March 28, 2014, when the Subpoena return date was March 17, 2014. Respondent argues that
such conduct is contrary to the law and unethical, and is routinely sanctioned by the courts.

Even if Mr. Michel possessed confidential third party documents, Respondent argues, the
Protective Order issued in this case governs production of such materials in discovery, and is
sufficient to protect the confidentiality of the documents. Respondent requests the following
sanctions: (1) censure Complaint Counsel and refer this matter to the D.C. Bar and the FTC’s
Inspector General; (2) exclude the Article from evidence at the hearing, and preclude Complaint
Counsel from relying on the Article in any way; and (3) extend ECM’s fact discovery deadline to
permit ECM a limited opportunity to conduct additional discovery from Mr. Michel and others
involved with the Article. Motion at 2.

The Protective Order Governing Discovery Material in this case, issued verbatim in
accordance with FTC Rule 3.31, Appendix A, provides that: “Any document or portion thereof
submitted by a respondent or a third party during a Federal Trade Commission investigation or
during the course of this proceeding that is entitled to confidentiality under the Federal Trade
Commission Act, or any regulation, interpretation, or precedent concerning documents in the
possession of the Commission, as well as any information taken from any portion of such
document, shall be treated as confidential material for purposes of this Order.” Protective Order
4/2. Confidential material produced in discovery may not be disclosed, except for the purpose of
hearing preparation and appeal, and except to limited individuals involved in the litigation such
as “(a) the Administrative Law Judge presiding over this proceeding, personnel assisting the
Administrative Law Judge, the Commission and its employees, and personnel retained by the
Commission as experts or consultants for this proceeding; (b) judges and other court personnel of
any court having jurisdiction over any appellate proceedings involving this matter: (c) outside
counsel of record for any respondent, their associated attorneys and other employees of their law
finn(s), provided they are not employees of a respondent; (d) anyone retained to assist outside
counsel in the preparation or hearing of this proceeding including consultants, provided they are
not affiliated in any way with a respondent and have signed an agreement to abide by the terms
of the protective order; and (e) any witness or deponent who may have authored or received the
information in question.” Jd. 4 7.

Complaint Counsel maintains that, notwithstanding the Protective Order, the FTC has
statutory and regulatory obligations that affected the release of investigative documents
submitted by third parties to the FTC (“submitters”) and provided to Mr. Michel for his
consulting work on the Other Matters, including: (1) the obligation to notify the third party
submitters, and (2) the obligation to act to prevent Mr. Michel’s disclosure of those investigative
submissions, which Mr. Michel possessed as an agent of the FTC on the Other Matters, pending
such notification and further action by the third party submitters.” These facts, Complaint
Counsel argues, readily distinguish this case from Respondent's cited cases, which involve
private litigants without such obligations. Opposition at 2-4.

Complaint Counsel relies on FTC Rule 4.10(g), which states in pertinent part:

(g) Material obtained by the Commission:

? Complaint Counsel does not contend that, in preparing his letters to Mr. Michel, Mr. Wilshire acted independently
of Complaint Counsel or otherwise without Complaint Counsel’s advance knowledge and approval.

5


would have enabled timely production, and protection, of the Third Party Submissions, pending
formal notification to the submitters of the documents’ release and any objections thereafter
posed by the submitters.

Notwithstanding the foregoing, however, Respondent has failed to demonstrate that
Complaint Counsel’s conduct with regard to the Michel Subpoena constitutes “purposeful
interference” justifying the requested sanctions. Among other things, Respondent has failed to
show that the conduct herein was for the purpose of interfering with Respondent’s rights, as
opposed to enforcing what was believed, albeit erroneously, to be legal obligations to the third
party submitters. There is no indication that Complaint Counsel acted wilfully or in bad faith, in
asserting an obligation to keep the Third Party Submissions confidential, including in the hands
of Mr. Michel, pending notification to the submitters. Moreover, Respondent has not shown that
the conduct at issue had the effect of depriving Respondent of relevant discovery.

Finally, the FT'C’s obligations to third party submitters of investigative documents readily
distinguish the facts of this case from those in the cases cited by Respondent, which involved
private litigants, who do not have these obligations. Moreover, the bad faith, purposeful
interference addressed in Respondent’s cited cases is not analogous to Compiaint Counsel’s
demonstrated conduct in the instant case. See, e.g., Price v. Trans Union, L.L.C., 847 F. Supp.2d
788 (E.D. Pa. 2012) (sanctioning plaintiff for letters to subpoenaed non-parties directing non-
parties not to respond to defendant’s subpoenas, because, among other things, plaintiff's conduct
was intended to hinder discovery and plaintiff had acted in willful bad faith); Fox Jndus., Inc. v.
Gurovich, 2006 WL 2882580 (E.D.N.Y. Oct. 6, 2006) (sanctioning defendant and holding that
letters to subpoenaed non-parties directing the non-parties not to respond to plaintiff's
subpoenas, stating that the subpoenas were “null and void as a matter of law and should not be
complied with,” constituted “clear evidence” of bad faith and evinced a deliberate effort to usurp
the authority of the court).

