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15 Sep 23

The FTC’s Use of Civil Investigative Demands Explained

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Last Updated on: 18th September 2023, 01:17 am

The FTC’s Use of Civil Investigative Demands Explained

The Federal Trade Commission, or FTC, is the government agency tasked with protecting consumers and promoting competition. One of the main tools the FTC uses to conduct investigations into potential violations of consumer protection or antitrust laws is called a civil investigative demand, or CID.

A CID is basically a type of subpoena or formal request for information related to an FTC investigation. CIDs allow the FTC to obtain documents, written answers to questions, oral testimony, and other information from companies or individuals who may have knowledge relevant to an ongoing FTC probe. Let’s take a closer look at how the FTC uses CIDs and what you need to know if you receive one.

What is the Legal Basis for CIDs?

The FTC’s authority to issue CIDs comes from Section 20 of the FTC Act, as well as the Antitrust Civil Process Act. These laws give the FTC the power to require a company or person to provide information and documents or give testimony relating to a law enforcement investigation.

CIDs are legally enforceable – meaning if you don’t comply, the FTC can go to court to try to force you to provide the requested information. So when you get a CID, you need to take it seriously.

What Kinds of Investigations Can Lead to a CID?

The FTC can open investigations into all kinds of potential violations of consumer protection and antitrust laws. Some examples of FTC investigations that could involve CIDs include:

  • False or deceptive advertising
  • Violations of telemarketing sales rules
  • Online privacy and data security issues
  • Fraudulent business opportunities or investment schemes
  • Anticompetitive mergers
  • Price fixing or other anticompetitive agreements between competitors

Basically any issue that falls under the FTC’s jurisdiction could trigger an investigation and lead to CIDs being issued. The FTC doesn’t need to have proof of wrongdoing to open an investigation, so even just suspicious activity could prompt the use of CIDs.

What Types of Information Can the FTC Demand?

CIDs can require the recipient to provide a very broad range of information. Under its CID authority, the FTC can demand that a company or person:

  • Produce documents – this could include things like marketing materials, promotional offers, contracts, emails, accounting records, and more.
  • Answer written interrogatories – these are written questions that must be answered under oath in writing.
  • Give oral testimony – CIDs can compel someone to submit to an interview or deposition under oath.
  • Disclose any information relevant to the investigation – this creates a very broad mandate for the FTC to request information.

In essence, CIDs give the FTC access to huge amounts of documents and other information that they can then analyze to determine if consumer protection or antitrust laws have been broken.

Who Might Receive a CID?

The FTC can issue CIDs to any person or company that may have information relevant to an investigation. This includes:

  • The target of the investigation
  • Third parties who do business with the target
  • Competitors of the target
  • Industry experts like consultants or academics

CIDs often go to third parties precisely because the FTC wants more information about the conduct of the main target. So even if you have done nothing wrong, you could find yourself on the receiving end of a CID.

What Are the Requirements for CIDs?

For a CID to be valid and enforceable, it must meet certain requirements laid out in the FTC Act and the Antitrust Civil Process Act. Here are some of the key requirements:

  • The CID must state the nature of the FTC’s investigation and applicable laws.
  • It must be signed by a Commissioner.
  • It must avoid imposing an undue burden on the recipient.
  • The compelled testimony and document production must be reasonably relevant to the investigation.

Additionally, the FTC cannot issue CIDs for law enforcement purposes unrelated to its mandate of protecting consumers and promoting competition. There are also statutes of limitations on how long the FTC can investigate activity using CIDs.

What Are the Steps for Responding to a CID?

If you receive a CID, you may feel overwhelmed but try not to panic. There is a process you should follow to properly respond. Here are some key steps:

  1. Carefully review the CID and identify anything unclear, overly broad, or unduly burdensome.
  2. Contact the FTC attorney who issued the CID to discuss concerns and negotiate the scope.
  3. Assert any claims of confidentiality or privilege over responsive materials.
  4. Begin gathering responsive documents and information.
  5. Petition the FTC to modify or quash the CID if talks break down.
  6. Produce the demanded information in a timely and complete manner.

You may need to hire an attorney to help negotiate with the FTC attorney and protect your rights. An experienced CID defense lawyer can be invaluable.

Are There Protections for Sensitive or Confidential Information?

Yes, the FTC does have procedures to protect confidential or competitively sensitive information produced in response to a CID. You can designate materials as confidential and the FTC will treat them accordingly by limiting access.

