Emerson once wrote “a few strong instincts and a few plain rules suffice us.”   Thoreau noted that “any fool can make a rule, and any fool will mind it.”  According to General MacArthur, “rules are mostly made to be broken and are too often for the lazy to hide behind.”  The sports pages are filled with violations of “unwritten rules” ( See, Schiano, Greg)  or NFL replacement referees who do not seem to know the rules.  Allen Iverson once questioned the relevance of practice. What does all this have to do with advertising law?  Well, the FTC announced last week significant revisions to the Rules of Practice that govern investigations conducted by the agency (Part 2 of the Agency’s Rules of Practice) as well as attorney misconduct (Part 4 of the Agency’s Rules of Practice).  For those dealing with the agency, it’s important to know the rules.

The agency first circulated proposed revisions to the Rules in January of this year and accepted public comments on those revisions through March.  On September, 21, 2012, the agency issued the final Rules.

According to the FTC the purpose of the revisions to the Part 2 Rules was to:

  • Expedite and streamline the rules;
  • Improve fairness and openness in all FTC investigations;
  • Add structure to the agency’s investigatory process by consolidating related provisions; and
  • Underscore the importance of cooperation between recipients of compulsory process and FTC staff.

Important Revisions to the Part 2 Rules include:

  • Rule 2.6 – clarifies the ability of the FTC to disclose the existence of an investigation to third parties when necessary to advance the investigation; and sets forth the right of subjects of an investigation to be told the purpose and scope of the investigation.
  • Rule 2.7(i) – sets forth staff’s authority to inspect, copy, or sample documents, materials, and electronic media. Note, it will be important to see what the FTC does with the ability to “sample” electronic media.  The ability of the FTC to sample a company’s electronic database could be problematic.
  • Rule 2.7(h) – clarifies the ability of the agency to obtain an investigational hearing of an entity analogous to Fed. R. Civ. P. 30(b) 6.
  • Rule 2.7(j) – specifies that the means by which ESI (electronically stored information) should be produced is to be dictated by instructions provided by FTC staff.
  • Rule 2.7(k) – requires a mandatory meet and confer within 14 days of after receipt of process between the recipients of compulsory process and FTC Staff including discussions of ESI and records retention.   The rule contemplates counsel having business people available at the meet and confer to discuss ESI and production issues.  The rule requires that any issues that might be the subject of a motion to quash be raised during the meet and confer conference.
  • Rule 2.7 (l) – conditions the ability to receive extensions of the time within which to comply on demonstrated progress towards compliance.
  • Rule 2.9 – prohibits a witness in an investigational hearing from consulting with counsel while a question is pending except with regard to questions of privilege.
  • Rule 2.10 – removes the prior two step process for resolving petitions to quash compulsory process wherein a single designated commissioner would rule on the petition and that decision could then be reviewed by the full Commission.  The full Commission will now rule on such petitions and will do so within 30 days of the petition’s filing.  A 5,000 page word limit for the petition also now is set out. As the Commission never seems to grant these petitions, some would ask why bother changing the rules.
  • Rule 2.11 – sets forth the requirements for logging information withheld on the basis of privilege.  This rule also sets out the agency’s position (which follows Fed.R. Evid. 502)  that the inadvertent production of privileged material will not constitute a waiver of the privilege if reasonable steps were taken to prevent disclosure and the holder of the privilege takes reasonable steps to rectify the error.  The rule requires staff upon learning of an inadvertent disclosure to honor the claim of privilege.
  • Rule 2.13 – (this one if for you antitrusters) allows the Office of General Counsel to initiate an action in a district court to enforce compulsory process issued in connection with a merger review involving a Second Request without the need to obtain a Commission vote to do so.
  • Rule 2.14 – provides a new protection for parties subject to a document preservation obligation.  If the party does not receive any written communication from the agency within the prior 12 months concerning the investigation, the party no longer is under an obligation to preserve documents.

The agency also revised its attorney disciplinary procedures for attorneys appearing before the agency.  Importantly (ironically), these procedures do not apply to FTC staff.  While applicable across the agency, the changes appear to have been driven by concerns about obstructionist tactics in investigations before the Bureau of Competition.

The changes to the Part 4.1 include:

  • Providing additional guidance regarding the type of conduct that may warrant disciplinary action;
  • Establishing a framework for evaluating and adjudicating allegations of misconduct; and
  • Introducing a process of the issuance of attorney reprimands that provides for issuance without an evidentiary hearing in appropriate circumstances.

Commissioner Rosch (a/k/a The Great Dissenter) dissented from the proposed changes for reasons he first voiced when the proposed changes were announced in January.  Commissioner Rosch objected to the revised rules not requiring (a) the use of compulsory process in all investigations and (b) regular reporting by the staff to the Commission on all investigations.

As with many rules, the important thing may not be what is in the rules themselves but rather how the rules are used or implemented.  For that, we’ll have to wait and see.