On 20 September 2012, the US Federal Trade Commission (FTC) announced final changes to its internal Rules of Practice regarding Part 2 (nonadjudicative) investigations and attorney conduct. The new rules are intended to streamline investigations and keep up with advances in e-discovery. Although clients are unlikely to notice any significant departure from the FTC’s current practices, a few changes are noteworthy, if only for the fact that the FTC found a need to codify current practices into formal rules.
Possibly of most interest is a new rule that expressly permits agency staff to disclose the existence of an investigation and the party names to certain third parties. This new rule merely formalizes what has long been the FTC’s policy and practice regarding confidentiality. The FTC generally recognizes the importance of confidentiality to targets of antitrust investigations, and the agency does not make broad public disclosure of nonpublic information. But in the course of interviewing third parties, including customers, competitors, and potential witnesses, disclosure of the investigation and its targets is often viewed as necessary to further the investigation. Commenters to the notice of proposed rulemaking questioned the need to formalize a longstanding and uncontroversial, if not well-liked, practice. Whatever the FTC’s motives, codification of this practice should be a reminder that companies subjected to an FTC investigation are well-served to develop proactive strategies to position their interests in the best possible light to customers, suppliers, competitors and others.
Current targets of FTC investigations should also take note of the new rule that relieves companies of the obligation to preserve documents if there has been no written communication from the FTC concerning the investigation for one year. In the past, companies were justifiably reluctant to inquire about the status of a seemingly dormant investigation to determine if they must continue to preserve documents. As a result, document preservation policies were kept in place, sometimes for years, at significant cost and burden to the company. With the adoption of the new rule, companies who have received a document preservation demand, access letter, or FTC compulsory process and who have not received any written communication from the FTC for one year need not risk kicking the hornet’s nest before discontinuing a costly document retention plan.
New requirements for privilege logs will impact parties withholding material from production on the basis of a protected status such as legal privilege. The new rules state that privilege logs must include more detailed information, including file names and email addresses, where applicable. The massive privilege logs frequently submitted with e-discovery productions make it difficult for the FTC to assess the claim of privilege. So, the FTC decided it needs more information. This rule change should have little impact, as the new information should be easily collected by any sophisticated e-discovery vendor.
Other changes that may be of interest include new rules:
- giving the FTC’s General Counsel (rather than the Commission) authority to initiate enforcement proceedings for non-compliance with second requests;
- conditioning extensions of time on demonstrated progress towards compliance;
- requiring a “meaningful” meet and confer session with staff no more than 14 days after receipt of any subpoena, CID, access order or order for a report issued by the Commission; and
- barring petitions to quash/limit related to an issue not raised during a meet and confer session with staff.
These new rules will likely force companies to increase the speed with which they react to FTC requests. For example, under the existing rules, petitions to limit or quash an order must be filed within 20 days of receipt of the FTC’s request. But the new rules prohibit petitions related to issues not addressed during the meet and confer session, which must occur within 14 days.
The new rules also seek to clamp down on potential attorney misbehavior by making “contemptuous, obstructionist, or unprofessional” conduct subject to discipline, including reprimand, suspension, or disbarment from practice before the Commission. Authority to prevent and restrain alleged misconduct will now rest with hearing officials, which can include the FTC staff attorney conducting an investigation. The agency is acting on what it perceives as dilatory and obstructionist tactics, such as repeated objections and excessive consultation with the client during investigational hearings (which are like depositions). The FTC notes specifically that the complexity of e-discovery provides parties with an added incentive to engage in such delay tactics.
The Commission voted 4-1 in favor of the new rules. Commissioner Rosch dissented in part due to his belief that the changes should require compulsory process, as opposed to voluntary access letters, in more formal, “full phase” investigations. The Commission did not adopt Commissioner Rosch’s proposal because, according to Chairman Leibowitz, voluntary access letters can be a sufficient means to collect relevant information. Clients may be comforted in knowing that a majority of commissioners apparently do not favor mandated compulsory process where voluntary means may still suffice. On the other hand, compulsory process requires a Commission vote to issue, which may help to ensure more careful consideration before issuing a burdensome request.
The new rules take effect on 9 November 2012.