Source: http://thefederalregister.com/2012/09/27/2012-23691.html
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Matched Legal Cases: ['arts 2', 'art 2', 'art 21', 'art 2', 'art 2', 'art 2', 'art 2', 'art 2', 'art 2', 'art2', 'art 2', 'art 2', 'art 2', 'art 2', 'art 2', 'art 2', 'art 2', 'art 3', 'art 2', 'art 2', 'art 2', 'art 2', 'art 2', 'art 2', 'art 3', 'art 2', 'art 2', 'art 3', 'art 2', 'art 2', 'art 2', 'art 3', 'art 2']

16 CFR Parts 2 and 4
AGENCY: Federal Trade Commission ("Commission" or "FTC").
SUMMARY: The FTC is adopting revised rules governing the process of its investigations and attorney discipline. These rules, located in the Commission's Rules of Practice, are intended to promote fairness, transparency, and efficiency in all FTC investigations; and to provide additional guidance about appropriate standards of conduct for attorneys practicing before the FTC.
Compliance date:The amendments to Rule 4.1(e) (16 CFR 4.1(e)) will govern attorney misconduct alleged to have occurred on or after November 9, 2012.
FOR FURTHER INFORMATION CONTACT: Lisa M. Harrison, Assistant General Counsel for Legal Counsel, (202) 326-3204, or W. Ashley Gum, Attorney, (202) 326-3006, Office of the General Counsel, Federal Trade Commission, 600 Pennsylvania Avenue NW., Washington DC 20580. For information on the proposed revisions to the rule governing attorney discipline, contact Peter J. Levitas, Deputy Director, Bureau of Competition, (202) 326-2030, Federal Trade Commission, 600 Pennsylvania Avenue NW., Washington, DC 20580.
I. Overview of Rule Revisions and Comments Received A. Part 2 Rules Governing Investigations B. Rule 4.1(e) Governing Attorney Discipline II. Section-by-Section Analysis of Final Rule Revisions III. Final Rule Revisions I. Overview of Rule Revisions and Comments Received
The purpose of these final rules is to update and improve the Commission's Part 21 investigation process by accounting for and incorporating modern discovery methods, facilitating the enforcement of Commission compulsory process, and generally increasing efficiency and cooperation. The adopted revisions to Rule 4.12 are designed to provide additional guidance regarding appropriate standards of conduct, and procedures for addressing alleged violations of those standards. The revisions to Part 2 will take effect on November 9, 2012 unless the Commission or a Commission official identified in Rule 2.7(l) determines that application of an amended rule in an investigation pending as of November 9, 2012 would not be feasible or would create an injustice. Revised Rule 4.1(e) will govern attorney conduct alleged to have occurred on or after November 9, 2012.
116 CFR part 2.
216 CFR 4.1(e).
A. Part 2 Rules Governing Investigations
In its January 23, 2012 Notice of Proposed Rulemaking (“NPRM”),3 the Commission invited public comment on proposed amendments to its Rules of Practice governing its nonadjudicative procedures in investigative proceedings (“Part 2 investigations”). The public comment period closed on March 23, 2012.4 The Commission stated in the NPRM that it has periodically examined and revised its Rules of Practice for the sake of clarity and to make the Commission's procedures more efficient and less burdensome for all parties. The Commission observed that its review of the Part 2 investigation process was especially appropriate in light of growing reliance upon and use of electronic media in Part 2 investigations.
377 FR 3191 (Jan. 23, 2012).
4The public comments are available athttp://www.ftc.gov/os/comments/part2and4.1rules/. As stated in the NPRM, the Commission sought public comment although the proposed rule revisions relate solely to agency practice and procedure, and thus are not subject to the notice and comment requirements of the Administrative Procedure Act (“APA”).See5 U.S.C. 553(b)(3)(A). The American Financial Services Association (“AFSA”) argues that the proposed revisions to the Commission's attorney discipline rules “are substantive in nature and not merely procedural,” and therefore should not be exempt from notice and comment. AFSA Comment at 2 & n.2. The Commission regards the rule revisions as concerning agency practice and procedure but notes that AFSA's concerns are not relevant in this instance because the Commission has afforded the public notice and an opportunity to comment on the proposed changes. Accordingly, the Commission has fully complied with the APA.
