If your company is served with a civil investigative demand (CID) by the FTC for an alleged internet-related wrongdoing, how do you respond? You likely don’t know whether you are the target of the investigation, or whether the FTC merely believes that you have information relevant for an investigation of another party. The stakes are often high, as FTC enforcement actions can result in asset freezes, the appointment of a receiver, and even court-ordered restitution to consumers. How do you respond to the CID in a way that placates the FTC but also protects your company as much as possible?
In this webinar Karl Kronenberger and Liana Chen cover what a CID is and how to respond to it, the FTC’s investigative processes and powers, and the limitations on CIDs. Kronenberger and Chen also discuss:
• Actions CID recipients can take to push back against the FTC and the potential remedies available.
• Compliance advice for companies to avoid appearing on FTC’s radar, and thus receiving a CID.
• Pre-litigation and litigation tactics, such as obtaining extensions and Motions to Quash CIDs.
3. General Investigative Powers of the FTC
• Consumer protection and antitrust
• Law enforcement and regulatory powers
• Informal v. formal investigations
4. FTC Remedies and Processes
• Broad range of remedies
– Monetary redress (restitution, disgorgement, civil
penalties)
– Non-monetary (TRO, asset freeze, receiver,
injunction)
• Compulsory process
– CIDs and subpoenas
– Enforceable in federal court
– Penalties may be invoked
5. Strategies for Avoiding FTC Radar
• Review triggers for investigations
– Consumer Sentinel Network
– Consumer complaints and other
• Implement compliance policies
– Call center
– Advertising, data privacy, and other
6. FTC Civil Investigative Demands (CIDs)
• Statutory authority (15 U.S.C. § 57b-1)
• What is a CID?
– Documents
– Tangible things
– Written reports/answers
– Oral testimony
• Under sworn certificate/oath
7. FTC Civil Investigative Demands (CIDs)
• CID requirements
– Nature of conduct and law
– “Relevant” to investigation
– “Definiteness” and “certainty”
– Proper service
• Importance of response
8. CIDs v. Subpoenas
• Antitrust v. consumer
protection
• Both used for documents
and testimony
• CIDs may require written
answers to questions and
production of tangible things
9. Tips for Responding to CIDs
• Start compliance and response
• Preserve confidentiality
• Engage counsel
– Discuss deadlines, scope, and purpose
– Evaluate response and implications
– Preserve objections
• Wait patiently
10. Response Tactics and Defenses
• CID limitations
• Petition to limit or quash
– Must meet and confer
– Grounds
– Considerations
• Importance of counsel
11. Summary of Tips for Responding to CIDs
• Implement compliance policies
• Calendar deadlines and preserve documents
• Engage experienced counsel
• Meet and confer with FTC
• Consider petition to limit or quash,
delayed production
12. Conclusion, Q&A
Karl S. Kronenberger
Karl@KRInternetLaw.com
(415) 955-1155 ext. 114
150 Post Street, Suite 520, San Francisco, CA 94108
www.KRInternetLaw.com
Liana W. Chen
Liana@KRInternetLaw.com
(415) 955-1155 ext. 118
Editor's Notes
KK
Will go over FTC investigative powers and processes
Explain CIDs
Tips for avoiding FTC radar and responding to CIDs
LC entire slide
Before jump into CIDs, want to give a little background about the Federal Trade Commission (FTC)
General:
Federal agency regulates consumer protection and antitrust matters (15 USC 41-58)
Broad pre-litigation investigative powers (as well as litigation authority)
Investigations may inquire into: (1) acts, practices, conduct, circumstances FTC authorized to investigate; (2) suspected violations of laws/regs enforced by FTC; (3) industry practices to determine whether rule/leg appropriate; (4) possible violations of FTC cease-and-desist orders (FTC Manual Ch. 3, Section .1.2.1)
Law enforcement v. regulatory:
Law enforcement powers (subpoenas and “Civil Investigative Demands” (CIDs))
Regulatory powers (special reports and CIDs)
Authorities:
Section 5 FTC Act, UDAP, 15 USC, most of our clients
Sections 6, 9, 10, 20 of FTC Act and Part 2A of FTC Rules
Informal v. formal investigations
