The Federal Trade Commission is laying down the law when it comes to post-settlement compliance reports.
Commission orders—both from negotiated settlements and from litigated matters—routinely require respondents to submit periodic reports on their efforts to comply with the order. “Recent experience, however, has revealed that some Respondents are not taking seriously their obligation to provide detailed and timely reports,” warned Roberta Baruch and Bruce Hoffman of the FTC’s Bureau of Competition in a recent blog post on the agency’s site. “This has prompted us to revisit and revise standard order language to make clear what constitutes a complete compliance report.”
“Ensuring compliance with Commission orders designed to remedy prior violations of antitrust law, and to prevent future recurrence, is a critical part of the FTC’s enforcement mission,” they added. “Effective enforcement of existing orders requires both well-written orders with clear obligations and follow-up through active monitoring of Respondents’ actions to comply with those obligations. Compliance reports are a critical means to that end.”
Commission orders will now include the following language specifying what should be in compliance reports:
“Each compliance report shall contain sufficient information and documentation to enable the Commission to determine independently whether respondents are in compliance with the Order. Conclusory statements that respondents have complied with their obligations under the Order are insufficient. respondents shall include in their reports, among other information or documentation that may be necessary to demonstrate compliance, a full description of the measures respondents have implemented or plan to implement to ensure that they have complied or will comply with each paragraph of the Order; a description of all substantive contacts or negotiations for the divestitures and the identities of all parties contacted, and such supporting materials shall be retained and produced later if needed.”
That model language may be modified as appropriate to account for the specific nature of the matter, the order, or other circumstances. “The revised provision represents a clarification, not a change, in respondents’ obligations under Commission orders,” Baruch and Hoffman wrote. “Respondents should understand that compliance reports must include a meaningful level of detail so that any report, including the information and documentation submitted, will be sufficient for Bureau staff and the Commission to determine whether respondents have taken the steps required to comply with each individual provision of the order.”
“Failure to follow any mandate of a Commission order may lead to an order enforcement action. For the duration of the order, where necessary, it will continue to require the production of documents, initiate compliance investigations, and seek enforcement and the imposition of penalties if respondents fall short of their obligations to comply with any term in their orders,” they added.
When appropriate, copies of relevant documents or other evidence should be submitted with the reports to demonstrate compliance, the FTC’s revised guidelines say. For example, where a merger order requires a post-order divestiture, compliance reports must include a detailed description of what steps were taken to market and sell the assets. Generally, this would include a timeline and a detailed description of sales efforts, specific buyers or potential candidates taking part in negotiations, the nature and status of negotiations, and the expected timeframe for completion and divestiture.
“Reports that are vague, generalized, inaccurate, misleading, or conclusory are insufficient, as are reports that omit relevant information that could affect the Commission’s determination whether the respondent is fulfilling its obligations under the order,” Baruch and Hoffman warned.
“Reporting requirements are in addition to the substantive obligations of an order, which will directly address the respondent’s prior law violation” they added. “When the respondent is meeting all of its obligations contained in the order’s affirmative provisions, compliance reports are an important way to confirm that to the agency. Where the respondent has affirmative order obligations with deadlines, or where expeditious compliance is critical to achieving the order’s remedial goal of promoting competition, compliance reports are critical to the Commission’s ability to oversee and enforce compliance with the order. This is especially important in merger orders where time is of the essence, and delay may deny the Commission the opportunity to prevent the contemplated remedy from derailing.”
The FTC officials note respondents can take steps to assure order compliance and avoid a potential enforcement action, “such as establishing effective internal policies and procedures to regularly review, investigate, and verify order compliance, which would enable respondents to detect and correct areas of possible noncompliance promptly.” Having no or an inadequate order compliance oversight process can lead to order violations, enforcement actions, and civil penalties. Failing to submit a complete compliance report can violate Section 10 of the FTC Act and lead to civil penalties, even in the absence of any violation of the order’s other terms.
“Submitting a misleading, incomplete, or seriously deficient report can, in appropriate circumstances, constitute an independent order violation and serve as evidence of bad faith in an order enforcement action for civil penalties and other relief. If a respondent submits a conclusory, unsupported, or otherwise deficient report, the Commission can require a supplemental report to correct the deficiency,” Baruch and Hoffman wrote.
The new guidance on compliance reports comes on the heels of a March 7 warning regarding FTC-issued subpoenas and civil investigative demands (CIDs).
“The FTC takes its subpoenas and CIDs seriously and you should, too,” wrote Burke Kappler, an attorney with the FTC’s Office of General Counsel.
These requests are legally enforceable demands, “and recipients need to take their obligation to comply seriously,” he added. “We expect all companies and individuals who receive compulsory process to respond completely and in a timely manner, or to disclose quickly and candidly any obstacles to full compliance. We routinely work with recipients to narrow or defer requests, and generally, we have found that parties cooperate. But not everyone sees the benefits of cooperation, which can often result in delay.”
Kappler stressed that FTC staff are always willing to work with parties and their counsel to “determine the scope of the agency’s subpoena or CID and a timeframe for compliance.” The FTC’s Rules of Practice require parties to meet and confer with staff to identify any issues, problems, or concerns that might affect a party’s ability to comply.
“Based on what we learn from the meet-and-confer session, FTC staff may agree in writing to limit some of the requests or to extend the deadline for compliance,” he explained. The Commission expects all subpoena and CID recipients to use this process if they have concerns about their ability to comply in full and on time.
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