D.C. Circuit Upholds U.S. FTC Subpoena in Investigation into Bundling and Exclusionary Practices
A unanimous panel of the U.S. Court of Appeals for the District of Columbia Circuit upheld a district court decision enforcing the Federal Trade Commission’s administrative subpoena and civil investigative demand in an ongoing FTC investigation. The December 13, 2011, opinion is noteworthy because it (1) reaffirms the broad authority and discretion the FTC has in conducting its investigations and (2) makes public additional detail on an ongoing FTC investigation into bundling and other distribution practices by a firm alleged to have monopoly power.
In FTC v. Church & Dwight Co., Senior Judge Douglas Ginsburg wrote the opinion for a panel that included Chief Judge Sentelle and Senior Judge Williams. The panel found that courts must "defer to the Commission’s interpretation of its own Resolution" authorizing an investigation. "So long as the material the Commission seeks is relevant to the investigation — the boundary of which may be defined quite generally…the district court must enforce the agency’s demand."
Church & Dwight is the leading U.S. manufacturer of condoms, with a market share in excess of 70 percent. In June 2009, the FTC launched an investigation to determine whether Church & Dwight
has attempted to acquire, acquired, or maintained a monopoly in the distribution or sale of condoms in the United States … through potentially exclusionary practices including, but not limited to, conditioning discounts or rebates to retailers on the percentage of shelf or display space dedicated to Trojan brand condoms and other products distributed or sold by Church & Dwight, in violation of Section 5 of the Federal Trade Commission Act.
The FTC subsequently issued a subpoena seeking the production of documents relating to Church & Dwight’s sales of condoms in the United States and Canada. In response, Church & Dwight produced documents relating to its condom sales, but redacted from those documents information on all other products. Following Church & Dwight’s continuing refusal to provide the information on other products, the FTC petitioned the district court to enforce its subpoena, which it did. The district court found that the information on the other products was "reasonably relevant" to the investigation and that the request was not "unduly burdensome."
On appeal, Church & Dwight argued that the district court applied an erroneous legal standard in enforcing the subpoena and urged that the court find that the FTC’s inquiry, as defined by the Authorizing Resolution, was limited to condoms. The FTC argued that the Resolution covered an investigation into Church & Dwight’s possible bundling of rebates based upon a retail customer’s sales of both condoms and other Church & Dwight products.
The D.C. Circuit rejected Church & Dwight’s argument, finding that the district court applied the proper legal standard and that the courts must "defer to the Commission’s interpretation of its own Resolution." Judge Ginsburg did express some skepticism about the LePage’s v. 3M theory of liability for bundling, based on the Third Circuit’s decision in that case, which Judge Ginsburg pointedly described as "not the law of [the D.C.] Circuit." Nevertheless, he found it not necessary to "pass upon the merits of the rule in LePage’s in order to resolve this case." Because LePage’s is the law in the Third Circuit, where Church & Dwight sells both condoms and other products, the FTC could investigate whether Church & Dwight’s activities might violate the law in that circuit:
Although this court might someday reach a different resolution of the issue presented in LePage’s, "a subpoena enforcement action is [generally] not the proper forum in which to litigate disagreements over an agency’s authority to pursue an investigation. Unless it is patently clear that an agency lacks the jurisdiction that it seeks to assert, an investigative subpoena will be enforced."
This opinion is noteworthy both for its endorsement of the FTC’s broad investigative powers, which courts will affirm even in the face of judicial uncertainty about the merits of the underlying legal theory. It also provides insight into the FTC’s continuing interest in identifying exclusionary practices by firms with significant market shares and its apparent willingness to consider bundling theories, notwithstanding the criticism that such cases have received.
Lawyer Contacts
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Washington
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kmfenton@jonesday.com
David P. Wales
Washington
+1.202.879.5451
dpwales@jonesday.com
J. Bruce McDonald
Washington / Houston
+1.202.879.5570 / +1.832.239.3822
bmcdonald@jonesday.com
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