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"___________________________", "paragraph_id": "para_3" }, { "text": "No. 24-3137", "paragraph_id": "para_4" }, { "text": "___________________________", "paragraph_id": "para_5" }, { "text": "Custom Communications, Inc., doing business as Custom Alarm", "paragraph_id": "para_6" }, { "text": "lllllllllllllllllllllPetitioner", "paragraph_id": "para_7" }, { "text": "v.", "paragraph_id": "para_8" }, { "text": "Federal Trade Commission", "paragraph_id": "para_9" }, { "text": "lllllllllllllllllllllRespondent", "paragraph_id": "para_10" }, { "text": "------------------------------", "paragraph_id": "para_11" }, { "text": "American Property Casualty Insurance Association; Consumer Credit Industry", "paragraph_id": "para_12" }, { "text": "Association; Health & Fitness Association; International Franchise Association;", "paragraph_id": "para_13" }, { "text": "National Association of Spa Franchises; Service Contract Industry Council", "paragraph_id": "para_14" }, { "text": "lllllllllllllllllllllAmici on Behalf of Petitioner", "paragraph_id": "para_15" }, { "text": "Internet and Consumer Law Professors; Main Street Alliance; Truth in", "paragraph_id": "para_16" }, { "text": "Advertising, Inc.; Consumer Law and Economic Justice; Consumer Federation of", "paragraph_id": "para_17" }, { "text": "America; Consumer Action; National Consumers League; National Consumer", "paragraph_id": "para_18" }, { "text": "Law Center; National Association of Consumer Advocates", "paragraph_id": "para_19" }, { "text": "lllllllllllllllllllllAmici on Behalf of Respondent", "paragraph_id": "para_20" }, { "text": "___________________________", "paragraph_id": "para_21" }, { "text": "No. 24-3388", "paragraph_id": "para_22" }, { "text": "___________________________", "paragraph_id": "para_23" }, { "text": "The Chamber of Commerce of the United States of America; The Georgia", "paragraph_id": "para_24" }, { "text": "Chamber of Commerce", "paragraph_id": "para_25" }, { "text": "lllllllllllllllllllllPetitioners", "paragraph_id": "para_26" }, { "text": "v.", "paragraph_id": "para_27" }, { "text": "Federal Trade Commission", "paragraph_id": "para_28" }, { "text": "lllllllllllllllllllllRespondent", "paragraph_id": "para_29" }, { "text": "------------------------------", "paragraph_id": "para_30" }, { "text": "American Property Casualty Insurance Association; Consumer Credit Industry", "paragraph_id": "para_31" }, { "text": "Association; Health & Fitness Association; International Franchise Association;", "paragraph_id": "para_32" }, { "text": "National Association of Spa Franchises; Service Contract Industry Council", "paragraph_id": "para_33" }, { "text": "lllllllllllllllllllllAmici on Behalf of Petitioner", "paragraph_id": "para_34" }, { "text": "Internet and Consumer Law Professors; Main Street Alliance; Truth in", "paragraph_id": "para_35" }, { "text": "Advertising, Inc.; Consumer Law and Economic Justice; Consumer Federation of", "paragraph_id": "para_36" }, { "text": "America; Consumer Action; National Consumers League; National Consumer", "paragraph_id": "para_37" }, { "text": "Law Center; National Association of Consumer Advocates", "paragraph_id": "para_38" }, { "text": "lllllllllllllllllllllAmici on Behalf of Respondent", "paragraph_id": "para_39" }, { "text": "___________________________", "paragraph_id": "para_40" }, { "text": "No. 24-3415", "paragraph_id": "para_41" }, { "text": "___________________________", "paragraph_id": "para_42" }, { "text": "Michigan Press Association; National Federation of Independent Business, Inc.", "paragraph_id": "para_43" }, { "text": "lllllllllllllllllllllPetitioners", "paragraph_id": "para_44" }, { "text": "v.", "paragraph_id": "para_45" }, { "text": "Federal Trade Commission", "paragraph_id": "para_46" }, { "text": "lllllllllllllllllllllRespondent", "paragraph_id": "para_47" }, { "text": "-2-", "paragraph_id": "para_48" }, { "text": "------------------------------", "paragraph_id": "para_49" }, { "text": "American Property Casualty Insurance Association; Consumer Credit Industry", "paragraph_id": "para_50" }, { "text": "Association; Health & Fitness Association; International Franchise Association;", "paragraph_id": "para_51" }, { "text": "National Association of Spa Franchises; Service Contract Industry Council", "paragraph_id": "para_52" }, { "text": "lllllllllllllllllllllAmici on Behalf of Petitioner", "paragraph_id": "para_53" }, { "text": "Internet and Consumer Law Professors; Main Street Alliance; Truth in", "paragraph_id": "para_54" }, { "text": "Advertising, Inc.; Consumer Law and Economic Justice; Consumer Federation of", "paragraph_id": "para_55" }, { "text": "America; Consumer Action; National Consumers League; National Consumer", "paragraph_id": "para_56" }, { "text": "Law Center; National Association of Consumer Advocates", "paragraph_id": "para_57" }, { "text": "lllllllllllllllllllllAmici on Behalf of Respondent", "paragraph_id": "para_58" }, { "text": "___________________________", "paragraph_id": "para_59" }, { "text": "No. 24-3442", "paragraph_id": "para_60" }, { "text": "___________________________", "paragraph_id": "para_61" }, { "text": "Electronic Security Association; Interactive Advertising Bureau; NCTA-The", "paragraph_id": "para_62" }, { "text": "Internet & Television Association", "paragraph_id": "para_63" }, { "text": "lllllllllllllllllllllPetitioners", "paragraph_id": "para_64" }, { "text": "v.", "paragraph_id": "para_65" }, { "text": "Federal Trade Commission", "paragraph_id": "para_66" }, { "text": "lllllllllllllllllllllRespondent", "paragraph_id": "para_67" }, { "text": "------------------------------", "paragraph_id": "para_68" }, { "text": "American Property Casualty Insurance Association; Consumer Credit Industry", "paragraph_id": "para_69" }, { "text": "Association; Health & Fitness Association; International Franchise Association;", "paragraph_id": "para_70" }, { "text": "National Association of Spa Franchises; Service Contract Industry Council", "paragraph_id": "para_71" }, { "text": "lllllllllllllllllllllAmici on Behalf of Petitioner", "paragraph_id": "para_72" }, { "text": "-3-", "paragraph_id": "para_73" }, { "text": "Internet and Consumer Law Professors; Main Street Alliance; Truth in", "paragraph_id": "para_74" }, { "text": "Advertising, Inc.; Consumer Law and Economic Justice; Consumer Federation of", "paragraph_id": "para_75" }, { "text": "America; Consumer Action; National Consumers League; National Consumer", "paragraph_id": "para_76" }, { "text": "Law Center; National Association of Consumer Advocates", "paragraph_id": "para_77" }, { "text": "lllllllllllllllllllllAmici on Behalf of Respondent", "paragraph_id": "para_78" }, { "text": "___________________________", "paragraph_id": "para_79" }, { "text": "No. 24-3469", "paragraph_id": "para_80" }, { "text": "___________________________", "paragraph_id": "para_81" }, { "text": "Custom Communications, Inc., doing business as Custom Alarm; Electronic", "paragraph_id": "para_82" }, { "text": "Security Association; Interactive Advertising Bureau; NCTA-The Internet &", "paragraph_id": "para_83" }, { "text": "Television Association; Michigan Press Association; National Federation of", "paragraph_id": "para_84" }, { "text": "Independent Business, Inc.; The Chamber of Commerce of the United States of", "paragraph_id": "para_85" }, { "text": "America; The Georgia Chamber of Commerce", "paragraph_id": "para_86" }, { "text": "lllllllllllllllllllllPetitioners", "paragraph_id": "para_87" }, { "text": "v.", "paragraph_id": "para_88" }, { "text": "Federal Trade Commission", "paragraph_id": "para_89" }, { "text": "lllllllllllllllllllllRespondent", "paragraph_id": "para_90" }, { "text": "------------------------------", "paragraph_id": "para_91" }, { "text": "American Property Casualty Insurance Association; Consumer Credit Industry", "paragraph_id": "para_92" }, { "text": "Association; Health & Fitness Association; International Franchise Association;", "paragraph_id": "para_93" }, { "text": "National Association of Spa Franchises; Service Contract Industry Council", "paragraph_id": "para_94" }, { "text": "lllllllllllllllllllllAmici on Behalf of Petitioner", "paragraph_id": "para_95" }, { "text": "Internet and Consumer Law Professors; Main Street Alliance; Truth in", "paragraph_id": "para_96" }, { "text": "Advertising, Inc.; Consumer Law and Economic Justice; Consumer Federation of", "paragraph_id": "para_97" }, { "text": "America; Consumer Action; National Consumers League; National Consumer", "paragraph_id": "para_98" }, { "text": "Law Center; National Association of Consumer Advocates", "paragraph_id": "para_99" }, { "text": "-4-", "paragraph_id": "para_100" }, { "text": "lllllllllllllllllllllAmici on Behalf of Respondent", "paragraph_id": "para_101" }, { "text": "____________", "paragraph_id": "para_102" }, { "text": "Petitions for Review of an Order of the", "paragraph_id": "para_103" }, { "text": "Federal Trade Commission", "paragraph_id": "para_104" }, { "text": "____________", "paragraph_id": "para_105" }, { "text": "Submitted: June 10, 2025", "paragraph_id": "para_106" }, { "text": "Filed: July 8, 2025", "paragraph_id": "para_107" }, { "text": "[Published]", "paragraph_id": "para_108" }, { "text": "____________", "paragraph_id": "para_109" }, { "text": "Before LOKEN, ERICKSON, and KOBES, Circuit Judges.", "paragraph_id": "para_110" }, { "text": "____________", "paragraph_id": "para_111" }, { "text": "PER CURIAM.", "paragraph_id": "para_112" }, { "text": "Many American consumers have found themselves unwittingly enrolled in", "paragraph_id": "para_113" }, { "text": "recurring subscription plans, continuing to pay for unwanted products or services", "paragraph_id": "para_114" }, { "text": "because they neglected to cancel their subscriptions. These so-called “negative", "paragraph_id": "para_115" }, { "text": "option” programs take various forms but generally share the key feature of a term or", "paragraph_id": "para_116" }, { "text": "condition allowing sellers to interpret a customer’s silence, or failure to take any", "paragraph_id": "para_117" }, { "text": "affirmative action, as acceptance of an offer.", "paragraph_id": "para_118" }, { "text": "Given the proliferation of negative option plans across economic sectors, the", "paragraph_id": "para_119" }, { "text": "Federal Trade Commission (“FTC” or “Commission”) set out to modernize its", "paragraph_id": "para_120" }, { "text": "original negative option rule, promulgated in 1973, which covered only one form of", "paragraph_id": "para_121" }, { "text": "negative option plan. See Regulations Pertaining to the Use of Negative Option", "paragraph_id": "para_122" }, { "text": "Plans, 38 Fed. Reg. 4896 (Feb. 22, 1973) (to be codified at 16 C.F.R. pt. 425) (the", "paragraph_id": "para_123" }, { "text": "“1973 Rule”). In 2023, the Commission proposed extending the scope of the 1973", "paragraph_id": "para_124" }, { "text": "Rule to cover “all forms of negative option marketing in all media.” Negative Option", "paragraph_id": "para_125" }, { "text": "Rule, 88 Fed. Reg. 24716, 24716 (proposed Apr. 24, 2023) (to be codified at", "paragraph_id": "para_126" }, { "text": "16 C.F.R. pt. 425). In October 2024, the FTC amended the 1973 Rule by a 3-2 vote,", "paragraph_id": "para_127" }, { "text": "-5-", "paragraph_id": "para_128" }, { "text": "adding provisions that bar sellers from misrepresenting material facts and require", "paragraph_id": "para_129" }, { "text": "disclosure of material terms, express consumer consent, and a simple cancellation", "paragraph_id": "para_130" }, { "text": "mechanism. 16 C.F.R. § 425 (the “Rule” or “final Rule”).", "paragraph_id": "para_131" }, { "text": "Various industry associations and individual businesses (“Petitioners”) sought", "paragraph_id": "para_132" }, { "text": "review of the Rule in four federal circuit courts on the grounds that the FTC exceeded", "paragraph_id": "para_133" }, { "text": "the scope of its statutory authority in promulgating the Rule, failed to satisfy a", "paragraph_id": "para_134" }, { "text": "procedural requirement by declining to conduct a preliminary regulatory analysis", "paragraph_id": "para_135" }, { "text": "during the rulemaking process, and acted arbitrarily and capriciously under the", "paragraph_id": "para_136" }, { "text": "Administrative Procedure Act (“APA”) in issuing a rule of this scope. The Judicial", "paragraph_id": "para_137" }, { "text": "Panel on Multidistrict Litigation consolidated the petitions for review in this court.", "paragraph_id": "para_138" }, { "text": "Concluding that the Commission failed to follow procedural requirements under § 22", "paragraph_id": "para_139" }, { "text": "of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 57b-3(b)(1), we grant", "paragraph_id": "para_140" }, { "text": "the petitions for review and vacate the Rule.", "paragraph_id": "para_141" }, { "text": "I. Background", "paragraph_id": "para_142" }, { "text": "A. Statutory Framework. We begin by reviewing the relevant provisions of", "paragraph_id": "para_143" }, { "text": "the FTC Act. Section 5 empowers the Commission to “prevent . . . unfair or", "paragraph_id": "para_144" }, { "text": "deceptive acts or practices in or affecting commerce.” 15 U.S.C. § 45(a). The", "paragraph_id": "para_145" }, { "text": "Commission carries out this mandate through its own administrative proceedings,", "paragraph_id": "para_146" }, { "text": "litigation in federal district courts, and rulemaking. Section 5 lays out the process for", "paragraph_id": "para_147" }, { "text": "enforcement through administrative proceedings. If the Commission has “reason to", "paragraph_id": "para_148" }, { "text": "believe” a party “has been or is using any unfair method of competition or unfair or", "paragraph_id": "para_149" }, { "text": "deceptive act or practice,” it can initiate a proceeding before an Administrative Law", "paragraph_id": "para_150" }, { "text": "Judge (“ALJ”), who after a hearing can order a party to cease and desist from its", "paragraph_id": "para_151" }, { "text": "unlawful conduct. Id. § 45(b). The party ordered to cease and desist can seek review", "paragraph_id": "para_152" }, { "text": "before the Commission and then a court of appeals. Id. § 45(b)-(c). Section 5(l)", "paragraph_id": "para_153" }, { "text": "authorizes district courts to award civil penalties to the United States for violations", "paragraph_id": "para_154" }, { "text": "of cease-and-desist orders, and district courts can “grant mandatory injunctions and", "paragraph_id": "para_155" }, { "text": "-6-", "paragraph_id": "para_156" }, { "text": "such other and further equitable relief as they deem appropriate in the enforcement", "paragraph_id": "para_157" }, { "text": "of such final orders of the Commission.” Id. § 45(l). Alternatively, before a cease-", "paragraph_id": "para_158" }, { "text": "and-desist order is issued, the Commission can go directly to a district court to obtain", "paragraph_id": "para_159" }, { "text": "a temporary restraining order or preliminary injunction, and “in proper cases,” a", "paragraph_id": "para_160" }, { "text": "permanent injunction. Id. § 53(b).", "paragraph_id": "para_161" }, { "text": "The Commission’s formal rulemaking authority is found in § 18 of the FTC", "paragraph_id": "para_162" }, { "text": "Act. Section 18 authorizes the Commission to adopt “rules which define with", "paragraph_id": "para_163" }, { "text": "specificity acts or practices which are unfair or deceptive acts or practices in or", "paragraph_id": "para_164" }, { "text": "affecting commerce” within the meaning of § 5, as well as “requirements prescribed", "paragraph_id": "para_165" }, { "text": "for the purpose of preventing such acts or practices.” 15 U.S.C. § 57a(a)(1)(B)", "paragraph_id": "para_166" }, { "text": "(emphasis added). Once a rule is promulgated, the Commission can enforce it", "paragraph_id": "para_167" }, { "text": "directly against a regulated party by commencing an action in district court seeking", "paragraph_id": "para_168" }, { "text": "civil penalties. Id. § 45(m)(1)(A). The FTC can also seek injunctive relief pursuant", "paragraph_id": "para_169" }, { "text": "to § 53(b) and monetary redress for injured consumers. See id. § 57b(a)-(b). In", "paragraph_id": "para_170" }, { "text": "addition to the “specificity” requirement, § 18 provides that the Commission can issue", "paragraph_id": "para_171" }, { "text": "proposed rules “only where it has reason to believe that the unfair or deceptive acts", "paragraph_id": "para_172" }, { "text": "or practices which are the subject of the proposed rulemaking are prevalent.” Id.", "paragraph_id": "para_173" }, { "text": "§ 57a(b)(3) (emphasis added).", "paragraph_id": "para_174" }, { "text": "Besides the specificity and prevalence requirements, § 18 requires a number", "paragraph_id": "para_175" }, { "text": "of procedural steps, some of which go beyond those required for APA notice-and-", "paragraph_id": "para_176" }, { "text": "comment rulemaking. The FTC must first publish an “advance notice of proposed", "paragraph_id": "para_177" }, { "text": "rulemaking” containing “a brief description of the area of inquiry under", "paragraph_id": "para_178" }, { "text": "consideration, the objectives which the Commission seeks to achieve, and possible", "paragraph_id": "para_179" }, { "text": "regulatory alternatives under consideration.” 