You received a Civil Investigative (CID) from the Federal Trade Commission related to a consumer protection matter.
The FTC mission is to promote competition and protect consumers from deceptive or unfair practices, to educate consumers and provide guidance for businesses. The Bureau of Consumer Protection is the office within the FTC responsible for consumer protection matters.
The FTC endeavors to provide plain language descriptions of the CID process and developing business education materials to help small businesses understand how to comply. Typically, the agency provides detailed descriptions of the scope and purpose of investigations to provide recipients with a better understanding of the information the agency seeks.
Where appropriate, the FTC - at least outwardly – states that it endeavors to limit the relevant time periods to minimize undue burden and to reduce the length and complexity of CID instructions for providing electronically stored data.
Additionally, the Federal Trade Commission recently announced an intention to increase response times to improve the quality and timeliness of compliance by the recipient. The agency endeavors to ensure recipients are aware of the status of investigations by adhering to the current practice of communicating with investigation targets concerning the status of investigations at least every six months after they comply with the CID.
Even with the foregoing, the process can be daunting.
What is a Civil Investigative Demand?
A CID is a type of subpoena. It is a judicially enforceable legal document that seeks documents or other information related to an FTC investigation. The FTC issues CIDs to obtain information from companies it thinks may have violated the law. The agency also sometimes sends CIDs to obtain information from others who are not the subjects of investigation, but who may have information related to the subjects of ongoing investigations.
What Should You do Upon Receipt of a CID?
Do not panic or attempt to liaise with the FTC on your own. Consult an FTC CID lawyer with extensive experience defending digital marketers, deep knowledge of the digital marketing ecosystem, a firm grasp of the way performance-based business models work, an appreciation of the challenges facing digital advertisers and marketers (and how to get the most of out early meetings with FTC staff), a proven track record of resolving - and convincing the FTC to close - CID investigations, solid relationships with the regulatory enforcement community and the procedural know-how to best position the matter.
Discuss with FTC defense counsel the scope and nature of the investigation, potential liability exposure, options, substantive defense strategies and persuasive arguments, insurance coverage, the implementation of a “litigation hold,” third-party contractual issues, the availability of and burden in obtaining responsive information, applicable privileges and objections, how best to approach and conduct the “meet and confer” process, and the implementation of preventative compliance measures.
What is the “Meet and Confer?”
The “meet and confer” is a CID recipient’s opportunity to ask questions, negotiate procedural and substantive issues, propose modifications, negotiate extensions, narrow the scope of requests, assess if the recipient is a target or a witness and inquire as to the nature and purpose of the investigation. FTC CIDs typically impose short deadlines and the first steps taken by recipients are crucial. Experienced consumer protection defense counsel will also know how to reduce compliance costs and burdens so as to lessen inference with day-to-day business operations.
Does Receipt of a CID Mean That I am Going to be Sued?
Some recipients of CIDs are not the targets or subjects of FTC investigation, but instead are third-parties that have documents or other information that relate to others that may be the targets or subjects of an FTC investigation.
Even if you are the target or subject of an FTC investigation, a CID is just the first step in an investigation. In many instances, once FTC staff attorneys have reviewed the responsive documents provided, the agency will close the investigation without further action or engage in pre-suit (or, pre-administrative) compromise discussions. Other times, however, FTC staff will approach a recipient about negotiating a possible legal settlement.
Choosing amongst FTC CID attorneys with industry-specific experience is critical. If a settlement cannot be reached, the FTC may choose to initiate a lawsuit or administrative proceeding.
What Law Does the FTC Believe Have Been Violated?
The CID should identify the subject matter of the investigation and describes the nature of the conduct the FTC staff is investigating. Additionally, the CID cites the Federal Trade Commission Act or other laws, rules, regulations, best practices and/or guidelines that may have been violated. The FTC Act prohibits “unfair or deceptive acts or practices in or affecting commerce.”
The FTC’s Rules of Practice are published in the Code of Federal Regulations. Part 2 of the Rules, which deal with investigations and CIDs, is available online.
What Does the FTC do With the Document You Produce?
The FTC may use the documents to conduct its investigation and, if appropriate, in an FTC law enforcement action. With limited exception - during the course of an investigation - information provided by a recipient under investigation or by third parties is generally treated as confidential, both as a matter of policy and pursuant to statutory restrictions.
The agency will not tell consumers, competitors, private attorneys or members of the press about the investigation, although it may share documents where necessary with its experts and potential witnesses.
Generally speaking, unless the FTC uses the documents in an FTC action it will not publicly disclose the documents - or even the existence of an investigation - without consent, except in response to a request from Congress or a Congressional committee or subcommittee, a request from a law enforcement agency for official law enforcement purposes, or as required by law.
If the FTC does intend to use the documents in an FTC action, it will provide advance notice in the event that an order from a court to protect the documents from public disclosure is desired.
What is the FTC Review Process of Documents Sent in Response to a CID?
FTC staff lawyers will review the documents and periodically communicate with FTC CID defense counsel. It often takes months for the FTC to thoroughly evaluate the documents and other information related to the investigation.
The FTC has recently stated that it is their practice to reach out to a recipient no later than six months after the response is completed to provide a recipient a status update.
What is a “Litigation Hold?”
Upon receipt of a CID, the recipient must stop procedures that would destroy documents that could reasonably relate to the investigation. A recipient must take steps to maintain documents that are relevant to the investigation, regardless of whether the recipient believes the documents are protected from discovery by legal privilege or some other reason.
Should You Simply Ignore a CID?
The FTC can go to court to ask a judge to compel a recipient to turn over documents or information. The FTC does not prefer this approach because going to court to enforce a CID increases costs and causes delays for everyone involved.
If there is a particular specification in the CID that causes a recipient concern, the FTC prefers to discuss it during the “meet and confer” process.
According to the FTC Rules of Practice, within a time-certain a recipient may also file a petition to limit or “quash.” In other words, a recipient may ask that the CID be narrowed or withdrawn altogether. One of the FTC Commissioners will review the petition and will either: (i) grant the petition and limit or quash the CID; or (ii) deny the petition.
The procedure is explained in the FTC’s Rules of Practice. The FTC will typically not consider a petition to limit or quash unless concerns have already been discussed at the “meet and confer.”
If a CID recipient plans to file a petition to limit or quash certain portions of the CID, it must file a response to the other portions of the CID by the deadline. Importantly, petitions to limit or quash a CID - and the FTC’s decision - are public documents that will be placed on the FTC’s public record.
Takeaway: The FTC takes its CID’s (and subpoenas) seriously and responding to an FTC Civil Investigative Demand is an art form. Thus, it is imperative that a CID recipient get the advice of an attorney FTC attorney with extensive and focused digital marketing-specific regulatory investigation defense experience. Properly reacting to the receipt of an FTC CID and the manner in which a focused, substantive legal response is persuasively presented can make the difference between investigation closure and the initiation of regulatory enforcement proceedings.