Rules of Practice, 58832-58858 [E8-23745]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 73, Number 195 (Tuesday, October 7, 2008)]
[Proposed Rules]
[Pages 58832-58858]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-23745]



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Part IV





Federal Trade Commission





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16 CFR Parts 3 and 4



Rules of Practice; Proposed Rule

Federal Register / Vol. 73, No. 195 / Tuesday, October 7, 2008 / 
Proposed Rules

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FEDERAL TRADE COMMISSION

16 CFR Parts 3 and 4


Rules of Practice

AGENCY: Federal Trade Commission (``Commission'' or ``FTC'').

ACTION: Proposed rule amendments; request for public comment.

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SUMMARY: The FTC is proposing to amend Parts 3 and 4 of its Rules of 
Practice, in order to further expedite its adjudicative proceedings, 
improve the quality of adjudicative decision making, and clarify the 
respective roles of the Administrative Law Judge (``ALJ'') and the 
Commission in Part 3 proceedings.

DATES: Written comments must be received on or before November 6, 2008.

ADDRESSES: Interested parties are invited to submit written comments 
electronically or in paper form. Comments should refer to ``Parts 3 and 
4 Rules of Practice Rulemaking--P072104'' to facilitate the 
organization of comments. Please note that comments will be placed on 
the public record of this proceeding--including on the publicly 
accessible FTC website, at (https://www.ftc.gov/os/publiccomments.shtm) 
-- and therefore should not include any sensitive or confidential 
information. In particular, comments should not include any sensitive 
personal information, such as an individual's Social Security number; 
date of birth; driver's license number or other state identification 
number, or foreign country equivalent; passport number; financial 
account number; or credit or debit card number. Comments also should 
not include any sensitive health information, such as medical records 
and other individually identifiable health information. In addition, 
comments should not include any ``[t]rade secret or any commercial or 
financial information which is obtained from any person and which is 
privileged or confidential. . . . ,'' as provided in Section 6(f) of 
the FTC Act, 15 U.S.C. 46(f), and Commission Rule 4.10(a)(2), 16 CFR 
4.10(a)(2). Comments containing material for which confidential 
treatment is requested must be filed in paper form, must be clearly 
labeled ``Confidential,'' and must comply with Commission Rule 
4.9(c).\1\
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    \1\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See Commission Rule 4.9(c), 
16 CFR 4.9(c).
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    Because paper mail in the Washington area, and specifically to the 
FTC, is subject to delay due to heightened security screening, please 
consider submitting your comments in electronic form. Comments filed in 
electronic form should be submitted by using the following weblink: 
(https://secure.commentworks.com/ftc-part3rules) (and following the 
instructions on the web-based form). To ensure that the Commission 
considers an electronic comment, you must file it on the web-based form 
at the weblink: (https://secure.commentworks.com/ftc-part3rules). If 
this document appears at (https://www.regulations.gov/search/index.jsp), 
you may also file an electronic comment through that website. The 
Commission will consider all comments that regulations.gov forwards to 
it. You may also visit the FTC website at www.ftc.gov to read this 
document and the news release describing it.
    A comment filed in paper form should include the ``Parts 3 and 4 
Rules of Practice Rulemaking--P072104'' reference both in the text and 
on the envelope, and should be mailed or delivered by courier to the 
following address: Federal Trade Commission, Office of the Secretary, 
Room H-135 (Annex R), 600 Pennsylvania Avenue, NW, Washington, DC 
20580.
    The Federal Trade Commission Act (``FTC Act'') and other laws the 
Commission administers permit the collection of public comments to 
consider and use in this proceeding as appropriate. The Commission will 
consider all timely and responsive public comments that it receives, 
whether filed in paper or electronic form. Comments received will be 
available to the public on the FTC website, to the extent practicable, 
at (https://www.ftc.gov/os/publiccomments.shtm). As a matter of 
discretion, the Commission makes every effort to remove home contact 
information for individuals from the public comments it receives before 
placing those comments on the FTC website. More information, including 
routine uses permitted by the Privacy Act, may be found in the FTC's 
privacy policy, at (https://www.ftc.gov/ftc/privacy.shtm)

FOR FURTHER INFORMATION CONTACT: Michael D. Bergman, Attorney, (202) 
326-3184, or Lisa M. Harrison, Attorney, (202) 326-3204, Office of the 
General Counsel, Federal Trade Commission, 600 Pennsylvania Avenue, NW, 
Washington DC 20580.

SUPPLEMENTARY INFORMATION: This discussion contains the following 
sections:

I. Introduction
II. Section-By-Section Analysis of the Proposed Rule Revisions
III. Invitation to Comment
IV. Proposed Rule Revisions

I. Introduction

A. Need for Reform of the Commission's Adjudicatory Process

    The Commission has periodically reviewed its rules and procedures 
governing the process of administrative adjudication at the Commission 
(``Part 3 Rules'') to determine if its administrative adjudication 
process can be improved, and has made changes it considered 
appropriate. In particular, the Commission's Part 3 adjudicatory 
process has long been criticized as being too protracted. See, e.g., 
FTC v. Freeman Hosp., 911 F.Supp. 1213, 1228 n.8 (W.D. Mo. 1995) (``The 
average time from the issuance of a complaint by the FTC to an initial 
decision by an administrative law judge averaged nearly three years in 
1988. Moreover, additional time will be required if that initial 
decision is appealed.''), aff'd, 69 F.3d 260 (8th Cir. 1995); see also 
National Dynamics Corp. v. FTC, 492 F.2d 1333, 1335 (2d Cir. 1974) 
(remarking upon the ``leisurely course typical of FTC proceedings''); 
J. Robert Robertson, FTC Part III Litigation: Lessons from Chicago 
Bridge and Evanston Northwestern Healthcare, 20 Antitrust 12 (Spring 
2006); Report of the American Bar Association Section of Antitrust Law 
Special Committee to Study the Role of the Federal Trade Commission, 58 
Antitrust L.J. 43, 116 n.167 (1989) (``It is disappointing that the 
Commission . . . continues to have problems of delay.'').
    Protracted Part 3 proceedings have at least three undesirable 
consequences. First, in merger cases, such protracted proceedings may 
result in parties abandoning transactions before their antitrust merits 
can be adjudicated. Second, protracted Part 3 proceedings 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 both the Commission and respondents. Third, protracted Part 3 
proceedings do not necessarily result in decisions that are more just 
or fair. To the contrary, there is some truth to the adage that 
frequently ``justice delayed, is justice denied.''

