Antitrust in 60 Seconds: What Happens in an Investigation?
The 60-Second Read:
Investigations are a preliminary step that antitrust enforcers use to collect facts and determine whether a violation has occurred. Investigations can be triggered based on any agency concerns, including those brought to the agency by market participants, Congressional investigations, or journalist reporting. The agencies will then use one of their statutory rights to request documents from the target, and often other participants in the same market. Market participants, and the target, might also volunteer information for the agency to use. After reviewing this information, the agency will choose to either negotiate a settlement that requires the target to cease a particular behavior, file a complaint in a court of law, or do nothing if no infringing activity is discovered.
There are many things that can trigger an antitrust investigation: premerger notifications, consumer or business complaints, Congressional inquiries, or even news articles. Once an agency decides to open an investigation, the first step is to coordinate with other agencies to ensure that efforts are not duplicated. In the United States, there are three government enforcers of antitrust laws: the Antitrust Division of the Department of Justice (DOJ), the Federal Trade Commission (FTC), and State Attorneys General. Traditionally, the DOJ and FTC decide which of the two agencies will investigate a particular potential violation, and then will sometimes work with State Attorneys General who are conducting their own investigations.
Once an investigation is opened, the next step is for the agency to determine what information it needs and what authority it has to demand it. The agency may also need to demand information from the target’s customers or competitors. The antitrust enforcement agencies’ investigatory powers are fairly broad. For example, the FTC is generally authorized “to gather and compile information concerning, and to investigate from time to time the organization, business, conduct, practices, and management of any person, partnership, or corporation engaged in or whose business affects commerce, excepting banks, savings and loan institutions . . . Federal credit unions . . . and common carriers . . .” The FTC in particular does not even need suspicion of an infringement to conduct an investigation, and can use its Section 6(b) authority to investigate an industry. Section 9 of the FTC Act permits the agency to “require by subpoena the attendance and testimony of witnesses and the production of all such documentary evidence relating to any matter under investigation.”
Production of documents and witnesses can be extremely disruptive and costly. This affects the target of the investigation and other parties that the agency needs information from. For this reason, there are certain safeguards in place. For example, the FTC’s Commission Rule 2.10, 16 C.F.R. § 2.10, gives the party receiving a demand the right to petition the agency to limit or reject the demand for information. The agency may also engage in informal negotiations, when the parties operate in good faith, to limit the amount of unnecessary information delivered. This reduces the expense of the investigation for both the agency and the party receiving the demand. The agencies also require a preliminary investigation memo that contains, among other things, a description of the initial investigative approach. The agency can also issue a request for information that is voluntary.
The investigation enters its next stage when a compulsory request for information is issued. At this point, the investigation formally becomes a “civil” or “criminal” antitrust investigation. The most common tool for requesting information is called a civil investigative demand, or “CID.” The agency can also issue grand jury subpoenas or, in the case of mergers, second requests.
An investigation can be concluded in three ways: 1) the agency can close the investigation if it finds no conduct worth pursuing as a violation of the antitrust laws; 2) the agency can attempt to negotiate a settlement that ends questionable conduct and/or contains penalties and restitution; or 3) the agency files a formal complaint.
For more information on investigations, please see Chapter 3 of the Antitrust Division Manual.