15 U.S.C. § 57a(b)(2)(A). Also", "paragraph_id": "para_180" }, { "text": "required is a notice of proposed rulemaking “stating with particularity the text of the", "paragraph_id": "para_181" }, { "text": "rule, including any alternatives, which the Commission proposes to promulgate, and", "paragraph_id": "para_182" }, { "text": "the reason for the proposed rule.” Id. § 57a(b)(1)(A). Interested parties must be", "paragraph_id": "para_183" }, { "text": "-7-", "paragraph_id": "para_184" }, { "text": "afforded the opportunity for “an informal hearing” and to “to submit written data,", "paragraph_id": "para_185" }, { "text": "views, and arguments” on the proposed rule. Id. § 57a(b)(1)(B)-(C), (c).", "paragraph_id": "para_186" }, { "text": "Congress further required the Commission to conduct regulatory analyses of", "paragraph_id": "para_187" }, { "text": "proposed and final rules, or amendments to rules, at two stages of the rulemaking", "paragraph_id": "para_188" }, { "text": "process. First, when the Commission publishes a notice of proposed rulemaking, it", "paragraph_id": "para_189" }, { "text": "also must issue a “preliminary regulatory analysis” containing “a description of any", "paragraph_id": "para_190" }, { "text": "reasonable alternatives to the proposed rule which may accomplish the stated", "paragraph_id": "para_191" }, { "text": "objective of the rule” and for the proposed rule and each alternative, “a preliminary", "paragraph_id": "para_192" }, { "text": "analysis of the projected benefits and any adverse economic effects and any other", "paragraph_id": "para_193" }, { "text": "effects, and of the effectiveness of the proposed rule and each alternative in meeting", "paragraph_id": "para_194" }, { "text": "the stated objectives of the proposed rule.” 15 U.S.C. § 57b-3(b)(1)(B)-(C).", "paragraph_id": "para_195" }, { "text": "Second, the Commission must issue a “final regulatory analysis” when it", "paragraph_id": "para_196" }, { "text": "promulgates a final rule. 15 U.S.C. § 57b-3(b)(2). Similar to the preliminary", "paragraph_id": "para_197" }, { "text": "regulatory analysis, the final regulatory analysis must include a description of", "paragraph_id": "para_198" }, { "text": "alternatives considered by the Commission and an analysis of projected benefits and", "paragraph_id": "para_199" }, { "text": "adverse economic and other effects. The Commission must also provide “an", "paragraph_id": "para_200" }, { "text": "explanation of the reasons for the determination of the Commission that the final rule", "paragraph_id": "para_201" }, { "text": "will attain its objectives” and a “summary of any significant issues raised by the", "paragraph_id": "para_202" }, { "text": "comments submitted . . . in response to the preliminary regulatory analysis.” Id.", "paragraph_id": "para_203" }, { "text": "§ 57b-3(b)(2)(B)-(E). Importantly, the preliminary and final regulatory analysis", "paragraph_id": "para_204" }, { "text": "requirements do not apply to “any amendment to a rule” unless the FTC estimates that", "paragraph_id": "para_205" }, { "text": "the amendment “will have an annual effect on the national economy of $100,000,000", "paragraph_id": "para_206" }, { "text": "or more.” Id. § 57b-3(a)(1)(A).", "paragraph_id": "para_207" }, { "text": "B. The Rulemaking Process. The 1973 Rule covered only one type of", "paragraph_id": "para_208" }, { "text": "negative option strategy, so-called prenotification plans, through which sellers", "paragraph_id": "para_209" }, { "text": "provide periodic notices offering goods to consumers and then send and charge for", "paragraph_id": "para_210" }, { "text": "those goods if the consumer does not decline the offer. The periodic notices and", "paragraph_id": "para_211" }, { "text": "-8-", "paragraph_id": "para_212" }, { "text": "shipments can continue indefinitely. Once popular book-of-the-month clubs typify", "paragraph_id": "para_213" }, { "text": "this type of negative option plan. Negative Option Rule, 89 Fed. Reg. 90476, 90476-", "paragraph_id": "para_214" }, { "text": "77 (Nov. 15, 2024) (to be codified at 16 C.F.R. pt. 425). The 1973 Rule required", "paragraph_id": "para_215" }, { "text": "sellers to clearly and conspicuously disclose seven categories of material terms:", "paragraph_id": "para_216" }, { "text": "(i) how subscribers must notify the seller to indicate they do not want to make a", "paragraph_id": "para_217" }, { "text": "purchase; (ii) any minimum purchase obligations; (iii) the subscriber’s right to cancel;", "paragraph_id": "para_218" }, { "text": "(iv) whether billing charges include postage and handling; (v) disclosure confirming", "paragraph_id": "para_219" }, { "text": "subscribers have ten days to mail a rejection; (vi) disclosure that the seller will credit", "paragraph_id": "para_220" }, { "text": "the return of the selection if the subscriber did not have ten day to reject the selection;", "paragraph_id": "para_221" }, { "text": "and (vii) the frequency with which announcements and forms would be sent.", "paragraph_id": "para_222" }, { "text": "16 C.F.R. § 425.1(a)(1)(i)-(vii) (1974). Sellers were also required to disclose the", "paragraph_id": "para_223" }, { "text": "specific periods during which they would send introductory merchandise, provide", "paragraph_id": "para_224" }, { "text": "instructions for rejecting merchandise, and promptly honor cancellation requests. Id.", "paragraph_id": "para_225" }, { "text": "§ 425.1(a)(2)-(3), (b).", "paragraph_id": "para_226" }, { "text": "The Commission’s effort to modernize the 1973 Rule began in 2019 with an", "paragraph_id": "para_227" }, { "text": "advance notice of proposed rulemaking (the “ANPRM”), which posed a series of", "paragraph_id": "para_228" }, { "text": "general questions about the 1973 Rule and current negative option practices. These", "paragraph_id": "para_229" }, { "text": "included whether there was “a continuing need for the [1973] Rule as currently", "paragraph_id": "para_230" }, { "text": "promulgated,” what modifications the Commission should make to increase benefits", "paragraph_id": "para_231" }, { "text": "to consumers, and whether there are “potentially unfair or deceptive practices", "paragraph_id": "para_232" }, { "text": "concerning the marketing of negative option plans, not covered by the [1973] Rule,", "paragraph_id": "para_233" }, { "text": "occurring in the marketplace.” Rule Concerning the Use of Prenotification Negative", "paragraph_id": "para_234" }, { "text": "Option Plans, 84 Fed. Reg. 52393, 52397 (Oct. 2, 2019).", "paragraph_id": "para_235" }, { "text": "The ANPRM identified three other variants of negative option programs not", "paragraph_id": "para_236" }, { "text": "covered by the 1973 Rule. The first is continuity plans, under which consumers agree", "paragraph_id": "para_237" }, { "text": "in advance to periodic shipments of goods or provision of services, to continue until", "paragraph_id": "para_238" }, { "text": "the consumer cancels the agreement. A bottled water delivery service exemplifies", "paragraph_id": "para_239" }, { "text": "this type of agreement. The second is automatic renewal plans. As the name", "paragraph_id": "para_240" }, { "text": "-9-", "paragraph_id": "para_241" }, { "text": "suggests, sellers, like magazine publishers, automatically renew customers’", "paragraph_id": "para_242" }, { "text": "subscriptions when they expire unless the customer takes the affirmative step of", "paragraph_id": "para_243" }, { "text": "cancelling the subscription. The third is free-to-pay plans, in which consumers", "paragraph_id": "para_244" }, { "text": "receive free goods or services (or pay only a nominal fee), typically for a free trial", "paragraph_id": "para_245" }, { "text": "period, and are automatically charged a fee at the end of that period unless they", "paragraph_id": "para_246" }, { "text": "affirmatively cancel or return the goods to the seller. Rule Concerning the Use of", "paragraph_id": "para_247" }, { "text": "Prenotification Negative Option Plans, 84 Fed. Reg at 52394. Because the 1973 Rule", "paragraph_id": "para_248" }, { "text": "“does not reach most modern negative option marketing” and “[t]he existing", "paragraph_id": "para_249" }, { "text": "patchwork of laws and regulations does not provide industry and consumers with a", "paragraph_id": "para_250" }, { "text": "consistent legal framework across different media and types of plans,” the", "paragraph_id": "para_251" }, { "text": "Commission sought public comment on how to improve the existing regulatory", "paragraph_id": "para_252" }, { "text": "framework. Id. at 52394, 52396.", "paragraph_id": "para_253" }, { "text": "The Commission received only seventeen comments in response to the", "paragraph_id": "para_254" }, { "text": "ANPRM. After reviewing public comments, the Commission published an", "paragraph_id": "para_255" }, { "text": "enforcement policy statement reiterating various principles from FTC guidance and", "paragraph_id": "para_256" }, { "text": "case law, as well as statutes addressing recurring subscriptions, like the Restore", "paragraph_id": "para_257" }, { "text": "Online Shoppers’ Confidence Act of 2010, 15 U.S.C. § 8403. The policy statement", "paragraph_id": "para_258" }, { "text": "emphasized the importance of clear and conspicuous disclosure of material terms", "paragraph_id": "para_259" }, { "text": "before purchase, obtaining consumers’ express, informed consent, and marketers’", "paragraph_id": "para_260" }, { "text": "honoring cancellation requests and not “erect[ing] unreasonable barriers to", "paragraph_id": "para_261" }, { "text": "cancellation.” Enforcement Policy Statement Regarding Negative Option Marketing,", "paragraph_id": "para_262" }, { "text": "86 