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Why FTC CID’s Must Be Reformed

By Jonathan W. Emord

When the Federal Trade Commission commences a non-public investigation of a company it suspects of deceptive health benefit advertising, it oftentimes resorts to use of a civil investigative demand, which is an administrative subpoena.  The Supreme Court has upheld sweeping use of investigative powers by the federal government prior to the issuance of formal charges.  See, e.g., Endicott Johnson Corp. v. Perkins, 317 U.S. 501 (1943) (one of the first cases to recognize federal agencies’ right to have broad access to information during investigations); U.S. v. Morton Salt. Co., 338 U.S. 632, 642-43 (1950) (recognizing broad investigative powers of the FTC).  Procedural protections and rights that attach when a defendant is accused of civil or criminal wrong doing are largely absent prior to that time.  See, e.g., U.S. v. Powell, 379 U.S. 48, 51 (1964) (administrative agencies do not need probable cause to issue a subpoena; they must only meet a reasonableness standard to ensure compliance with the Fourth Amendment).  Consequently, agencies like the Federal Trade Commission can, and do, impose costly production burdens and ask extraordinarily intrusive questions of those they suspect of law violation at the outset of their investigations.

The FTC, for example, asks not only that a party under investigation produce all of the scientific evidence he, she, or it possesses concerning questioned health benefit claims in advertising but sometimes for all scientific evidence possessed for every health benefit claim questioned or not.  FTC also asks for evidence supporting claims the agency believes implied, but not expressly stated.  FTC demands production of all correspondence with advertisers and agents, such as consultants, concerning the advertising and support for claims made along with all contracts and correspondence related to the business of the party accused whether or not specifically tied to the questioned claims.  Most intrusive of all, FTC asks for all bank statements and holdings of the company and the principal officer or officers of the company, including amounts on hand, in banks, or in investments as well as title to, and valuations of property, such as homes, vehicles, etc.  The demands are not limited to funds, and holdings and property acquired from funds, derived from the specific advertising questioned but reach all of the company and individual officer or officers’ assets.

Before the issuance of formal charges in the form of an administrative or judicial complaint, the FTC does virtually nothing to constrain its staff’s use of civil investigative demands.  Because the subject matter investigated is in fact speech, the enormous burdens imposed have an in terrorem effect, dissuading before an adjudicated determination all speech and related economic activity associated with the advertising questioned.

Thus, because FTC does not narrowly tailor its CIDs to reach only advertising for which it can prove deception and to reach only those assets obtained from the proceeds of such advertising, it in fact chills speakers and suppresses speech generally, and does so before proving a party guilty of anything.

To protect rights, ensure fairness, avoid abuse of federal power, and minimize the chilling effect on speech, the FTC should reform the content of its CIDs and limit the use of them by FTC staff.  It should refrain from demanding production of evidence concerning the financial holdings or business relationships of a party suspected of deceptive advertising until after the FTC has reviewed the precise ad content in question, reviewed the scientific evidence concerning the ad content in question whether held by the accused or in the scientific literature generally, and has determined that in fact the ad content in question is likely deceptive.  Only then should it be able to demand evidence of holdings but even then the evidence demanded should be limited to the holdings derived from the precise ad content in question and not from all financial dealings of the party under investigation.  Administrative expedience should not override a respectful regard for the rights, privacy interests, and speech of those suspected, but not accused, of deceptive advertising.  Suspects, even those suspected of civil rather than criminal wrong doing, are entitled to a presumption of innocence.

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