The Supreme Court’s Chevron decision reduces the FTC’s authority to unilaterally define unfair or deceptive advertising practices, likely increasing legal challenges and emboldening advertisers to contest FTC guidelines, particularly in areas like data privacy and consumer consent.
Last week, we published an article detailing how the Supreme Court’s decision to overturn Chevron deference will affect the advertising industry. The consensus was that it will infringe on regulatory efforts and cause publishers and advertisers to challenge government agency regulations that affect their businesses.
But what does that mean for publishers and advertisers still waiting for a federal privacy law in the US? What does that mean for the FTC, who makes many of the federal regulations for the advertising industry?
We spoke with Jason Gordon, partner at Reed Smith in its Entertainment and Media group, to get a more in depth understanding of how SCOTUS’ decision will impact advertising.
Andrew Byrd: Can you elaborate on how the Supreme Court’s Chevron decision impacts the advertising industry? 
Jason Gordon: The Supreme Court decision marks a significant shift in regulatory authority. Before this ruling, regulatory agencies, including the FTC, were given substantial deference in defining and enforcing what constitutes unfair or deceptive advertising practices. As the primary enforcer of advertising regulations, the FTC and other specific agencies could interpret these practices broadly.
This deference allowed the FTC to develop guides such as the “Made in the USA” guide, endorsement and testimonial guides, and green guides for environmental marketing claims. These guides provided advertisers with clear frameworks but granted the FTC significant power in interpreting what constitutes false or misleading advertising.
Now, the role of the courts has become more central in interpreting vague statutes related to advertising practices, reducing the FTC’s unilateral authority. This shift implies that while the FTC’s interpretations remain influential, they are not definitive. Courts will now have the final say in disputes over what constitutes an unfair or deceptive act, which could lead to more legal challenges against the FTC’s rulings. This change introduces a new dynamic where advertisers might feel emboldened to contest FTC’s guidelines and enforcement actions, potentially leading to a more litigious environment in the advertising industry.
Additionally, this shift occurs amid an environment of heightened regulatory scrutiny under the current FTC leadership, which has adopted a more aggressive stance on enforcement. The FTC’s focus areas, such as artificial intelligence, privacy, and novel concepts like “junk fees” and “dark patterns,” may face judicial scrutiny as advertisers challenge the agency’s jurisdiction and interpretations.
AB: Since this will affect the FTC’s regulatory power, do you see opportunities for the advertising community to challenge federal regulators, especially in privacy and deceptive practices?
JG: While this might limit the FTC’s unilateral power, it’s crucial to understand that the broader regulatory ecosystem remains robust. Besides the FTC, states have their own statutes against unfair or deceptive acts. This means state attorneys general, competitors, or class action lawyers can still pursue false advertising claims even if SCOTUS curtailed some of the FTC’s power.
Specifically regarding privacy, the FTC’s diminished authority doesn’t stop states like California from enacting and amending laws like the CCPA and CPRA. Similarly, Illinois continues to enforce its biometric privacy law. Therefore, despite a potential reduction in FTC enforcement, state-level regulations and actions will persist, maintaining pressure on advertisers to comply with privacy and data security standards.
Thus, even if the FTC’s scope of action is restricted, advertisers must still deal with a complex regulatory environment where state laws and other legal avenues remain active.
AB: Given the shifting power dynamics from federal regulations to the Supreme Court, do you foresee increased scrutiny from the FTC on advertisers and publishers?
JG: The FTC stated that its enforcement priorities will remain steadfast despite the shifting power dynamics from federal regulations to the Supreme Court. However, the practical implications of this stance will unfold over the next three to nine months.
Advertisers might react by adopting more aggressive strategies, believing they have a better chance in court. Trade organizations could also start challenging the FTC’s authority, leading to potential legal battles. If advertisers contest FTC actions in court, they will rely on precedents like the Lanham Act, which governs false advertising disputes between competitors. This act requires proving both the falsity of the advertising and its material impact on consumer decisions, setting a high bar for legal challenges.
AB: In your initial introduction, you mentioned that some in the advertising industry view specific FTC rules as lacking evidentiary support. How does the industry address concerns about these perceived gaps in evidence?
JG: When the FTC updates its rules, it follows a notice and comment period, allowing for public feedback before finalizing conclusions. However, there have been puzzling decisions. For instance, when the FTC updated its endorsement and testimonial guides, it included FAQs advising businesses and influencers on permissible practices. While FAQs aren’t law, they can signal enforcement intentions.
For example, when Facebook introduced influencer disclosure tools to help disclose connections between influencers and advertisers, the FTC updated its FAQ a week later, stating that these tools wouldn’t necessarily be a defense and that the overall message context matters. The FTC provided no evidence for this stance, reflecting a broader issue of issuing guidelines without substantiation. The FTC’s mandate to prevent false advertising should include evidence-based requirements, but such support is often lacking, leading to industry frustration and confusion.
To address these concerns, industry stakeholders engage in dialogue with the FTC, provide feedback during the comment periods, and sometimes seek legal clarification on ambiguous guidelines. They also invest in compliance training to ensure they adhere to the evolving standards, despite the frustration with some of the FTC’s seemingly unsupported mandates.
AB: How might SCOTUS’ decision affect the FTC’s focus on data collection practices and consumer consent?
JG: I foresee two primary reactions from the industry. First, trade organizations and data collectors may argue that the current practices are neither deceptive nor unfair and that if Congress wants to impose stricter data privacy laws, it should do so through new legislation rather than through the FTC’s existing framework. They may contend that the FTC is overstepping its authority by trying to impose these new standards.
Second, if the FTC enforces new data privacy measures, some companies may challenge these regulations in court. They could argue that the FTC lacks sufficient evidence or legal basis for such stringent controls. This could lead to significant legal battles as companies seek to protect their current data collection practices and avoid the operational disruptions that new regulations might entail.