Ex Post Facto Law

Ex Post Facto law, meaning law retroactively criminalizing past practices, is explicitly banned in the Constitution.  But big government folks have found a way around this prohibition through the massive government regulatory bureaucracies that have been created over the last half-century.

Here is a great example.  In short, an online site accepted advertising from a company that the FTC later went after for deceptive advertising.  Note, the online site was not involved, they just ran the add, just as your web site may be running ads or Google adwords right now.  The FTC actually settled the case with the company accused of wrongdoing for $0.  So obviously, they were not that worked up about the ad.  But in order to establish a new legal principal that sites that run advertising can be liable for the entire liability for a deceptive ad, they went after the web site for $6 million!

Forget for a moment what bad policy this is -- can you imagine being fully liable for any fraud involved with any company that runs an add on your site?   But beyond that, the basic approach -- of legislating from the administrative branch, abuse of power to cow small companies and individuals through threat of bankrupting legal costs, and ex post facto rule-making -- is just staggeringly scary.

This is why I cringe every single day whenever the phone rings in my small business.

My suspicions were confirmed when I looked up the law the FTC said I had violated, a law that was vague and didn't seem to have much to do with what the FTC was accusing me of. And it certainly did not say that the FTC was entitled to the amount of money it wanted. My lawyers explained that the amount the FTC was suing for was based not on laws that Congress had passed but seemed to be based on what judges had awarded in previous cases over the years.

Moreover, in our case, the FTC was now trying to go beyond what previous judges had awarded. What lay behind their actions seemed to be this: they were trying out a new legal theory. They wanted to establish a new principle "“ that a person who was in any way connected to the advertising at issue, no matter how trivial their involvement, was liable for the entire amount of all purchases of the product by consumers. I felt as if I had been struck by lightning. I was the sacrificial lamb. I had the rotten luck to be chosen, of all people, to be the test of their novel legal theory. [...]

I'm all for getting tough on deceptive advertising, including Internet fraudsters. But what seems terribly wrong is the FTC playing Goliath where they just outspend everyone they go after, regardless of whether there was any wrongdoing. Unfortunately, that appears to be the direction in which they're going. David Vladeck, the new head of the Bureau of Consumer Protection (the person I met with), advocates pursuing test cases "even if the legal theory has not been accepted by the court prior to that time." (see http://www.abanet.org/antitrust/at-source/10/04/Apr10-VladeckIntrvw4-14f.pdf) In other words, you may be violating a law that doesn't exist yet. That is downright scary. The only thing the FTC is going to "prove" by "winning" these cases is that they can establish their new principles by bankrupting anybody but the very wealthiest Americans "“ the only people who could afford to take them on.


  1. Jeff:

    "The only thing the FTC is going to “prove” by “winning” these cases is that they can establish their new principles by bankrupting anybody but the very wealthiest Americans – the only people who could afford to take them on."

    Which is why they sued a small website instead of Disney/ABC.

    You don't "test" a new legal theory against a party who can afford to fight, you threaten a small target with limited means and bludgeon a settlement out of them. Then you use the settlement as a precedent to go after bigger targets. Rinse. Repeat.

  2. Elliot:

    Your "Here is a great example" link is broken.

    Also, I think advertisement should be abbreviated as "ad" not "add", for future reference.

  3. Jamie:

    You might be right about the FTC, but Swish didn't "just run" the ad. He collected the financial info and then sold it to Virtual Works.


  4. Pat Moffitt:

    If you think this concept is new-- you only need to reflect on liability under EPAs administered Superfund (CERCLA 1980).

  5. Sean:

    Yea, Jamie's right. I also recall reading that the actual scam company paid $50k in fines, not zero. But it was still a pittance compared to the damage they had done, and the amount sought from Swift.

    But still, Jamie, you have to admit the gist of the guy's story is correct: He was running their advertising infrastructure, not actually anything in the business. The FTC was going after him for precedent rather than actual punishment for deeds done.