December 3, 2012

US v. Google Settlement Adds A Twist to Settlements Without Admission of Liability

Consumer Advertising Law Blog

Just a month ago, we pondered here whether the requirements imposed by the Circa Direct court "set a higher standard for showing that settlements with federal agencies are in the public interest where defendants have not admitted liability." Based on a settlement approved earlier this month between the FTC and Google, Inc., the initial answer to that question appears to "no" -- at least not in the Ninth Circuit.

On November 16, 2012, a California federal judge approved a settlement between Google and the FTC in a lawsuit involving allegations that Google improperly placed cookies on users' computers without their knowledge, in violation of a 2011 consent order with the FTC. According to the terms of the settlement, Google will pay civil penalties of $22.5 million and let the cookies it had placed "expire". The settlement approved by the Commission contains -- over strong objections from FTC Commissioner Rosch and the nonprofit consumer advocacy group Consumer Watchdog -- an express denial by Google that it violated the 2011 order.

Commissioner Rosch's dissenting statement argued that a settlement is not in the public interest when it "contains a denial of liability." Commissioner Rosch noted that the federal court in Circa Direct at least ordered the FTC to explain why the consent decree was in the public interest where liability was denied, but that no such explanation was provided here.

The California court appeared cautious of approving a settlement where Google denied wrongdoing, permitting Consumer Watchdog to file an amicus curiae brief laying out its objections to the settlement. Consumer Watchdog argued that "the Commission has taken the rare if not extraordinary step of permitting Google to deny liability expressly in the proposed order." While recognizing that the FTC Rules of Practice allow settlement agreements to contain statements that the agreement "does not constitute an admission by any party that the law has been violated as alleged in the complaint," Consumer Watchdog argued that the rules do not permit a party to deny any and all liability in a stipulated order settling litigation between the parties.

Despite these objections, the court ultimately approved the settlement, noting that in Circa Direct the court ultimately approved the consent decree without an admission of liability. In addressing Consumer Watchdog's argument that the legal standard for approving regulatory settlements (under Circa Direct) must include consideration of whether the settlement promotes the public's interest, the court stated that "the Second Circuit's law on the public interest prong is still in flux, and is currently not as broad as envisioned by the Circa Direct court" (citing SEC v. Citigroup Global Markets Inc.).

Moreover, the court held that the Circa Direct court based its reasoning on a public interest inquiry that the Ninth Circuit does not follow. The court explained that the Ninth Circuit has held that even if a federal agency is required to serve the public interest, a district court should defer to an agency's decision that the settlement is appropriate, provided that the court has ensured the proposed settlement is reasonable (citing SEC v. Randolph).

Outside of the Ninth Circuit, of course, the impact of Circa Direct -- and now US v. Google -- remains to be seen.

© Arnold & Porter Kaye Scholer LLP 2012 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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