Daily Rules, Proposed Rules, and Notices of the Federal Government
This discussion contains the following sections:
The purpose of these final rules is to update and improve the Commission's Part 2
In its January 23, 2012 Notice of Proposed Rulemaking (“NPRM”),
The proposed amendments announced in the NPRM were the culmination of a broad and systematic internal review to improve the Commission's investigative procedures and reflect the development of Part 2 investigative practice in recent years. The Commission undertook this effort in order to improve the Part 2 investigation process through a comprehensive review, rather than piecemeal modifications of a limited number of rules, to ensure that the rules are internally consistent and that they are workable in practice.
With the NPRM, the Commission endeavored to modernize some of the Part 2 rules by proposing regulations that included: (1) A rule that sets out specifications for privilege logs; (2) a rule that conditions any extensions of time to comply with Commission process on a party's continued progress in achieving compliance; (3) a rule that conditions the filing of any petition to quash or limit Commission process on a party having engaged in meaningful “meet and confer” sessions with Commission staff; (4) a rule that eliminates the two-step process for resolving petitions to quash; and (5) rules that establish tighter deadlines for the Commission to rule on petitions. Other proposed changes updated the rules by including express references to electronically stored information (“ESI”) and consolidated related provisions that were dispersed throughout Part 2.
Apart from modernizing the Part 2 rules, the NPRM also sought to turn well-accepted agency best practices into formal components of the Part 2 investigation process. Such rules included: (1) A rule affirming that staff may disclose the existence of an investigation to certain third parties; (2) a rule codifying staff's practice of responding internally to petitions to limit or quash compulsory process; and (3) the Commission's announcement of its general policy that all parties engage in meaningful discussions with staff to prevent confusion or misunderstandings about information sought during an investigation.
The Commission received comments on the proposed Part 2 revisions from five individuals or entities: the Section of Antitrust Law of the American Bar Association (“Section”); Crowell & Moring, LLP (“Crowell & Moring”); Kelley, Drye & Warren, LLP (“Kelley Drye”); James Butler of Metropolitan Bank Group; and Joe Boggs, an individual consumer.
But these commenters also offered several substantive criticisms of the proposed rules. As a threshold matter, the Commission addresses the Section's general observation that “although it is apparent that the Commission has serious concerns about how the investigative process is working, it is not entirely clear from the proposed amendments what those problems are, why the Commission's existing authority is inadequate to remedy particular issues * * * or how the proposals would remedy any such problems or omissions.”
These commenters also offered more specific criticisms addressed in detail below in the section-by-section analysis. The announced privilege log specifications were among the new modernizing rules that garnered significant comments. Many commenters urged the Commission to relax these specifications to align them with the Commission's procedures for privilege logs submitted during discovery for administrative adjudications (“Part 3”) and Hart-Scott-Rodino second requests (“second requests”). Commenters also criticized the Commission's adaptation of the Federal Rules of Civil Procedure (“FRCP”) to account for ESI and provide for the sampling and testing of documents.
The commenters also offered analysis of the rule revisions intended to codify existing practices. This subset of comments included the Section's and Kelley Drye's view that staff replies to petitions to limit or quash should be served on the petitioner. Those same commenters also argued against the provision in Rule 2.6 stating that Commission staff may disclose the existence of an investigation to potential witnesses.
Upon consideration of the various comments and its own review of the existing and proposed rules, the Commission agrees that some of the proposed rules can be modified to better reduce the burdens of the Part 2 process without sacrificing the quality of an investigation. After all, the proposed rules were intended to improve, rather than diminish, the FTC's ability to conduct fair and efficient investigations. The Part 2 investigative process works most effectively and efficiently when staff and outside counsel and their clients engage in meaningful communication and work in a cooperative and professional manner.
Accordingly, the Commission is adopting the proposed rules and issuing some further modifications, including: (1) A revision of the privilege log specifications to decrease the burden on respondents, while still accounting for staff's need to effectively evaluate privilege claims; (2) extending the deadline for the first meet and confer to decrease the burden on recipients of process and their counsel; and (3) implementing a “safety valve” provision allowing parties showing good cause to file a petition to limit or quash before any meet and confer has taken place.
