Outside the FTC stands a statue of a wild horse being restrained. I always thought the horse represented industry being restrained by the FTC. But now I wonder if the wild horse is really the FTC trying to constantly break free from its statutory limitations.
Why does the FTC want to break free? Because it’s in their nature.
From its inception, the FTC sought expansion of its regulatory powers until it regulated virtually every business in the country. In the 1970’s, a Democratically controlled Congress had to put new reins on an FTC running wild on regulating television advertising. Those restrictions restrained the FTC for a while, but did nothing to alter the essential nature of a regulatory body whose portfolio covers all commerce in any medium.
In keeping with its natural instincts to expand its regulatory authority, the FTC announced a poorly justified settlement against TinyCo at the same time Commissioner Brill called for an increase in FTC powers.
Thinly Justified Fining of TinyCo
In its settlement against TinyCo, the FTC used its Children’s Online Privacy Protection Act (COPPA) authority to say TinyCo’s apps were directed at kids under 13. The FTC suggested receiving a couple of letters from parents created constructive knowledge that kids were using TinyCo’s apps. These arguments allowed the FTC to justify its $300,000 fine of TinyCo. If mountains of evidence existed against TinyCo, that evidence did not make it into the complaint or consent decree against TinyCo.[pullquote]The FTC announced a poorly justified settlement against TinyCo at the same time Commissioner Brill called for an increase in FTC powers.[/pullquote]
The FTC has long said they want their consent decrees to provide guidance to businesses. But the thinly justified complaint against TinyCo makes the FTC decision look arbitrary and raises the need to read tea leaves as opposed to actual guidance.
While the TinyCo decision is troubling, what’s more troubling is the FTC’s use of authority in a way they said they wouldn’t. Two years ago FTC staff assured us the Commission would not make arbitrary decisions as to what is/is not an app directed at kids. The FTC promised that a couple of letters would not create constructive knowledge under COPPA. Moreover, we trusted the FTC to avoid “gotcha” cases. The TinyCo decision shows this trust was misplaced.
Perhaps we should have expected this outcome from the FTC, since it’s in their nature.
FTC Calling for Even More Power
At the same time the FTC flexed its COPPA muscles against TinyCo, Commissioner Brill called for greater FTC powers and larger fines. Giving the FTC such power is unwarranted and dangerous. It is akin to taking down the corral fence before letting go of the reins.
It’s time for the FTC to restrain itself. The FTC should return to using its armies of economists to do cost/benefit analysis; identify harms to consumers; and to include this analysis in their complaints.
Nature vs. nurture has always been a battle. But the FTC should avoid its nature to push its the boundaries of its statutory authority with “gotcha” cases and instead nurture the growing online economy towards the behavior it seeks.