2d Cir. opinion on disgorgement remedy in FTC false advertising actions

The Second Circuit recently decided that a provision of the Federal Trade Commission (FTC) Act that authorizes district courts to issue injunctions implicitly authorizes the courts to order full disgorgement of all revenues (not merely profits) from the illegal conduct issue as “equitable ancillary relief”—a/k/a “equitable cleanup doctrine.”

I found this interesting for at least three reasons:

(1) The empowering statute (15 U.S.C. § 53(b)) says nothing whatsoever about monetary relief. In pertinent part, it provides: “[I]n proper cases the [FTC] may seek, and after proper proof, the court may issue, a permanent injunction.”

(2) The court said that this statute authorized disgorgement of all ill-gotten revenues, not just profits. Thus, any attempt by a defendant to subtract expenses or costs, or to show its efforts lost money, are immaterial. All the defendant is permitted to do is show that the FTC’s figures for revenue were inaccurate. In contrast, in trademark cases under the Lanham Act, only profits are subject to disgorgement, and a defendant may introduce evidence of costs and expenses incurred in the subject activity.

(3) The Second Circuit is not the first appeals court to hold (1) and (2). The 5th, 7th, 8th, 9th, 10th, and 11th Circuits agree that this section of the FTC Act authorizes disgorgement. And the 1st, 7th, and 10th Circuits agree it’s disgorgement of revenues, not just profits.

Although those of you more familiar with FTC practice may not find these concepts surprising, I had not previously been aware of the existence and sweeping nature of the implicit disgorgement remedy in FTC cases.

The case is FTC v. Bronson Partners, LLC, No. 10-0878 (2d Cir. Aug. 19, 2011).