Responding to an FTC CID is an Art Form

Federal Trade Commission Civil Investigative Demands (CIDs) are compulsory administrative subpoenas utilized by the Federal Trade Commission to obtain materials and information about an investigation into a recipient’s (and/or another party’s) business practices.

The initial response is critically important.

Below are some tactics designed to thoroughly consider defense strategies aimed at achieving an optimal resolution.

What to do First Upon Receiving an FTC CID?

The Federal Trade Commission has broad powers to investigate unfair and deceptive acts and practices.  The FTC Rules of Practice are published in the Code of Federal Regulations and set forth procedures governing inquiries, investigations and compulsory processes.

While FTC CIDs should be taken seriously because they are compulsory in nature, recipients must comprehend how the FTC operates, the agency’s policies and how to avoid the initiation of an FTC enforcement lawsuit.

It is generally a good idea for CID recipeints not to attempt to discuss the investigation with FTC staff themselves.

Importantly, receiving a CID does not necessarily mean that the recipietn is a “target.”

Recipients of compulsory process are not always the focus of FTC investigations, but instead can be witnesses that possess documents and information that relate to others who are the real targets of an investigation.

Even if a recipient is the target of an FTC investigation, a CID is only the first step in the process. Depending upon the facts, law, substantive response positioning, and documents and information provided in response to a CID, an experienced FTC CID attorney may be able to secure closure of the investigation without further action.  Or FTC staff counsel may approach a recipient about negotiating legal settlement.

With limited exceptions, pre-complaint investigations – such as CIDs – are typically not public.

Review the FTC Civil Investigative Demand carefully.

Typically, CIDs provide respondents with notice of the nature of the conduct constituting the alleged violation(s) which is/are under investigation.  However, the FTC need not necessarily inform the respondent of a CID about any particular wrongful conduct, or whether the respondent is a “target,” “subject” or “witness.”

CIDs should also identify things such as the mandatory “meet and confer” schedule, the date upon which it was issued, FTC staff counsel, instructions and definitions, preservation obligations, the procedures for document production, how documents and information must be produced, the applicable time period, the information sought, and information about petitions to limit or quash.

Seasoned FTC practice counsel with a deep understanding of recent regulatory actions and related trends, solid working relationships with FTC staff counsel and management, and the ability to persuasively educate FTC staff about cutting edge-industries is a plus.  As a general matter, having held former positions within the FTC or other regulatory agencies will not have a material impact on the outcome, if any impact at all.

Issues Recipients of an FTC CID Consider Might Consider

Upon receiving a CID, recipients may wish to consider working with counsel to evaluate potential liability exposure and related options, whether the CID requests confidential or privileged information,  whether some requests will take longer to complete than others, the implementation of preventative compliance protocols, reviewing documents, and consulting with experienced counsel to formulate and prepare persuasive legal arguments and individual case strategies designed to convey to FTC staff counsel why a recommendation of enforcement is not warranted.

Recipients of CIDs often have a practice of periodically disposing of documents, including emails and digital chats.  However, upon receiving notice of compulsory process destroying, altering, concealing or modifying documents and information can lead to charges of obstruction of justice, fines and in some cases, imprisonment.

Upon receiving a CID or otherwise learning of an FTC investigation recipients must stop routine procedures that would destroy documents and information in its possession, custody and control.  Recipients must take steps to maintain and preserve documents and information that are relevant to the investigation.  Depending upon the circumstances appropriate IT personnel may need to assist.

The “Meet and Confer” Process

FTC Rule 2.7 sets forth a mandatory “meet and confer” process.  Unless an extension is granted, recipients of an FTC CID are required to “meet and confer” with FTC staff within fourteen (14) days after receipt of process, or prior to the deadline for filing a petition to quash, whichever is first.

The “meet and confer” is an CID recipient’s opportunity to ask questions about, clarify, discuss and negotiate the CID.  It is an opportunith to learn more about what the investigation is about, whether the recipient is a target, state objections, propose modifications, propsose extensions and a production schedule, and suggest things to reduce cost and burden.