The comments and the Commission's revisions to Part 2 are addressed in more detail in the section-by-section analysis of the final rule revisions.
The Commission also sought comment on proposed changes to its rule governing attorney discipline, Rule 4.1(e). As the Commission explained in the NPRM,
In addition, the proposed rule instituted appropriate procedural safeguards to govern the Commission's consideration of allegations of attorney misconduct, which is discussed further in the section-by-section analysis. To that end, the proposed rule established a framework for evaluating and adjudicating allegations of misconduct by attorneys practicing before the Commission.
The Commission received three comments addressing the proposed revisions to Rule 4.1(e) from the Section, the American Financial Services Association (“AFSA”), and a law student.
The Commission proposed revisions to this rule that would account for more modern methods of submitting complaints and requests for agency action, and to avoid repetition of certain provisions in current Rule 2.1. That rule identifies how, and by whom, any Commission inquiry or investigation may be initiated. In contrast, Rule 2.2 describes the procedures that apply when members of the public or other parties outside of the agency request Commission action. No comments were received, and the Commission adopts the revised procedures with some minor modifications intended to simplify the proposed rule text.
The Commission proposed revising Rule 2.4 to underscore the importance of cooperation between FTC staff and compulsory process recipients, especially when confronted with issues related to compliance with CIDs and subpoenas. The proposed rule affirmed the Commission's endorsement of voluntary cooperation in all investigations, but explained that cooperation should be viewed as a complement, rather than a mutually exclusive alternative, to compulsory process. This proposed revision was meant to more accurately account for the complexity and scope of modern discovery practices.
The proposed revision was not intended to herald a groundbreaking approach to investigations. The Commission proposed the revised rule as an affirmation of—and not a significant departure from—current Commission policy regarding compulsory process. Contrary to the Section's interpretation, the revised rule does not “announc[e] a preference for compulsory process over voluntary production.”
The Section also observed that “the ‘meaningful discussions' expected under the proposed rule could be read as an obligation imposed only on the parties receiving process.”
The Commission proposed amending this rule to clarify staff's ability to disclose the existence of an investigation to witnesses or other third parties. As noted in the NPRM, the proposed revision would restate longstanding agency policy and practice recognizing that, at times, staff may need to disclose the existence of an otherwise non-public investigation, or the identity of a proposed respondent, to potential witnesses, informants, or other non-law-enforcement groups. The Commission's ability to disclose this information to third parties, to the extent that disclosure would further an investigation, is well established,
Similarly, the Commission finds it unnecessary to require, as Kelley Drye suggested, a certification from “all third parties with access to nonpublic information” that “the material will be maintained in confidence and used only for official law enforcement purposes.”
The Section expressed an additional concern that the rule's proposed new language, specifying that “[a] copy of the Commission resolution * * * shall be sufficient to give * * * notice of the purpose of the investigation,” diminishes the Commission's obligation to notify targets about the scope of investigations. Specifically, the Section commented that “Commission resolutions prescribed under 2.7(a) often are stated in broad general terms and, as such, do not provide sufficient detail to investigation targets of the objectives of a particular investigation.”
The proposed revisions to this rule consolidated the compulsory process provisions previously found in Rules 2.8, 2.10, 2.11, and 2.12. As explained in the NPRM, the proposed rule would substantially expedite its investigations by: (1) Articulating staff's authority to inspect, copy, or sample documentary material—including electronic media—to ensure that parties are employing viable search and compliance methods; (2) requiring parties to “meet and confer” with staff soon after compulsory process is received to discuss compliance with compulsory process and to address and attempt to resolve potential problems relating to document production; and (3) conditioning any extension of time to comply on a party
Proposed paragraph (a) describes the general procedures for compulsory process under Sections 9 and 20 of the Federal Trade Commission Act.
Kelley Drye also recommended that the Commission revise the definition of ESI “to limit application of the translation requirement to instances when reasonably necessary to further the FTC's investigation.”