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    To address these concerns, the Commission has periodically engaged 
in reform efforts to minimize delay and improve the quality of the 
administrative decisionmaking process in a fair manner fully consistent 
with the Administrative Procedure Act (``APA'')\2\ without prejudicing 
the due process rights of the parties in these proceedings. For 
example, in 1994 the Commission adopted a guideline to expedite the 
preparation and issuance of final orders and opinions from an initial 
decision. See (https://www.ftc.gov/os/adjpro/adjproprepprocedures.pdf). 
In 1996, the Commission adopted the ``fast track'' procedure in Rule 
3.11A and other changes. 61 FR 50640 (Sept. 26, 1996). In 2001, the 
Commission issued another package of approximately twenty rule changes, 
66 FR 17622 (Apr. 3, 2001),\3\ and has implemented other rule changes 
throughout the past decade.
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    \2\ 5 U.S.C. 551 et seq.
    \3\ As discussed below in the section-by-section summary of the 
proposed rule revisions, the Commission is proposing certain rule 
revisions to rules it implemented previously that had lengthened the 
process. For example, it is proposing to revise Rule 3.12(a) (as 
amended in the 2001 revisions), which permits the tolling of the 
period to answer the complaint until resolution of certain motions, 
because parties have other procedural means available to them that 
would not unduly delay the proceedings. Similarly, the Commission is 
proposing a modest reduction in the period of time to schedule an 
initial pretrial conference under Rule 3.21(b) that had been 
enlarged in the 2001 revisions.
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    More recently, Commission staff engaged in a broad and systematic 
internal review to further improve its Part 3 practices and procedures 
in light of the Commission's recent adjudicatory experiences. The goal 
of this effort was for significant improvement in the Part 3 process 
through comprehensive review rather than piecemeal modifications of a 
limited number of rules, to ensure that the rules are consistent with 
one another and that they are workable in practice. Discussions 
involved input from various Bureaus within the Commission, the Office 
of the General Counsel, the Office of the Administrative Law Judges, an 
evaluation of the rules and procedures of the federal courts and other 
agencies' adjudicative procedures, as well as the legal standards 
imposed by the APA.
    The Commission believes that any adjudicative process should 
balance three factors: the public interest in a high quality 
decisionmaking process; the interests of justice in an expeditious 
resolution of litigated matters; and the very real interest of the 
parties in litigating matters economically without unnecessary expense. 
For example, in principle, high quality expeditious adjudications may 
impose costs on the parties or the agency that they may not need to 
bear if the demands of a given case permit a more leisurely 
adjudicative process. Alternatively, attempts to increase efficiency or 
decrease costs to those involved could lead to trade offs in the 
quality of the ultimate result. The Commission believes that these 
comprehensive proposed rule revisions would strike an appropriate 
balance between the need for fair process and quality decisionmaking, 
the desire for efficient and speedy resolution of matters, and the 
potential costs imposed on the Commission and the parties.

B. Respective Roles of the Commission and the Administrative Law Judge

    The Commission was established by Congress and President Woodrow 
Wilson in 1914 to be an expert, specialized agency providing guidance 
to consumers and the business community on sophisticated questions 
involving unfair methods of competition, later expanded to issues 
involving unfair or deceptive acts or practices.\4\ To accomplish this 
goal, it was provided the authority not only to prosecute cases and 
serve as a ``think tank'' making policy, but also to adjudicate its own 
cases and render decisions.\5\ Congress determined that the Commission 
could use its expertise and administrative adjudicative powers as a 
``uniquely effective vehicle for the development of antitrust law in 
complex settings in which the agency's expertise [could] make a 
measurable difference.''\6\ Certainty, consistency and accuracy in 
Commission decisions could serve as a tool not only to improve the 
resolution of individual cases, but to provide broad guidance to 
industry and the public and help set the policy agenda.\7\
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    \4\ Final Report of the Attorney General's Committee on 
Administrative Procedure 16 (1941) [hereinafter Attorney General's 
Final Report]; see also Marc Winerman, The Origins of the FTC: 
Concentration, Cooperation, Control, and Competition, 71 Antitrust 
L.J. 1 (2003) (discussing the formation and history of the FTC); D. 
Bruce Hoffman & M. Sean Royall, Administrative Litigation at the 
FTC: Past, Present, and Future, 71 Antitrust L.J. 319 (2003) 
(discussing the evolution of administrative adjudication at the 
FTC).
    \5\ Hoffman & Royall, supra note 4, at 319.
    \6\ Id. at 319-20.
    \7\ Id.
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    In the influential 1941 report by the Attorney General that became 
the basis for the subsequently enacted APA, the Attorney General 
identified numerous advantages to administrative adjudications: for 
example, the potential for uniformity of decisions, efficiency, and the 
inability of courts to handle the volume of suits heard by 
administrative agencies.\8\ One of the most critical advantages, and a 
cornerstone characteristic of administrative agencies, is expertise. 
The Congress and the Executive have long recognized that the ability of 
agencies to devote continuous time, supervision, and expertise to 
complex problems calling for specialized knowledge is a critical 
advantage and an important reason for the creation of administrative 
agencies.\9\ With its expertise and unique institutional tools, the 
Commission was created to be--and continues to function as--a forum for 
expert adjudication.
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    \8\ Attorney General's Final Report, supra note 4, at 11-18.
    \9\ Id. at 15.
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    The Attorney General's Final Report also described the role of 
hearing examiners (the predecessor to ALJs) in all agencies that use 
them. The report observed that the hearing examiner ``plays an 
essential part of the process of hearing and deciding'' given the 
difficulty for busy agency heads to fulfill these roles.\10\ 
Specifically, the Report discussed the importance of having a presiding 
officer, such as an ALJ, hear the evidence and make an initial decision 
or recommendation because agency heads may lack the time to ``read the 
voluminous records and winnow out the essence of them.''\11\ The 
Attorney General's Manual on the APA further explained that a general 
statutory purpose of the APA was to ``enhance[] the status and role of 
hearing officers'' and, because the APA vests in the ALJs the 
enumerated powers to the extent that such powers have been given to the 
agency itself, ``an agency is without power to withhold such powers 
from its hearing officers.''\12\ ALJs have wide ranging authority under 
the APA.\13\
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    \10\ Id. at 47.
    \11\ Id. at 45-46.
    \12\ Attorney General's Manual on the Administrative Procedure 
Act 74 (1947) [hereinafter Attorney General's Manual].
    \13\ See 5 U.S.C. 556(c).
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    At the same time, the APA specifies that such authority is 
``subject to the published rules of the agency,'' which ``is intended 
to make clear the authority of the agency to lay down policies and 
procedural rules which will govern the exercise of such powers by 
[ALJs].''\14\ Thus, the Supreme Court ``has for more than four decades 
emphasized that the formulation of procedures was basically to be left 
within the discretion of the agencies to which Congress had confided 
the responsibility for substantive judgments.'' Vermont

[[Page 58834]]

Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 
435 U.S. 519, 524 (1978). In accordance with the APA, the Commission's 
rules contemplate an important role for its ALJs not only in ensuring a 
fair and orderly process but also in assuring the public that the 
Commission's proceedings are fair. Under Rule 0.14, the Commission 
delegates to the ALJs ``the initial performance of statutory fact-
finding functions and initial rulings on conclusions of law, to be 
exercised in conformity with Commission decisions and policy directives 
and with its Rules of Practice.''\15\ Further, Rule 3.42(c) provides 
that presiding officials ``shall have the duty to conduct fair and 
impartial hearings, to take all necessary action to avoid delay in the 
disposition of proceedings, and to maintain order,'' and that they 
shall have ``all powers necessary to that end.''\16\ The Commission 
believes that the following proposed rule revisions would ensure the 
proper balance between the Commission's expertise and the important 
function to be served by its ALJs.
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    \14\ Attorney General's Manual, supra note 12, at 74-75.
    \15\ 16 CFR 0.14.
    \16\ 16 CFR 3.42(c).
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    These proposed rule provisions can be considered an important first 
step, but not the end of the process. To expedite such reforms, the 
Commission intends to establish an internal Standing Rules Committee to 
address potential rule changes that may be needed in the future, with 
this standing committee's recommendations to be reviewed annually by 
the Commission. We recognize that, if adopted, the amended rules' use 
in actual litigation, the comments invited by this document, as well as 
future events, may reveal the need for further amendments, and that a 
standing committee could ensure that the Commission's rules remain 
current. The Commission also announces today its intention to make best 
efforts to expedite its preparation and disposition of final orders and 
opinions in its review of initial decisions in adjudicatory 
proceedings. The Commission understands that public concern about Part 
3 delay is not limited to the proceedings before the ALJ, but extends 
to the delay occasionally incurred by Commission resolution of appeals 
of initial decisions. The Commission intends to expedite all phases of 
the Part 3 process.

C. Overview of Proposed Rule Revisions

    The Commission staff's effort has culminated in comprehensive and 
systematic proposed rule changes. We believe that administrative rules 
that bring the Commission's expertise into play earlier and more often 
during the Part 3 process will likely further the Congressional purpose 
that the Commission be a proper forum for expert adjudication and 
ensure the high quality of the Commission's decisionmaking. For ease of 
reference, the proposed revisions discussed in the following section 
can be organized into certain categories, generally designed to improve 
the quality of decisionmaking or to expedite the Part 3 process by 
imposing stricter deadlines throughout the prehearing or hearing 
process, or by giving the Commission the authority to intercede earlier 
in the proceedings.
    Tighter time limits. Several of the proposed rule revisions allow 
the ALJ or the Commission to impose tighter time periods during the 
adjudicatory process. For example, Rule 3.1 would provide that the ALJ 
or the Commission may shorten any time periods set in the rules 
provided that no party will be unfairly prejudiced. Rule 3.11 would 
require that the date of the evidentiary hearing be set in the notice 
accompanying the complaint, which would be 5 months from the date of 
the complaint in merger cases and 8 months from the date of the 
complaint in non-merger cases, unless the Commission orders otherwise. 
Rule 3.12 would require the respondent to file its answer within 14 
days of service of the complaint, instead of 20. Rule 3.21 would impose 
strict deadlines on prehearing procedures, including requiring that the 
parties' initial meet and confer session and the initial scheduling 
conference take place shortly after the answer is filed. Rule 3.51 
would be amended to eliminate the authority of the ALJ to extend the 
one-year deadline for filing initial decisions, and would provide that 
any extensions be approved by the Commission only where it finds there 
are ``extraordinary circumstances.''
    Earlier Commission involvement. Other proposed rule revisions are 
intended to ensure that the Commission is appropriately involved 
earlier in the adjudicatory process. For example, Rules 3.22 and 3.24 
would provide authority to the Commission to decide in the first 
instance all dispositive prehearing motions, including motions for 
summary decision, unless it refers the motion to the ALJ, while at the 
same time ensuring that the underlying proceedings are not stayed 
pending resolution of the dispositive motion absent a Commission order. 
The proposed revisions are intended to avoid the substantial delay that 
can result from an erroneous ruling by the ALJ on legal and policy 
issues that are within the Commission's expertise. Rule 3.42 would 
expressly provide authority for the Commission or an individual 
Commissioner to preside over discovery and other prehearing proceedings 
before transferring the matter to the ALJ.
    Discovery and motion practice reforms. Other proposed rule changes 
are intended to expedite and improve the quality of the proceedings by 
making the discovery process and motion practice more efficient. For 
example, Rule 3.22 would impose word count limits on both dispositive 
and nondispositive motions. Rule 3.31 would limit the scope of the 
search for discoverable materials for complaint counsel, respondents, 
and third parties to minimize the burden and costs of searching for 
materials that are likely either duplicative or privileged, unless 
there has been a sufficient showing of need. Rule 3.31 would also 
expressly limit waivers resulting from the inadvertent disclosure of 
privileged materials. Rule 3.31 would further require the ALJ to issue 
a standard protective order that is intended to limit delay from 
negotiations and disputes arising from case-specific orders and to 
ensure that privileged information, competitively sensitive 
information, and personally sensitive information are treated 
consistently in all Part 3 cases. A new Rule 3.31A would govern expert 
discovery and would impose strict deadlines, to begin essentially at 
the end of fact discovery, to identify expert witnesses and to submit 
expert reports and rebuttal expert reports, and would limit each side 
to 5 expert witnesses unless there are ``extraordinary circumstances.'' 
Rule 3.36 would impose a heightened requirement for subpoenas issued to 
component offices of the Commission that are not involved in the 
litigation. Rule 3.37 would specify procedures governing the exchange 
of relevant ``electronically stored information,'' and Rule 3.38 would 
be amended to impose strict deadlines and word count limits to resolve 
motions to compel discovery.
    Hearings. Other proposed rule revisions are intended to expedite 
and streamline the evidentiary hearing. For example, Rule 3.41 would 
limit the length of hearings to 210 hours--the equivalent of 30 seven-
hour trial days--unless there is a showing of ``good cause,'' would 
limit each side to one half of the trial time, and would limit the 
length of opening and closing arguments. Rule 3.43 would be revised to 
expressly permit at the hearing the use of hearsay evidence--including 
prior testimony--if sufficiently reliable, as well as the admission of 
relevant statements or testimony by a party-opponent and the self-
authentication

