Federal Trade Commission Revamps Premerger Investigation Procedures

The Federal Trade Commission’s (FTC) Bureau of Competition (Bureau) recently announced changes to its premerger investigation procedures. These "Guidelines for Merger Investigations" (Guidelines), see http://www.ftc.gov/os/2002/12/bcguidelines021211.htm, are intended to streamline antitrust review at the FTC by facilitating information exchanges between the FTC and the parties, and by reducing the burden of Second Request compliance. In some respects the Guidelines conform FTC practice to that of the Antitrust Division of the Department of Justice (DOJ), the agency that shares premerger investigation and enforcement authority with the FTC. The DOJ announced its own Merger Review Process Initiative in 2001, in which it encouraged merging parties and DOJ staff to be more forthcoming in their discussions of theories and evidence in order to narrow the scope of Second Requests and the burdens on the merging parties and the government.

Some of the FTC’s new Guidelines reduce or eliminate onerous requirements. Others provide expanded access to materials in the FTC’s hands. Still others offer easier means to produce documents called for by Second Requests. The Guidelines are expected to evolve further over time in light of agency experience and additional public comment.

Guidelines Announced For Future Investigations

Key aspects of the Guidelines are summarized below:

• Document Organization. Documents responsive to a Second Request can be produced as kept in the ordinary course of business, rather than sorted or identified by specific request.

• Privileged Documents. The Bureau will not treat inadvertent production of privileged materials as an automatic waiver of the attorney-client privilege or work product protection. The standard procedure will be to return the original and all copies of any inadvertent production. Additionally, the amount of information required on privilege logs will be reduced.

• Second Sweeps. Parties are encouraged to negotiate with the staff to avoid "second sweeps," or repeated document searches of the same offices. The FTC contemplates that parties responding to Second Requests will typically avoid second sweeps by agreeing to rolling document productions, reducing burdens on both sides. This Guidelines publicly endorses FTC staff practice in seeking rolling productions in exchange for eliminating second sweep requirements. Where a second sweep is necessary, the scope of search will be limited.

• Administrative Appeal Opinions. The FTC General Counsel’s written opinions on administrative appeals from Bureau staff decisions in Second Request disputes will be publicly disclosed, if the parties consent. Redacted versions of actual Second Requests and modification letters will be posted on the FTC’s web site.

• Hearing Transcripts. The transcript of an investigational hearing will usually be released to the witness, at his or her request, as soon as it is available.

• Electronic Production. The Bureau will encourage parties responding to a Second Request to submit documents in electronic (rather than paper) format. FTC staff will coordinate with parties to structure effective "term searches" of electronic documents, and to focus and limit the searches of archived or back-up electronic materials.

• Product Samples. Parties will no longer routinely be required to provide product samples. Parties may do so voluntarily, and staff may request samples in specific cases.

FTC Encourages Electronic Document Production

Because it is less expensive and time-consuming to produce electronic documents by electronic means, the Guidelines "encourage" electronic submissions. Indeed, in some instances, electronic production may even be required so that embedded data and attachments can be reviewed.

Recognizing that companies generate huge volumes of e-mail, the FTC staff has been instructed to offer options for reducing e-mail production. Such options include limiting the number of user files searched, using term searches to identify responsive documents and restricting the inquiry dates. The Guidelines also encourage parties to "actively and cooperatively negotiate" with the FTC to modify search requirements for archive and backup systems.

On the other hand, the Guidelines also attempt to ensure that searches will be sufficiently comprehensive. Accordingly, they encourage parties to provide, at the outset, organizational charts, information on data and document flows, a glossary of industry and company terminology and proposed search methodologies. Additionally, parties are encouraged to agree to a physical review of certain key employees’ files and to stipulate, when necessary, to the identification of documents by means other than term searches.

Under the Guidelines, parties may also offer to submit paper documents in electronic format. Although this entails conversion costs, it could result in a speedier, more efficient merger review. The FTC staff will "strongly consider" requests for production of paper documents by electronic means.

Candor, Collaboration Required To Make Changes Work

The Second Request process has been criticized as costly, burdensome and sometimes needlessly adversarial. In response, the Guidelines adopt some of the best practices that have been used by experienced counsel and the FTC staff and publicly endorse creative problem-solving over more adversarial approaches. The Guidelines aim to reduce the burden of Second Request compliance and to provide the staff with better access to the information actually needed to review mergers.

However, the Guidelines by no means exhaust the ways in which merging parties and government staff can work together to reduce their mutual burdens. To manage a Second Request successfully -- now as in the past -- the parties must communicate frequently and candidly among themselves, and with Bureau staff, about the scope of compliance and the substantive antitrust issues in the transaction.

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The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.