The Federal Trade Commission recently finalized changes to its investigative procedures. The changes are intended to streamline a process that has, in recent years, become increasingly lengthy and unwieldy. The driving force behind the changes, which will become effective November 9, 2012, is the ever-increasing pace of technology, in particular its effect on the amount of electronic data that a respondent must comb through when it finds itself the target of a Commission investigation.
The Current Process
Typically, the Commission commences an investigation by serving a Civil Investigative Demand (“CID”) on the target of the investigation (the “respondent”). A CID is similar to a subpoena. It bears the seal of the Commission, identifies the name and address of the respondent, identifies categories of documents that a respondent must produce (“documents specifications”), includes formal questions that the respondent must answer in writing (“interrogatory specifications”), and identifies a date by which production must occur. Often, the production date is just a few weeks after the CID is served. Given that CIDs often include dozens of document and interrogatory specifications, the printed compliance dates are seldom true reflections of when compliance must occur. In some instances, respondents might spend many months or more responding to a CID, not including additional investigative time resulting from additional CIDs requesting more documents or oral testimony.
There are several factors that play in to lengthy investigations, but two bear specific mention. First – and this won’t come as a shock to anyone – the amount of data accessible to respondents these days is vast, almost unfathomable, due to the explosion of electronically-stored information (“ESI”). Notably, the FTC includes ESI in its definition of “document,” meaning that a response to a request for, say, “all documents relating to consumer complaints” will likely require electronic searching of numerous email accounts, customer service databases, electronically-stored correspondence, recordings of customer service calls, customer comments on the respondent’s social media sites, and possibly much more.
Second, against the backdrop of a massive source of potentially responsive documents, there is the requirement that, upon completion of production, the respondent must certify that “all of the documents and information required by the … Civil Investigative Demand which are in the possession, custody, control, or knowledge of the person to whom the demand is directed have been submitted to [the Commission].” Such a certification is a statement to the federal government, and the consequences of a false certification can be severe. Accordingly, respondents are under a great deal of pressure to ensure that their methodology for searching and producing documents to the FTC is sound. And this takes time.
The Forthcoming Changes and Why They Are Not Likely To Speed Up Investigations
To deal with increasing delays, the FTC has made a number of changes to Part 2 of its Rules of Practice (Non-adjudicative Procedures). At a high level, those changes include the following:
Explicitly stating Commission’s expectation that “all parties [will] engage in meaningful discussions with staff to prevent confusion or misunderstanding regarding the nature and scope of the information and materials being sought”;
Requiring respondents to meet and confer with staff within fourteen days after receipt of a CID to address and attempt to resolve potential problems related to document production;
Conditioning extensions of time to comply with a CID on a respondent’s demonstration of progress towards compliance; and
Providing Commission staff with the authority to inspect, copy, or sample documentary materials—including ESI—to ensure that the parties are employing viable search terms and compliance methods.
Among the more controversial amendments is the last one. Providing Commission staff access to a respondent’s ESI generally is potentially problematic for a number of reasons: (1) it creates a risk that the staff will access information protected from disclosure by the attorney-client privilege or work product doctrine; (2) it allows the staff to access and possess information that has no relevance to the subject matter of the investigation, including information that may contain trade secrets, personally identifiable information and other forms of sensitive data; and (3) it creates a risk of inadvertent exposure or dissemination of such data (whether by delivery of a copy or providing staff attorneys access to a data source).
Ironically, the “inspection, copying, and sampling” provision has the potential for increasing the time, scope, burden, and expense of the investigation by requiring measures to deal with each of the risks outlined above. For example, in response to criticism from commenters on the proposed change, the FTC suggested implementation of a so-called “taint team,” which would segregate privileged material included in the sample data. As anyone who has been involved in one knows, privilege reviews are notoriously time-consuming because of the risk that privileged documents that inadvertently slip through the cracks could pose a risk of waiver either in the context of a government investigation or a subsequent civil action. Similarly, any sample data provided to the Commission must be screened for personally identifiable information or other forms of sensitive data. (Current Commission CIDs require respondents to take measures to redact such information before production.) There is often no easy way to locate personally identifiable information and, while there are alternatives to line-by-line review (e.g., production of encrypted materials), this approach is not foolproof. The mere act of copying and transmitting data presents risk of a data breach.
As with any form of governmental compulsory process, receipt of a CID is a big deal and should be taken very seriously. If you or your organization receives a CID, you should treat it as a matter of top priority and seek the assistance of counsel experienced in responding to such demands. Experienced counsel will often be able to narrow the scope of the demand and minimize the burden and cost of what can be a time-consuming process.
Although the Commission’s attempt to streamline its investigative process is a positive step, it seems unlikely that it will have an appreciable impact. However, respondents should try to tap into the Commission’s desire to speed up investigations by offering to meet with Commission staff as soon as possible after receipt of a CID, by determining the documents or information that the Commission is most interested in seeing (i.e., in the case of advertising claims, almost always claim substantiation), and making every effort to provide such information promptly. As for the remaining requests, respondents should seek to narrow the sources of ESI, the number of custodians, and proposed search terms and methodologies as much as possible to avoid weeks or months of electronic review and production.