FTC Subpoenas, Civil Investigative Demands Enforced in Monopolization Probe

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

In an FTC investigation into a consumer products manufacturer’s potentially monopolistic practices in the market for condoms, the agency was entitled to seek information on products other than condoms because the inquiry extended to the manufacturer’s products other than condoms, the U.S. Court of Appeals in Washington, D.C. has ruled.

An order granting enforcement of the Commission’s subpoena and the associated civil investigative demands (CID) (2010-2 Trade Cases ¶77,215) was affirmed.

The manufacturer accounts for approximately 70 percent of the latex condoms sold in the United States. It offers retailers a discount based on the amount of shelf space they devote to its condoms.

Exclusionary Bundling

The Commission’s inquiry lawfully extended to the possibility that the manufacturer was engaging in the exclusionary bundling of rebates to retailers that sold the manufacturer’s condoms, as well as its other products, in order to acquire or maintain a monopoly in the U.S. market for condoms.

Pursuant to a Resolution Authorizing Use of Compulsory Process, the Commission had issued a subpoena seeking, among other things, production of documents related to the manufacturer’s sales and distribution of condoms in the United States and Canada. In addition, the Commission issued a CID seeking information about cost, pricing, production, and sales of the company’s condoms in the United States and Canada.

When the manufacturer turned over to the Commission documents and data sets relating to its condom business with the information on other products redacted, it petitioned the Commission either to limit or to quash the subpoena and the CID. The Commission denied the request, and a federal district court granted the agency’s petition to enforce the subpoena and the CID.

The district court later denied the manufacturer’s motion to stay the enforcement order pending appeal (2011-2 Trade Cases ¶77,720). Earlier this year, the Commission denied review of the manufacturer’s petition to quash, limit, or stay four subpoenas ad testificandum directed to the company’s employees (CCH Trade Regulation Reporter ¶16,682).

Relevance, Burden

The district court did not err in finding the request to be “reasonably relevant” to the Commission’s investigation and not unduly burdensome. The Commission maintained that its Resolution contemplated an investigation into the possibility that the manufacturer was engaged in exclusionary practices in which products other than condoms might play a role, include bundling discounts. However, the manufacturer’s claims rested upon an unduly narrow interpretation of the Resolution. Deferring to the Commission’s own interpretation of its Resolution, the district court correctly interpreted the resolution to include an inquiry that implicated the manufacturer’s products other than condoms.

The court declined to decide whether the Commission’s bundling theory under LePage’s Inc. v. 3M, 324 F.3d 141, ultimately would be successful in the District of Columbia Circuit. According to the court, an inquiry into the bundling of rebates on condoms and other types of products with the purpose of sustaining market power in the market for condoms is arguably within the condemnation of the Sherman Act as the Third Circuit construed it in LePage’s. However, the court said that the LePage’s decision
was not the law of the D.C. Circuit, and had been roundly criticized.

The Commission could lawfully investigate whether the manufacturer’s practices would constitute a violation of the law in the Third Circuit, the court explained.

The December 13 decision in FTC v. Church & Dwight Co. will appear at 2011-2 Trade Cases ¶77,721.