FTC Seeks Comments on Proposed Amendments to its Rules of Practice Regarding Adjudicative Proceedings

The Federal Trade Commission today issued a Notice of Proposed Rulemaking (NPRM) seeking public comment on proposed rule revisions that would amend Parts 3 and 4 of the agency’s Rules of Practice, with the goal of further expediting its adjudicative proceedings, improving the quality of adjudicative decision-making, and clarifying the respective roles of the Administrative Law Judge (ALJ) and the Commission in Part 3 proceedings. The FTC currently is seeking public comment on the proposed amendments as part of the rulemaking process.

The Administrative Process

Part 3 and sections of Part 4 of the Commission’s Rules of Practice concern the process of administrative adjudication at the agency. While some Commission law enforcement actions are brought in federal district court, others are brought through the administrative process – commonly referred to as Part 3. In such cases, the FTC’s action typically is tried before an ALJ, who then issues an initial decision and order in the matter. This decision can be appealed to the full Commission. The Commission then issues its decision and order, which can be appealed to the U.S. Court of Appeals (and subsequently the U.S. Supreme Court) by the respondents. If the Commission rules against complaint counsel – the FTC staff who prosecuted the matter – the case is over and cannot be appealed outside the agency.

The Part 3 process has long been criticized as being too protracted, leading to at least three undesirable consequences. First, in merger cases, drawn-out proceedings may result in parties abandoning transactions before their merits can be adjudicated. Second, protracted Part 3 proceedings may lead to substantially increased litigation costs, both for the Commission and for private parties. Third, protracted proceedings do not necessarily lead to decisions that are more just or fair.

The goal of the 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 very real interest of the parties in litigating matters economically without unnecessary expense.

The Proposed Amendments

Each of the proposed rule revisions is detailed in the NPRM, and considered together they are designed to ensure an administrative process that brings the Commission’s expertise into play earlier and more often during Part 3 proceedings. The revisions include: 1) setting tighter time limits on the adjudicative process; 2) making the discovery and motion practice more efficient; 3) expediting and streamlining evidentiary hearings; and 4) making changes to the process for issuing initial decisions by the ALJ and subsequent Commission review.

First, the NPRM would allow the ALJ or the Commission to impose tighter time periods during the adjudicative process. It would allow the ALJ or the Commission to shorten any time periods set in the rules, provided that the change does not unfairly prejudice any party. It also would require that 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 merger cases and eight months from this date in non-merger cases, unless the Commission decides that a different date would be appropriate. Respondents would be required to file answers to the complaint within 14 days of service, instead of the current 20, and deadlines would be imposed on pre-hearing procedures, such as the initial meet and confer session and the scheduling conference. The rule also would be amended to eliminate the unilateral authority of the ALJ to extend the one-year deadline for filing the initial decision, requiring instead Commission approval for extensions.

Next, the amendments would provide the Commission with the authority to decide in the first instance all dispositive pre-hearing motions, including motions for summary decision, unless it refers the motion to the ALJ. The amendments also would expressly provide authority for the Commission or an individual Commissioner to preside over discovery and other pre-hearing proceedings before the matter is transferred to the ALJ.

Other proposed rule changes would impose word-count limits on all motions; would limit the scope of the search for discoverable materials for complaint counsel, respondents and third parties to minimize the burden of search costs; would expressly limit waivers resulting from the inadvertent disclosure of privileged materials; and would 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. A new rule governing expert discovery would impose deadlines to identify expert witnesses and to submit expert reports and would limit the number of expert witnesses. Deadlines would be imposed on the discovery process and procedures would be specified concerning the exchange of relevant “electronically stored information.”

To expedite and streamline evidentiary hearings, the length of hearings would be limited to 210 hours, the equivalent of 30 seven-hour trial days, and each side would be limited to one half of the trial time. Hearsay evidence at the hearings – including prior testimony – would be expressly permitted if deemed sufficiently reliable. The amendments would require that witness testimony be video recorded and made part of the official record, and deadlines would be imposed for the simultaneous filing of proposed findings, conclusions, and supporting briefs after the hearing.

Finally, the one-year initial decision filing deadline would be maintained, but with the requirement that the decision be issued within 70 days of the last proposed findings. The lengths of principal briefs on appeal to the Commission would be limited to 14,000 words, and reply briefs to 7,000 words, unless otherwise allowed by the Commission. Additional proposed rule amendments are detailed in the notice.

To expedite proposed reforms to the adjudicative process, the notice states the Commission’s intention to establish an internal Standing Rules Committee to address potential rule changes that may be needed in the future. The Commission would review the Committee’s recommendations annually to determine whether additional rule changes are appropriate. The Commission also announces that it will make best efforts to expedite its review of initial decisions on appeal.

Opportunity for Public Comment

The FTC is seeking public comment on the proposed rule revisions. Comments must be received within 30 days after publication in the Federal Register. Instructions for submitting comments are found in the Addresses section of the NPRM.

The Commission vote to issue the NPRM was 3-0, with Commissioner J. Thomas Rosch not participating. The notice will be on the FTC’s Web site and likely will be published in the Federal Register next week.

Copies of the Notice of Proposed Rulemaking 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)
(Part 3 NPR final.wpd)