Fed. Reg. 60822, 60823 (Nov. 4, 2021).", "paragraph_id": "para_263" }, { "text": "Over three years after the publication of the ANPRM, the Commission issued", "paragraph_id": "para_264" }, { "text": "a notice of proposed rulemaking in April 2023 (the “NPRM”) with proposed", "paragraph_id": "para_265" }, { "text": "requirements that “would be applicable to all forms of negative option marketing in", "paragraph_id": "para_266" }, { "text": "all media.” Negative Option Rule, 88 Fed. Reg. at 24716. Based on evidence", "paragraph_id": "para_267" }, { "text": "received in response to the ANPRM, including “complaint data, studies, survey", "paragraph_id": "para_268" }, { "text": "results, and law enforcement actions,” the Commission determined that deceptive", "paragraph_id": "para_269" }, { "text": "-10-", "paragraph_id": "para_270" }, { "text": "negative option marketing practices had become prevalent across industries. Id. at", "paragraph_id": "para_271" }, { "text": "24725. The NPRM proposed a number of amendments to the 1973 Rule that would", "paragraph_id": "para_272" }, { "text": "broaden its scope and introduce new requirements regarding disclosures, advance", "paragraph_id": "para_273" }, { "text": "consent, and cancellation mechanisms. Id. at 24726-30.", "paragraph_id": "para_274" }, { "text": "As for the preliminary regulatory analysis, the NPRM explained that the", "paragraph_id": "para_275" }, { "text": "Commission had “preliminarily determined” that the proposed amendments to the", "paragraph_id": "para_276" }, { "text": "1973 Rule would not have the requisite $100 million effect on the national economy", "paragraph_id": "para_277" }, { "text": "that would trigger the requirement for that analysis. Compliance with the proposed", "paragraph_id": "para_278" }, { "text": "requirements “should not create any substantial added burden” on sellers because", "paragraph_id": "para_279" }, { "text": "most already provide some forms of disclosures, consent procedures, and cancellation", "paragraph_id": "para_280" }, { "text": "mechanisms to consumers. In addition, the Commission had “sought to minimize", "paragraph_id": "para_281" }, { "text": "prescriptive requirements and provide flexibility to sellers.” It therefore declined to", "paragraph_id": "para_282" }, { "text": "provide a preliminary regulatory analysis. Negative Option Rule, 88 Fed. Reg. at", "paragraph_id": "para_283" }, { "text": "24731.", "paragraph_id": "para_284" }, { "text": "In January and February 2024, the Commission held informal hearing sessions", "paragraph_id": "para_285" }, { "text": "before an ALJ to resolve disputed issues of material fact about costs of the proposed", "paragraph_id": "para_286" }, { "text": "rule. Five interested parties and the FTC Bureau of Consumer Protection appeared", "paragraph_id": "para_287" }, { "text": "at the hearing sessions and offered submissions and experts reports on the costs of the", "paragraph_id": "para_288" }, { "text": "proposed rule. Based on the FTC’s estimate that 106,000 entities currently offer", "paragraph_id": "para_289" }, { "text": "negative option features and estimated average hourly rates for professionals such as", "paragraph_id": "para_290" }, { "text": "lawyers, website developers, and data scientists whose services would be required by", "paragraph_id": "para_291" }, { "text": "many businesses to comply with the new requirements, the ALJ observed that unless", "paragraph_id": "para_292" }, { "text": "each business used fewer than twenty-three hours of professional services at the", "paragraph_id": "para_293" }, { "text": "lowest end of the spectrum of estimated hourly rates, the Rule’s compliance costs", "paragraph_id": "para_294" }, { "text": "would exceed $100 million. Such an estimate was “clearly unrealistically low", "paragraph_id": "para_295" }, { "text": "inasmuch as there are several new requirements proposed that would require changes", "paragraph_id": "para_296" }, { "text": "in existing practices and/or disclosure forms.” The Internet and Television", "paragraph_id": "para_297" }, { "text": "Association, which appeared before the ALJ, submitted an estimate that achieving", "paragraph_id": "para_298" }, { "text": "-11-", "paragraph_id": "para_299" }, { "text": "compliance with the proposed rule would cost major cable operators alone between", "paragraph_id": "para_300" }, { "text": "$12 and $25 million per company. Negative Option Rule, Project No. P064202 (Apr.", "paragraph_id": "para_301" }, { "text": "12, 2024) (Recommended Decision).", "paragraph_id": "para_302" }, { "text": "Weighing the estimated costs and benefits to consumers, the ALJ found that", "paragraph_id": "para_303" }, { "text": "the proposed rule would have an annual effect on the national economy surpassing", "paragraph_id": "para_304" }, { "text": "the $100 million threshold. The ALJ noted that even though it was “conceivable that", "paragraph_id": "para_305" }, { "text": "the practices of almost all businesses that would be affected by the proposed Negative", "paragraph_id": "para_306" }, { "text": "Option Rule amendments already comply with the proposal, this would be", "paragraph_id": "para_307" }, { "text": "inconsistent with the widespread problems and abuses that the NPRM describes.” Id.", "paragraph_id": "para_308" }, { "text": "After the ALJ’s decision, the Commission did not issue a preliminary regulatory", "paragraph_id": "para_309" }, { "text": "analysis. Instead, it proceeded to finalize the Rule.", "paragraph_id": "para_310" }, { "text": "The Commission issued the final Rule by a 3-2 vote on November 15, 2024,", "paragraph_id": "para_311" }, { "text": "imposing new requirements “related to any form of negative option program in any", "paragraph_id": "para_312" }, { "text": "media.” 16 C.F.R. § 425.1. First, the Rule bars sellers from misrepresenting “any", "paragraph_id": "para_313" }, { "text": "[m]aterial fact,” including but not limited to cost, negative option feature terms, and", "paragraph_id": "para_314" }, { "text": "other information about the underlying good or service. Id. § 425.3. Second, the", "paragraph_id": "para_315" }, { "text": "Rule requires “[c]lear and [c]onspicuous” disclosure, “immediately adjacent” to the", "paragraph_id": "para_316" }, { "text": "means of recording the consumer’s consent to the recurring subscription, of all", "paragraph_id": "para_317" }, { "text": "material terms, “regardless of whether those terms directly relate to the Negative", "paragraph_id": "para_318" }, { "text": "Option Feature.” Id. § 425.4(a), (b)(1)-(2). Third, the Rule requires sellers to obtain", "paragraph_id": "para_319" }, { "text": "the consumer’s “unambiguously affirmative consent to the Negative Option Feature", "paragraph_id": "para_320" }, { "text": "separately from any other portion of the transaction.” Id. § 425.5(a)(1). Fourth, the", "paragraph_id": "para_321" }, { "text": "Rule introduces an “equal dignities” requirement for cancellation of negative option", "paragraph_id": "para_322" }, { "text": "contracts. Sellers must provide “a simple mechanism” for cancellation that allows", "paragraph_id": "para_323" }, { "text": "consumers to immediately stop all recurring charges and is “at least as easy to use as", "paragraph_id": "para_324" }, { "text": "the mechanism the consumer used to consent” to the subscription initially. Id.", "paragraph_id": "para_325" }, { "text": "§ 425.6(a)-(b). Acknowledging the ALJ’s finding that the Rule would have an annual", "paragraph_id": "para_326" }, { "text": "effect on the national economy of $100 million or more, the Commission issued a", "paragraph_id": "para_327" }, { "text": "-12-", "paragraph_id": "para_328" }, { "text": "final regulatory analysis in conjunction with the final Rule as required by § 22 of the", "paragraph_id": "para_329" }, { "text": "FTC Act, 15 U.S.C. § 57b-3(b)(2). Negative Option Rule, 89 Fed. Reg. at 90517-34.", "paragraph_id": "para_330" }, { "text": "FTC Commissioner Holyoak and now-Chairman Ferguson dissented.", "paragraph_id": "para_331" }, { "text": "Questioning the majority’s “race to cross the finish line,” Commissioner Holyoak", "paragraph_id": "para_332" }, { "text": "argued that the Rule was much broader than the “area of inquiry” proposed by the", "paragraph_id": "para_333" }, { "text": "ANPRM; it failed to satisfy § 18’s specificity requirement by “improperly", "paragraph_id": "para_334" }, { "text": "generalizing from narrow industry-specific complaints and evidence to the entire", "paragraph_id": "para_335" }, { "text": "American economy”; and the Commission did not demonstrate that unfair or", "paragraph_id": "para_336" }, { "text": "deceptive negative option practices are actually “prevalent.” She also warned that the", "paragraph_id": "para_337" }, { "text": "breadth of the Rule “incentivizes companies to avoid negative option features that", "paragraph_id": "para_338" }, { "text": "honest businesses and consumers find valuable” and characterized the Rule as “a", "paragraph_id": "para_339" }, { "text": "missed opportunity to make useful amendments to the preexisting negative option", "paragraph_id": "para_340" }, { "text": "rule within the scope of the Commission’s authority.” Negative Option Rule, 89 Fed.", "paragraph_id": "para_341" }, { "text": "Reg. at 90540.", "paragraph_id": "para_342" }, { "text": "C. Petitioners’ Challenges. Petitioners filed petitions for review shortly after", "paragraph_id": "para_343" }, { "text": "the Rule was issued in four circuit courts of appeals, which have jurisdiction to", "paragraph_id": "para_344" }, { "text": "review FTC rules pursuant to 15 U.S.C. § 57a(e)(1)(A). The Commission transmitted", "paragraph_id": "para_345" }, { "text": "the petitions to the Judicial Panel on Multidistrict Litigation, which, by means of", "paragraph_id": "para_346" }, { "text": "random selection, designated this court as the one in which to consolidate the", "paragraph_id": "para_347" }, { "text": "petitions. 