Informal: voluntary access letters (docs or info) – key word voluntary, but still serious request; if ignore, may get CID quickly after
Formal pre-litigation demands: CIDs and subpoenas (some clients familiar w/subpoenas also after case filed)
If don’t cooperate voluntarily, high profile, circumstances
Non-public
Specific authorities:
15 USC 46: power to gather and compile info, and investigate businesses, conduct, practices, management where business affects commerce (regulatory)
15 USC 49: power to subpoena witness testimony and production of documents relating to any matter under investigation
15 USC 57b-1: power to issue CIDs
FTC Rules: 16 CFR 2.7 (compulsory process in investigations)
FTC Manual: Ch. 3 (iivestigations)
KK
Generally, broad range of remedies
Monetary redress (restitution and disgorgement)
Equitable (TRO, asset freeze, receiver, prelim or permanent injunction)
Refer criminal case to DOJ/AG
Stakes are high
LC
Compulsory process
Meaning CIDs and subpoenas
Not self-executing; FTC may file motion to enforce in federal court
Penalties may be invoked; commission may institute disciplinary proceedings v. responsible attorney if deliberate omission or gross neg
Important takeaway, important to respond timely + accurately; potential consequences for failure respond, serious to get CID
LC
Review triggers for investigations
Consumer Sentinel Network: investigative cyber tool that provides law enforcement with free access to unverified consumer complaints
Contains consumer complaints re: spam, telephone mobile services, shop at home sales, TV and electronic media, debt collection, identity theft, sweepstakes, banks and lenders, credit bureaus, health products
Includes complaints to FTC, BBB, state AG, federal agencies, state law enforcement
Has over 12 million complaints; collected over 3 million in 2015
FTC attns use sentinel/complaints and look at trends in deciding whether to issue CID/subp; see if spike in complaints
Other triggers for investigations:
Media, blogs, tweets, articles (seen that recently)
Reports by advocacy groups or competitors (also seen that in our practice)
KK
Implement compliance policies
Call center compliance, monitor complaints
Advertising, privacy, security, other industry-specific policies
Review and update
Importance getting experienced counsel to help implement/review policies
LC
Statutory authority:
Section 20 of FTC Act, 15 USC 57b-1
Pattered after DOJ CID authority
FTC may issue a CID when “reason to believe” person has possession, custody, control of materials/info “relevant to” UDAP affecting commerce or antitrust violations
Sum – low threshold, FTC attn a lot of discretion under “reason to believe” standard
KK
What:
CIDs are judicially enforceable demands for documents, tangible things, written reports or answers to questions, or oral testimony (latter less common) (or combo)
Seek information re: investigation
You may be the target of an investigation, or FTC may merely believe you have information relevant for an investigation of another party
Sworn certificate/oath
Docs/things under sworn certificate in form the CID designates
Reports/answers under oath; if objected to, under sworn certificate
Oral testimony under oath or affirmation
Typically, after trigger, FTC staff will submit subpoena/CID to Commission w/short justification memo describing legal theory of investigation, facts known, info needed, why info relevant to inquiry, and cost and burden will impose on target companies (Manual Ch. 3, Section .3.6.7.5.4)
KK entire slide
Requirements
Must state nature of conduct constituting alleged violation which is under investigation and provision of law applicable to violation
Must be “reasonably relevant” to investigation re: “possible” UDAP/antitrust violation
CIDs re: docs/things/questions
“Describe” requested info with “definiteness and certainty” to permit it to be fairly identified
Prescribe return date w/in “reasonable” period
Identify custodian
CIDs re: oral testimony
Date, time, place
Commission investigator conducting investigation and custodian
Process for obtaining transcripts
Service: agent, principal office, or registered or certified mail, return receipt requested