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and admission of third party documents. Rule 3.44 would require that 
witness testimony be video recorded digitally and made part of the 
official record so that the Commission, if appropriate, can make an 
independent assessment of witness demeanor. Rule 3.46 would impose 
strict deadlines for the simultaneous filing of proposed findings, 
conclusions, and supporting briefs.
    Initial decision and Commission review. As noted above, Rule 3.51 
would maintain the one-year deadline for the issuance of the initial 
decision (except where the Commission otherwise orders), but would 
require that the initial decision be issued within 70 days of the last 
filed proposed findings. Rule 3.52 would be revised to shorten the 
lengths of principal briefs on appeal to the Commission to 14,000 words 
and reply briefs to 7,000 words, lengths consistent with the approach 
taken in the Federal Rules of Appellate Procedure, unless otherwise 
permitted by the Commission. In this regard, the Commission notes that 
it has the benefit of all the briefs, legal memoranda, and proposed 
findings of fact that the parties have submitted to the ALJ.
    Finally, the Commission intends to make certain technical revisions 
throughout the rules including, for example, eliminating the convention 
of specifying numbers in both written and numerical form, and 
substituting gender-neutral language.
    The proposed rule revisions relate solely to agency practice and, 
thus, are not subject to the notice and comment requirements of the 
APA, 5 U.S.C. 553(a)(2). Although the proposed rule revisions are 
exempt from these requirements, the Commission invites comment on them 
before deciding whether to adopt them. The proposed revisions are also 
not subject to the requirements of the Regulatory Flexibility Act, 5 
U.S.C. 601(2) and the requirements of the Paperwork Reduction Act, 44 
U.S.C. 3518(c)(1)(B)(ii); 5 CFR 1320.4 (exempting information collected 
during the conduct of administrative proceedings or investigations).

II. Section-By-Section Analysis of the Proposed Rule Revisions

    The following is a section-by-section analysis of the proposed 
revisions to Part 3 of the Commission's Rules, and the proposed 
revision to Rule 4.3, which would allow for extensions in certain 
circumstances of the time limits in the Part 3 Rules.

Subpart A--Scope of Rules; Nature of Adjudicative Proceedings

Section 3.1: Scope of the rules in this part.

    The Rule would be amended to state that the Part 3 Rules generally 
apply only to ``formal'' adjudicative proceedings. This change, if 
adopted, would clarify that the Part 3 Rules generally apply only to 
the types of adjudication governed by the adjudication provisions in 
the APA.\17\ These provisions only govern cases of ``adjudication 
required by statute to be determined on the record after opportunity 
for an agency hearing.''\18\ Rule 3.2, as amended, would specify 
further the types of adjudicative proceedings that are subject to the 
Part 3 Rules.
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    \17\ 5 U.S.C. 554, 556-57.
    \18\ 5 U.S.C. 554.
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    The Rule would be amended further to allow the ALJ or the 
Commission to shorten time periods set by the Rule, provided that the 
shortened time periods would not unfairly prejudice any party. This 
authority could be used in proceedings where expedited procedures would 
serve the public interest (e.g., unconsummated mergers) or where the 
issues do not require elaborate discovery or evidentiary hearings 
(e.g., cases where the parties agree that a copious evidentiary record 
already exists that merely needs to be supplemented).

Section 3.2: Nature of adjudicative proceedings.

    The technical revisions to this Rule would clarify that Commission 
consideration of consent orders--in addition to negotiations of consent 
orders--are not adjudicative proceedings. The proposed changes also 
omit from the list of excluded items proceedings under specific 
statutes that have rarely occurred in recent decades.

Subpart B--Pleadings

Section 3.11: Commencement of proceedings.

    The proposed Rule amendment specifies that the actual date for the 
evidentiary hearing would be 5 months from the date the complaint is 
issued in merger cases and 8 months from the date of the complaint in 
all other cases. The proposed change would also give the Commission 
discretion to determine a different date for the evidentiary hearing 
when it issues the complaint. As amended, Rule 3.21(c), discussed 
below, would provide that the hearing date can be extended by the 
Commission for good cause after the complaint is issued.
    In most cases where the issues are not exceptionally complex and 
the premerger process has been complete, the Commission believes a 5-
month complaint-to-evidentiary-hearing process should be feasible. 
Considering the ``safety valve'' built into the proposed Rule and the 
ability of respondents' counsel to engage in pre-complaint meetings 
with the Commissioners where they might advocate for longer post-
complaint discovery periods, the proposed Rule would appear to be 
flexible enough to accommodate the exceptional case. Similarly, the 
Commission believes a 8-month complaint-to-evidentiary-hearing process 
is feasible for all other cases. Here too, the amended language, if 
adopted, would be broad enough to allow the Commission either to set a 
later hearing date at the time it issues the complaint or, under 
amended Rule 3.21(c), to entertain a request for more time upon a 
showing of good cause post-complaint.
    Proposed Rule 3.11 would also delete paragraph (c), which has 
allowed the respondent to file a motion for more definite statement. If 
a respondent elects to file such a motion, or any other motion, it 
tolls the deadline for respondent to file an answer to the complaint 
that would result in substantial delay in the proceedings. The proposed 
Rule revision would still provide the respondent an opportunity to 
raise similar objections and to file a motion to dismiss, but under the 
proposed amendment to Rule 3.22(b) discussed below, the Commission's 
consideration of the motion would not stay proceedings before the ALJ 
unless the Commission so orders.
    These proposed amendments to Rule 3.11 are intended to expedite 
cases by requiring the Commission to set a fixed deadline for the start 
of the evidentiary hearing and the ALJ and the parties to adhere to the 
deadline.

Section 3.12: Answer.

    The proposed Rule amendment would shorten the current deadline in 
paragraph (a) for filing an answer from 20 to 14 days, a time period 
that should be sufficient for parties who, during the course of the 
precomplaint investigation, have become familiar with the issues. The 
proposed Rule revision would also eliminate the provision in paragraph 
(a) that allows the filing of any motion to toll the deadline for 
respondent to file an answer to the complaint, which had been added by 
the Commission in its

[[Page 58836]]

2001 Rule amendments.\19\ The Commission believes the Rule, if amended 
as proposed in this document, would result in an earlier prehearing 
conference, earlier discovery, and a more expeditious closure to the 
proceeding.
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    \19\ 66 FR 17622 (Apr. 3, 2001).
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    The proposed changes to paragraphs (b) and (c) would remove the 
ALJ's authority to render an initial decision when the allegations of 
the complaint are admitted or there is a default. Instead, the 
Commission would render its final decision on the basis of the facts 
alleged in the complaint. One rationale for the provision of ``hearing 
officers'' (the predecessor to ALJs) in the APA was to alleviate the 
burden on agency heads of hearing evidence and reviewing a voluminous 
record.\20\ When those burdens do not exist, it will likely be more 
efficient for the Commission to issue a final opinion and order without 
the intermediate step of an ALJ's initial decision.
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    \20\ See Attorney General's Final Report, supra note 4, 45-46.
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Subpart C--Prehearing Procedures; Motions; Interlocutory Appeals; 
Summary Decisions

Section 3.21: Prehearing procedures.