28 U.S.C. § 2112(a).", "paragraph_id": "para_348" }, { "text": "Petitioners challenge the Rule on three grounds and request that the court", "paragraph_id": "para_349" }, { "text": "vacate the Rule in its entirety. First, they argue the Rule exceeds the scope of the", "paragraph_id": "para_350" }, { "text": "FTC’s statutory authority under § 18 of the FTC Act because it does not satisfy the", "paragraph_id": "para_351" }, { "text": "specificity and prevalence requirements. In Petitioners’ view, this “one-size-fits-all", "paragraph_id": "para_352" }, { "text": "regulation of all recurring subscriptions everywhere” using general requirements such", "paragraph_id": "para_353" }, { "text": "as disclosure of “any [m]aterial fact” and “easy” cancellation mechanisms is far from", "paragraph_id": "para_354" }, { "text": "specific. And the Commission did not provide sufficient evidence regarding the", "paragraph_id": "para_355" }, { "text": "-13-", "paragraph_id": "para_356" }, { "text": "existence of unfair or deceptive recurring subscriptions practices across industries to", "paragraph_id": "para_357" }, { "text": "demonstrate prevalence. Congress would also not have authorized a Rule of this", "paragraph_id": "para_358" }, { "text": "breadth when it already has passed legislation addressing specific recurring", "paragraph_id": "para_359" }, { "text": "subscription practices and classes in specific industries. The Commission responds", "paragraph_id": "para_360" }, { "text": "that the Rule satisfies the specificity requirement because it targets clearly defined", "paragraph_id": "para_361" }, { "text": "types of contracts and particular unfair or deceptive acts or practices. In addition,", "paragraph_id": "para_362" }, { "text": "nothing in § 18 precludes the Commission from regulating across industries; the FTC", "paragraph_id": "para_363" }, { "text": "can reach conduct “in or affecting commerce.” 15 U.S.C. § 57a(a)(1)(B). As for the", "paragraph_id": "para_364" }, { "text": "prevalence requirement, the Commission states that the Rule is based on “copious", "paragraph_id": "para_365" }, { "text": "evidence” of unfair and deceptive negative options practices, including dozens of", "paragraph_id": "para_366" }, { "text": "enforcement actions, consumer complaints, economic studies, and comments from", "paragraph_id": "para_367" }, { "text": "industry and consumer groups.", "paragraph_id": "para_368" }, { "text": "Second, Petitioners contend the Rule must be set aside because the", "paragraph_id": "para_369" }, { "text": "Commission never issued the statutorily required preliminary regulatory analysis, and", "paragraph_id": "para_370" }, { "text": "reviewing courts “may set aside such rule if the Commission has failed entirely to", "paragraph_id": "para_371" }, { "text": "prepare a regulatory analysis.” 15 U.S.C. § 57b-3(c)(1). The Commission responds", "paragraph_id": "para_372" }, { "text": "that it was not required to prepare that analysis because its initial estimate of the", "paragraph_id": "para_373" }, { "text": "annual economic impact did not surpass the statutory threshold of $100 million, and", "paragraph_id": "para_374" }, { "text": "the FTC Act did not require the Commission to conduct the preliminary regulatory", "paragraph_id": "para_375" }, { "text": "analysis later in the rulemaking process after the informal hearing. In addition, any", "paragraph_id": "para_376" }, { "text": "alleged error was harmless because the NPRM addressed alternatives to the proposed", "paragraph_id": "para_377" }, { "text": "amendments to the 1973 Rule and analyzed recordkeeping and compliance costs.", "paragraph_id": "para_378" }, { "text": "Third, Petitioners argue that the Rule is arbitrary and capricious under the", "paragraph_id": "para_379" }, { "text": "APA, see 15 U.S.C. § 57a(e)(3) (incorporating 5 U.S.C. § 706(2)), because it is", "paragraph_id": "para_380" }, { "text": "overbroad and creates unworkable, sometimes impossible-to-meet standards for", "paragraph_id": "para_381" }, { "text": "sellers by treating all recurring subscriptions the same. The Commission takes the", "paragraph_id": "para_382" }, { "text": "position that the Rule was appropriately tailored to prevent specific unfair and", "paragraph_id": "para_383" }, { "text": "-14-", "paragraph_id": "para_384" }, { "text": "deceptive practices, and the need for its chosen approach was supported by", "paragraph_id": "para_385" }, { "text": "substantial evidence.", "paragraph_id": "para_386" }, { "text": "The Commission originally set a compliance date of May 14, 2025, for all", "paragraph_id": "para_387" }, { "text": "regulated entities. This court denied Petitioners’ motion for a stay of the Rule", "paragraph_id": "para_388" }, { "text": "pending judicial review. On May 9, the Commission opted to defer the compliance", "paragraph_id": "para_389" }, { "text": "deadline until July 14, 2025, exercising its “enforcement discretion” to “ensure ample", "paragraph_id": "para_390" }, { "text": "time for companies to conform their conduct to the Rule.” FTC, Statement of the", "paragraph_id": "para_391" }, { "text": "Commission Regarding the Negative Option Rule, Matter No. P064202 (May 9,", "paragraph_id": "para_392" }, { "text": "2025).", "paragraph_id": "para_393" }, { "text": "II. Discussion", "paragraph_id": "para_394" }, { "text": "Section 18 of the FTC Act provides that reviewing courts “shall hold unlawful", "paragraph_id": "para_395" }, { "text": "and set aside the rule on any ground specified in subparagraphs (A), (B), (C), or (D)", "paragraph_id": "para_396" }, { "text": "of section 706(2) of [the APA].” 15 U.S.C. § 57a(e)(3). Those incorporated", "paragraph_id": "para_397" }, { "text": "provisions of APA § 706(2) authorize courts to set aside agency action that is", "paragraph_id": "para_398" }, { "text": "“arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with", "paragraph_id": "para_399" }, { "text": "law”; “contrary to constitutional right, power, privilege, or immunity”; “in excess of", "paragraph_id": "para_400" }, { "text": "statutory jurisdiction, authority, or limitations, or short of statutory right”; or “without", "paragraph_id": "para_401" }, { "text": "observance of procedure required by law.” 5 U.S.C. § 706(2)(A)-(D). “If a petitioner", "paragraph_id": "para_402" }, { "text": "challenges the agency’s compliance with the [APA’s] procedural requirements, then", "paragraph_id": "para_403" }, { "text": "de novo review is required because compliance is not a matter that Congress has", "paragraph_id": "para_404" }, { "text": "committed to the agency’s discretion.” Citizens Telecomms. Co. of Minn., LLC v.", "paragraph_id": "para_405" }, { "text": "FCC, 901 F.3d 991, 1001 (8th Cir. 2018) (quotation omitted). We begin with", "paragraph_id": "para_406" }, { "text": "Petitioners’ procedural challenge based on the Commission’s failure to provide a", "paragraph_id": "para_407" }, { "text": "preliminary regulatory analysis.", "paragraph_id": "para_408" }, { "text": "A. The Preliminary Regulatory Analysis Requirement. In issuing the Rule,", "paragraph_id": "para_409" }, { "text": "the Commission acknowledged the ALJ’s finding that the Rule’s annual effect on the", "paragraph_id": "para_410" }, { "text": "-15-", "paragraph_id": "para_411" }, { "text": "national economy would exceed $100 million: “Although the Commission", "paragraph_id": "para_412" }, { "text": "preliminarily determined the proposed amendments to the Rule would not have such", "paragraph_id": "para_413" }, { "text": "effects on the national economy . . . [u]ltimately, the presiding officer determined . . .", "paragraph_id": "para_414" }, { "text": "the proposed amendments would have such effect.” Negative Option Rule, 89 Fed.", "paragraph_id": "para_415" }, { "text": "Reg. at 90517. Rather than conducting the preliminary regulatory analysis, the", "paragraph_id": "para_416" }, { "text": "Commission proceeded to issue only the final regulatory analysis alongside the final", "paragraph_id": "para_417" }, { "text": "Rule.", "paragraph_id": "para_418" }, { "text": "The plain text of the FTC Act