Although Complaint Counsel may have erred in its interpretation of Rule 4.10(g), this is
not a sufficient basis upon which to grant a motion for sanctions.

Iv.
Having fully reviewed and considered Respondent's Motion for Sanctions, Complaint

Counsel’s Opposition thereto, the attached exhibits, and all arguments and assertions of the
parties, and for all the foregoing reasons, Respondent’s Motion for Sanctions is DENIED.

ORDERED: Wy An. opal
D. Michael Chappell

Chief Administrative Law Judge

Date: April 9, 2014


responsive documents submitted by Down to Earth Designs . . . .” Respondent's First
Supplement to Motion for Sanctions, RX-J. Thereafter, on March 28, 2014, Mr. Wilshire sent an
email to Mr. Michel confirming that the other third party whose documents were at issue “has
not objected” to production of its documents, provided they are marked confidential under the
Protective Order, and directing “you should now produce any remaining” responsive documents
submitted by this third party. Respondent’s Second Supplement to Motion for Sanctions,
Attachment A. There is nothing in the record to indicate that Mr. Michel failed to provide the
Third Party Submissions on or before March 28, 2014.

I.
FTC Rule 3.38(b) governs the issuance of sanctions. That Rule states:

(b) If a party or an officer or agent of a party fails to comply with any discovery
obligation imposed by these rules, upon motion by the aggrieved party, the
Administrative Law Judge or the Commission, or both, may take such action in regard
thereto as is just, including but not limited to the following:

(1) Order that any answer be amended to comply with the request, subpoena, or order;

(2) Order that the matter be admitted or that the admission, testimony, documents, or
other evidence would have been adverse to the party;

(3) Rule that for the purposes of the proceeding the matter or matters concerning which
the order or subpoena was issued be taken as established adversely to the party;

(4) Rule that the party may not introduce into evidence or otherwise rely, in support of
any claim or defense, upon testimony by such party, officer, agent, expert, or fact
witness, or the documents or other evidence, or upon any other improperly withheld or
undisclosed materials, information, witnesses, or other discovery;

(5) Rule that the party may not be heard to object to introduction and use of secondary
evidence to show what the withheld admission, testimony, documents, or other evidence
would have shown;

(6) Rule that a pleading, or part of a pleading, or a motion or other submission by the
party. concerning which the order or subpoena was issued, be stricken, or that a decision
of the proceeding be rendered against the party, or both.

16 C.F.R. § 3.38(6). Sanctions may be imposed for failing to comply with a discovery obligation
where the failure to comply was “unjustified and the sanction imposed ‘is reasonable in light of
the material withheld and the purposes of Rule 3.38(b).’”” Jn re International Telephone &
Telegraph Corp., 1984 WL 565367 at **127 (July 25, 1984 (quoting Grand Union, 1983 FTC
LEXIS 61 at *595)).

Respondent asserts that Complaint Counsel purposefully interfered with subpoena
compliance by a third party by directing Mr. Michel to delay providing certain documents until

4


(1) Through compulsory process and protected by section 21(b) of the Federal
Trade Commission Act, 15 U.S.C. 57b-2(b) or voluntarily in lieu thereof and
designated by the submitter as confidential and protected by section 21(f) of the
Federal Trade Commission Act, 15 U.S.C. 57b-2(f), and § 4.10(d) of this part; or

(2) That is designated by the submitter as confidential, and protected by section
21(c) of the Federal Trade Commission Act, 15 U.S.C. 57b-2(c), and § 4.10(e) of
this part; or

(3) That is confidential commercial or financial information protected by section
6(f) of the Federal Trade Commission Act, 15 U.S.C. 46(f), and § 4.10(a)(2) of
this part, may be disclosed in Commission administrative or court proceedings
subject to Commission or court protective or in camera orders as appropriate. See
§§ 1.18(b) and 3.45.

Prior to disclosure of such material in a proceeding, the submitter will be afforded
an opportunity to seek an appropriate protective or in camera order. All other
material obtained by the Commission may be disclosed in Commission
administrative or court proceedings at the discretion of the Commission except
where prohibited by law.