    As amended, Rule 3.21(a) would require that the parties' initial 
meet-and-confer session take place within 5 days of the answer and 
would require the parties to discuss electronically stored information 
(ESI) at that time, including the scope of and the time period for the 
exchange of ESI and the format for exchanging such information. This 
change is intended to help expedite the case and facilitate resolution 
of production issues in ways that minimize costs. Rule 3.21(a) would 
also be modified by deleting a phrase that suggested that the parties 
should discuss a proposed hearing date because, under proposed Rule 
3.11, such a date will already have been set by the Commission when it 
issued the complaint, and under proposed Rule 3.21(c), that date could 
be modified by the Commission upon a showing of good cause. Rule 
3.21(a), as amended, would also specify broad subjects to be discussed 
at the parties' meet and confer session(s) before the scheduling 
conference.
    Revised paragraph (b) would advance the deadline for the scheduling 
conference from 14 days after the answer is filed to 10 days after the 
answer is filed. Although the Commission extended the deadline to 14 
days in 2001,\21\ it believes the 10-day deadline is reasonable for 
most cases. In extraordinary circumstances, the scheduling conference 
can be postponed. Revised paragraph (b) would include additional items 
to be discussed at the scheduling conference, such as stages of the 
proceeding that may be expedited. The proposed revisions contemplate 
that the parties would inform the ALJ of the results of their 
meeting(s) pursuant to paragraph (a) regarding their proposed discovery 
plan, including the disclosure of ESI, and that the ALJ would 
incorporate in the scheduling order a discovery plan that he or she 
deems appropriate.
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    \21\ 66 FR 17622 (Apr. 3, 2001).
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    Revised paragraph (c)(1) would specify that the ALJ's scheduling 
order will establish a schedule of proceedings that will permit the 
evidentiary hearing to commence on the date set by the Commission. The 
Rule would also state that the Commission may, upon a showing of good 
cause, order a later date for the evidentiary hearing than the one 
specified in the complaint. The proposed deadline for the prehearing 
scheduling conference and order and the more detailed requirements for 
both are intended to help keep the prehearing proceedings on track and 
enable the parties to contribute to a high quality record on which the 
ALJ can base his or her decisions.
    Revised paragraph (c)(2) would be revised to authorize the ALJ to 
extend, upon a showing of good cause, any deadline in the scheduling 
order other than the date of the evidentiary hearing.
    Revised paragraph (f) would state that the ALJ shall hold 
additional prehearing and status conferences or enter additional orders 
as may be needed to ``ensure the just and expeditious disposition of 
the proceeding and to avoid unnecessary cost.''

Section 3.22: Motions.

    Revised Rule 3.22(a) would give the Commission the opportunity to 
rule on motions to strike, motions for summary decision, and prehearing 
motions to dismiss, but the Commission may refer such motions back to 
the ALJ. This proposal allows the Commission to decide legal questions 
and articulate applicable law when the parties raise purely legal 
issues. In addition, an early ruling on a dispositive motion may 
expedite resolution of a matter and save litigants resources where the 
legal issue is the primary dispute. The Commission followed a similar 
approach in South Carolina State Board of Dentistry when it retained 
jurisdiction to hear motions to dismiss. See In re South Carolina State 
Bd. of Dentistry, 136 F.T.C. 229 (2004). This proposal codifies that 
approach, giving the Commission more flexibility to determine the law 
and resolve matters expeditiously.The revised Rule would also provide 
that rulings on motions to dismiss based on alleged failure to 
establish a prima facie case shall be deferred until after the hearing 
record is closed. The current provision for a recommended ruling by the 
ALJ when certifying to the Commission a motion outside his or her 
authority to decide would be eliminated.
    The Commission anticipates that new paragraphs (b) and (e) would 
expedite cases by providing that proceedings before the ALJ will not be 
stayed while the Commission considers a motion, unless the Commission 
orders otherwise, and would require the ALJ to decide motions within 14 
days of briefing of the motion.
    Re-designated paragraph (c) would impose word count limits on 
motion papers. Dispositive motions would be limited to 10,000 words 
(approximately 40 double-spaced pages), and non-dispositive motions 
would be limited to 2,500 words (approximately 10 double-spaced pages).
    Re-designated paragraph (d) would be modified to provide an 
automatic right of reply in support of dispositive motions. Further, 
paragraph (d) would state that: ``Reply and surreply briefs to motions 
other than dispositive motions shall be permitted only in circumstances 
where the parties wish to draw the ALJ's or the Commission's attention 
to recent important developments or controlling authority that could 
not have been raised earlier in the party's principal brief.'' There 
would also be a 5-day filing deadline for any authorized reply to a 
motion.
    Current paragraph (e) would be eliminated, and current paragraph 
(f) would be redesignated as paragraph (g).

Section 3.23: Interlocutory appeals.

    The revised Rule would continue to permit the parties to seek 
discretionary review of certain interlocutory rulings by the ALJ. 
Paragraph (a) would leave unchanged the types of rulings that the 
parties can ask the Commission to review without a determination by the 
ALJ that interlocutory review is appropriate. Paragraph (b) would 
continue to permit interlocutory appeals of other rulings only on a 
determination that the ruling ``involves a controlling question of law 
or policy as to which there is substantial ground for difference of 
opinion and that an immediate appeal from the ruling may materially 
advance the ultimate termination of the litigation or subsequent review 
will be an inadequate remedy.''

[[Page 58837]]

    In order to reduce delay, the revised Rule would require the ALJ to 
make his or her determination whether the application for review 
involves such a controlling question within three days after the filing 
by a party of a request for such a determination. It would eliminate 
the requirement that the ALJ provide a written justification for his or 
her determination. The revised Rule would allow the party to file its 
application for review with the Commission if the ALJ does not make a 
timely ruling on its request for a determination on the appropriateness 
of review.
    Because the pendency of an application for review may leave a cloud 
over the proceeding before the ALJ, the revised Rule would also provide 
a default if the Commission fails to act quickly on the application. 
The revised Rule would provide that, unless the Commission decides to 
entertain the appeal within three days after the filing of the 
application and answer, the request for discretionary review will be 
deemed to be denied. This would not constitute an affirmance of the 
ALJ's ruling on the merits. Also, to avoid unnecessary delay, the 
revised Rule would set shorter deadlines for the filing of applications 
and answers and, to reduce burdens, impose tighter limits than the 
current Rule on the length of these filings. The Commission, however, 
would retain authority to direct additional briefing.

Section 3.24: Summary decisions.

