At the end of last month, the Federal Trade Commission (FTC) filed a complaint against Amazon subsidiary Ring for violating its privacy policies by allegedly giving contractors undue access to security camera features. This case represents a classic Section 5 violation of the FTC Act and a great example of the FTC’s usefulness in upholding voluntary contracts. Though the FTC has habitually gone beyond its stated mission in recent years, Section 5 enforcement often remains a positive example of the agency’s role in a well-functioning free market.
This recent complaint mirrors the FTC’s complaints against education tech provider Chegg Inc., and the alcohol marketplace Drizly, which both violated Section 5 of the FTC Act, prohibiting “unfair and/or deceptive acts or practices, in or affecting commerce.” Both complaints culminated in behavioral requirements for the companies to establish protections for data privacy. This interpretation of Section 5, applied to data privacy, creates legal protections for consumers so long as the company they share their data with claims to have protections in place.
In the case of Ring, third parties need limited access to the product’s camera in case of burglary. However, the company allegedly extended access beyond what customers had signed up for and thus violated Section 5 of the FTC Act. The fine subsequently imposed on Ring only mandated the company cover refunds and minor damages. The total amount Ring was required to pay was only $5.8 million, which will not cause any permanent damage to the company.
This complaint and remedy encapsulate how the FTC can be a vehicle for positive regulation that upholds contracts without imposing policies. One of the biggest complaints the FTC has received in recent years is that it’s attempting to create policy through rulemaking and lawsuits. The accusation is not unfounded, as FTC Chair Lina Khan has stated that she will continue filing lawsuits until policy changes occur. Chair Khan has, in many ways, weaponized the agency into an activist organization intent on making new policies, not simply enforcing existing laws.
Along with changes in the FTC’s activities came changes in the FTC’s stated mission, with prior commitments to “preserve the free market” being stricken. Despite this, their continued enforcement of Section 5 helps to protect the free market whether the FTC intends to or not. Essential to a healthy free market is the ability to uphold agreements between free parties.
However, even this can be manipulated by the FTC to attack firms based on their theorized harm to competitors without considering the consumer or the free market. In 2022, the FTC expanded its interpretation of Section 5 to include a broader array of violations, including “unfair methods of competition,” which has been applied dubiously.
Additionally, FTC efforts to ban voluntary agreements between free parties, such as noncompetes, go beyond even an expanded Section 5 in harming free market activity. Such bans actively hinder legal and voluntary contract-making between parties, an essential component of a functioning free market.
Despite this, Section 5 continues to protect consumers from violations in agreed-upon contracts with data-collecting firms. The Legal Foundations of Free Markets explains how legally enforceable contracts are necessary for a free market to exist. Thus, any government body that wishes to uphold the integrity of the free market must have an enforcement mechanism for legal contracts. Under a consumer-focused interpretation of Section 5, the FTC provides that mechanism for all contracts involving data privacy.
Though the FTC has slowly fallen victim to mission creep, this aspect of its original mission remains despite all its efforts to warp and manipulate it. The enforcement of privacy contracts is embedded in the FTC and continues to help maintain a well-functioning free market, even when doing so is no longer in the official agency policy.
Isaac Schick is a policy analyst at the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.