16 CER. § 4.10(g).

FTC Rule 3.45, referred to in Rule 4.10(g) above, designates procedures for obtaining in
camera treatment for confidential information to be offered into evidence in an administrative
hearing. Specifically, the Rule provides that “[a] party or third party may obtain in camera
treatment for material, or portions thereof, offered into evidence only by motion to the
Administrative Law Judge. Parties who seck to use material obtained from a third party subject
to confidentiality restrictions must demonstrate that the third party has been given at least 10
days[’] notice of the proposed use of such material.” 16 C.F.R. § 3.45(b).

According to Complaint Counsel, the nondisclosure agreement signed by Mr. Michel
“requires FTC staff or the FTC General Counsel to consent to disclosure” of the third party
materials provided to the FTC and forwarded to Mr. Michel as its consultant for the Other
Matters. Opposition at 3. The nondisclosure agreement prohibits Mr. Michel from divulging
materials and information received from the FTC except to “an authorized person.” CX-A:1.
The agreement further states, however:

None of these provisions [barring disclosure] shall limit disclosures: (1) at and consistent
with directions of FTC staff, during an adjudicative or judicial proceeding to which the
FTC is a party; or (2) with the written consent of FTC General Counsel . . . which
consent can only be given if consistent with the FTC Act, the FTC’s Rules of Practice,
and any other applicable laws, regulations or orders.


PUBLIC

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
OFFICE OF ADMINISTRATIVE LAW JUDGES

TRADE CO
ah Mtg,
“© RECEIVED DocimenTs 72)

APR 08 20%
569557

SECRETARY

In the Matter of
ECM BioFilms, Inc., DOCKET NO. 9358
a corporation, also d/b/a
Enviroplastics International,
Respondent.

Loe

ORDER DENYING RESPONDENT’S MOTION FOR
SANCTIONS FOR UNAUTHORIZED DISSUASION OF
RESPONSE TO SUBPOENA DUCES TECUM

On March 20, 2014, Respondent ECM BioFilms, Inc, (“Respondent” or “ECM”) filed a
Motion to Sanction Complaint Counsel, together with a supporting memorandum and exhibits
(collectively, “Motion”). Respondent submitted two additional exhibits, by way of
supplementation to the Motion, on March 25, 2014, and March 31, 2014. Federal Trade
Commission (“FTC”) Complaint Counsel filed an opposition to the Motion on March 27, 2014,
and an amended opposition, containing minor non-substantive corrections, on March 28, 2014.
(“Opposition”).! Having fully reviewed and considered the Motion for Sanctions, the
Opposition, the exhibits thereto, and all assertions and arguments therein, the Motion is
DENIED, as explained below.

On April 1, 2014, Respondent filed an additional exhibit, through what Respondent titled
a “third supplement” to the Motion; however, upon review, this exhibit pertains to different
alleged conduct, and a different witness, and is outside the scope of the instant Motion.
Accordingly, the exhibit was improperly filed and is not considered herein. On April 3, 2014,
Complaint Counsel filed a Motion for Leave to File a Response to ECM’s Third Supplement.
Because the third supplement is not being considered herein, Complaint Counsel’s Motion to
respond to the supplement is unnecessary, and therefore, Complaint Counsel’s Motion is
DENIED AS MOOT.

* Complaint Counsel consolidated its Opposition to the instant Motion with its opposition to a separate, unrelated
Motion for Sanctions, filed by Respondent on March 21, 2014. Complaint Counsel’s Motion to Extend the Word
Count Limit with respect to the Opposition was granted by an Order issued April 7, 2014. By that same Order,
Complaint Counsel’s request for oral argument on the Motion was denied.


Id.; see also 16 C.F.R. § 4.10(d) (authorizing FTC to disclose confidential submission to “a
consultant or contractor retained by the Commission who has agreed in writing not to disclose
the information”).

Ill.