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.5 Most commenters endorsed the objectives of the Commission's proposed amendments. Mr. Butler opined that “the proposed revisions will streamline the rules and add structure to the agency's investigatory process by consolidating related provisions that are currently scattered and/or may be outdated.” The Section commented that it was generally supportive of the Commission's efforts “to review its investigatory procedures with an eye toward fairness, efficiency, and openness.”6 The Crowell & Moring and Kelley Drye comments likewise endorsed the Commission's proposed changes, “particularly as they relate to electronic media in document discovery.”7 The Crowell & Moringcomment also observed that the rules should “help the Commission execute its enforcement mandate while minimizing unnecessary cost and burden on parties and bringing investigations to a speedier conclusion.”8
5The Commission also received comments from one entity and one individual that limited their focus to an analysis of the agency's proposed revisions to 16 CFR 4.1. These are discussed in Section I.B. below.
6Comment from the Section of Antitrust Law of the American Bar Association (“Section Comment”) at 1.
7Comment from Kelley Drye & Warren LLP (“Kelley Drye Comment”) at 1.
8Comment from Crowell & Moring, LLP (“Crowell & Moring Comment”) at 1.
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.”9 In conjunction with this comment, the Section also proposed that the Commission convene a joint task force comprised of members of the private bar “to review whether there are indeed problems with the investigative or disciplinary processes, and, if so, the types of targeted remedies that might be appropriate.”10 The Commission notes in response that each of the rule revisions is a product of the Commission's own considerable expertise and investigative experience. As noted above, some of the problems that the Commission has identified stem from a lack of a clear, well-recognized policy setting out what is expected of respondents in certain circumstances. One example the Section identifies pertains to proposed Rule 2.11(c), discussed below. Compulsory process respondents occasionally produce documents with material redacted for reasons apart from its protected status. However, redaction of, for example, allegedly confidential, but non-privileged, business material, is improper.11 The proposed rule clarifies the obligations of recipients of compulsory process.12
9Section Comment at 1-2.
10 Id.at 2.
11 See FTCv.Church & Dwight Co.,665 F.3d 1312 (DC Cir. 2011).
12The need for revisions to other rules, including Rule 4.1(e) governing attorney discipline, is discussed further in the section-by-section analysis below.
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.13
13The Commission is also making a number of technical, non-substantive changes to the proposed rules.
B. Rule 4.1(e) Governing Attorney Discipline
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,14 the proposed rule was designed to provide additional clarity regarding appropriate standards of conduct for attorneys practicing before the Commission and procedures for the evaluation of allegations of attorney misconduct. The proposed rule clarified that attorneys may be subject to discipline for violating such standards, including engaging in conduct designed merely to delay or obstruct Commission proceedings or providing false or misleading information to the Commission or its staff. The proposed rule also provided that a supervising attorney may be responsible for another attorney's violation of these standards of conduct if he or she orders or ratifies the attorney's misconduct.
1477 FR at 3194.
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.15 These commenters offered several substantive criticisms of the proposed rule, which are addressed below. The Commission, upon consideration of these comments and its own review of the existing and proposed rules, issues several modifications to the proposed rules, including: (1) A revision to clarify the scope of potential imputed responsibility under the rule for supervisory or managerial attorneys; and (2) revisions to provide for the Commission to issue an order to show cause before issuance of an attorney reprimand in all cases and to provide an opportunity for a hearing prior to imposition of any sanction where there are disputed issues of material fact to be resolved.
15Kristen Sweet Comment.
II. Section-by-Section Analysis of Final Rule Revisions Section 2.2: Complaint and Request for Commission Action
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.