You can also petition the FTC for an order protecting the confidentiality of your information. The FTC may agree to return or destroy the materials after the investigation concludes. However, the FTC cannot guarantee complete confidentiality, so sensitive information could still potentially become public or be disclosed. This is because the FTC may be required to produce information during litigation if a court orders it. Additionally, confidential information could accidentally be revealed during the investigation process.

If you are concerned about protecting sensitive information, here are some steps you can take:

  • Carefully review materials before production to redact any unnecessary confidential information that is not responsive to the CID.
  • Request that the FTC agree to tighter restrictions on access, such as allowing only certain attorneys or experts to review materials.
  • Ask the FTC to return or destroy the materials after the investigation.
  • Seek a protective order from a court limiting use and disclosure.
  • Use privilege claims to withhold sensitive documents like trade secrets or attorney-client communications.

Keep in mind that while the FTC does aim to protect confidentiality, there are limits. The FTC may still disclose materials it deems necessary for an investigation or litigation. Working closely with experienced counsel is important to safeguard sensitive data.

What Happens if You Don’t Comply with a CID?

It is vital to take CIDs seriously, because failure to comply can lead to significant consequences:

  • The FTC can seek a court order compelling compliance, which if violated could result in civil or criminal contempt sanctions.
  • Refusing to comply could draw an adverse inference against you in the investigation.
  • The FTC could also potentially refer non-compliance to the Department of Justice for criminal prosecution.

In essence, you do not have the option to simply ignore or disregard a lawful CID. The courts will enforce these FTC demands if challenged by the agency.

How Long Do You Have to Comply with a CID?

The FTC Act states that companies or individuals must comply with a CID “within such reasonable period as the Commission may prescribe.” In practice, the reasonable time period is determined through discussions between the recipient and the FTC attorney.

The FTC typically works with recipients to set feasible deadlines that allow enough time for document collection and review. But the agency may act quickly if it suspects obstruction. So engage with the FTC early on to negotiate realistic due dates.

When Does the FTC Issue CIDs?

The FTC can issue CIDs whenever it has opened an official investigation into potential unlawful activity under its jurisdiction. Some signs that often precede CIDs include:

  • FTC informal requests for information
  • Notice of a preliminary FTC investigation
  • Public announcements of an investigation
  • CIDs sent to third parties connected to your business

CIDs are not used for casual inquiries – their issuance means the FTC has an active law enforcement investigation underway. This triggers the agency’s substantial information gathering powers.

How Are CIDs Enforced in Court?

If a recipient refuses to comply with a CID, the FTC’s main remedy is to seek enforcement through the federal courts. The FTC will file a petition asking the court to order compliance.

Courts review CIDs deferentially and generally enforce them if they meet the requirements of the FTC Act. But recipients can raise challenges arguing the CID is deficient or the FTC is abusing its authority. Common arguments include:

  • The CID lacks specificity about the investigation’s purpose and scope.
  • Compliance would be unduly burdensome.
  • The demanded information is irrelevant.
  • The investigation exceeds the FTC’s jurisdiction.

A court may quash or modify a CID if these arguments are persuasive. But the bar is high, so court challenges rarely succeed fully. Negotiating with the FTC attorney is typically more fruitful.

Can You Negotiate the Terms of a CID?

Yes, it is both possible and advisable to try negotiating with the FTC about the CID’s demands. The FTC’s rules and internal guidance encourage cooperation with recipients to modify CIDs to reduce the burden.

Common negotiation points include:

  • Narrowing broad or vague requests
  • Extending the time for compliance
  • Limiting subpoena scope
  • Agreeing on search terms and custodians
  • Clarifying privilege and confidentiality protections

Engaging with the FTC shows a willingness to comply and can result in a more manageable CID. But be sure to get agreements in writing.

Do CIDs Have to Be Narrowly Tailored?

No, CIDs do not necessarily have to be narrowly tailored like discovery in a lawsuit might be. The requirements are that CIDs:

  • Relate to a lawful FTC investigation
  • Seek information reasonably relevant to that investigation
  • Are not unduly burdensome

Within these limits, CIDs can be broad. But targets should still push back on fishing expeditions or overly expansive demands. This is where negotiating the scope often comes into play.

When Are CIDs Considered Unduly Burdensome?

CIDs cannot impose an undue burden on recipients. Determining undue burden depends on factors like:

  • The CID’s breadth and detail
  • The timeframes imposed
  • The recipient’s size and resources
  • The need for the information
  • The CID’s importance to the FTC’s investigation

Claims of undue burden are more likely to succeed if you can show concrete costs and harms from responding. This is a very fact-specific analysis.