Meta lawsuit against the FTC could put a leash on the agency's regulatory powers

A lawsuit Meta filed against the Federal Trade Commission (FTC) late last month could fundamentally change the agency if the tech giant prevails, including by preventing it from all independent actions to regulate companies and by paving the way for presidents to remove commissioners without cause, former high-ranking FTC officials told Recorded Future News.

The agency would lose power in trying to enforce federal consumer protection rules, including those that apply to digital privacy and digital fraud, as well as to a variety of other issues, the former officials said. The commission also would be open to court challenges before it has a chance to settle in-house with companies found to be in violation of regulations.

“This is a serious and thoughtful shot right at the heart of the FTC,” David Vladeck, who was director of the FTC’s Bureau of Consumer Protection during the Obama administration, said in an interview. “There are some issues here that are threatening to the FTC not just in this case but more broadly.”

The Washington D.C.-based federal judge presiding over Meta’s case said Monday that he will hear arguments on its lawsuit in late January. Meta owns Facebook, Instagram and WhatsApp.

Meta’s suit challenges the constitutionality of the FTC’s structure and comes in response to proposed new restrictions the commission announced against the tech company in May, unilaterally changing the terms of a prior order. The action was unprecedented, former officials say; typically the commission negotiates with companies before revising orders, particularly as extensively as it did in this case.

The proposed new rules, which most notably would block Meta from monetizing all youth data, build on restrictions issued in a 2020 privacy order, which the FTC says Meta has flouted. Meta agreed to a $5 billion fine and to significantly alter its privacy practices as part of the 2020 settlement.

Former high-ranking FTC officials said the commission is on dangerous ground as a result of its actions and the subsequent lawsuit. The social media behemoth has a real chance of winning at least on some elements of its case, they said.

“Strap on your seat belt,” said Vladeck, who is now faculty director at Georgetown Law School’s Center on Privacy and Technology. Meta has “made a strong argument that the agency's ability to litigate cases administratively within the confines of the FTC violates the Constitution.”

Meta’s suit asserts the agency relies on “structurally unconstitutional authority” when it pursues enforcement through its own administrative court, which tends to move faster and, some experts say, tilt more in the commission’s direction than outside courts. Specifically, Meta alleges the FTC’s proceedings with special administrative judges favor the agency in a way that independent judicial review does not.

Vladeck, who supports the FTC retaining its power to pursue enforcement actions in its administrative court, said the agency’s internal process helps the FTC prevail in its enforcement actions and do so relatively quickly. Federal court proceedings outside of the agency are severely backlogged — particularly with January 6th insurrection cases — delaying enforcement actions by years, he said.

Pursuing all of its enforcement actions in an external court also would subject the FTC to the whims of an often conservative federal bench, which could be predisposed to rule against the agency, the former agency officials said. That right-leaning judiciary is exactly what Meta is seeking to take advantage of, according to K. Sabeel Rahman, an administrative and constitutional law scholar at Cornell Law School, who said Meta’s claim is “outlandish.”

“What you're seeing reflected with these claims is actually more of an opportunistic argument by Meta, where they're seeing a more skeptical or hostile judiciary about administrative agencies,” Rahman said.

When the FTC’s in-house court decides cases before companies can appeal in an outside court, Vladeck said, it is also legally beneficial because the agency’s administrative courts’ decisions become a “species of law” with “precedential power.”

Two other former FTC officials said Meta has a serious case that could lead the agency to lose substantial power. The officials asked to remain anonymous because of professional conflicts.

A contentious issue

Meta has defended its suit by saying the FTC’s structure is inherently unconstitutional. The FTC’s “unilateral attempt to rewrite our privacy settlement agreement raises serious and important issues about the FTC’s constitutional authority and Meta’s due process rights,” a Meta spokesperson said via email.

The spokesperson added that the FTC “shouldn’t be the prosecutor, judge, and jury in the same case.”

The FTC declined to comment.

