The Federal Trade Commission ("FTC") issued an announcement today detailing reforms to the merger review process designed to reduce burdens associated with second requests for documents and data. Such burdens have increased substantially since the Hart-Scott-Rodino Act ("HSR Act") became operational in 1978 due to an increased reliance by agencies upon direct market analyses and advances in technology resulting in higher production volume. Parties and agencies often spend millions of dollars, and associated investigations can take six to nine months. Last fiscal year alone, the FTC received nine productions exceeding one million pages. New guidelines and procedures will take effect for all HSR Act filings submitted on or after February 17, 2006.
Reforms are designed to reduce the volume of production, permit rapid identification of substantive issues and relevant material, and control costs by "reducing the volume of electronic storage materials that parties need to preserve, eliminating the need for most multiple searches of employees' files, and reducing the size of privilege logs."
Highlights from the new guidelines and procedures include the following:
-There is a presumption that a party will not be required to search the files of more than 35 of its employees provided that the following conditions are met:
- oStaff is provided with materials that allow identification of employees and their positions (such as organization charts.)
oEmployee(s) are made available to meet with staff to provide information about the responsibilities of those employees who have certain relevant knowledge.
oWritten descriptions of the responsibilities of a limited number of employees are provided upon request.
oEmployee(s) "...knowledgeable about how the party collects, maintains, and uses the types of data specified in the second request, and the databases and other software used by the party to store and analyze the data" are made available to meet with staff until staff and the party agree upon the data to be produced.
oProduction of materials occurs 30 days prior to formal certification of compliance or within some other mutually acceptable time frame (such as via a "rolling" production.)
oIf the FTC challenges the transaction, the party agrees to jointly propose a scheduling order containing at least a 60 day discovery period.
-The staff shall promptly notify the party of the identities of the 35 or fewer chosen employees once information reasonably necessary to make the selection is provided.
-The files of a designated employee shall be considered to include all hard copy and electronic files of those responsible for maintaining that employee's files.
-The restriction on the number of employees does not apply to requests for information contained in "corporate" or "central" files such as databases.
-A privilege log need not be produced until the party certifies that it has substantially complied with the request.
-The Director of the Bureau of Competition can authorize a larger than 35 employee search group when necessary, but the party will first be enitited to meet or confer with the Director to present its views.
Two-Year Relevant Time Period
-There will be a presumed relevant time period from two years prior to the date on which the second request is issued until 45 days prior to the date on which the party certifies substantial compliance with the request (where the 30 day advance production requirement applies, the relevant time period ends 45 days prior to the date of production.)
-The two-year period does not apply to requests for data.
-The time period can be enlarged when deemed reasonably necessary to analyze competitive effects.
-Staff will inform parties of the competitive effects theories under consideration and the types of analyses that may prove useful.
-Parties are encouraged to provide "(1) a written description of how the party collects, maintains, and uses the types of data that are responsive to the second request; (2) a proposal to limit the data request, and data samples to support the proposal; and (3) access to the employees of the party who are knowledgeable about how the party collects, maintains, and uses the types of data specified in the second request (collectively, "Data Negotiation Information").
-A party shall be entitled to meet or confer with a Director or Deputy Director if it believes that staff has not sufficiently limited the data requests.
Preservation of Backup Tapes
-"There will be presumptions that (1) a party may elect to preserve backup tapes for only two calendar days identified by staff, and (2) the FTC will require a party to produce documents contained on backup tapes only when responsive documents are not available through other more accessible sources. If a party's document storage system does not permit designation of backup tapes for two specific calendar days, staff will work with the party to designate a comparable set of backup tapes that the party must preserve."
Partial Privilege Log
-A party can elect to produce a partial privilege log for all of the custodians in the party's search group, in conjunction with a complete privilege log for a small subset of those custodians, if it agrees to certain conditions.
-The partial log will contain the following information for each withheld document for a covered custodian: (1) the name of the custodian from whom the responsive documents are withheld on the basis of a claim of privilege; and (2) the total number of documents (stating the number of attachments separately) contained in each such custodian's files that are withheld under a claim of privilege.
-Within five business days after receipt of the partial log, staff may identify five individuals or ten percent of the total number of custodians searched, whichever is greater, for which a complete log must be produced.
Electronic Production and De-Duplication
-The use of "de-duplication" and "near-de-duplication" tools can effectively reduce production volume and costs, but can also hinder investigations. Thus, staff must be advised about its use:
If you intend to utilize any De-duplication or Near-de-duplication software or services when collecting or reviewing information that is stored in the Company's computer systems or electronic storage media in response to this Request, or if the Company's computer systems contain or utilize such software, you must contact the attorneys for the government to determine, with the assistance of the appropriate government technical officials, whether and in what manner the Company may use such software or services when producing materials in response to this Second Request.
Full text of the announcement is available here.