explains when a regulatory analysis is required", "paragraph_id": "para_419" }, { "text": "and to what extent it is subject to judicial review. Section 22 states that “[i]n any case", "paragraph_id": "para_420" }, { "text": "in which the Commission publishes notice of a proposed rulemaking, the Commission", "paragraph_id": "para_421" }, { "text": "shall issue a preliminary regulatory analysis relating to the proposed rule involved.”", "paragraph_id": "para_422" }, { "text": "15 U.S.C. § 57b-3(b)(1). As previously noted, the scope of this requirement is limited", "paragraph_id": "para_423" }, { "text": "by the exclusion from the definition of “rule” amendments with an estimated annual", "paragraph_id": "para_424" }, { "text": "economic effect under $100 million. Id. § 57b-3(a)(1)(A). In addition, § 22 limits", "paragraph_id": "para_425" }, { "text": "the scope of judicial review of the substance of the preliminary and final regulatory", "paragraph_id": "para_426" }, { "text": "analyses when they are required: “The contents and adequacy of any regulatory", "paragraph_id": "para_427" }, { "text": "analysis prepared or issued by the Commission under this section, including the", "paragraph_id": "para_428" }, { "text": "adequacy of any procedure involved in such preparation or issuance, shall not be", "paragraph_id": "para_429" }, { "text": "subject to any judicial review in any court.” Id. § 57b-3(c)(1). This circumscribed", "paragraph_id": "para_430" }, { "text": "judicial review provision, however, contains an exception -- “a court . . . may set", "paragraph_id": "para_431" }, { "text": "aside such rule if the Commission has failed entirely to prepare a regulatory analysis.”", "paragraph_id": "para_432" }, { "text": "Id.", "paragraph_id": "para_433" }, { "text": "Despite this exception and the Commission’s acknowledged failure to prepare", "paragraph_id": "para_434" }, { "text": "a preliminary regulatory analysis, the FTC argues on appeal that “nothing in the FTC", "paragraph_id": "para_435" }, { "text": "Act requires a preliminary regulatory analysis at that late stage” of rulemaking. The", "paragraph_id": "para_436" }, { "text": "Commission points out that the ALJ issued her decision on the costs of the Rule one", "paragraph_id": "para_437" }, { "text": "year after the NPRM, contending that the statute did not require the Commission to", "paragraph_id": "para_438" }, { "text": "-16-", "paragraph_id": "para_439" }, { "text": "conduct a preliminary analysis just six months before the Rule was ultimately", "paragraph_id": "para_440" }, { "text": "promulgated to account for its initial underestimate.", "paragraph_id": "para_441" }, { "text": "But the statutory language, “shall issue,” mandates a separate preliminary", "paragraph_id": "para_442" }, { "text": "analysis for public review and comment “in any case” where the Commission issues", "paragraph_id": "para_443" }, { "text": "a notice of proposed rulemaking and the $100 million threshold is surpassed.", "paragraph_id": "para_444" }, { "text": "15 U.S.C. § 57b-3(b)(1). We do not read § 22 to require the Commission to issue the", "paragraph_id": "para_445" }, { "text": "preliminary regulatory analysis contemporaneously with the notice of proposed", "paragraph_id": "para_446" }, { "text": "rulemaking. While that is the typical order of operations, deviating from this", "paragraph_id": "para_447" }, { "text": "sequence of events is not statutorily prohibited. Likewise, § 22 does not excuse the", "paragraph_id": "para_448" }, { "text": "Commission from having to prepare the analysis in the event that its initial economic", "paragraph_id": "para_449" }, { "text": "estimate is later deemed inaccurate. After the ALJ’s decision, the Commission could", "paragraph_id": "para_450" }, { "text": "have reissued the NPRM with the required preliminary analysis. It is not uncommon", "paragraph_id": "para_451" }, { "text": "for administrative agencies, including the FTC, to issue supplemental notices of", "paragraph_id": "para_452" }, { "text": "proposed rulemaking as the scope of a proposed rule changes in response to", "paragraph_id": "para_453" }, { "text": "comments or to ensure statutory compliance. See, e.g., Business Opportunity Rule,", "paragraph_id": "para_454" }, { "text": "76 Fed. Reg. 76816, 76818-19 (Dec. 8, 2011) (to be codified at 16 C.F.R. pt. 437);", "paragraph_id": "para_455" }, { "text": "Regulations Under the Fur Products Labeling Act, 79 Fed. Reg. 30445, 30447 (May", "paragraph_id": "para_456" }, { "text": "28, 2014) (to be codified at 16 C.F.R. pt. 301).", "paragraph_id": "para_457" }, { "text": "The final regulatory analysis provision also supports Petitioners’ view that the", "paragraph_id": "para_458" }, { "text": "Commission was not excused from issuing the preliminary regulatory analysis.", "paragraph_id": "para_459" }, { "text": "Section 22 requires, as a component of the final regulatory analysis, “a summary of", "paragraph_id": "para_460" }, { "text": "any significant issues raised by the comments submitted during the public comment", "paragraph_id": "para_461" }, { "text": "period in response to the preliminary regulatory analysis, and a summary of the", "paragraph_id": "para_462" }, { "text": "assessment by the Commission of such issues.” 15 U.S.C. § 57b-3(b)(2)(E). The fact", "paragraph_id": "para_463" }, { "text": "that Congress requires the Commission to consider issues raised in the preliminary", "paragraph_id": "para_464" }, { "text": "analysis at this later stage of rulemaking suggests that a preliminary analysis would", "paragraph_id": "para_465" }, { "text": "still have been required, even if well after the NPRM. Without it, the Commission", "paragraph_id": "para_466" }, { "text": "-17-", "paragraph_id": "para_467" }, { "text": "cannot provide any responses to comments on its earlier analysis in the final", "paragraph_id": "para_468" }, { "text": "regulatory analysis.", "paragraph_id": "para_469" }, { "text": "The Commission emphasizes that § 22 directs it to address comments from “the", "paragraph_id": "para_470" }, { "text": "public comment period” responding to the preliminary regulatory analysis and that", "paragraph_id": "para_471" }, { "text": "the only statutorily required public comment periods follow the advance notice of", "paragraph_id": "para_472" }, { "text": "proposed rulemaking and notice of proposed rulemaking. But § 22’s reference to", "paragraph_id": "para_473" }, { "text": "“public comment period” is not specifically tied to or limited by any procedural", "paragraph_id": "para_474" }, { "text": "requirements of § 18 or the APA. And if no preliminary regulatory analysis is issued,", "paragraph_id": "para_475" }, { "text": "it is impossible for interested parties to submit comments “in response to the", "paragraph_id": "para_476" }, { "text": "preliminary regulatory analysis.” The Commission’s interpretation allows it to", "paragraph_id": "para_477" }, { "text": "sidestep the requirement that the final regulatory analysis respond to comments", "paragraph_id": "para_478" }, { "text": "responding to the preliminary regulatory analysis by simply not publishing a", "paragraph_id": "para_479" }, { "text": "preliminary analysis and cutting off the ability of regulated parties to respond to the", "paragraph_id": "para_480" }, { "text": "preliminary analysis in the first place. We conclude that § 22 required the", "paragraph_id": "para_481" }, { "text": "Commission to issue a preliminary regulatory analysis after the ALJ found the Rule", "paragraph_id": "para_482" }, { "text": "would meet the $100 million economic impact threshold, even though the", "paragraph_id": "para_483" }, { "text": "Commission initially estimated it would not.", "paragraph_id": "para_484" }, { "text": "B. Harmless Error. Even if a preliminary regulatory analysis was required,", "paragraph_id": "para_485" }, { "text": "the Commission responds that any procedural error committed in not preparing one", "paragraph_id": "para_486" }, { "text": "was ultimately harmless. The APA instructs reviewing courts to take “due", "paragraph_id": "para_487" }, { "text": "account . . . of the rule of prejudicial error.” 5 U.S.C. § 706. Section 18 of the FTC", "paragraph_id": "para_488" }, { "text": "Act incorporates this APA provision. 