The Commission received no further comments on paragraph (a) and it has been adopted as modified. Likewise, revised paragraphs (b)-(h), which described the Commission's additional compulsory process authority, did not elicit substantive comments and they have been adopted with some minor modifications intended to simplify the proposed rule text.
Proposed paragraph (i) articulates staff's authority to inspect, copy, or sample documentary material, including electronic media. The proposal elicited extensive comment from Crowell & Moring. First, the firm expressed a concern that the Commission could employ this method through “mere” compulsory process because it “does not require the procedural safeguard of obtaining a Commission order.”
The proposed rule is authorized by Sections 9 and 20 of the FTC Act.
Furthermore, the Commission acknowledges Crowell & Moring's concerns about privileged material, and notes that parties may raise such concerns with staff during meet and confer sessions and discuss whether methods may be employed to allay any burden attendant to the production of privileged material. Such methods may include the implementation of an independent “taint team,” to segregate privileged material obtained under this rule in a manner that is duly respectful of the protected status of any material sought. If a respondent finds these means ultimately to be unavailing, the Commission believes that a petition to limit or quash compulsory process is a sufficient remedy. Accordingly, paragraph (i) is adopted as proposed.
Proposed paragraph (j) sets out the manner and form in which respondents must provide ESI. Regarding this provision, Kelley Drye noted that, because producing a document in native electronic format often “precludes the ability to protect privileged or sensitive information in that document,” the Commission should “exclude from production privileged information contained in native electronic format, provided that non-privileged information is produced in another format.”
Proposed paragraph (k) required parties to meet and confer with staff within ten days after compulsory process is received to discuss compliance with compulsory process and to address and attempt to resolve potential problems relating to document production. Several commenters objected to the ten-day timeline. For example, the Section commented that the ten-day requirement “would impose a significant burden on outside counsel and responding parties.”
Finally, proposed paragraph (
Proposed Rule 2.9 specified the rights of witnesses in Commission investigations, including witnesses compelled to appear in person at an investigational hearing or deposition. Paragraph (a) of the proposed rule continued to provide that a witness has a right to a transcript of the proceeding and copies of any documents used. This provision kept in place an exception—established in the preceding Rule 2.9—for some nonpublic proceedings. In those circumstances, the witness may inspect a transcript of the proceedings, but, for good cause, may not keep a copy. Although the proposed paragraph (a) did not revise that exception, the Section commented that “any witness should be entitled to retain or procure a copy of any submitted document or recorded testimony, as the Commission recognized several years ago in its merger process reforms.”
Proposed Rule 2.9(b)(1) was intended to prevent counsel from improperly engaging in obstructionist tactics during an investigational hearing or deposition conducted pursuant to Section 9 of the FTC Act by prohibiting consultation except with respect to issues of privilege. As the Section noted in its comments, Section 9 of the FTC Act
The other proposed changes to Rule 2.9, such as paragraph 2.9(b)(2)'s limitations on objections, and the process for resolving privilege objections set out in revised paragraph 2.9(b)(3), generated no comments and are adopted with minor modifications intended to simplify the proposed rule text.
In the NPRM, the Commission proposed to consolidate and clarify the provisions governing petitions to limit or quash into a re-designated Rule 2.10. In paragraph (a)(1), the Commission proposed a 3,750 word limit for all petitions to limit or quash. Both Kelley Drye and the Section objected to this word limit, and Kelley Drye suggested that the Commission increase the word
Proposed paragraph (a)(3) establishes a procedure in instances where the hearing official elects to recess and reconvene an investigational hearing to continue a line of questioning that was interrupted by a witness's privilege objection. The provisions of paragraph 2.10(a)(3) expressly allow the hearing official to recess the hearing and give the witness an opportunity to challenge the reconvening of the hearing by filing a petition to limit or quash the Commission's compulsory process directing his or her initial appearance. Kelley Drye suggested that the Commission replace the five-day deadline for filing a petition with the more inexact phrase “within a reasonable time.”
