Compliance reports: Reinforcing a commitment to effective orders

March 11, 2019

Commission orders – both from negotiated settlements and from litigated matters – routinely require Respondents to submit periodic reports on their efforts to comply with the order. (See also Commission Rule 2.41(a)).  Ensuring compliance with Commission orders designed to remedy prior violations of antitrust law, and to prevent future recurrence, is a critical part of the FTC’s enforcement mission. Effective enforcement of existing orders requires both well-written orders with clear obligations and follow-up through active monitoring of Respondents’ actions to comply with those obligations. Compliance reports are a critical means to that end.

Recent experience, however, has revealed that some Respondents are not taking seriously their obligation to provide detailed and timely reports. This has prompted us to revisit and revise standard order language to make clear what constitutes a complete compliance report.

In future orders, Respondents should expect to see new language requiring more detail in compliance reports. The expanded specifications spell out Respondents’ obligations to provide clear and complete information in their compliance reports. Of course, reporting obligations are in addition to the substantive requirements of the order, which require certain actions or bar others to remedy the Respondents’ law violation. Failure to follow any mandate of a Commission order may lead to an order enforcement action. For the duration of the order, where necessary, the Bureau will continue to require the production of documents, initiate compliance investigations, and seek enforcement and the imposition of penalties if Respondents fall short of their obligations to comply with any term in their orders.

The need for detail and support

Commission orders will now include the following language specifying what should be in compliance reports:

“Each compliance report shall contain sufficient information and documentation to enable the Commission to determine independently whether Respondents are in compliance with the Order. Conclusory statements that Respondents have complied with their obligations under the Order are insufficient. Respondents shall include in their reports, among other information or documentation that may be necessary to demonstrate compliance, a full description of the measures Respondents have implemented or plan to implement to ensure that they have complied or will comply with each paragraph of the Order; a description of all substantive contacts or negotiations for the divestitures and the identities of all parties contacted, and such supporting materials shall be retained and produced later if needed.”

This is model language, which may be modified as appropriate to account for the specific nature of the matter, the order, or other circumstances. The revised provision represents a clarification, not a change, in Respondents’ obligations under Commission orders. Respondents should understand that compliance reports must include a meaningful level of detail so that any report, including the information and documentation submitted, will be sufficient for Bureau staff and the Commission to determine whether Respondents have taken the steps required to comply with each individual provision of the order.

When appropriate, copies of relevant documents or other evidence should be submitted with the reports to demonstrate compliance. For example, where a merger order requires a post-order divestiture, compliance reports must include a detailed description of what steps the Respondent has taken to market and sell the assets. Generally, this would include a timeline and a detailed description of the Respondent’s sales efforts, the specific buyers or potential candidates with which the Respondent is negotiating, the nature and status of negotiations, and the expected timeframe for completion and divestiture.  Reports that are vague, generalized, inaccurate, misleading, or conclusory are insufficient, as are reports that omit relevant information that could affect the Commission’s determination whether the Respondent is fulfilling its obligations under the order.

Reporting requirements are in addition to the substantive obligations of the order, which directly address the Respondent’s prior law violation. When the Respondent is meeting all of its obligations contained in the order’s affirmative provisions, compliance reports are an important way to confirm that to the agency. Where the Respondent has affirmative order obligations with deadlines, or where expeditious compliance is critical to achieving the order’s remedial goal of promoting competition, compliance reports are critical to the Commission’s ability to oversee and enforce compliance with the order. This is especially important in merger orders where time is of the essence, and delay may deny the Commission the opportunity to prevent the contemplated remedy from derailing.

Respondents should expect Bureau staff to play an active role in ensuring that parties comply with their reporting obligations.  This is how the agency determines whether the Respondent is fulfilling its legal obligations and whether the remedy will achieve its purpose.

Plan ahead to file detailed compliance reports

Respondents can take steps to assure order compliance and avoid a potential enforcement action, such as establishing effective internal policies and procedures to regularly review, investigate, and verify order compliance, which would enable Respondents to detect and correct areas of possible noncompliance promptly. Having no or an inadequate order compliance oversight process can lead to order violations, enforcement actions, and civil penalties. See United States v. American Hospital Supply Corporation, 1987 U.S. Dist. LEXIS 6043; 1987-1 Trade Cas. (CCH) P67,609 (N.D. Ill. 1987) (defendant’s inaccurate compliance reports and inadequate process for inquiring into and assuring order compliance resulted in liability for multiple continuing violations and civil penalties for failing to seek Commission prior approval for acquisitions of catheter distributors as required by its order).

Failing to submit a complete compliance report can violate Section 10 of the FTC Act, 15 U.S.C. § 50, and lead to civil penalties even in the absence of any violation of the order’s other terms.  See, e.g., St. Regis Paper Co. v. United States, 368 U.S. 208 (1961). Submitting a misleading, incomplete, or seriously deficient report can, in appropriate circumstances, constitute an independent order violation and serve as evidence of bad faith in an order enforcement action for civil penalties and other relief. If a Respondent submits a conclusory, unsupported, or otherwise deficient report, the Commission can require a supplemental report to correct the deficiency. 

If Respondents or their counsel have questions regarding any aspect of their compliance reporting obligations, they should contact the Bureau’s Compliance Division at the earliest opportunity.

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