Complaint Counsel’s argument that, pursuant to Rule 4.10(g), the FTC was legally
required to direct Mr. Michel to delay providing the Third Party Submissions until March 28,
2014, in order to enable the submitters time to file a motion under Rule 3.45, is based upon an
incorrect interpretation of the Commission’s Rules of Practice. It is clear from the plain
language of Rule 4.10(g) that the Rule is designed to protect third party investigative documents
from being made public in a judicial or administrative proceeding. The Rule accomplishes this
by requiring that a submitter of documents receive advance notice so the submitter can file for
either a court protective order, in the case of a judicial proceeding, or in the case of an
administrative proceeding, an order granting in camera treatment of such documents pursuant to
Rule 3.45. An in camera order under Rule 3.45 is only applicable to confidential documents
“offered into evidence” at the hearing. 16 C.F.R. § 3.45(b). Thus, Rule 4.10(g) does not govern
maintaining confidentiality of materials provided in discovery. Rather, maintaining the
confidentiality of such materials is accomplished through the Protective Order, which by rule
must be entered at the beginning of an administrative proceeding, and which was entered in this
case on October 22, 2013. See 16 C.F.R. § 3.31 Appendix A. The provisions in the Protective
Order are adequate to protect the Third Party Submissions from public disclosure during the
pretrial phase of this case. See Order Denying Respondent’s Motion for Protective Order and
Granting Complaint Counsel Cross-Motion to Compel (January 10, 2014). In the event that
either party seeks to introduce any of the Third Party Submissions into evidence at the hearing in
this matter, the procedures of Rule 3.45 will apply.

Ideally, upon receipt of the Subpoena on February 28, 2014, Complaint Counsel would
have immediately notified the third party submitters of the production of their confidential
documents in discovery in this matter, and provided them with a copy of the Protective Order.
This would have provided ample time for the submitters to investigate their rights and seek any
desired relief before the Subpoena’s document production deadline of March 17, 2014.
Similarly, after receiving the Subpoena on February 28, 2014, Complaint Counsel had 10 days to
file a motion to limit the Subpoena under Rule 3.34(c), pursuant to which it could have sought to
delay production, based upon the FTC’s asserted obligation to protect the Third Party
Submitters, pending notification to the submitters. See Rule 3.34(c). Unfortunately, Complaint
Counsel’s failure to ascertain until March 12, 2014 that Mr. Michel had a consulting relationship
with Complaint Counsel’s attorney colleagues in the Bureau of Consumer Protection effectively
precluded both alternatives. See April 7, 2014 Order Denying Respondent’s Motion to Sanction
Complaint Counsel (explaining history of relationship between Bureau attorneys and Mr. Michel
and timing of Complaint Counsel’s discovery of relationship).

Another option that could have protected both the third party submitters and the
discovery process herein would have been for Mr. Michel to be directed to mark the Third Party
Submissions “confidential,” prior to providing the documents to Respondent, just as Mr.
Wilshire’s March 14 letter directed with respect to all other FTC correspondence with Mr.
Michel encompassed by Subpoena Document Request 20. See RX-B. Proceeding in this fashion

7


I.

The material facts are not in dispute. On February 28, 2014, Respondent issued a
Subpoena Duces Tecum to Frederick C. Michel, Jr. RX-E (“Subpoena”). By way of
background, Mr. Michel is a researcher with Ohio State University, and the author of an article
titled, “Biodegradability of Conventional and Bio-Based Plastics and Natural Fiber Composites
During Composting, Anaerobic Digestion and Long-Term Soil Incubation” (“Article”). The
Article was first provided to Respondent in the course of the ECM deposition on February 19,
2014. See generally Order Granting in Part and Denying in Part Respondent’s Motion for
Sanctions, March 21, 2014. Thereafter, on March 14, 2014, Complaint Counsel disclosed that it
had just learned that, in December 2012, Mr. Michel had been retained by the FTC as a
consultant on two other environmental marketing enforcement matters (the “Other Matters”) and
had worked with other attorneys in the FTC Bureau of Consumer Protection (“Bureau”) on those
matters. Further, Complaint Counsel disclosed that those attorneys had received a draft of the
Article in connection with Mr. Michel’s consultancy. See Clarification Regarding Respondent’ s
Sanctions Motion, March 13, 2014. Between March 14 and March 18, 2014, Complaint Counsel
provided documents to Respondent pertaining to the FTC’s relationship with Mr. Michel. See
Order of March 21, 2014, supra. In addition, on March 17, 2014, Complaint Counsel
supplemented its initial disclosures to, inter alia, identify Mr. Michel as a “person with
knowledge” of scientific testing relevant to this case.

The Subpoena to Mr. Michel directed that the requested documents be provided to
Respondent by March 17, 2014. Included with the Subpoena was a copy of the Protective Order
Governing Discovery Material issued in this case, as required by paragraph 4 of the Protective
Order.