Children’s online safety advocates called the Meta lawsuit a desperate attempt to avoid $200 billion in fines for violating the Children’s Online Privacy Protection Act (COPPA), which requires parents to sign off before websites gather and use personal information from kids under age 13. They say the recent lawsuit filed by 41 states’ attorneys general documents that Meta had knowledge that millions of users under the age of 13 use its services.

“I'm not surprised that they are looking to kneecap the agency at a time when they are facing the potential for a massive COPPA fine,” said Josh Golin, the executive director of the childrens’ advocacy group Fairplay. “That's what's really going on here, not that the agency has suddenly become unconstitutional after more than 100 years of enforcing the law.”

SCOTUS signals sympathy for Meta’s arguments

An April U.S. Supreme Court decision made it possible for companies to challenge the regulatory power of federal agencies in an important ruling backing the technology and weapons company Axon Enterprise Inc, which argued it should have the right to preemptively sue the FTC on constitutional grounds, setting a precedent Meta seized on with its suit.

A parallel case the Supreme Court heard late last month, the Securities and Exchange Commission (SEC) vs. Jarkesy, honed in on whether SEC tribunals violate defendants’ 7th Amendment rights to trial by jury.

The Jarkesy case focused on three of the five arguments brought by Meta, Scott Mascianica, co-chair of the law firm Holland & Knight's Securities Enforcement Defense Team, said via email.

Those issues are whether the SEC violated the defendant’s right to a jury trial; whether Congress unconstitutionally delegates legislative power to the SEC by granting it full discretion to choose the forum for enforcement actions; and whether the president should be able to remove SEC leadership at will, Mascianica said.

The Fifth U.S. Circuit Court of Appeals ruled the SEC’s administrative proceedings were unconstitutional on each of these points, spurring the agency to appeal to the Supreme Court. According to Mascianica, last week a majority of justices “expressed significant skepticism about administrative agencies overseeing proceedings involving the imposition of civil penalties without a jury trial, a direct issue for the FTC more broadly than just with Meta.”

“There is a good chance the Court will rule that administrative proceedings involving the imposition of civil penalties will require jury trials,” Mascianica said. “If the Court upholds one or more of the Fifth Circuit’s bases, this will greatly increase Meta’s chances of success on some of its points.”

A second company, the gene sequencing equipment maker Illumina, also has challenged the legitimacy of the FTC’s internal administrative court as it fights to protect its takeover of Grail, a cancer test-making firm. That case remains in litigation.

Did the FTC overreach?

Apart from the broader precedent it could set, a former high-ranking FTC official said Meta’s lawsuit is “tactically smart [because] it may very well just keep the FTC at bay until there's a new chair” after the 2024 elections. The official asked not to be identified due to relationships with members on both sides of the fight.

The former official called the FTC’s recent order against Meta “super aggressive,” saying the Axon case clearly paved the way for companies to sue on constitutional grounds.

Meta may well need more stringent regulation, the former official said, but that doesn’t change the strength of its constitutional arguments.

"They're a very irresponsible company and they don't honor their commitments, but they have a First Amendment right to advertise to children and to make a profit,” the former official said. “You could pass all the legislation you want, and they still have a pretty strong constitutional issue.”

The former official said the Meta litigation could very well lead to a new rule allowing commissioners to be removed by the president without cause and could set a precedent that “if you're extracting penalties, you have to do it in federal court.”

A second former high-ranking FTC official who requested anonymity due to professional conflicts agreed with Meta that the FTC’s actions likely violated its due process rights, saying the case “could go somewhere” due to that argument alone.

Because the FTC is in uncharted waters and Meta is seizing on the immediate precedent set by Axon, anything could happen, this official said.

"The Supreme Court would probably not dismantle the FTC,” the former official said. “It would probably institute some sort of procedural changes so that the FTC couldn't do this [unilateral action revising an order] again."

Meta’s lawsuit is the first constitutional challenge to the FTC in the midst of an agency proceeding — itself a precedent, the former official said.

The lawsuit is “challenging what is a very troubling process here of the FCC unilaterally changing an administrative order that was entered into through a consent,” the official said. “The FTC really overreached so it could really wound the FTC if they lose even part of it."