David Slays Goliath As LabMD Defeats The Federal Trade Commission

By Geoff Holtzman - causeofaction.org Posted November 16th, 2015

WASHINGTON – LabMD, an Atlanta-based cancer detection laboratory, was vindicated in its six-year struggle against the Federal Trade Commission’s overreach when FTC Chief Administrative Law Judge Michael Chappell dismissed the Commission’s complaint on Friday.

Cause of Action Institute Executive Director Daniel Epstein issued the following statement:

“This ruling confirms what our client, LabMD, has said all along, which is that the Federal Trade Commission’s case is meritless. FTC spent millions of taxpayer dollars to pursue its baseless case against LabMD, an innovative and successful provider of cancer diagnostics. Although FTC’s ostensible justification for this boondoggle was “data security,” it produced no evidence that even a single patient was harmed by LabMD’s alleged inadequacies. Instead, it was the FTC that victimized LabMD and its employees, and more importantly, the doctors that it served.

The facts never mattered to the FTC. In the end, the purpose of this case was to intimidate other businesses that might consider standing up for their rights, and to make LabMD pay for speaking out against the government. This ruling puts return address on bureaucratic abuses of power, and proves that sometimes the good guys win.”

This ruling culminates a series of victories for Cause of Action against the FTC’s overreach. Highlights include:

  • Forcing an FTC Commissioner to recuse herselffrom the case.
  • Ensuring that all the evidence the FTC obtained from third-party Tiversa was excluded.
  • Securing immunity for a whistleblower, who exposed the truth about this case.

LabMD was the first company to refuse a “consent order” and fight back against FTC. After hearing the evidence and reviewing the legal arguments, Chief Judge Chappell decisively rejected FTC’s claims, issuing a decision that will protect small businesses from future government abuses.

The following are some key excerpts of his decision:

“Section 5(n) of the FTC Act states that “[t]he Commission shall have no authority to declare unlawful an act or practice on the grounds that such act or practice is unfair unless [1] the act or practice causes or is likely to cause substantial injury to consumers [2] which is not reasonably avoidable by consumers themselves and [3] not outweighed by countervailing benefits to consumers or to competition.” 15 U.S.C. § 45(n). Complaint Counsel has failed to carry its burden of proving its theory that Respondent’s alleged failure to employ reasonable data security constitutes an unfair trade practice because Complaint Counsel has failed to prove the first prong of the three-part test – that this alleged unreasonable conduct caused or is likely to cause substantial injury to consumers.”

“First, with respect to the 1718 File, the evidence fails to prove that the limited exposure of the 1718 File has resulted, or is likely to result, in any identity theft-related harm, as argued by Complaint Counsel. Moreover, the evidence fails to prove Complaint Counsel’s contention that embarrassment or similar emotional harm is likely to be suffered from the exposure of the 1718 File alone. Even if there were proof of such harm, this would constitute only subjective or emotional harm that, under the facts of this case, where there is no proof of other tangible injury, is not a “substantial injury” within the meaning of Section 5(n).”

“At best, Complaint Counsel has proven the “possibility” of harm, but not any “probability” or likelihood of harm. Fundamental fairness dictates that demonstrating actual or likely substantial consumer injury under Section 5(n) requires proof of more than the hypothetical or theoretical harm that has been submitted by the government in this case. Accordingly, the Complaint is DISMISSED.”

Click here to read the full ruling.

To speak to a legal expert from Cause of Action about the decision, please contact Geoff Holtzman at Geoff.holtzman@causeofaction.org or call 703-405-3511

Cause of Action is a government accountability organization committed to ensuring that decisions made by federal agencies are open, honest, and fair.

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