Section 2.4: Investigational Policy
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.”16 The Commission will continue to use whatever means of obtaining information is appropriate, and notes that compulsory process is more likely to be necessary in complex cases. In a substantial number of investigations, voluntary methods are used.
16Section Comment at 2.
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.”17 The Commission believes that such a reading is misguided because staff are necessarily participants in the discussions. Indeed, Crowell & Moring commented that the proposed rule will often encourage “trust and cooperation and reduce[] possible confusion regarding mutual expectations.”18 The Commission adopts the proposed rule.
17 Id.at 3.
18Crowell & Moring Comment at 2-3.
Section 2.6: Notification of Purpose
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,19 and the practice plainly facilitates the efficient and effective conduct of investigations. Nevertheless, the Section remarked that “it is unclear why a change in the current policy is necessary, or indeed what specific changes the Commission intends.”20 The proposed rule was intended merely to reflect existing practice. As the Section further noted, the Commission “historically has been properly mindful of the importance of confidentiality of its investigations, taking into consideration the various federal statutes that protect the confidential nature of non-public investigations.”21 Under its current policy, the Commission does not ordinarily make blanket disclosure to the public of the identity of persons (including corporations) under investigation prior to the time that a complaint issues.22 The Commission is not departing from its current policy in this regard.
19 SeeFTC Operating Manual, Ch. 16.9.3.4.
20Section Comment at 3.
22 SeeFTC Operating Manual, Ch. 3.1.2.3.
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.”23 The statutory basis for Kelley Drye's comment applies only to disclosure to law enforcement agencies of “documentary material, results of inspections of tangible things, written reports or answers to questions, and transcripts of oral testimony.”24 The revisions to Rule 2.6 do not expand staff's authority to share such material with third parties, but merely acknowledge staff's ability, in limited circumstances, to disclose the existence of an investigation. Appropriate safeguards against improper use of confidential materials are already in place.
23Kelley Drye Comment at 4.
2415 U.S.C. 57B-2(b)(6).
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.”25 However, it is well established that “in the pre-complaint stage, an investigating agency is under no obligation to propound a narrowly focused theory of a possible future case. Accordingly, the relevance of the agency's subpoena requests may be measured only against the general purposes of its investigation.”26 Further, the Commission observes that questions about the investigation may be discussed during the meet and confer process prescribed by Rule 2.7(k), or raised in a petition to limit or quash, as described in Rule 2.10. Thus, Rule 2.6 is adopted as proposed.
25Section Comment at 3.
26 FTCv.Texaco, Inc.,555 F.2d 862, 874 (D.C. Cir. 1977).
Section 2.7: Compulsory Process in Investigations
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 partydemonstrating its progress in achieving compliance.
Proposed paragraph (a) describes the general procedures for compulsory process under Sections 9 and 20 of the Federal Trade Commission Act.27 In its comments, Kelley Drye requested that the Commission explain “whether metadata will be included in the definition of ESI and consistently apply that definition to all investigative proceedings.”28 The Commission believes that the rule requires no further clarification because, on its terms, the definition of ESI encompasses “other data or data compilations stored in any electronic medium,” which clearly includes metadata. This definition also comports with the broad meaning of “electronically stored information” in the FRCP.29 In a particular case, the instructions accompanying compulsory process may provide variations in the definition of ESI attributable to the particular circumstances of the investigation.
2715 U.S.C. 49, 57b-1.
28Kelley Drye Comment at 6.
29 SeeFed. R. Civ. P. 34 note (2006) (Notes of Advisory Committee on 2006 amendments) (“The wide variety of computer systems currently in use, and the rapidity of technological change, counsel against a limiting or precise definition of electronically stored information. Rule 34(a)(1) is expansive and includes any type of information that is stored electronically.”).