    The revised Rule would accommodate the proposed amendment to Rule 
3.22 providing that dispositive motions will be decided initially by 
the Commission unless referred by the Commission to the ALJ. At the 
same time, it would also require that motions be filed not later than 
30 days before the evidentiary hearing, rather than 20 days as in the 
current Rule. It would extend the deadline for filing affidavits in 
opposition to a summary decision motion from 10 to 14 days. Because the 
moving party may have had months to prepare its motion and supporting 
papers, the revised Rule would allow slightly more time than the 
current Rule for the opposing party to compile, authenticate, and 
perform the other research necessary to respond. Finally, the proposed 
Rule would eliminate the 30-day deadline for ruling on the motion but 
allow the Commission to set a deadline for decision when referring a 
summary decision motion, or any other dispositive motion, to the ALJ. 
In any event, under revised Rule 3.22(b), the filing of a motion under 
this Rule would not stay the proceeding before the ALJ.

Rule 3.26: Motions following denial of preliminary injunctive relief.

    The Commission adopted the current version of Rule 3.26 in 
connection with a 1995 policy statement, which explained the process 
the Commission follows in deciding whether to pursue administrative 
litigation of a merger case following the denial of a preliminary 
injunction.\22\ The statement noted that the ``Commission was created 
in part because Congress believed that a special administrative agency 
would serve the public interest by helping to resolve complex antitrust 
questions'' and that it was expected that ``an administrative agency 
was especially suited to resolving difficult antitrust questions, and 
that the FTC should be the principal fact finder in the process.''\23\
---------------------------------------------------------------------------

    \22\ 60 FR 39741 (Aug. 3, 1995).
    \23\ Id.
---------------------------------------------------------------------------

    According to the statement, ``[i]n any given case, the evidence, 
arguments, and/or opinion from the preliminary injunction hearing may, 
or may not, suggest that further proceedings would be in the public 
interest. The Commission's guiding principle is that the determination 
whether to proceed in administrative litigation following the denial of 
a preliminary injunction and the exhaustion or expiration of all 
avenues of appeal must be made on a case-by-case basis.''\24\ The 
Commission adopted Rule 3.26 to provide a formal mechanism for making 
this determination.
---------------------------------------------------------------------------

    \24\ Id.
---------------------------------------------------------------------------

    The Commission proposes to revise provisions in the Rule that grant 
an automatic withdrawal from adjudication of the Part 3 case upon the 
filing of a motion to withdraw from adjudication or an automatic stay 
upon the filing of a motion to dismiss. An automatic withdrawal from 
adjudication or stay might well be appropriate if the denial of 
preliminary injunctive relief typically warranted terminating the Part 
3 case. But the Part 3 proceeding is the suitable forum for deciding 
the merits, see FTC v. Whole Foods Market, Inc., 533 F.3d 869, 875-76 
(D.C. Cir. 2008) (``[A] district court must not require the FTC to 
prove the merits, because, in a [5 U.S.C.] Sec.  53(b) preliminary 
injunction proceeding, a court `is not authorized to determine whether 
the antitrust laws . . . are about to be violated.' That responsibility 
lies with the FTC.'') (quoting FTC v. Food Town Stores, Inc., 539 F.2d 
1339, 1342 (4th Cir. 1976)). Thus, the Commission believes the norm 
should be that the Part 3 case can proceed even if a court denies 
preliminary relief. If that is the norm, routine withdrawals from 
adjudication or stays of proceedings before the ALJ could unnecessarily 
delay the typical Part 3 case in which ancillary relief has been 
denied. The proposed Rule would allow the Part 3 case to proceed unless 
the Commission determines, on the facts of the particular case, that a 
withdrawal or stay is appropriate.
    The revised Rule would also make explicit that a motion to dismiss 
or withdraw may be filed only after the Commission has an opportunity 
to seek reconsideration and appellate review of a denial of injunctive 
relief.\25\ The revision would also prescribe the same word count 
limits for memoranda supporting or opposing these motions as for 
motions to dismiss filed under Rule 3.22(a) and eliminate the special 
limitation for printed filings.
---------------------------------------------------------------------------

    \25\ See In re Equitable Resources, Inc., No. 9322, 2007 F.T.C. 
LEXIS 49 (May 30, 2007); 60 FR 39640, 39641 (Aug. 3, 1995).
---------------------------------------------------------------------------

Subpart D--Discovery; Compulsory Process

Section 3.31: General discovery provisions.

    Paragraph (b) of Rule 3.31 would be amended to specify that the 
documents to be disclosed as part of the parties' mandatory initial 
disclosures include declarations or affidavits, as well as transcripts 
of investigational hearings and depositions, and that initial 
disclosures also include ESI. The reference to ESI would update the 
term ``data compilations'' and would parallel the 2006 amendment to 
Fed. R. Civ. Proc. 26(a)(1)(B). The proposed limitations on disclosure 
of ESI in paragraph (c)(3) follow Fed. R. Civ. P. 26(b)(2)(B). In 
particular, the proposed provision in paragraph (c)(3) that a party 
need not provide discovery of ESI from sources that the party 
identifies as not reasonably accessible because of undue burden or cost 
is anticipated to reduce delays and costs to the parties.
    As discussed below, the Commission proposes to treat expert 
discovery in a new Rule 3.31A, and therefore the provisions in 
paragraphs (b) and (c) of Rule 3.31 governing expert discovery would be 
eliminated.
    The proposed changes to paragraph (c)(2) would limit the scope of 
discovery for complaint counsel, respondents, and third parties who 
receive a discovery request. Complaint counsel would only need to 
search for materials that were collected or reviewed in the course of 
the investigation of the matter or prosecution of the case and that are 
in the possession, custody or control of the Bureaus or Offices of the 
Commission that investigated the matter, including

[[Page 58838]]

