Intuit, Inc., the maker of the popular TurboTax tax-preparation software, advertised a 'Free Edition' of its product for taxpayers with 'simple tax returns.' The Federal Trade Commission alleged that these advertisements were deceptive because most American taxpayers do not have simple returns and are prompted to upgrade to paid products if they have complex deductions or income. After initially filing a suit in federal court which was denied, the FTC abandoned that path and pursued a cease-and-desist order through internal administrative adjudication. An administrative law judge ruled against Intuit, and the FTC Commissioners affirmed, issuing a broad order prohibiting Intuit from advertising any goods as 'free' for twenty years unless specific, extensive requirements were met. Intuit petitioned the Fifth Circuit for review, arguing that the Constitution forbids the FTC from adjudicating these claims internally.
The Fifth Circuit focused on the constitutional distinction between 'public rights' and 'private rights' established in Article III of the Constitution. The court explained that while Congress may assign the adjudication of public rights to administrative agencies, claims that are 'private rights' must be decided by Article III courts. The court applied the Supreme Court's recent decision in SEC v. Jarkesy, which held that securities fraud claims are private rights because they 'borrow their cause of action from the common law.' The court reasoned that deceptive advertising claims under Section 5 of the FTC Act are similarly rooted in traditional common law torts of deceit, fraud, and unfair competition. The opinion noted that these claims have been actionable in courts of law and equity since the founding era, involving material misrepresentations likely to mislead reasonable customers. Because the FTC's Section 5 claim targets conduct that is the same as traditional common law fraud and invokes recognized terms of art, it implicates private rights. The court rejected the FTC's arguments that the claim was a 'public right' simply because it was brought by the government or that the agency's long history of internal adjudication justified the procedure. The court concluded that the Constitution requires these claims to be heard in an Article III court, not by an administrative law judge.
The FTC's cease-and-desist order against Intuit is vacated, meaning the twenty-year ban on advertising 'free' products is lifted. The case is remanded to the agency, which must now pursue its deceptive advertising claim in a federal Article III court. On remand, the standard of proof may shift from the administrative 'substantial evidence' standard to the civil 'preponderance of the evidence' standard. The FTC must also reconsider the necessity and scope of any injunctive relief, particularly since Intuit has stopped running the specific ads at issue. The decision limits the FTC's ability to use administrative law judges for deceptive advertising claims but does not resolve other potential constitutional challenges to the agency's structure.
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