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.”30 Here again, the Commission observes that, as with the FRCP, the definition on its terms calls for translation of data “if necessary.” Moreover, even after compulsory process has issued, the meet and confer process described at paragraph (k), in conjunction with paragraph (l)'s delegation of authority to certain Commission officials to modify the terms of compliance with compulsory process, provides an adequate means to depart from this standard requirement when necessary. If the issue is unresolved after discussions with staff, the Commission is available to consider a petition to limit or quash compulsory process.
30Kelley Drye Comment at 7.
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.31
31As noted in the NPRM, these provisions consolidate provisions found in Rules 2.8, 2.10, 2.11, and 2.12. In addition, the revisions update and streamline the process for taking oral testimony by requiring corporate entities to designate a witness to testify on their behalf, as provided in FRCP Rule 30(b)(6), and by allowing testimony to be videotaped or recorded by means other than stenograph.
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.”32 Crowell & Moring also expressed concerns about the scope of this provision, arguing that it could be read to “allow the Commission to issue a subpoena or CID requiring the production of, e.g., servers, hard drives, or backup tapes, so that the Commission staff can `inspect' the ESI to see if there is anything of interest contained thereupon.”33 The firm further argued that “the proposed rule appears to give staff essentially unfettered access to any source of ESI,” and thus “staff could conceivably obtain access to an enterprise-wide email system and review large volumes of business information beyond the scope of the purported investigation.”34 Finally, Crowell & Moring observed that the proposed rule raises privilege issues because “conducting a privilege review, redaction, and then compiling the required privilege log” attendant to such an inspection “would in some cases present an enormous burden, since the privilege review would necessarily have to be conducted across the entire contents of the electronic media.”35
32Crowell & Moring Comment at 5.
35 Id.at 6.
The proposed rule is authorized by Sections 9 and 20 of the FTC Act.36 Section 9 provides for access to documentary evidence in investigations other than those pertaining to unfair or deceptive practices, and Section 20 allows the Commission to require that “tangible things” relevant to the investigation be submitted. The proposed rule is modeled after Fed. R. Civ. P. 34(a)(1), which expressly permits parties to test, sample, inspect or copy requested material. The methods contemplated by this paragraph are limited to “inspection, copying, testing, or sampling,” and are not meant to sidestep, but only to supplement, the other tools of compulsory process available to the Commission. Any testing method would be specifically tailored to the needs of the investigation. Thus, the Commission anticipates that, as with all forms of compulsory process, an inspection or sampling demand would be bounded by the nature and scope of the investigation, as articulated in the Commission resolution and compulsory process.
36 See15 U.S.C. 49 (“the Commission * * * shall at all reasonable times have access to, for the purpose of examination, and the right to copy any documentary evidence of any person, partnership, or corporation being investigated or proceeded against * * *”); 15 U.S.C. 57b-1(c)(1) (“Whenever the Commission has reason to believe that any person may be in possession * * * of any documentary material or tangible things, or may have any information, relevant to unfair or deceptive acts or practices * * * or to antitrust violations * * * the Commission may * * * issue in writing * * * a civil investigative demand requiring such person to produce such documentary material for inspection and copying or reproduction, [or] to submit such tangible things.”).
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.”37 The Commission notes that while staff would of course be open to discussing such concerns at a meet and confer session, it is the respondent's responsibility to produce all material in a usable format, and some materials (such as Microsoft Excel spreadsheets) are not usable unless produced in nativeformat. Thus, while it is advisable to bring these concerns to staff's attention, the blanket rule that Kelley Drye proposes would be unworkable in practice. Finally, the Commission acknowledges Kelley Drye's request that production requirements be narrowly tailored “particularly as they relate to metadata and duplicative electronic formats,”38 and notes that revised paragraph (j) specifically provides authority for a Commission official to modify production requirements as they relate to ESI. Accordingly, revised paragraph (j) is adopted as proposed.
37Kelley Drye Comment at 20.