Prior to and during the parties’ formal “meet and confer,” an experienced FTC CID attorney may be able to make logical inferences and discern information that may not be readily apparent on the face of the CID or disclosed by FTC staff, such as the true purpose and focus of the investigation and whether the recipient is a target.

Timely and deliberately approaching FTC staff counsel to “meet and confer” is one of the most important and oftentimes unleveraged steps in the FTC investigational process.  Extensions of time within which to comply and other modifications are often conditioned upon the ability to demonstrate good faith progress towards compliance with the compulsory investigation process.

CIDs often initially seek information and documentation that are broader than reasonable or necessary.  Experienced FTC practice counsel may be able to minimize the expense and disruption to a recipient’s daily operations and protect long-term business objectives by talking with FTC staff counsel in order to gain a relationship of trust, and limit the materials being sought.

FTC CID recipients should, without limitation, develop legal arguments and strategies that encourage investigation closure,  lay groundwork for extension requests and modifications, educate FTC staff about the recipient’s business and relevant facts, persuade FTC staff to narrow the scope of the specified inquiries, assess whether the FTC’s requests are reasonably objectionable, preserve applicable objections.

The first steps taken by recipients of FTC CIDs are critical.  The failure to do so can, without limitation, result in the waiver of valuable rights.

In order to position the investigation and response, and to maximize the chances for a positive result, it is important for CID recipients to promptly consult with an attorney that understands FTC practice as well as the unique challenges faced by digital advertisers.

FTC defense subject-matter focused counsel may be best suited to get the most of out early meetings with FTC staff in order to influence ultimate resolution.

“Witnesses,” “Subjects” and “Targets”

If the FTC comes calling, one of the first questions that gets asked is, “Am I a target or is someone else being investigated?”  During the “meet and confer process,” the FTC may volunteer this information.  Often, however, the FTC does not yet know for certain, and the agency is not required to disclose where the recipient of a CID actually or potentially fits within an investigation.

Not everyone that receives a CID is necessarily a target.

At one end of the spectrum is a recipient that is classified as a “target.”  When the FTC considers a recipient a target, that means that the agency believes that the person or entity has violated the law and that an enforcement action may ultimately be initiated.

At the other end of the spectrum is a “witness.”  A third-party witness may possess information that the FTC considers important to its investigation.  A “subject” is a person or entity in the gray area between a witness and a target.  To the FTC, a subject is a person or entity that may or may not be the subject or a future investigation or enforcement action.   In other words, the FTC does not yet know what position it will ultimately take as to a subject until it has completed its due diligence.  An initial classification can change based upon information obtained by the FTC.

Standards Governing CID Objections to an FTC CID?

FTC investigations oftentimes seek information and documentation in a manner that appear to be more of a fishing expedition than a narrowly tailored request.  As further set forth above, assessing whether one or more requests are objectionable (e.g., relevance, undue burden, vague, overly broad, and/or seek confidential, proprietary and/or privileged information) and preserving applicable objections is a crucial part of the investigation response process.

Despite the importance of objections, many less experienced FTC investigation defense attorneys that do not concentrate on advertising law matters fail to utilize them timely or properly.

Consider relevance.  The purpose of an FTC investigation is to learn whether there is reason to believe that the law has been or is being violated and, if so, to ascertain whether the issuance of a complaint would be in the public interest.  In this context, the standard for relevance of administrative compulsory process is broader than in a formal adjudication.  A CID request need not be limited to that information necessary to prove specific charges.  To the contrary, it may call for documents and information that are relevant “to the investigation” – a threshold that may be broadly defined by the FTC.

Naturally, receiving a CID inherently places a burden on the respondent.  However, an undue burden may the basis for a reasonable objection in the event that the request “threatens to unduly disrupt or seriously hinder” normal business operations.  For example, with respect to //voluminous records searches and substantial costs associated therewith.  The standard is a high one and the respondent’s argument must be reasonably established.

A CID is impermissibly vague where it lacks reasonable specificity or is too indefinite to enable a responding party to comply.  A CID is overbroad where it is “out of proportion to the ends sought” and “of such a sweeping nature and so unrelated to the matter properly under inquiry as to exceed the investigatory power.”