15 U.S.C. § 57a(e)(3). APA § 706 creates “the", "paragraph_id": "para_489" }, { "text": "same kind of ‘harmless-error’ rule that courts ordinarily apply in civil cases” and", "paragraph_id": "para_490" }, { "text": "“seeks to prevent appellate courts from becoming impregnable citadels of", "paragraph_id": "para_491" }, { "text": "technicality.” Shinseki v. Sanders, 556 U.S. 396, 406-07 (2009) (quotation omitted).", "paragraph_id": "para_492" }, { "text": "“[T]he burden of showing that an error is harmful normally falls upon the party", "paragraph_id": "para_493" }, { "text": "attacking the agency’s determination.” Id. at 409. Petitioners have met that burden.", "paragraph_id": "para_494" }, { "text": "-18-", "paragraph_id": "para_495" }, { "text": "When required, a preliminary regulatory analysis must include a description of", "paragraph_id": "para_496" }, { "text": "reasonable alternatives to the proposed rule, a cost-benefit analysis of each", "paragraph_id": "para_497" }, { "text": "alternative, and an assessment of the effectiveness of the proposed rule and each", "paragraph_id": "para_498" }, { "text": "alternative in achieving the Commission’s stated objectives in promulgating the rule.", "paragraph_id": "para_499" }, { "text": "15 U.S.C. § 57b-3(b). Petitioners claim that they suffered prejudice because the", "paragraph_id": "para_500" }, { "text": "Commission never provided this analysis of alternatives to the Rule or addressed", "paragraph_id": "para_501" }, { "text": "comments explaining how less burdensome alternatives could provide comparable", "paragraph_id": "para_502" }, { "text": "benefits. Petitioners could have attempted to show the Commission that their", "paragraph_id": "para_503" }, { "text": "industries do not engage in the allegedly prevalent unfair and deceptive practices the", "paragraph_id": "para_504" }, { "text": "Rule sought to root out.", "paragraph_id": "para_505" }, { "text": "The Commission suggests that Petitioners actually did have the opportunities", "paragraph_id": "para_506" }, { "text": "for comment they claim to have been deprived of. The NPRM sought comment on", "paragraph_id": "para_507" }, { "text": "“several alternatives” and analyzed recordkeeping and compliance costs associated", "paragraph_id": "para_508" }, { "text": "with the proposed rule. Negative Option Rule, 88 Fed. Reg. at 24732-34. And during", "paragraph_id": "para_509" }, { "text": "the informal hearing process before the ALJ, interested parties submitted their own", "paragraph_id": "para_510" }, { "text": "briefs and expert reports addressing the Rule’s costs and benefits, which the", "paragraph_id": "para_511" }, { "text": "Commission considered in promulgating the final Rule. In the Commission’s view,", "paragraph_id": "para_512" }, { "text": "“tweaks to the cost-benefit analysis would not have made any difference when the", "paragraph_id": "para_513" }, { "text": "low-end assessment of the Rule’s benefits is seven times greater than the high-end", "paragraph_id": "para_514" }, { "text": "assessment of its costs,” citing the Commission’s final regulatory analysis estimates.", "paragraph_id": "para_515" }, { "text": "See Negative Option Rule, 89 Fed. Reg. at 90519.", "paragraph_id": "para_516" }, { "text": "In Citizens Telecommunications, we considered the Federal Communications", "paragraph_id": "para_517" }, { "text": "Commission’s (“FCC”) failure to provide adequate notice that it was completely", "paragraph_id": "para_518" }, { "text": "ending ex ante regulation of one type of communications line, despite stating in its", "paragraph_id": "para_519" }, { "text": "notice of proposed rulemaking that it sought to regulate both types of services at issue", "paragraph_id": "para_520" }, { "text": "the same way. The FCC never proposed “complete deregulation” or requested public", "paragraph_id": "para_521" }, { "text": "comment on treating the two services differently, which “did not allow for informed", "paragraph_id": "para_522" }, { "text": "participation by interested parties in that portion of the rulemaking.” Citizens", "paragraph_id": "para_523" }, { "text": "-19-", "paragraph_id": "para_524" }, { "text": "Telecomms., 901 F.3d at 1004-05. The early release of a draft of the final rule three", "paragraph_id": "para_525" }, { "text": "weeks before it was adopted was insufficient to cure the harm from inadequate notice.", "paragraph_id": "para_526" }, { "text": "Id. at 1005. In addition, even though commenters in prior submissions to the", "paragraph_id": "para_527" }, { "text": "administrative record may have already addressed “everything that needed to be said”", "paragraph_id": "para_528" }, { "text": "regarding the regulated transport services, in assessing whether the regulated entities", "paragraph_id": "para_529" }, { "text": "challenging the final rule had suffered prejudice, we explained that “the law regarding", "paragraph_id": "para_530" }, { "text": "prejudice under the APA ensures procedural integrity. Losing the opportunity to", "paragraph_id": "para_531" }, { "text": "dissuade an agency from adopting a particular rule is prejudicial.” Id. at 1006.", "paragraph_id": "para_532" }, { "text": "Citizens Telecommunications does not authorize us to presume prejudice based", "paragraph_id": "para_533" }, { "text": "on the loss of any opportunity to respond to an agency’s rulemaking process, as", "paragraph_id": "para_534" }, { "text": "Petitioners suggested at oral argument; the APA’s harmless error provision would be", "paragraph_id": "para_535" }, { "text": "rendered meaningless otherwise. But Petitioners “do not have a high burden in", "paragraph_id": "para_536" }, { "text": "demonstrating prejudice in notice-and-comment cases. In general, an utter failure to", "paragraph_id": "para_537" }, { "text": "comply with notice and comment cannot be considered harmless if there is any", "paragraph_id": "para_538" }, { "text": "uncertainty at all as to the effect of that failure.” Am. Pub. Gas Ass’n v. United States", "paragraph_id": "para_539" }, { "text": "Dep’t of Energy, 72 F.4th 1324, 1338 (D.C. Cir. 2023) (quotations and citation", "paragraph_id": "para_540" }, { "text": "omitted).", "paragraph_id": "para_541" }, { "text": "Applying these principles, we agree with Petitioners that they lost a notable", "paragraph_id": "para_542" }, { "text": "opportunity to dissuade the FTC from adopting the Rule as proposed in the NPRM.", "paragraph_id": "para_543" }, { "text": "The NPRM’s discussion of “significant alternatives,” which the Commission argues", "paragraph_id": "para_544" }, { "text": "provided Petitioners an opportunity to convince the FTC to change course, referenced", "paragraph_id": "para_545" }, { "text": "only “provisions related to consent requirements (additional consent for free trials)", "paragraph_id": "para_546" }, { "text": "and reminder requirements (narrowing the scope of product types requiring", "paragraph_id": "para_547" }, { "text": "reminders).” Negative Option Rule, 88 Fed. Reg. at 24732-33. Neither the informal", "paragraph_id": "para_548" }, { "text": "hearing nor the final regulatory analysis made up for the lack of discussion of", "paragraph_id": "para_549" }, { "text": "alternatives and Petitioners’ inability to engage with the Commission’s cost-benefit", "paragraph_id": "para_550" }, { "text": "estimates at an earlier stage of rulemaking.", "paragraph_id": "para_551" }, { "text": "-20-", "paragraph_id": "para_552" }, { "text": "The informal hearing addressed the Rule’s annual effect on the national", "paragraph_id": "para_553" }, { "text": "economy and the Rule’s recordkeeping and disclosure costs but not the costs and", "paragraph_id": "para_554" }, { "text": "benefits of any alternatives. By the time the final regulatory analysis was issued,", "paragraph_id": "para_555" }, { "text": "Petitioners still did not have the opportunity to assess the Commission’s cost-benefit", "paragraph_id": "para_556" }, { "text": "analysis of alternatives, an element of the preliminary regulatory analysis not required", "paragraph_id": "para_557" }, { "text": "in the final analysis. See 15 U.S.C. § 57b-3(b)(1)-(2). And the Commission’s", "paragraph_id": "para_558" }, { "text": "discussion of alternatives in the final regulatory analysis was perfunctory. It briefly", "paragraph_id": "para_559" }, { "text": "mentioned two alternatives to the final Rule, either terminating the rulemaking", "paragraph_id": "para_560" }, { "text": "altogether and continuing to rely on the existing regulatory framework or limiting the", "paragraph_id": "para_561" }, { "text": "Rule’s scope to negative option plans marketed in-person or through the mail.", "paragraph_id": "para_562" }, { "text": "Negative Option Rule, 89 Fed. Reg. at 90518. While the Commission’s decision to", "paragraph_id": "para_563" }, { "text": "bypass the preliminary regulatory analysis requirement was certainly not made in bad", "paragraph_id": "para_564" }, { "text": "faith or an “outright dodge of APA procedures,” Petitioners have raised “enough", "paragraph_id": "para_565" }, { "text": "uncertainty whether [their] comments would have had some effect if they had been", "paragraph_id": "para_566" }, { "text": "considered,” especially in the context of a closely divided Commission vote that", "paragraph_id": "para_567" }, { "text": "elicited a lengthy dissenting statement. Chamber of Com. of U.S. v. SEC, 443 F.3d", "paragraph_id": "para_568" }, { "text": "890, 904 (D.C. Cir. 2006) (cleaned up).", "paragraph_id": "para_569" }, { "text": "The Fifth Circuit’s recent decision in National Automobile Dealers Ass’n v.", "paragraph_id": "para_570" }, { "text": "FTC provides additional support for Petitioners’ claim of prejudice. 