38 Id.Compulsory process requests do not typically call for material to be provided in duplicative formats. However, where the documents are produced in a form that is not searchable, the documents may need to be accompanied by an extracted text file to render them searchable.
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.”39 In response to these concerns, the Commission revises the rule to extend the meet and confer timeline to 14 days. The revised rule also provides that the deadline for the first conference may be further extended to up to 30 days by any Commission official identified in paragraph (l). The revised rule provides further that the Commission will not consider petitions to quash or limit absent a pre-filing meet and confer session with Commission staff and, absent extraordinary circumstances, will consider only issues raised during the meet and confer process. The Commission observes that the meet and confer procedure is intended to be an iterative process. The rule only prescribes a timeline for the first meeting with staff, not the last. The rule does not preclude, and indeed the Commission strongly encourages, additional discussions of other issues as they arise. Revised paragraph (k) is therefore adopted as modified.
39Section Comment at 4;see alsoKelley Drye Comment at 11-13.
Finally, proposed paragraph (l) stipulates that certain Commission officials may modify the terms of compliance with compulsory process. Kelley Drye requested that the Commission revise this rule to allow for time extensions based on a respondent's “written acknowledgment that it is taking steps to comply with the FTC's request,”40 rather than an actual demonstration of satisfactory progress toward compliance. This paragraph is intended to improve the overall speed and efficiency of investigations, like many other revisions to the rules. Conditioning extensions merely upon unsupported assurances that parties intend to comply with compulsory process would not adequately serve this purpose. Although the Commission recognizes that counsel ordinarily deal in good faith, it is the Commission's experience that assurances are often not met. Therefore, paragraph (l) is adopted as proposed.
40Kelley Drye Comment at 11.
Section 2.9: Rights of Witnesses in Investigations
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.”41 The rule continues to provide that in general, staff should make such transcripts and documents available to witnesses. However, in certain circumstances, it is appropriate to withhold a transcript until the Commission pursues litigation. The Commission has long recognized the need for a good cause exception, even in the context of merger investigations.42 This provision is thus consistent both with established agency policy pursuant to Section 20(c)(14)(G) of the FTC Act and the Administrative Procedure Act.43 Paragraph (a) is therefore adopted as proposed.
41Section Comment at 5.
42 SeeStatement of the Federal Trade Commission's Bureau of Competition On Guidelines for Merger Investigations (December 11, 2002) (http://www.ftc.gov/os/2002/12/bcguidelines021211.htm).
43 See15 U.S.C. 57b-1(c)(14)(G); 5 U.S.C. 555(c) (“in a nonpublic investigatory proceeding the witness may for good cause be limited to inspection of the official transcript of his testimony”).
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 Act44 grants the Commission broader authority than Section 2045 to prohibit such conduct in matters not involving unfair or deceptive acts or practices. The proposed revision is necessary to prevent obstructionist conduct and is supported by federal court decisions and court rules prohibiting consultation in depositions while a question is pending.46 Thus, the Commission is statutorily authorized to regulate this aspect of investigational hearings and depositions conducted pursuant to Section 9, and it has elected to do so.
4415 U.S.C. 49.
4515 U.S.C. 57b-1.
46 See, e.g., Hallv.Clifton Precision,150 F.R.D. 525, 528 (E.D. Pa. 1993) (such coaching “tend[s], at the very least, to give the appearance of obstructing the truth.”);see alsoFed. R. Civ. P. 30 advisory committee's note (1993 Amendments) (observing that “[d]epositions frequently have been unduly prolonged, if not unfairly frustrated, by lengthy objections and colloquy, often suggesting how the deponent should respond. While objections may * * * be made during a deposition, they ordinarily should be limited to * * * objections on grounds that might be immediately obviated, removed, or cured, such as to the form of a question or the responsiveness of an answer * * *. Directions to a deponent not to answer a question can be even more disruptive than objections.”); D. Col. L. Civ. R. 30.3(A) (Sanctions for Abusive Deposition Conduct); S.D. Ind. LR 30.1(b) (Private Conference with Deponent), E.D.N.Y. L. Civ. R. 30.6 (Conferences Between Deponent and Defending Attorney); S.D.N.Y. L. Civ. R. 30.6 (Conferences Between Deponent and Defending Attorney); M.D.N.C., LR 204(b); (Differentiated Case Management and Discovery); N.D. Ohio LR 30.1(b); D. Or. LR 30-5; D. Wyo. LR 30 (Depositions Upon Oral Examination).
