news October 1, 2019

Trump executive action will force change in FTC guidance process

The Federal Trade Commission will have to be more precise when issuing guidance documents, won’t be able to use them to circumvent the rulemaking process and can’t ask judges to defer to the guidance when issuing decisions.

These changes are a result of an executive order signed by President Donald Trump Oct. 9 as part of his administration’s effort to revamp regulations and ease compliance.

The order mandates that when an agency takes an administrative enforcement action or engages in adjudication, “it must establish a violation of law by applying statutes or regulations. The agency may not treat noncompliance with a standard of conduct announced solely in a guidance document as itself a violation of applicable statutes or regulation.”

If an agency issues a “significant guidance document,” one that would lead to an annual effect on the economy of at least $100 million, there must be a 30-day public notice and comment period, it must be approved by a presidentially appointed agency director and reviewed by the Office of Management and Budget.

Among the FTC’s guidance documents with the biggest impact are those dealing with advertising nutritional supplements and its endorsement guides.

FTC spokesman Peter Kaplan said the agency is complying with the executive order.

Katie Bond, a partner with Amin Talati Wasserman, wrote in an e-mail to FTCWatch that the executive orders mean the agency can’t rely on statements or policies in guidance as a basis for determining liability under the FTC Act. She noted because of the executive orders, courts could be less deferential to the agency’s dietary-supplements advisory’s interpretation of the standard for evaluating advertising evidence, and rely more on statutes and regulations.

The FTC already has had its powers limited. In 2015, two different federal courts ruled the agency’s standard that nutritional-supplement manufacturers must provide two randomized, placebo-controlled trials as scientific corroboration for their claims went beyond the law. In one of those cases, US v. Bayer, US District Judge Jose Linares ruled the agency’s guidance on dietary supplements “provides scientific and medical advice regarding the meaning of ‘competent and reliable scientific evidence.’ That Guidance specifically refutes the standard the Government is seeking to impose.”

In POM Wonderful v. FTC, a three-judge panel of the US Court of Appeals for the District of Columbia Circuit ruled the agency’s requirement that companies have two randomized clinical trials (RCTs) to corroborate their health claims was excessive and could result in depriving the public of valuable information. But the court also upheld the agency’s order that POM’s advertising was misleading for claiming its pomegranate drink would reduce heart disease, prostate cancer and erectile dysfunction (see FTCWatch, No. 867, Feb. 13, 2015).

There have already been disputes over the interpretation of the FTC’s Endorsement Guides and Green Guides. In one administrative case, the agency was forced to back down from its guidance standard on biodegradable claims.

The executive order could also force the FTC to more frequently use the rulemaking process as a way to make policy changes. Most government rulemaking is done under the provisions of the Administrative Procedures Act, but because changing regulations through the APA is seen by government officials as a long and burdensome process, they sometimes try to circumvent it through advisories.

And some FTC rulemaking comes under the provisions of the 1975 Magnuson-Moss Warranty Act and 1980 amendments to that law. Magnuson-Moss rulemaking is more complicated and time-consuming, so the FTC has long been asking lawmakers to give it a stronger enforcement tool than Magnuson-Moss provides (see FTCWatch, No. 945, Aug. 20, 2018). Lawmakers have so far been reluctant to do that.

Bond wrote the impact of the executive orders will be felt most when the agency issues updated and new guidance documents.

“It’s hard to imagine that this executive action won’t give agency leadership at least some pause as guidance is issued, amended, and enforced,” she said. “So much of the FTC’s guidance creates really specific requirements, all tethered to the broad language of the FTC Act’s prohibition on ‘deceptive acts or practices.’ Even if all the notice and comment in the world is given, I’d still be a little nervous if I had to defend a specific guidance requirement based on that statutory breadth in this regulatory climate.”

Another executive order issued Oct. 9, which doesn’t apply to independent agencies like the FTC but does apply to the Justice Department, states agencies within the executive branch “shall establish or maintain on its website a single, searchable, indexed database that contains or links to all guidance documents in effect from such agency or component. The website shall note that guidance documents lack the force and effect of law, except as authorized by law or as incorporated into a contract.”

Cass Sunstein, who was the top regulatory official during the administration of President Barack Obama, praised the executive orders while taking a dig at the Trump administration.

Sunstein, a professor at Harvard Law School, recently wrote in an essay for Bloomberg Opinion that there is “a serious risk Trump’s administrator will repeal guidance documents that are doing far more good than harm. (Maybe that’s a major point of the new executive orders?)”

He then praised the positive contributions made by regulators in protecting food safety and reducing the impact of air pollution, before adding “we can acknowledge and emphasize these points while applauding increases in transparency and fidelity to law.”