the Bureau of Economics. The ALJ could authorize for good cause 
additional discovery of materials in the possession, custody, or 
control of those Bureaus or Offices, or authorize other discovery 
pursuant to Sec.  3.36. Neither complaint counsel, respondent, nor a 
third party receiving a discovery request under these rules would be 
required to search for materials generated and transmitted between an 
entity's counsel (including counsel's legal staff or in-house counsel) 
and not shared with anyone else, or between complaint counsel and non-
testifying Commission employees, unless the ALJ determines there is 
good cause to provide such materials. These materials are frequently 
duplicative of materials held by the parties and moreover, are almost 
always protected by the deliberative process or attorney-client 
privileges, or as work product.
    Paragraph (d) would be revised to direct the ALJ to issue a 
standard protective order (provided as an appendix to this Rule) 
governing the use of confidential materials obtained in discovery. The 
Commission believes a standard order would eliminate the delay 
resulting from negotiations and disputes over case-specific orders and 
improve quality and reduce agency costs by ensuring that discovery 
materials are handled uniformly and in a manner that is fully 
consistent with the FTC's statutory obligations with respect to 
materials it receives from private parties.
    Paragraph (h), as revised, would address the resources used to 
avoid the risk of privilege and work product waiver, which add to the 
costs and delay of discovery. The risk of waiver, and the time and 
effort needed to avoid it, are aggravated when the party is producing 
ESI. The revised Rule would limit the risk of waivers resulting from 
inadvertent disclosures as long as parties take reasonable measures to 
protect privileged materials. The Rule would not address obligations 
imposed by state bar rules on attorneys who receive materials that 
appear to be subject to a privilege claim.
    The FTC Act requires the Commission to protect ``privileged or 
confidential'' information.\26\ By providing that the Commission would 
not treat genuinely inadvertent disclosures as waivers of privilege 
claims, this proposed Rule, together with the relevant provisions of 
the FTC Act, is intended to assure respondents and third parties alike 
that if otherwise privileged materials end up in the hands of the FTC, 
they will not readily find their way into the public record. In this 
regard, the protective order would expressly include privileged 
information in the order's definition of ``confidential materials'' 
subject to the protective order.
---------------------------------------------------------------------------

    \26\ FTC Act, 6(f), 21(d)(1)(B), 15 U.S.C. 46(f), 57b-
2(d)(1)(B).
---------------------------------------------------------------------------

    Paragraph 3.31(i), as revised, would prohibit the filing of 
discovery materials with the Office of the Secretary, the ALJ, or 
otherwise providing such materials to the Commission, except when used 
to support or oppose a motion or to offer as evidence. This proposed 
change is similar to Fed. R. Civ. P. 5(d), which generally prohibits 
the filing of discovery material unless ordered by the court or used in 
the proceeding.
    The revised Rule would also make technical revisions to the current 
Rule.

Section 3.31A: Expert discovery.

    New Rule 3.31A would mandate a schedule for the disclosure of 
potential expert witnesses, the production of expert reports, and the 
start and completion of expert depositions. This Rule would incorporate 
and revise certain provisions now contained in current Rule 3.31(b) and 
(c). The scheduling provisions are intended to provide for expert 
discovery in a more orderly and expeditious manner than what has 
occurred in past proceedings.
    The Rule would not permit expert discovery to begin until fact 
discovery is essentially completed. The Commission believes that 
discovery of experts, including the production of expert reports, will 
be less than thorough if facts potentially relevant to their opinions 
have yet to be discovered. The Rule would also limit the number of 
expert witnesses to 5 per side, but would allow a party to seek leave 
to call additional expert witnesses in extraordinary circumstances. It 
has been the Commission's experience that 5 expert witnesses per side 
is sufficient for each party to present its case.
    The Rule would require that each expert who will testify at the 
evidentiary hearing produce a written report, thereby eliminating the 
ALJ's authority to dispense with them. Preparation of a written expert 
report is a common requirement in federal courts and, given the 
Commission's goal of expedited proceedings, should be required here 
during the discovery period to allow the parties more effective and 
targeted discovery.
    The Rule would provide that complaint counsel submit their initial 
expert reports first, followed by respondents' expert reports. 
Respondents' reports, of course, can rebut material in complaint 
counsel's initial expert reports. The revised Rule would also 
explicitly authorize complaint counsel to call rebuttal experts and, if 
complaint counsel exercises this option, would require the experts to 
prepare rebuttal expert reports. Thus, the Rule would allow complaint 
counsel's experts an opportunity to respond to respondents' expert 
reports.
    The Rule would also exclude from expert discovery anyone who has 
been retained or specially employed by another party in anticipation of 
litigation or preparation for hearing unless he or she is expected to 
be called as a witness at the hearing, so as to prevent the discovery 
of the unpublished work product of non-testifying experts, particularly 
where such materials are proprietary and highly confidential. The 
discovery of such marginally relevant materials can be a major 
distraction from the central case and can have an adverse effect on the 
willingness of non-testifying experts to consult in the future.

Section 3.33: Depositions.

    Paragraph (b) would be added to allow the ALJ, upon a party's 
motion, to prevent the taking of a deposition if the deposition would 
not meet the scope of discovery standard under Rule 3.31(c) or if the 
value of the deposition would be outweighed by considerations of unfair 
prejudice, confusion of the issues, evidence that would be misleading, 
or by considerations of undue delay, waste of time, or needless 
presentation of cumulative evidence (as set forth under Rule 3.43(b)). 
Paragraph (b) would also clarify that the fact that a witness testifies 
in an investigative hearing does not preclude the deposition of that 
witness.
    Paragraph (c) would be revised to stop the practice of filing 
notices of deposition with the Office of the Secretary, the ALJ or 
otherwise providing such notices to the Commission, except as provided 
in proposed Rule 3.31(i). Such notices serve no purpose for the ALJ or 
the agency, and receipt of these notices causes unnecessary processing 
costs for the Commission.
    Revised Rule 3.43, as discussed below, would provide for the 
admission of hearsay evidence in the evidentiary hearing if the 
evidence is ``relevant, material, and bears satisfactory indicia of 
reliability so that its use is fair.'' If meeting this standard, 
depositions, investigational hearings, and other prior testimony may be 
admitted. Consistent with this proposed revision, current Rule 
3.33(g)(1) would be eliminated because it contains hearsay-based 
limitations for the use of depositions. Paragraphs (g)(2) and (3) would 
be renumbered accordingly.

[[Page 58839]]

Section 3.34: Subpoenas.

    Paragraphs (a) and (b), as amended, would authorize counsel for a 
party to sign and issue a subpoena on a form provided by the Secretary. 
These revisions are intended to expedite the commencement of hearings 
by speeding the issuance of discovery and hearing subpoenas. The 
definition of ``documents'' would also be revised to be parallel to 
Fed. R. Civ. P. 45(c)(1).
    Revisions to paragraph (c) would reflect revised Rule 3.36, 
discussed below, which would require a special showing of need for 
subpoenas directed to the offices of the Commissioners, the General 
Counsel, Bureaus and Offices not involved in the matter, the ALJs, or 
the Secretary.

Section 3.35: Interrogatories to parties.

    New paragraph (a)(3) would provide that interrogatories should not 
be filed with the Office of the Secretary, the ALJ or otherwise 
provided to the Commission except as provided in proposed Rule 3.31(i).
    Paragraph (b)(2), as revised, would eliminate the requirement that 
a party seek an order from the ALJ when not answering a contention 
interrogatory before the end of discovery. If a party poses a 
contention interrogatory that is capable of being answered at an 
earlier time, there is no reason it could not move to compel a more 
expeditious response.

Section 3.36: Applications for subpoenas for records of or appearances 
by certain officials or employees of the Commission or officials or 
employees of governmental agencies other than the Commission, and 
subpoenas to be served in a foreign country.