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.
Section 2.10: Petitions To Limit or Quash Commission Compulsory Process
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 wordcount to 5,000 words. The Commission agrees that a 5,000 word limit would still promote an efficient process for petitions to limit or quash while providing a party ample opportunity to address the issues raised in its petition. The Commission therefore incorporates this suggestion.
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.”47 Proposed paragraph (a)(3), however, provides more clarity, and will further promote efficiency in Part 2 investigations by foreclosing protracted discussions about what constitutes “a reasonable time” to address protected status issues raised during depositions or investigational hearings. Finally, the Commission notes, in reply to another comment from Kelley Drye, that the five-day deadline is computed by counting only business days, in accordance with Commission Rule 4.3(a).48 This paragraph is adopted as modified.
47Kelley Drye Comment at 14.
48Rule 4.3(a) provides that time periods of seven days or less exclude weekends and holidays.
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.”49 But the Commission has previously determined that redaction of information that reveals the identity of the subject of a nonpublic investigation would “impair the public's ability to assess and understand these important rulings.”50 The Commission continues to believe that publication of past proceedings will guide future petitioners and provide predictability to the determination process. Therefore, the Commission has a compelling reason to continue its well-established practice of making petitions to limit or quash generally available unless a particularized showing is made that confidentiality should be granted pursuant to Rule 4.9(c). Accordingly, the Commission declines to adopt the Section's suggested changes.
49Section Comment at 6.
5042 FR 64135 (1977).
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.51
51The Commission is also updating the cross-references in Rules 4.2 and 4.9 to reflect the new numbering of the petition to quash rule.
Section 2.11: Withholding Requested Material
The Commission proposed Rule 2.11 to set out the specific information required in privilege logs submitted in Part 2 investigations.52 The objective of the proposed specifications, and those in the further revised rule, adopted in this notice, is to encourage parties to withhold only materials that qualify for a protected status, as that term is defined at Rule 2.7(a)(4),53 and to provide a basis for staff to analyze whether documents withheld on privilege grounds do, in fact, satisfy the legal requirements for the applicable privilege.
52The previous requirements for privilege logs were in Rule 2.8A.
53“`Protected status' refers to information or material that may be withheld from production or disclosure on the grounds of any privilege, work product protection, or statutory exemption.” 16 CFR 2.7(a)(4).
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.54 However, there are factors specific to Part 2 proceedings that often make protected status claims difficult to assess and resolve efficiently. As explained in the NPRM, the Part 2 rule must contain more specific requirements than the rules applicable to Part 3 because there is no neutral Administrative Law Judge available in Part 2 proceedings to analyze the sufficiency of the log. At present, the Commission's sole recourse in a Part 2 investigation is to file an enforcement action in federal court. Similarly, the nature of HSR second requests and attendant statutory deadlines create an environment where staff and respondents can more readily address and resolve issues of protected status.
54 See, e.g.,Crowell Comment at 8-10; Kelley Drye Comment at 20; Section Comment at 6.
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 Drye55 that providing the number of pages or bytes of a withheld document would be too burdensome. At the same time, theCommission likewise recognizes that a privilege log must also contain control numbers in order for the parties to clearly and efficiently communicate with one another about the privilege claims asserted (including at the meet-and-confer session). Without control numbers, it would be difficult or infeasible to identify the precise documents under discussion. Thus, the Commission has determined to require document control numbers for withheld material, but will not require parties to provide document size information in a privilege log.