Proposed paragraph (a)(4) clarified that Commission staff may provide the Commission with a response to the petition to limit or quash without serving the petitioner. The Section and Kelley Drye each commented that any response by staff should be served on the petitioner. The proposed revision was intended only to articulate the Commission's long-established procedure for collecting staff's input on petitions to quash. Staff recommendations regarding petitions, like other staff recommendations, are privileged, deliberative communications and often reveal details about the matter, the premature disclosure of which could reasonably be expected to interfere with the investigation. Contrary to Kelley Drye's suggestion, the President's and the Commission's transparency policy do not call for the disclosure of this information.
The Section also suggested that the Commission reevaluate Rule 2.10(d), which makes public all petitions to limit or quash and the related Commission decisions. Specifically, the Section commented that “there is no compelling reason to reveal the identity of the respondent and the nature of the investigation during the pendency of the Part 2 investigation.”
The other proposed changes to Rule 2.10 established a time limit for disposition for review of petitions by the entire Commission, and stay the time for compliance with compulsory process. The Commission did not receive comments on the former proposal, but notes by way of clarification that any failure to meet the deadline imposed by Rule 2.10(c) will result in neither the automatic grant, nor the automatic denial, of a petition. No comments were received on the latter proposal, and both proposals are adopted with some revisions intended to clarify the proposed rule text.
The Commission proposed Rule 2.11 to set out the specific information required in privilege logs submitted in Part 2 investigations.
Several commenters suggested generally that the Commission adopt the more flexible privilege log rules that it has implemented for administrative adjudications conducted under Part 3, which are modeled on the FRCP, or the procedures that it has implemented for HSR second requests.
Nevertheless, upon consideration of the various comments about these specifications, the Commission has modified proposed paragraph (a) to reduce the burdens placed on process recipients without sacrificing the quality of the privilege logs submitted. For example, although the Commission is modifying the proposed rule to require that the log be submitted in searchable electronic format, the proposed rule has also been amended to permit respondents to append a legend to the log enabling them to more conveniently identify the titles, addresses, and affiliations of authors, recipients, and persons copied on the material. The legend can be used in lieu of providing that information for each document. The paragraph also allows respondents to more conveniently identify authors or recipients acting in their capacity as attorneys by identifying them with an asterisk in the privilege log.
Furthermore, the Commission acknowledges the suggestion from commenters such as Kelley Drye
The Commission further modified paragraph (a) to require that respondents include document names in the privilege log. This codification of standard practice will allow staff to quickly identify the nature and source of the document. Finally, the modified paragraph includes a requirement that privilege logs contain the email address, if any, from which and to which documents were sent. This will enable staff to determine whether, and to what extent, authors, recipients, and persons copied on the material used non-secure email systems to access allegedly protected material.
Parties should bear in mind that, as provided in paragraph (b), staff may relax or modify the specifications of paragraph (a), in appropriate situations, and as the result of any agreement reached during the meet and confer session. Under certain circumstances, less detailed requirements (for example, allowing documents to be described by category) may suffice to assess claims of protected status. This revision is designed to encourage cooperation and discussion among parties and staff regarding privilege claims. Consistent with existing practices, the Commission also codified in this rule its existing authority to provide that failure to comply with the rule shall constitute noncompliance subject to Rule 2.13(a). Paragraph (b) elicited no comments and is adopted as modified.
Paragraph (c) of the proposed rule addresses an issue that has arisen in some investigations wherein targets of Part 2 investigations, in contravention of the instructions accompanying process, redacted numerous documents that were not claimed to qualify for any protected status. Paragraph (c) codifies the Commission's routine instructions by explicitly providing that responsive material for which no protected status claim has been asserted must be produced without redaction. The Commission has modified the proposed paragraph to replace the term “privilege or protection” with the more general term “protected status” to comport with the revised definition of “protected status” in Rule 2.7(a)(4), and to better account for all categories of protected status claims available to respondents.