    Paragraph (a) currently requires a special showing of need for 
subpoenas to other agencies and foreign subpoenas. The revised Rule 
would require a special showing of need for subpoenas directed to the 
offices of the Commissioners, the General Counsel, Bureaus and Offices 
not involved in the matter, the ALJs, and the Secretary. None of these 
offices is likely to possess relevant, discoverable information that is 
not available from other sources. Given the lack of useful additional 
information likely to be available from these offices, the burden (and 
delay) of searches for responsive records and the creation of privilege 
logs should not be imposed without strong justification. These 
revisions would reduce the cost and time devoted to searches for 
information that is likely to be privileged or that is unlikely to lead 
to the discovery of admissible evidence.
    The revisions to paragraph (b)(3) would require a showing of 
``compelling need'' as the corresponding standard for witness 
testimony. Because the Commission is proposing to revise Rule 3.34 to 
eliminate specific showings for hearing subpoenas, the reference to 
that Rule would be eliminated from the first sentence of paragraph (b). 
The reference to Rule 3.37 would be moved to a new paragraph (b)(5).

Section 3.37: Production of documents, electronically stored 
information, and any tangible thing; access for inspection and other 
purposes.

    The existing Rule substantially follows Fed. R. Civ. P. 34. The 
revised Rule would include the current federal rule's provisions on 
electronic discovery. The revised Rule would also provide that requests 
under this section not be filed with the Office of the Secretary, the 
ALJ or otherwise provided to the Commission, except as provided in 
proposed Rule 3.31(i).

Section 3.38: Motion for order compelling disclosure or discovery; 
sanctions.

    The revised Rule would impose short deadlines for responses to and 
rulings on motions to compel. It would impose a 2,500 word limit, which 
translates into approximately 10 double-spaced pages, for motions and 
answers. This limit should be sufficient to enable parties to address 
several discovery issues in one filing.
    The revised Rule would consolidate the sanctions for failure to 
comply with discovery and disclosure requirements and add as a sanction 
the inability to call a witness who was not disclosed under Rule 
3.31(b) or an expert not disclosed under proposed Rule 3.31A.

Section 3.38A: Withholding requested material.

    The revised Rule would modify the existing requirement that a 
privilege/work-product log must always contain specific information for 
each item being withheld. The Commission intends to substitute the more 
flexible requirement in Fed. R. Civ. P. 26(b)(5)(A) that the schedule 
of withheld items ``describe the nature of the documents, 
communications, or tangible things not produced or disclosed -- and do 
so in a manner that, without revealing information itself privileged or 
protected, will enable other parties to assess the claim.'' This 
proposed requirement would permit parties to describe withheld items by 
categories, but only if the description ``will enable other parties to 
assess the claim.'' Unless such descriptions are sufficient, item-by-
item descriptions would be required.
    The revised Rule would also clarify that the log need not describe 
any material outside the scope of the duty to search set forth in 
revised Rule 3.31(c)(2) except to the extent that the ALJ has 
authorized additional discovery as provided in that Rule. These 
exclusions, if adopted, will reduce the burden and time devoted to 
preparing a detailed log without eliminating information about 
materials most likely to be relevant to the litigation.

Section 3.39: Orders requiring witnesses to testify or provide other 
information and granting immunity.

    The Commission is proposing technical revisions to the existing 
Rule.
    All in all, the proposed revisions to the discovery Rules are 
designed to encourage the parties to cooperate in the discovery 
process, ``automate'' the discovery process to the greatest extent 
possible, and provide effective sanctions against those who violate a 
discovery obligation. The Commission's expectation is that the revised 
Rules would work to improve the quality of the discovery process and 
would ultimately reduce the costs and delays that are incurred when 
parties engage in unnecessary gamesmanship. For example, the Commission 
believes that the sanction of prohibiting a party from calling a fact 
or expert witness who should have been disclosed earlier would reduce 
the need for last-minute discovery that could delay the hearing and 
thereby eliminate the extra costs associated with such discovery and 
improve the quality of the discovery process.

Subpart E--Hearings

Section 3.41: General hearing rules.

    In order to expedite proceedings, revised Rule 3.41(b) would 
require that the evidentiary hearing commence on the date set in the 
notice accompanying the complaint. It also would limit the length of 
the hearing to 210 hours, the equivalent of 30 seven-hour trial days, 
unless extended by the Commission for good cause, and establish 
reasonable time allocations for both sides.

Section 3.42: Presiding officials.

    Revised Rule 3.42(a) would make explicit provision for the 
Commission retaining jurisdiction over a matter during some or all of 
the prehearing proceedings and designating one or more Commissioners to 
preside. The Commission has followed this course in several recent 
cases. The APA, 5 U.S.C. 556(b), allows the agency itself or one or

[[Page 58840]]

more of its members to preside, and the Commission can see no reason 
why the Commission or an individual Commissioner may not preside over 
the beginning phases of the proceeding even where the Commission or the 
individual Commissioner does not preside over the hearing or issue the 
initial decision. In appropriate cases, early Commission involvement 
has the potential for improving the quality of the final product, 
expediting the proceeding, and ultimately reducing the costs of the 
litigation.

Section 3.43: Evidence.

    The Commission proposes to amend this Rule to define hearsay 
evidence and to provide expressly in paragraph (b) for the use and 
admission of hearsay evidence in Commission proceedings if the evidence 
``is relevant, material, and bears satisfactory indicia or reliability 
so that its use is fair.'' The existing Rule states that ``[r]elevant, 
material, and reliable evidence shall be admitted. Irrelevant, 
immaterial, and unreliable evidence shall be excluded.'' This 
modification does not represent a change in the current rule; rather it 
emphasizes that the stricter hearsay rules in the Federal Rules of 
Evidence do not determine admissibility of evidence in administrative 
litigation. The ALJ, in the first place, and ultimately the Commission 
must independently assess the reliability of the evidence itself.
    Administrative agencies like the FTC ``have never been restricted 
by the rigid rules of evidence,''\27\and should evaluate the 
admissibility of hearsay evidence based on whether ``it bear[s] 
satisfactory indicia of reliability . . . [is] probative and its use 
fundamentally fair.''\28\ The ALJ, and on appeal the Commission, are 
capable of assessing the reliability and weight to be given hearsay 
evidence by, for example, determining the independence or possible bias 
of an out-of-court declarant, the context in which the hearsay material 
was created, whether the statement was sworn to, and whether it is 
corroborated or contradicted by other forms of direct evidence.
---------------------------------------------------------------------------

    \27\ FTC v. Cement Inst., 333 U.S. 683, 705-06 (1948).
    \28\ Calhoun v. Bailar, 626 F.2d