55 SeeKelley Drye Comment at 17.
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.56 No comments were received, and the paragraph is adopted with one modification intended to clarify the proposed rule text.
56The modifications to Rule 2.7(a)(4) and Rule 2.11(c) are representative of several technical revisions that the Commission has made to the proposed rules. Another example is the modification of Rules 2.7 and 2.9 to replace the term “Commission Investigator,” which has a separate meaning under Rule 2.5, with the term “hearing official.”
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.”57 The Commission received no other comments about this paragraph and it is adopted with one non-substantive modification.
57Crowell & Moring Comment at 3.
Section 2.13: Noncompliance With Compulsory Process
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.”58 In response, the Commission notes that Rule 2.13(b) does not establish a firewall or otherwise discourage communication between the Commission, Bureau staff conducting the investigation, and the General Counsel. As with many of the rules adopted today, this provision simply reflects longstanding agency procedure. The Commission notes that neither the Commission nor the General Counsel works in a vacuum regarding these matters. To underscore this point, the Commission has modified paragraph (b)(3) to provide that the General Counsel shall provide the Commission with at least two days' notice before initiating an action under that paragraph. The rule is adopted with that modification and a revision to paragraph (b)(1), which clarifies the General Counsel's authority to enforce compulsory process against a party that breaches any modification.
58Section Comment at 7.
Section 2.14: Disposition
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.59 The Commission proposed this revision in response to recipients of compulsory process who reported that they often did not know when they were relieved of any obligation to retain information or materials for which neither the agency nor they have any use. Such recipients were not inclined to inquire about the status of an investigation for fear of renewed agency attention. The proposed revision relieves compulsory process recipients of any obligation to preserve documents if twelve months pass with no written communication from the Commission or staff. However, the revision does not lift any obligation that parties may have to preserve documents for investigations by other government agencies, or for litigation.
59In the final Rule, the Commission is also extending this relief to recipients of a preservation demand.
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 inquireabout the status of a seemingly dormant investigation, it is unclear how such a “formal presumption” that a matter has closed would work in practice. Furthermore, the release of document preservation obligations strikes the appropriate balance between fairness to compulsory process recipients and staff's ability to conduct long-term investigations. Finally, Crowell & Moring urged the Commission to affirmatively notify targets of compulsory process when an investigation is closed. The Commission notes that, like each of the foregoing proposed rules, Rule 2.14 is not intended to discourage interaction and transparency during the Part 2 investigatory process. Consequently, wherever feasible, staff will continue to keep open lines of communication in all stages of an investigation. The rule is adopted with some modifications intended to clarify the proposed language.
Section 4.1: Reprimand, Suspension, or Disbarment of Attorneys
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.60 The proposed rule also granted the Administrative Law Judge the necessary powers to oversee fair and expeditious attorney disciplinary proceedings.
60In the alternative, the proposed rule provided for the Commission to preside over the matter in the first instance or assign one or more members of the Commission to sit as Administrative Law Judges in a matter.
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.
A. Need for Revisions
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.61 Rather than adopting the proposed changes to this rule, the Section suggested that the Commission should convene a working group of stakeholders to consider more limited changes to the rule.62 AFSA also suggested that the Commission's current rules are sufficient to address attorney discipline.63 In contrast, an individual commenter applauded the Commission for proposing a rule that provides greater clarity regarding the procedures that will be employed to investigate and adjudicate allegations of attorney misconduct.64
61Section Comment at 1, 7.
62 Id.at 7-8.
63AFSA Comment at 1.
64Kristen Sweet Comment at 2.
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.65 In addition, the complexity of producing ESI may create an incentive for parties to engage in obstructionist or dilatory conduct that could interfere with the appropriate resolution of Commission investigations.66 In some cases, such conduct by an attorney could violate prevailing standards of professional conduct, as discussed below.67
65 See e.g., 77 FR at 3192-94.