On March 12, 2014, almost two weeks after the date the Subpoena was issued, Mr.
Micheli telephoned Bureau attorney Wilshire, who was the lead attorney on the Other Matters,
and advised that he had received a subpoena in the instant case. Declaration of Matthew
Wilshire, CX-A (“Wilshire Decl.”) § 6. Complaint Counsel states that this was the first time
Complaint Counsel learned that anyone at the FTC had had contact with Mr. Michel. Opposition
at 2: CX-B, Declaration of Katherine Johnson (“Johnson Decl.”) 4.5. According to Mr. Wilshire,
Mr. Michel advised him that some responsive documents in his possession had been submitted to
the FTC by third parties in connection with the investigation of the Other Matters (the “Third
Party Submissions”). Wilshire Decl. | 6. The Third Party Submissions had been provided to
Mr. Michel in the course of his consulting work on those Other Matters. See RX-B; CX-A:1

On March 14, 2014, Mr. Wilshire sent a letter to Mr. Michel, with a copy to Complaint
Counsel and Respondent’s counsel. The letter asserted that the Subpoena’s request for “[a]ll
correspondence between” Mr. Michel and the FTC (Document Request 20), encompassed certain
third party documents governed by the nondisclosure agreement that Mr. Michel executed prior
to receiving such documents. Mr. Wilshire advised that the nondisclosure agreement “provides
that you will not divulge any materials or information you receive from the FTC to outside
parties, unless directed to do so by FTC Staff in connection with an adjudicative proceeding.”
RX-B. The March 14, 2014 letter continued:


Because the third party materials in question may be entitled to confidential
treatment under the FTC Rules of Practice, we request that you delay production
of those materials until March 28, 2014. This is necessary to give the submitters
“an opportunity to seek an appropriate protective or in camera order” regarding
any confidential materials. See 16 C.F.R. § 4.10(g).

Jd. (emphasis in original). The letter concluded that “[w]e have no objection” to Mr. Michel’s
producing any other requested documents by the Subpoena return date of March 17, including
communications between Mr. Michel and FTC staff, provided that [they] are stamped
“confidential,” and that “[uJnless we direct you otherwise, we have no objection to you
producing the remaining responsive documents on March 28.” RX-B. Mr. Wilshire’s letter did
not inform Mr. Michel that he, Mr. Wilshire, did not represent Mr. Michel with regard to Mr.
Michel’s obligations under the Subpoena, and instructed Mr. Michel to provide the subject
materials after the Subpoena deadline.

On March 14, 2014, Mr. Wilshire sent notices to counsel for the Other Matters, informing
them of “their rights under Commission Rule 4.10(g), 16 C.F.R. § 4.10(g), to protect confidential
information.” Wilshire Decl. 4 7.

In response to Mr. Wilshire’s letter to Mr. Michel, on March 14, 2014, Respondent’s
counsel emailed Mr. Michel and others stating that Mr. Wilshire’s March 14, 2014 letter
directing Mr. Michel to delay production of certain documents until March 28, 2014, was
without proper legal authority and invalid. RX-A:2. The email further noted that absent a
motion to quash under FTC Rule 3.34, Mr. Michel was bound to comply with the Subpoena’s
return date of March 17, 2014. Jd Respondent’s counsel further asserted that the Protective
Order in this case, which was provided along with the Subpoena, specifies the means by which
Mr. Michel can designate confidential documents and that the Protective Order, not FTC’s letter,
governs the matter. Jd.

On March 17, 2014, Mr. Michel provided Respondent’s counsel with a CD containing
documents responsive to Document Request 20, requesting “all correspondence between” Mr.
Michel and the FTC. RX-A:3. However, in the accompanying transmittal letter, Mr. Michel
advised Respondent that he was not producing at that time “documents that contain information
submitted by 3rd Parties to the FTC ....” Jd. Mr. Michel continued: “It is my understanding
that disclosing these protected documents would violate a non-disclosure agreement between me
and the FTC. | understand that third parties who submitted these documents to the FTC have the
right to object to their disclosures according to FTC rules.” /d. Mr. Michel further advised
Respondent that the documents responsive to all remaining document requests in the Subpoena
were being supplied separately by the Ohio State University. /d. The transmittal letter
concluded: “Unless directed otherwise by FTC staff, | will produce all responsive documents in
my possession in native format by March 28th, 2014.” Jd.

On March 24, 2014, Mr. Wilshire again wrote to Mr. Michel regarding the Subpoena,
advising him that one of the third parties concerned, Down to Earth Designs, Inc., had responded
that it does not object to production of materials it submitted, “provided that those materials are
marked as confidential pursuant to the protective order entered in this matter [‘Protective
Order’]. Accordingly, I am now instructing you to produce, as soon as reasonably practicable,

3