Proposed paragraph (d) follows recent changes in the Commission's Part 3 Rules and Fed. R. Evid. 502 regarding the return or destruction of inadvertently disclosed material, and the standard for subject matter waiver. Crowell & Moring supported this proposal, commenting that “the non-waiver provisions reduce risk to recipients of compulsory process, and greatly facilitate the ability of recipients to take advantage of advanced technologies that can significantly reduce the overall costs of compliance.”
Proposed paragraph (b)(3) expedited the Commission's Hart-Scott-Rodino second request enforcement process by delegating to the General Counsel the authority to initiate enforcement proceedings for noncompliance with a second request under 15 U.S.C. 18a(g)(2) (“(g)(2) actions”). This change would enable the General Counsel to file (g)(2) actions quickly and without the need for a formal recommendation by staff to the Commission, and a subsequent Commission vote. Proposed Rule 2.13(b) also authorized the General Counsel to initiate an enforcement action in connection with noncompliance of a Commission order requiring access. In addition, the proposed rule clarified that the General Counsel is authorized to initiate compulsory process enforcement proceedings when he or she deems enforcement proceedings to be the appropriate course of action.
Kelley Drye and the Section both offered criticism of this proposed rearticulation of the General Counsel's authority. Specifically, the Section wrote that “[t]he decision to initiate litigation should not, in the Section's view, be subject to an advance delegation but should be the result of Commission consideration of specific facts and other circumstances in each particular case.”
The Commission proposed to revise Rule 2.14 to relieve the subjects of FTC investigations and third parties of any obligation to preserve documents after one year passes with no written communication from the Commission or staff.
Commenters were generally supportive of these proposed revisions, although the Section and Kelley Drye asked that the Commission consider providing for a formal presumption that a matter has closed after the one-year period has passed. While the Commission recognizes that parties may, in certain circumstances, be reluctant to contact staff to inquire
The proposed rule provided additional clarity regarding standards of conduct for attorneys practicing before the Commission. In addition, the proposed rule established a framework for evaluating allegations of misconduct by attorneys practicing before the Commission. Under the proposed rule, allegations of misconduct would be submitted on a confidential basis to designated officers within the Bureaus of Competition or Consumer Protection who would assess the allegations to determine if they warranted further review by the Commission. After completing its review and evaluation of the Bureau Officer's assessment, the proposed rule provided for the Commission to initiate proceedings for disciplinary action where warranted. If the Commission determined that a full administrative disciplinary proceeding would be warranted to consider potential sanctions including reprimand, suspension, or disbarment, the Commission would serve an order to show cause on the respondent and assign the matter to an Administrative Law Judge.
The Commission also proposed a process for issuance of attorney reprimands without a hearing in appropriate circumstances. After affording a respondent attorney notice and an opportunity to respond to allegations of misconduct during the Bureau Officer's investigation, the Commission could issue a public reprimand if it determined on the basis of the evidence in the record and the attorney's response that the attorney had engaged in professional misconduct warranting a reprimand. The proposed rule also established expedited procedures to allow the Commission to suspend an attorney temporarily after receiving official notice from a state bar that the attorney has been suspended or disbarred by that authority, pending a full disciplinary proceeding to assess the need for permanent disbarment from practice before the Commission.
As noted previously, the Commission received three comments addressing the proposed revisions to Rule 4.1(e) from the Section, AFSA, and an individual commenter. Upon consideration of these comments and its own review of the existing and proposed rules, the Commission is announcing several modifications to the proposed rules, which are addressed in detail below.
The Section questioned the need for revisions to Rule 4.1(e), noting that the Commission already has the power to sanction attorneys under Rule 4.1(e) or refer charges of attorney misconduct to local bar authorities.
After reviewing these comments, the Commission has determined that the proposed rule revisions are warranted in order to address what have sometimes appeared to be dilatory and obstructionist practices by attorneys that have undermined the efficiency and efficacy of Commission investigations. Counsel for witnesses have sometimes taken advantage of the rule's lack of clarity during investigational hearings and depositions by repeating objections, excessively consulting with their clients during the proceedings, and otherwise employing arguably obstructionist tactics.