ADventures in Law

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The U.S. Court of Appeals for the Fifth Circuit seemingly handed the Federal Trade Commission (FTC or the Commission) yet another setback, this time squarely in the agency’s bread‑and‑butter area of false advertising enforcement. In Intuit Inc. v. FTC, the court vacated the FTC’s 2024 administrative cease‑and‑desist order that challenged TurboTax “free” edition advertising, holding that adjudicating deceptive advertising claims before an FTC administrative law judge violates the Constitution’s separation of powers.

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The result: The procedural future for FTC enforcement of deceptive advertising complaints may be forever changed and face significant remedial limitations.

How Did We Get from Free Edition Advertising to Separation of Powers?

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The FTC brought an administrative enforcement action alleging that Intuit deceptively advertised TurboTax as free, even though many consumers ultimately had to pay to use the service. After an administrative trial, an FTC administrative law judge ruled for the agency, and the Commission affirmed, issuing a broad cease‑and‑desist order. Intuit petitioned for review in the Fifth Circuit, challenging the FTC’s use of an administrative proceeding.

Stepping back, when the FTC believes advertising is false or misleading, it can proceed through a regular federal court (an Article III court), a constitutionally independent tribunal. The FTC can also proceed through an administrative process, essentially an in-house court. The case is initially tried and decided by an FTC administrative law judge, and FTC commissioners ultimately review the decision and decide the case. After the Supreme Court’s 2021 decision in AMG Capital Management, LLC v. FTC, if the FTC alleges only FTC Act violations, monetary relief, such as consumer redress, is no longer available through the federal court route. Instead, the FTC would have to commence an administrative action and then go to federal court after the administrative process was final.

The Intuit petition challenged whether enforcement of misleading advertising by the FTC is a public rather than a private right of action. Traditional lawsuits involve private rights – issues such as fraud, deceptive business practices and contract disputes – and are decided by judges and juries. In contrast, public rights, like tariffs and custom disputes, are usually created by statute or are tied to regulatory schemes and can be resolved in an administrative proceeding instead of in a court.

The Supreme Court reviewed the use of administrative proceedings in the 2024 case SEC v. Jarkesy, where it found that when the government brings a traditional fraud case and seeks penalties, the Constitution requires that the case be decided in federal court, not by the agency’s own judge. The Fifth Circuit, relying on the logic of Jarkesy, found that deceptive advertising claims under the FTC Act involve private rights that likewise require adjudication in an Article III court.

Here, the concurrence underscored how deeply rooted the separation‑of‑powers concerns are. Drawing on sources reaching back to the Founding era, the opinion invoked James Madison’s warning that the “accumulation of all powers, legislative, executive, and judiciary, in the same hands&nbsp;.&nbsp;.&nbsp;.&nbsp;may justly be pronounced the very definition of tyranny,” and even cited a 1789 admonition from the First Congress cautioning that such consolidations of authority could become “a monster of a peculiar enormity,” with “two heads, three heads, or four heads,” or even “without any head at all.” Against that backdrop, the court added a modern flourish: It likened the FTC’s administrative structure to the three‑headed beast from Harry Potter and the Sorcerer’s Stone, observing that, just as the creature could be subdued by music, “all we need to do to restrain the FTC is to restore the Constitution.”

The Fifth Circuit vacated the FTC order and remanded the matter so that it could be tried in federal court. As the Fifth Circuit noted, “several consequences may follow,” including that the standard of proof required on remand may be higher (a preponderance of the evidence versus substantial evidence), the FTC will have to explain the necessity of any order given that the advertisements at issue stopped running years ago, and the “practicability, scope, and longevity of a cease-and-desist order will have to be reconsidered.”

This decision is notable not because false advertising law is suddenly in flux substantively &nbsp;– it is not – but because it directly calls into question how the FTC can pursue these cases and what type of relief the FTC can obtain.

For decades, the FTC has relied on its administrative process as a central enforcement tool, particularly for advertising matters. And since the AMG decision, the availability of administrative proceedings has been a crucial ingredient in cases where the FTC alleges a violation of the FTC Act but not a separate rule violation. Section 19 of the FTC Act generally allows the agency to go to federal court to seek monetary relief for FTC Act violations only after the FTC obtains a final administrative cease-and-desist order. Without the ability to adjudicate matters administratively, this Section 19 avenue for monetary relief would seemingly no longer be available to the agency – meaning that for FTC Act violations, any monetary relief would likely be off the table.

While we can’t predict what the FTC will do next, there are a few possible paths forward:

The FTC could seek reconsideration or rehearing. Given the stakes for the FTC’s enforcement program, it is possible that the Commission will ask the full Fifth Circuit to weigh in.

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The FTC could also attempt to seek certiorari from the Supreme Court, though it might wait for a circuit split to develop, which can provide a more likely path to Supreme Court review. Of course, given broader concerns that the current administration has about the administrative state, it is quite possible that there will not be an attempt to overturn or limit the decision. Notably, Chairman Andrew Ferguson recently stated that on the competition side, merger challenges would only be brought in federal court.

Another option – and this would be the most operationally significant – the FTC could decide to act in accordance with the Fifth Circuit’s ruling and no longer use the administrative process for false advertising cases.

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For companies facing FTC scrutiny, in the Fifth Circuit and more broadly, this decision is more than an academic exercise, and how the FTC responds to the decision will have significant remedial implications.

Further limits on the FTC’s ability to obtain monetary relief. If this decision stands, it likely means that the FTC cannot seek any money for advertising cases that allege false advertising under the FTC Act. While the Intuit decision is very much framed as addressing false advertising cases, it could be read more broadly, raising the question: Is there a real distinction between a false advertising FTC Act case and other types of FTC Act cases, like deception or unfairness?

Forum matters more than ever. If the FTC initiates an administrative proceeding for advertising claims, respondents will likely raise constitutional objections early and often.

The FTC will likely prioritize actions where monetary relief is available. As a reminder, this decision will not likely change the ability of the FTC to seek monetary relief when it alleges rule violations or violations of other statutes, such as the Restore Online Shoppers’ Confidence Act (ROSCA). Accordingly, you should expect the FTC to focus even more on such violations.

Whether this decision marks a temporary detour or a permanent rerouting of FTC enforcement remains to be seen. However, this decision adds to a broader trend: Courts are increasingly skeptical of agencies acting as rule maker, prosecutor, judge and jury all at once (as the concurrence described it, “our Constitution establishes three branches of government, not four . . . our Founders would’ve been deeply troubled by a creature like the FTC”).

For now, what is clear is that the FTC’s long‑standing administrative model – especially for false advertising cases – is on shakier ground than it has been in decades.

From AMG To Intuit: Has The Path For Redress in Section 5 Cases Disappeared?