Recent Case Highlights Issues In Public Antitrust Investigations

Of all the substantive areas of American law, antitrust is perhaps the one that most aggressively reaches foreign conduct.  Ever since the Second Circuit’s 1945 Alcoa opinion (United States v. Aluminum Co. of America, 148 F.2d 416), courts and Congress have recognized that foreign conduct, when it affects U.S. commerce, can violate U.S. antitrust laws.  Thus U.S. antitrust regulators sometimes seek evidence of foreign conduct as they weigh whether to bring charges.  A recent decision demonstrates the extent to which, in today’s globalized economy, courts will enforce such pre-lawsuit investigative requests by regulators.

The decision is the October 29, 2010 Order of the United States District Court for the District of Columbia in Federal Trade Commission v. Church & Dwight Co., Inc.  The U.S. Federal Trade Commission (“FTC”) is investigating Church & Dwight (“C&D”), the maker of Trojan condoms, for monopoly maintenance or attempted monopolization in the U.S. condom market – specifically by agreeing to provide retailers with rebates or discounts in exchange for certain display arrangements.  The FTC is considering whether such agreements, if they exist, violate Section 5 of the Federal Trade Commission Act.

The FTC served C&D with a subpoena and a Civil Investigative Demand (“CID”) for documents regarding C&D’s incentive programs for retailers.  C&D refused to comply.  Citing relevance and burden, it challenged several aspects of the requests, including one for documents from C&D’s Canadian subsidiary.  These documents were not relevant, C&D argued, because the FTC’s inquiry was limited to whether C&D monopolized condom sales or distribution “in the United States.”

The Court held that the Canadian evidence was relevant to the investigation.  First, the Court held, the relevance standard governing enforcement of the FTC’s requests is quite liberal: it is satisfied so long as the FTC’s relevance arguments are not “obviously wrong.”  Here, the FTC contended that the Canadian documents were relevant because they may reveal the effects of C&D’s sales practices on its market shares.  C&D has a far lower share in Canada than in the U.S., the FTC argued, and the Canadian documents may shed light on whether different sales practices in the two countries produced this result.  The Court sided with the FTC, finding its argument “not obviously wrong.”  In doing so, the Court observed that the Canadian subsidiary’s conduct could have helped C&D secure a monopoly in the U.S., or could otherwise shed light on the investigation.  In light of such possibilities “in a globalized economy,” the Court held, a federal regulator must be able to investigate foreign subsidiaries.

As to burden, the Court first held that C&D did not adequately show that the burden would be impermissible.  The Court held that C&D was required to show that the FTC’s inquiry would threaten to “unduly disrupt or seriously hinder” C&D’s business operations.  C&D offered no affidavit or other evidence to support such a finding.  The Court also suggested that C&D try to reduce the burden of producing Canadian documents by agreeing with the FTC on electronic search terms to use in screening them.

For companies with U.S. and foreign offices, Federal Trade Commission v. Church & Dwight Co., Inc. perhaps teaches a simple lesson: when an agency requests documents from the foreign office, legitimate burden objections will go further than relevance arguments in shielding foreign documents.  As this decision suggests – and many others spell out more fully – a company that can provide strong, detailed evidence of the burden that it would suffer from production of foreign documents may be spared from compliance.  As the ever-globalizing commercial world makes relevance challenges less and less compelling, a burden challenge may be the last best hope for a company seeking to shield its foreign documents from U.S. regulators.

The decision is available here.