Must be signed by Commissioner
Importance of response: can determine if further investigation or litigation and costs
LC entire slide
Subject matter
If FTC wants pre-lit process in “UDAP,” CID required (typically case w/our clients who market/sell over internet) (16 CFR 2.7(b))
For antitrust matters, either may be used
Subpoenas: FTC Act, Section 9, 15 USC 49
CIDs: FTC Act, Section 20, 15 USC 57b-1
Similarities:
Clients may be familiar with subpoenas, CIDs have some similarities and some differences
Both used for documents and testimony
CID sometimes called “administrative subpoena”
Differences:
CIDs may also require written answers to questions (~rogs) and production of tangible things
CIDs may compel response from foreign entities
CIDs are investigative, not discovery tool (only FTC can use); subpoenas available for investigation and litigation after complaint
Also similar processes/tactics (more later)
FTC Rule 2.7 (16 CFR 2.7) [compulsory process]
Meet-and-confer, may be addressed by petition to limit or quash, FTC may enforce district court
KK
Start compliance and response
Read CID and consult counsel (or legal authorities)
Calendar deadlines, consider staggered production
Pull and preserve documents, litigation hold, consult IT
Keep FTC informed
LC
Preserve confidentiality:
Clients may have various confid arguments make later; not public or st FOIA
So responding parties should mark docs as confidential, request return of docs to set up for later arguments
KK
Again, important to consult counsel
Negotiate deadlines/extension; clarify scope/purpose
Evaluate production/response and implications – want to placate FTC but also protect your company as much as possible
Preserve objections (AC privilege, 5A)
Research law, strategy, penalties
Experience with laws and FTC staff
Can communicate on your behalf while you conduct your business
In case matter proceeds to litigation/settlement
LC
Wait patiently, review can take more than 1 year
Sometimes most frustrating for clients b/c want finality (govt)
Just b/c CID doesn’t mean follow-up w/enforcement action
LC
CID Limitations:
Again, CIDs can be for docs or testimony; if test, can have lawyer to make obj
Fewer objections during testimony v. depo
Most imp privilege
While trade secrets and confid not really objectionable, can mark as confid for later
Even though not laid out as permissible, attn may obj if compound, leading, trick, confusing; important to have experienced counsel to object and/or clarify the record w/hearing officer
LC
Petition to limit or quash
People heard of motion quash subp; special rules CIDs, much harder
Requirements
May file petition with FTC for order modifying or setting aside demand
W/in 20 days after service or before return date, whichever shorter
Must file w/FTC, not court (need to exhaust admin remedies)
Need to meet and confer first (16 CFR 2.7(k))
W/in 14 days after receipt or before deadline petition to quash, whichever is first, to discuss compliance and all issues, including any protected status
Must make available any personnel w/knowledge necessary for resolution
FTC will not consider petition to quash/limit w/out M&C
Must respond to matter not objected to
Generally, grounds: not “reasonably relevant,” “too indefinite,” and not w/in agency authority
Not reasonably relevant to inquiry/investigation broad standard; agency’s own appraisal of relevancy accepted if not “obviously wrong”; more broad for investigation than adj
Overbroad, unreasonable, undue burden (scope/costs): unduly burdensome if compliance threatens to unduly disrupt or seriously hinder normal operations of a business
Other: too indefinite, lack certainty, not w/in FTC authority, procedural deficiencies
Considerations
Petition w/FTC, if win, FTC may just send another (more narrow) request
Try to appear reasonable in case goes before court
Petition not needed to assert privilege (Manual Ch. 3, Section .3.6.7.5.5)
KK
Again, importance of experienced counsel
Discuss extensions and any other areas not addressed
KK
KK
If you receive a CID or anticipate receiving one, we are happy to talk to you
KK
Here are some links to statutes and guidelines that we discussed
