A Panel Discussion onState Consumer Protection Acts:

An Empirical Investigation of Private Litigation

ABA Section of Antitrust Law

March 8, 2010

SCJI Task Force on CPAs

• Large-scale study of CPAs

• Preliminary Report addressed two topics:– Trends and potential drivers of CPA litigation– Nature of CPA actions compared to FTC

standards (“Shadow FTC”)

• Panel Discussion focuses on the Shadow FTC

Background on CPAs

• Institutions of Consumer Protection

• Economic Rationales for CPAs

• “Over deterrence” with Private Litigation?

Research Question

Are there important qualitative differences between consumer protection claims brought

in courts and enforcement actions brought under FTC Section 5 standards?

Or, are CPAs really Little FTC Acts?

Methodology• Shadow FTC consists of 5 experts on consumer

protection, balanced in political orientation

• Shadow Commissioners were given 110 one-page case scenarios derived from actual CPA case decisions– Round 1: 50 randomly generated CPA cases, 10 FTC cases– Round 2: 50 successful CPA cases

• Shadow FTC was asked whether the cases likely contained illegal conduct and/or would be enforced under the FTC standards

Few of the CPA cases would constitute illegal conduct (either unfair or deceptive) under FTC consumer protection standards

Only 22% of the randomly generated CPA cases and no more than 62% of the successful CPA cases were found to constitute illegal conduct

Results: Illegality

Cases Where the Shadow FTC Believed the Scenario Contained Illegal Conduct

Even fewer of the CPA cases would likely be enforced by the FTC

Only 12% of the randomly generated CPA cases and 23% of successful CPA cases would result in FTC enforcement

Results: Enforcement

Cases Where the Shadow FTC Believed the FTC Would Initiate an Enforcement Action

Not all of the cases constituting illegal conduct would result in FTC enforcement

These results provide some support for the theory that CPAs allow private litigants to bring cases that approximate FTC enforcement actions but might not warrant allocation of FTC resources

Results: Illegality and Enforcement

Cases Where the Shadow FTC Believed the Scenario Contained Illegal Conduct and the FTC Would Initiate an Enforcement

Action

The Shadow Commission reached accurate conclusions in the 10 FTC control cases, correctly identifying illegal conduct and suggesting enforcement 100% of the time

This gives credence to the Shadow Commission’s findings in non-FTC case scenarios

Results: FTC Control Cases

Potential Policy Implications

• If CPAs are envisioned as complements to FTC consumer protection, they appear to overshoot the mark

• However, in a small percentage of cases, CPAs appear to fill a gap in FTC enforcement

• If the FTC standard does optimally balance the public interest and protection of individuals, it is uncertain that the broader coverage of CPAs benefits consumers

Henry N. ButlerExecutive Director

Searle Center on Law, Regulation, and Economic Growth312.503.0290

h-butler@law.northwestern.edu

Geoffrey J. LysaughtSenior Director

Searle Civil Justice Institute312.503.5143

g-lysaught@law.northwestern.edu

Website: www.northwesternsearlecenter.org