One of the key functions of the Bureau of Competition is to analyze mergers. Obtaining information through Second Requests is an essential aspect of our review process for proposed acquisitions. Even though the FTC and DOJ on average issue a Second Request in less than 5 percent of filed transactions, for the few that do require more extensive review, we have long recognized the burden they impose. The challenge is to find a balance between our need for information to determine whether there is a potential law violation and avoiding unnecessary costs for businesses subject to review.
In 2002, the Bureau of Competition issued Guidelines on Merger Investigations. Those guidelines included such welcome changes as eliminating the requirement that documents be sorted by specification and providing early guidance on providing productions electronically. In 2006, Chairman Majoras announced additional reforms to the merger review process. After almost a decade which saw such changes as the increased use of pull and refile, and advances in electronic discovery, we decided it was time to take a look at whether parties had made use of the 2006 reforms to reduce the burden and costs associated with Second Requests and whether additional guidance was in order.
The 2006 reforms, among other changes, contained three options for reducing the burden on parties subject to a Second Request: (1) a presumption that only 35 custodians per party would be searched if the parties complied with certain requirements; (2) a presumed limit of two years for data and documents; and (3) the option for parties to submit a partial privilege log. In examining what had occurred since the reforms, we learned several interesting things:
- Parties rarely formally invoked the 35-custodian presumption and rarely agreed to the specified conditions.
- Nevertheless, in most cases, the merging parties searched fewer than 35 custodians.
- The length of investigations has not changed materially since the announcement of the 2006 reforms.
- It often remains necessary to obtain information more than two years old, because specific circumstances relevant to the merger review require it.
We also looked at our Model Second Request to see if it reflected what we have been doing in recent Second Requests and whether we needed to make additional changes to it. After extensive dialogue, we determined that only a few changes were appropriate. Our revised Model Second Request remains largely the same. The few changes we have made include those relating to requests for datasets, pricing information, and the instructions regarding search terms and the use of predictive coding.
Finally, in addition to looking at the content of the Second Request and use of the Merger Process Reforms, we considered other aspects of our investigations with an eye to balancing the effort required (by both FTC staff and the merging parties) to investigate potentially problematic mergers with the need for adequate information for those investigations. The result of this effort is guidance to parties on steps they can take to work cooperatively with Bureau staff to minimize burden on all involved; these steps include early discussions and effective use of pulling and refiling an HSR filing. We also have updated our BC Production Guide, which contains information on suggested formats when submitting information electronically.
Of course, the principal means of reducing the burden of a Second Request is to negotiate with staff to modify the terms, and we found that this continues to be the most effective way to tailor the Second Request. As part of this project, we continue to work internally to share best practices and learning. While none of this is a sea change in how we conduct second request investigations, we hope this continued reflection and incremental process improvement will make the process more efficient and transparent for all.