127 F.4th 549", "paragraph_id": "para_571" }, { "text": "(5th Cir. 2025). There, automobile dealers associations sought review of the", "paragraph_id": "para_572" }, { "text": "Commission’s rule, Combating Auto Retail Scams Trade Regulation, targeting dealer", "paragraph_id": "para_573" }, { "text": "misrepresentations like “bait-and-switch tactics” and “hidden or junk fees.” Id. at", "paragraph_id": "para_574" }, { "text": "554. Invoking a provision of the Dodd-Frank Act that relaxes the required statutory", "paragraph_id": "para_575" }, { "text": "procedures for FTC rulemaking, the Commission promulgated the rule without first", "paragraph_id": "para_576" }, { "text": "issuing an advance notice of proposed rulemaking. The court vacated the rule,", "paragraph_id": "para_577" }, { "text": "concluding that the Commission’s rulemaking authority actually derived from", "paragraph_id": "para_578" }, { "text": "§ 18(a)(1)(B) of the FTC Act and its failure to publish an advance notice of proposed", "paragraph_id": "para_579" }, { "text": "rulemaking, required under that section, was sufficiently prejudicial. Id. at 553, 556,", "paragraph_id": "para_580" }, { "text": "560-61.", "paragraph_id": "para_581" }, { "text": "-21-", "paragraph_id": "para_582" }, { "text": "Even though the petitioners in National Automobile Dealers “took full", "paragraph_id": "para_583" }, { "text": "advantage of every opportunity to participate” in the rulemaking process, “there [was]", "paragraph_id": "para_584" }, { "text": "reason to believe that petitioners would have used the advanced notice to participate", "paragraph_id": "para_585" }, { "text": "earlier and more extensively than they were otherwise able to.” 127 F.4th at 560.", "paragraph_id": "para_586" }, { "text": "That reasoning applies to Petitioners here as well. The opportunity to be heard earlier", "paragraph_id": "para_587" }, { "text": "on in the rulemaking process may well have impacted the Commission’s decision-", "paragraph_id": "para_588" }, { "text": "making on the scope of the final Rule and on whether alternatives, which would have", "paragraph_id": "para_589" }, { "text": "received more substantive consideration by the Commission and regulated entities,", "paragraph_id": "para_590" }, { "text": "were indeed viable. Petitioners have shown that “it is far from clear that the failure", "paragraph_id": "para_591" }, { "text": "to issue a[] [preliminary regulatory analysis] had no bearing on the procedure used", "paragraph_id": "para_592" }, { "text": "or the substance of decision reached.” Id. at 561 (quotation omitted).", "paragraph_id": "para_593" }, { "text": "Excusing the Commission’s noncompliance with § 22 could open the door to", "paragraph_id": "para_594" }, { "text": "future manipulation of the rulemaking process. Furnishing an initially unrealistically", "paragraph_id": "para_595" }, { "text": "low estimate of the economic impacts of a proposed rule would avail the Commission", "paragraph_id": "para_596" }, { "text": "of a procedural shortcut that limits the need for additional public engagement and", "paragraph_id": "para_597" }, { "text": "more substantive analysis of the potential effects of the rule on the front end. More", "paragraph_id": "para_598" }, { "text": "fundamentally, the Commission has attempted to import § 5’s general standards", "paragraph_id": "para_599" }, { "text": "prohibiting unfair or deceptive acts or practices into § 18’s more circumscribed", "paragraph_id": "para_600" }, { "text": "rulemaking process. This would allow the FTC to commence civil actions for", "paragraph_id": "para_601" }, { "text": "monetary penalties directly against regulated entities, rather than following the", "paragraph_id": "para_602" }, { "text": "administrative cease-and-desist process (with potential judicial review) laid out in", "paragraph_id": "para_603" }, { "text": "§ 5. Although this is important context for Petitioners’ arguments about the", "paragraph_id": "para_604" }, { "text": "Commission’s compliance with the specificity and prevalence requirements in § 18,", "paragraph_id": "para_605" }, { "text": "because we hold the Commission’s rulemaking process was procedurally insufficient", "paragraph_id": "para_606" }, { "text": "and Petitioners demonstrated prejudicial error, we need not address Petitioners’ other", "paragraph_id": "para_607" }, { "text": "substantive challenges to the Rule.", "paragraph_id": "para_608" }, { "text": "C. Remedy. Section 18 of the FTC Act directs that a reviewing court “shall", "paragraph_id": "para_609" }, { "text": "hold unlawful and set aside the rule” if it finds agency action to be “without", "paragraph_id": "para_610" }, { "text": "-22-", "paragraph_id": "para_611" }, { "text": "observance of procedure required by law.” 15 U.S.C. § 57a(e)(3); 5 U.S.C.", "paragraph_id": "para_612" }, { "text": "§ 706(2)(D). “The ordinary practice is to vacate unlawful agency action.” United", "paragraph_id": "para_613" }, { "text": "Steel v. Mine Safety & Health Admin., 925 F.3d 1279, 1287 (D.C. Cir. 2019).", "paragraph_id": "para_614" }, { "text": "Nevertheless, “the decision whether to vacate depends on the seriousness of the", "paragraph_id": "para_615" }, { "text": "order’s deficiencies (and thus the extent of doubt whether the agency chose correctly)", "paragraph_id": "para_616" }, { "text": "and the disruptive consequences of an interim change that may itself be changed.”", "paragraph_id": "para_617" }, { "text": "Sugar Cane Growers Co-op. of Fla. v. Veneman, 289 F.3d 89, 98 (D.C. Cir. 2002)", "paragraph_id": "para_618" }, { "text": "(cleaned up).", "paragraph_id": "para_619" }, { "text": "While we certainly do not endorse the use of unfair and deceptive practices in", "paragraph_id": "para_620" }, { "text": "negative option marketing, the procedural deficiencies of the Commission’s", "paragraph_id": "para_621" }, { "text": "rulemaking process are fatal here. The Rule does contain a severability provision", "paragraph_id": "para_622" }, { "text": "which keeps the remaining provisions in effect if any provisions are stayed or", "paragraph_id": "para_623" }, { "text": "determined to be invalid. 16 C.F.R. § 425.9. But vacatur of the entire Rule is", "paragraph_id": "para_624" }, { "text": "appropriate in this case because of the prejudice suffered by Petitioners as a result of", "paragraph_id": "para_625" }, { "text": "the Commission’s procedural error. Given the breadth of the Rule’s coverage, the", "paragraph_id": "para_626" }, { "text": "party-specific vacatur requested by the Commission is not feasible. Accordingly, we", "paragraph_id": "para_627" }, { "text": "grant the petitions for review and vacate the Rule.", "paragraph_id": "para_628" }, { "text": "______________________________", "paragraph_id": "para_629" }, { "text": "-23-", "paragraph_id": "para_630" } ], "word_count": 6412, "cites": [ "556 U.S. 396", "901 F.3d 991", "72 F.4th 1324", "443 F.3d\n890", "127 F.4th 549", "925 F.3d 1279", "289 F.3d 89" ], "cited_by": [], "sha256": "7c66586bfeb2eda6f5f35b0942cf43e656e4ba225abc816da350e76b93cd2456", "source_url": "https://ecf.ca8.uscourts.gov/opndir/25/07/243137P.pdf", "fetched_at": "2026-10-06T14:21:07.172+00:00", "canonical": "https://legal.exploreworldai.com/ai/judgments/us/ca8-24-3137-24-3388-2025-07-08", "risk_graph": "https://legal.exploreworldai.com/api/public/v1/risk?id=us:ca8-24-3137-24-3388-2025-07-08", "relations_graph": "https://legal.exploreworldai.com/api/public/v1/relations?id=us:ca8-24-3137-24-3388-2025-07-08", "changes": "https://legal.exploreworldai.com/api/public/v1/us-praxis/changes", "agent": "https://legal.exploreworldai.com/api/public/v1/us-praxis/agent?id=us:ca8-24-3137-24-3388-2025-07-08" }, "hash": "sha256:167d1272bbeeca2b34638acbf9b1ebe87e7b69ad34a18a4c4ae2acf6bfb40539", "version": "legal-2026-10-14", "expires": "2026-10-16T00:00:00.000Z", "dependency": { "index_version": "legal-2026-10-14+legal-2026-10-14+2026-10-14T19:52:40", "content_hash": "sha256:167d1272bbeeca2b34638acbf9b1ebe87e7b69ad34a18a4c4ae2acf6bfb40539", "revalidate_after": "2026-10-15T04:59:34.855Z", "max_copy_age_seconds": 3600, "policy": "revalidate-required; attribution-preferred", "changelog": "https://legal.exploreworldai.com/api/public/v1/dependency", "verify": "https://legal.exploreworldai.com/api/public/v1/verify", "stale_copy_invalid": true }, "canonical": "https://legal.exploreworldai.com/api/public/v1/judgment-text?id=us:ca8-24-3137-24-3388-2025-07-08", "follow": [ { "rel": "risk", "href": "https://legal.exploreworldai.com/api/public/v1/risk?id=us:ca8-24-3137-24-3388-2025-07-08" }, { "rel": "relations", "href": "https://legal.exploreworldai.com/api/public/v1/relations?id=us:ca8-24-3137-24-3388-2025-07-08" }, { "rel": "agent", "href": "https://legal.exploreworldai.com/api/public/v1/us-praxis/agent?id=us:ca8-24-3137-24-3388-2025-07-08" }, { "rel": "obligations", "href": "https://legal.exploreworldai.com/api/public/v1/obligation-chain" }, { "rel": "changes", "href": "https://legal.exploreworldai.com/api/public/v1/whats-new?jurisdiction=us" } ], "disclaimer": "Source reference with official identifier. 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