FTC Issues Interim Final Rules Amending Parts 3 and 4 of its Rules of Practice; Rules are Designed to Expedite and Streamline the Entire Part 3 Proceeding

The Federal Trade Commission today approved a notice adopting interim final rules amending Parts 3 and 4 of the agency’s Rules of Practice, and requesting public comments within 30 days of the date they are published in the Federal Register.

Today’s action represents the next step in the FTC’s broad and systematic internal review of its adjudicative proceedings process. In October 2008, the FTC published a Notice of Proposed Rulemaking (NPRM) detailing proposed rule revisions and inviting public comment. The rules issued today represent a comprehensive and significant revision of the Commission’s adjudicatory process designed to expedite the prehearing, hearing, and appeal phases, streamline discovery and motion practice, and ensure that the Commission applies its substantive expertise, as appropriate, earlier in the process. The amended rules include, for the first time, deadlines for the Commission to resolve appeals of initial decisions by the Administrative Law Judges (ALJs). They will apply prospectively only, to new cases initiated after publication in the Federal Register.

The Commission’s Part 3 process has long been criticized as being too protracted. In merger cases, parties frequently argue that drawn out proceedings will result in their abandoning transactions before the antitrust merits can be adjudicated; and the protracted nature of Part 3 proceedings has contributed to the reluctance of some federal courts to grant preliminary injunctive relief in merger cases brought under Section 13(b) of the FTC Act. Moreover, protracted Part 3 proceedings do not necessarily result in decisions that are more just or fair, and instead may result in substantially increased litigation costs for the Commission and respondents whose transactions or practices are challenged. For example, protracted discovery schedules and pretrial proceedings can result in nonessential discovery and motion practice that can be very costly to the Commission, respondents, and third parties.

The goal of the current rulemaking is to address these concerns by making appropriate changes to streamline and otherwise improve the Part 3 process, while balancing three factors: 1) the public interest in a high-quality decision-making process; 2) the interests of justice in an expeditious review of litigated matters; and 3) the interest of the parties in litigating matters without unnecessary expense.

The Commission received eight comments on the proposed rule amendments after the NPRM was published in October. After considering these comments, the agency has modified several of the proposed rule changes outlined in the NPRM and has issued a rule setting strict deadlines on Commission review of initial decisions.

First, as detailed in the notice, the interim final rules impose deadlines designed to expedite the prehearing phase. The revised rules require the date of the evidentiary hearing be set in a notice accompanying issuance of the complaint. This hearing would be held five months from the date of the complaint in cases in which the Commission also seeks preliminary injunctive relief under Section 13(b) of the FTC Act, and eight months from this date in all other cases, unless the Commission decides that a different date would be appropriate. The rules also authorize the Commission to delay the hearing date for good cause after issuance of the complaint. Respondents will be required to file answers to the complaint within 14 days of service instead of the current 20, and the initial meet-and-confer session as well as the initial scheduling conference will be scheduled sooner in order to facilitate earlier commencement of discovery.

Other rule changes are designed to expedite and improve the discovery process and motion practice. For example, the rules limit the scope of the search for discoverable materials for complaint counsel, respondents, and third parties to minimize the burden of search costs, specify procedures governing the discovery of electronically stored information, and expressly limit waivers resulting from the inadvertent disclosure of privileged materials. The rules also require the ALJ to issue a standard protective order designed to limit delays and ensure that privileged or confidential information is treated consistently in all Part 3 cases. They also impose word-count limits on all motions, set deadlines to identify expert witnesses and to submit expert reports, and limit the number of expert witnesses.

The rules now provide that the Commission decides in the first instance all prehearing dispositive motions, including motions for summary decision (unless it refers the motion to the ALJ) within 45 days of the filing of the motion papers to ensure that the Commission apply its legal expertise earlier in the process. After considering commenters’ concerns about the role of the agency in resolving such motions in the first instance, the Commission continues to believe that the revised rule, which is concerned with motions that raise public policy or purely legal issues, does not improperly interfere with the independence of the ALJ.

The Commission also amended the rules to eliminate automatic withdrawals from adjudication or stays of the Part 3 proceedings when a party files a motion for withdrawal or to dismiss after the denial of a preliminary injunction in a related federal court action brought by the agency. At the same time, the FTC amended the rule to promote earlier consideration of whether to proceed with Part 3 adjudication and affirmed its adherence to its 1995 Policy Statement calling for a case-by-case analysis of whether Part 3 litigation should be pursued after a denial of a preliminary injunction. The notice also states that, after due consideration of commenters’ concerns, the Commission has decided not to adopt a proposed rule revision that would have made explicit the authority of the FTC or one of its members to preside over pre-hearing procedures before transferring the matter to an ALJ.

The amendments are also designed to expedite and improve the evidentiary hearing and post-hearing phases. For example, the length of hearings is limited to 210 hours (the equivalent of 30 seven-hour trial days) unless extended for good cause by the Commission; hearsay evidence – including prior testimony – is expressly permitted if deemed sufficiently reliable; witness testimony is to be video recorded and made part of the official record to permit the Commission on review to observe witness demeanor; and deadlines are imposed for the simultaneous filing of proposed findings, conclusions, and supporting briefs after the hearing. The rules also require that the ALJ must file the initial decision within 70 days of the filing of the last-filed proposed findings, conclusions and briefs.

The Commission stated that comments filed in response to the NPRM had not persuaded the agency that its default timing deadlines are unfair or that respondents in Part 3 proceedings would have inadequate time to pursue broad discovery or present its case at the hearing. The Commission also determined that the comments failed to give adequate weight to provisions authorizing the agency to grant extension for “good cause.” The Commission believes the Part 3 timing deadlines are consistent with the manner in which federal courts can manage and resolve complex antitrust cases.

In response to commenters’ concerns, the interim final rules impose deadlines on the Commission to review initial decisions and issue final decisions. For cases in which the agency seeks preliminary relief under Section 13(b) of the FTC Act, there will be an automatic Commission review of the initial decision, briefing will be completed within 45 days of the issuance of the initial decision, and the Commission will issue its final decision within 45 days of the oral argument; in these cases, the final decision will be issued 100 days after the initial decision. For all other cases, parties will need to file a notice of appeal, briefing will be completed within 67 days of the initial decision, and the Commission will issue its final decision within 100 days of the oral argument; in these cases, the Commission will issue its final decision within six months of the initial decision. These deadlines may be adjusted slightly if a deadline falls on a weekend or holiday.

Finally, to allay concerns that the initial comment period was inadequate and to provide an opportunity for public input particularly on rule revisions that reflect changes from the proposed amendments or that were not proposed in the NPRM, the FTC is seeking public comment on the interim final rules. Comments must be received within 30 days after the notice is published in the Federal Register. Instructions for submitting comments are found in the Addresses section of the Federal Register notice.

As observed in the notice issued today, the Commission recognizes that the rule revisions should be considered an important first step, but not the end of the process. To address rule changes that may be needed in the future, the Commission is instructing its internal Standing Committee on the Part 3 rules to make bi-annual recommendations for changes to the rules.

The Commission vote to issue the interim final rules was 4-0. The notice will be available on the FTC’s Web site and likely will be published in the Federal Register by January 5, 2009.

Copies of the Federal Register notice detailing the interim final rules are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

(FTC File No. P072104)