Objections based upon the confidentiality or secret nature of the information being sought are often based, at least in part, upon an assessment of whether the information sought is reasonably relevant to the subject matter of the investigation and whether disclosure would cause economic or competitive harm.  Generally speaking, the treatment of information as confidential will depend on either the purpose for which it is obtained or the manner in which it is used.

Objections based upon privilege, work product protection, statutory exemption or any similar claim must be asserted no later than the “return date: indicated on the CID.  A respondent must submit a detailed log of the items withheld that identifies the basis for withholding the material and meets all applicable statutory requirements.  The failure to provide information sufficient to support a claim of protected status may result in denial of the claim.

What is a Motion to Limit or Quash?

In the event that traditional objections do not resolve scheduling or production issues with FTC staff, a respondent may raise objections to the specifications and provisions of a CID by filing a petition to limit or quash with the Secretary of the FTC.  Absent and extension, if a respondent does not intend to comply with a CID, a petition to limit or quash may be filed within twenty (20) days after served with the CID, or if the return date is less than twenty (20) days after service, prior to the return date.

The FTC will not consider petitions to limit or quash absent a pre-filing meet and confer session and, absent extraordinary circumstances, will consider only issues raised during the meet and confer process.  If a respondent plans to file a petition to limit or quash certain portions of a CID, it must still file a response to the other portions of the CID by the deadline.

CID respondents are required to include with any petition to limit or quash, all assertions of protected status or other factual and legal objections, including all arguments, affidavits and other supporting documentation.  Petitions must also include a statement describing the circumstances and attendees at the conference with staff.  The failure to include the required statement may result in a denial of the petition.

Additionally, the failure to exhaust available administrative remedies (e.g., filing a petition to limit or quash) can serve as a waiver of arguments asserted as a defense in a subsequent CID enforcement proceeding.

The FTC is required to rule on a petition to limit or quash within forty (40) days after it is filed.  If the petition is denied, the FTC will specify new compliance terms and a return date.

Importantly, unless granted confidential treatment, petitions to limit or quash FTC CIDs become part of the public record, including rulings, orders and closing letters.  Thus, CID recipients should consult with an FTC CID lawyer experienced with FTC practice when considering whether to file a petition to limit or quash.

Persuasive Advocacy and Arguments

One of the most important components of any FTC investigation is the seizure of opportunities to increase the chances of investigation closure.  Developing and implementing winning strategies designed to achieve desired objectives can include, without limitation, persuasive advocacy, leveraging good facts and legal arguments, and compiling supporting evidence.  Cutting-edge investigation resolution strategies should be discussed with counsel when a CID recipient is considering what lawyer to engage.

Meeting with FTC personnel, including staff attorneys in charge of conducting the investigation and management, may also provide CID recipients with an opportunity to present substantive legal and factual arguments in an effort to stop the investigation in its tracks.

Investigation Closure?

When the facts are less than favorable, convincing FTC attorneys not to recommend an enforcement action is a skill.

FTC staff counsel are tasked with investigating facts and making recommendations to management about whether an enforcement action is warranted.  FTC lawyers possess the discretion to recommend complete case closure without seeking any remedy if it appears that  there was no consumer harm, there was no statutory or regulatory violation, and/or a lawsuit would not be in the public interest.

Knowledgeable FTC practice attorneys that advise advertisers and marketers in sensitive and complex regulatory matters can aggressively advocate that a formal consent agreement or enforcement is not necessary based upon, for example, business practice-related correction action and/or that the FTC would not prevail in the event it initiates enforcement action.

A legal advisor that possesses solid relationships with FTC staff that decide whether to recommend a case at all and senior agency enforcers, is a benefit to CID recipients.

There are numerous steps to take prior to, during and after learning that your or your business is the subject of an CID investigation.  Taking the appropriate action up-front can mitigate the likelihood of the most severe potential outcomes.

Richard B. Newman of Hinch Newman LLP is a leading FTC defense attorney at Hinch Newman LLP. He represents individuals and business in Federal Trade Commission and state Attorney General investigations. Follow Richard FTC defense lawyer Richard Newman on  National Law Review.

Informational purposes only. Not legal advice. May be considered attorney advertising.