In a rare court decision on the enforceability of agency subpoenas, the U.S. District Court for the District of Columbia has ruled that the Federal Trade Commission ("FTC") is entitled to receive documents from the Canadian subsidiary of Church & Dwight Co. ("C&D") relating to the sale and distribution of condoms and other products in Canada as part of the agency's investigation of the company's U.S. condom marketing practices. The court also held that C&D is not entitled to redact those portions of responsive documents that contain "proprietary and confidential information on non-condom products." C&D has indicated it will appeal the ruling. If upheld, the court's decision provides significant support for the agency's authority to broadly collect documents and data that it believes could be of use in an investigation.
In Spring 2009, the FTC launched a non-public investigation of New Jersey based C&D, manufacturer of Trojan brand condoms and many other products sold worldwide. According to the FTC, the investigation seeks to determine
whether C&D has attempted to acquire, acquired, or maintained a monopoly in the distribution or sale of condoms in the United States…through potentially exclusionary practices including…conditioning discounts or rebates to retailers on the percentage of shelf or display space dedicated to Trojan brand condoms and other products distributed or sold by C&D, in violation of Section 5 of the Federal Trade Commission Act.
In aid of its investigation, the FTC issued a subpoena and Civil Investigative Demand ("CID") seeking documents and data from C&D concerning its incentive programs for retailers of Trojan condoms. The subpoena and CID covered both the U.S. and Canada.
C&D requested that the Commission quash or limit the staff's subpoena and CID, but the Commissioners refused. When C&D failed to comply, in February 2010 the FTC filed a petition with the federal district court seeking to enforce it.
C&D raised three main objections. First, the company claimed that documents from its Canadian subsidiary were not relevant to the FTC's inquiry regarding possible monopolization in the United States. Second, it claimed that producing such documents would be unduly burdensome. Third, it argued that it should be able to redact from any responsive documents proprietary and confidential information on non-condom products, because such information also would be "entirely irrelevant to the FTC's investigation involving condoms." The U.S. magistrate judge rejected all three arguments and ordered C&D to fully comply with the CID and subpoena.
With respect to relevancy of the Canadian documents, the court ruled that an agency's request for information need only be "reasonably relevant" to its investigation, and that the agency's own speculation as to possible relevance is sufficient at the investigatory stage so long as it is not "obviously wrong," citing FTC v. Texaco, 555 F.2d 862 (D.C. Cir. 1977). The court further explained that the standard of relevance in agency investigations is far lower than that for evidence at trial, relying upon the Supreme Court's decision in U.S. v. Morton Salt Co., 338 U.S. 632 (1950), to distinguish between "the judicial function and the function the Commission is attempting to perform," in which "the only power that is involved…is the power to get information from those who best can give it and who are most interested in not doing so." The court accepted the FTC's explanation that information from C&D's Canadian subsidiary would "assist in determining the factors that affect C&D's market share in these adjacent markets," finding it "sufficient to demonstrate that the Canadian documents are 'reasonably relevant,' and not 'obviously wrong.'"
On the issue of burden the court held that the party claiming burden must show that compliance "threatens to unduly disrupt or seriously hinder the normal operations of a business." Because C&D had failed to produce evidence to this effect, its burden argument was rejected.
Finally, the court rejected C&D's argument that information on non-condom products contained in responsive documents was irrelevant to the FTC's investigation (and thus could be redacted from C&D's documents). "By the broad standards of Morton Salt and Texaco, it is entirely plausible that information appearing in the same document with relevant information concerning C&D's male condoms would itself be relevant to the investigation."
If it stands, the decision will be important in future FTC investigations. As almost anyone who has received one can attest, FTC subpoenas and CIDs can be very broad in scope. Under the "not obviously wrong" standard employed by the court in this matter, it will be extremely difficult to object on relevancy grounds. Under this decision, the FTC's future position will be, so long as the agency plausibly can speculate that the information sought might prove useful to its investigation, it is allowed to reach far and wide.
In practice, most subpoenas and CIDs are narrowed by negotiation between the agency and the recipient. Actual enforcement actions are rare. Yet the district court opinion in this matter would provide the FTC with additional leverage in such negotiations, which could result in additional burden to subpoena recipients.