for the Bureau of Competition;
• None of the funds made available for the Bureau of Consumer Protection shall be reprogrammed to the Bureau of Competition; and
• No funds may be used to implement, administer, or enforce the Withdrawal of the Statement of Enforcement Principles Regarding “Unfair Methods of Competition.”

Of course, the budget is far from settled. The Commission has plenty of time and another chamber to avoid the worst. In the Senate, the situation is not dire; appropriators have voted to give the agency enough funds to cover inflation. But as the bidding now stands on Capitol Hill, the FTC stands somewhere between a massive budget cut and the status quo. That is a perilous place to be.

Other members in attendance included Rep. Lofgren (D-CA), Rep. Scanlon (D-PA), Rep. Johnson (D-GA), Rep. Massie (R-KY), Rep. Ivey (D-MD), Rep. Roy (R-TX), Rep. McBath (D-GA), Rep. Tiffany (R-WI), Rep. Bush (R-MO), Rep. Spartz (D-IN), Rep. Gooden (R-TX), Rep. Schiff (D-CA), Rep. Jayapal (D-WA), Rep. Neguse (D-CO), Rep. Dean (D-PA), Rep. Ross (D-NC), and Rep. Moran (R-TX).

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That’s our summary for now. Stay tuned as we continue to track updates from the FTC.

The Guides and the FAQ both cover a lot of ground, but people who work with influencers may know them best for the ground rules they establish for influencer campaigns, including the requirement that influencers clearly disclose any connections to the companies they endorse. Although that requirement may not be controversial, reasonable minds can disagree about how to comply, and many questions that attorneys who practice in this space get on a regular basis don’t have clear answers. The FTC’s updates address some of those questions, but many marketers won’t like the answers.

In this article for Law360, I highlight some of the most significant updates to the Guides and FAQs that will impact influencer campaigns, including what the FTC thinks about when a disclosure is required, how a disclosure should be presented, and how companies should manage influencer campaigns.

The proposed rule came just one day after the FTC’s release of updated Endorsement Guides, which we reviewed here. As currently drafted, the proposed rule would prohibit:

• Fake or false reviews and testimonials, which are defined to include reviews by reviewers who do not exist, did not use the product or service, or that materially misrepresent their experience with the product or service;
• Repurposing consumer reviews written for one product so that they appear for a “substantially different” product;
• Compensating or otherwise incentivizing or conditioning consumer reviews, whether positive or negative;
• Posting reviews by employees or “insiders” without disclosures regarding their material connection to the company;
• Creating seemingly “independent” review websites that are in fact controlled by the company and are not truly independent;
• Suppressing negative reviews, including by “unjustified” legal threats or “false accusations” or by declining to post negative reviews for a product or service unless for a specified reason unrelated to the negative nature of the review; and
• Selling, distributing, purchasing, or procuring “fake indicators” that misrepresent social media influence.

Many of these practices are already addressed in the FTC’s recently updated Endorsement Guides. Many are also listed in the Commission’s Notice of Penalty Offense letters on endorsements sent to over 700 companies last year, which we discussed here. For those practices that have long been considered deceptive, the proposed rule is clearly intended to open a path to consumer redress and civil penalties.

In other ways, however, the FTC is not just looking to authorize new remedies but also to substantively move the needle on the current legal standard. These efforts raise a host of issues and questions ripe for comment by interested parties, including:

• Should companies be liable for civil penalties based on a negligence theory and is the FTC authorized to do so under their Magnuson-Moss rulemaking authority? The proposed rule draws on concepts of negligence and third-party liability to propose that businesses will be liable directly if they disseminate or cause to be disseminated deceptive reviews (e.g., ones that materially misrepresent the testimonialist’s experience or that fail to disclose the relationship between the business and the testimonialist) if they “knew or should have known” of the facts giving rise to the deception. This new standard raises a number of important questions, which the FTC to its credit specifically seeks input on. Even assuming the FTC is authorized to seek civil penalties based on such a standard, what would this mean in practice for companies when they oversee and review reviews, and how would they show that they “should not have known” about a particular fact.
• What is a “substantially different” product for the purposes of the rule’s prohibition against “review repurposing”? Under the proposed rule, companies may not repurpose consumer reviews from one product and apply it to a “substantially different” product, which is defined as one that “differs from another product in one or more material attributes other than color, size, count, or flavor.” But the proposed rule does not specify which attributes might not be “material” for purposes of review repurposing other than color, size, count or flavor, nor does it consider that other product attributes – similar to flavor – could hinge on consumers’ subjective preferences. For example, what about a cleaning spray that comes in different fragrances? Or the same exact shirt featuring a V-neck and a boat neck? What about a supplement that comes in gummy form and tablet form, where all active ingredients are the same? The agency also does not take into account the benefit consumers experience when viewing different product options listed on the same product page.
• How far-reaching is the prohibition against characterizing reviews as “independent” on company-controlled websites? Proposed section 465.6 would authorize civil penalties where a business “represent[s], expressly or by implication, that a website, organization, or entity that it controls, owns, or operates provides independent reviews or opinions about a category of businesses, products, or services including the business or one or more of its products or services.” While staff’s intent appears to be to prohibit companies from misrepresenting the purported independence of a company-controlled review site, in practice, the language of the proposed rule would prohibit companies from representing that any consumer reviews or opinions featured on their own sites are independent, even if they are.

In addition to these specific issues related to proposed requirements, there are the general questions as to whether a rule is necessary in the first place. As many will remember, the NPRM was preceded by an ANPR in October 2022, in which the agency announced its intent to explore rulemaking in this space. At that time, former Commissioner Wilson – the sole “no” vote on issuing the ANPR – noted that “the harm that results from the deception at issue is speculative in nature” and opined that “the Commission already has a multi-pronged strategy in place to combat [deceptive endorsements or fake reviews].” In her view, “churning out another proposed rule” downplays the impact of other enforcement tools and unnecessarily diverts already-strained staff resources.

The comment period for the NPRM will run for 60 days following the publication of the proposed rule in the Federal Register, and we encourage stakeholders to submit comments addressing the above-mentioned topics and any other areas of concern.