FEDERAL TRADE COMMISSION

Agency decision

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What actually matters in this document.

Text

In the Matter of:

MERGER BEST PRACTICES WORKSHOP

SAN FRANCISCO

JUNE 5, 2002

901 Market Street

San Francisco, CA

The above-entitled matter came on for hearing,

pursuant to notice, at 12:05 p.m.

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FEDERAL TRADE COMMISSION

I N D E X

SPEAKERS:

PAGE

Welcome:

Mr. Klurfeld ...................................3

Initial Waiting Period:

Ms. Davis, Mr. Wiegand .........................5

Negotiating Modifications to Second Requests:

Mr. Krulla, Ms. Almirantearena .................

Electronic Records and Financial Data:

Mr. Chang, Mr. Sutis, Mr. Hoffman ..............57

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JUNE 5, 2002

12:05 P.M.

P R O C E E D I N G S

WELCOME

MR. KLURFELD:

My name is Jeffrey Klurfeld

and I have the honor and privilege of being the

Director of the Western Region of the Federal Trade

Commission, and I'd like to cordially invite you to

our Merger Best Practices Workshop which we are

having here in San Francisco.

So again I thank you very much for coming

here.

We are looking forward to your sharing your

views.

you have to say.

We are very interested in listening to what

Thank you.

INITIAL WAITING PERIOD

MR. WIEGAND:

Our first topic this

afternoon is the use of the initial waiting period,

and Allison Davis is going to speak to this

subject.

case that we worked on several years ago in this

office, she was very energetic about wanting to

accomplish a lot during the initial waiting period

and we have really taken her approach and used it

in other matters, so there was no better person to

have speak on it than Allison.

And we asked her to come because a merger

MS. DAVIS:

Thank you, John.

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I did a little outline, just jotted down

some ideas, I want to make sure that there's enough

copies up here, and I'm -- there's not going to be

enough copies for everyone, but I'm happy to

provide copies later, it's just some way to give

myself a road map so I don't talk for too long

because that would be my wont.

The initial waiting period is really

important for a couple of reasons.

And we were

talking last night about doing -- what are the

problems, what are the issues that can up during

the initial waiting period and what can the agency

do and what can the private bar do to help

facilitate a more efficient review process during

that 30 days.

And I think the big problems and issues is

delay, of course, your clients are always saying,

"When are you going to close?"

question is, "When do you think we'll get early

termination and when can we get out of here?"

The biggest

Uncertainty by the agency about how to

address the antitrust issue, do they want more

information, do they want a second request, do they

need outside information, will an economist help,

how best can we get information to them, it seems

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like an unending problem of who's going to get

clearance to review it -- thank you, Senator

Hollings.

And what I call the guise, a fishing

expedition in the guise of an antitrust issue,

we've had several second requests that had nothing

to do with the transaction itself, it had a lot to

do with the agency wanting to learn more about a

market and use the transaction to do that.

And also it's important that the agency and

the parties match the urgency and the timing.

it takes three weeks for clearance to come and then

they have to question, it's good for the agency to

realize that we'll probably want to fly to

Washington the next day to meet with them and the

economist and everything else.

So that being said, what can we do to help

push this forward and make it more efficient?

can we do to rise this to best practices?

What

And I think there's two sides, of course,

because there's two sides to the parties, there's

the agency side and the practitioner side, and

you'll see that the second page of my outline, if

there's enough to go around, has ways that I think

we can help from the private bar.

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But let's talk a little bit about some

solutions and suggestions, and I'm just going to

put them out there because I'm sure people have

opinions about these.

But at or prior to the filing it would be

good to have some procedure for a preliminary

inquiry.

by calling somebody that I knew and said, "I'm

going to submit this, I think it's going to raise

some red flags, I don't think there's some

constraints, what do you suggest I do?

maybe should get a copy of the HSR, who would like

a white paper, who do you think -- where do you

think I should go with this?"

Now I have used this on an informal basis

Who else

It's good to be able to have a procedure,

to have a preliminary inquiry because you've got a

statutory time period and you can cheat a little

bit by putting some time on the front end.

happens in situations, for example, where the

parties figure out that there might be a red flag

but there's really no constraint, so it's important

to get information to the agency.

decision in the first 30 days and they want to make

sure that it happens that way, and how can that --

how can we bring that about.

They want a

A little preliminary

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inquiry could help.

There's some mechanism we need to get the

analysis done quickly, what's the most efficient

way to get to the point where we need to be, and

then the idea of jurisdiction, which I think has

been beaten to death and I'm not going to go into

it.

If the inquiry comes late, I have had some

inquiries -- and I call them inquiries because they

don't become second requests, you know, until after

some negotiations -- it comes like the third week,

it's important for the agencies to understand that

at that point your client is apoplectic, and so

there has to be some accommodation I think.

face-to-face meetings are really important, in my

view, it's trying to define and narrow the issue as

fast as possible to stay within the 30 days.

And the fishing expedition that I'm

Early

referring to is, I had a transaction held up for

about 90 days while we gathered information off the

internet and provided it to the agency -- it was

not anybody here, it was not an FTC inquiry -- but

we were astonished at the end of the day that they

asked no information about the parties themselves,

they were only making inquiries about the market.

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It had to do with the green power market in

California.

document, everything we gave them we did research,

but it was nearly everything on the internet and it

took us about 60 days to get it through.

said, "Thank you very much, this is all very

interesting, and now you can close your

transaction."

Why am I doing this?"

you know, an information service and do the

research, but don't do it on the time line, the

transaction time line.

And everything we gave them was public

I was, like, "What?

They

What is this?

We're happy to provide you,

You know, come to us in some informal

proceeding or have a workshop like the wonderful

workshop the FTC had on deregulation of the

electricity market a couple of years ago in

Washington, that was fantastic.

Gather people together and find out about

information and markets, but don't do fishing

expeditions during my initial waiting period.

Then you come to the second request issue,

and you can go two ways, you know, you can go into

the formal second request or you can have the

alternatives, you could trigger another 30 days,

which I have found works for me in transactions

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where I don't believe there's any antitrust

problem, but there is an explanation that may be

required with the agencies.

with me, let's just go another 30 days and then

let's continue on a negotiated informal basis.

And so I'm, like, work

It would be good to know from the agencies

how severe they see the problem to know if that's a

worthwhile road to take, or if we should really go

into the second request and spend our time

negotiating in that vein, because that takes us in

a whole different direction.

So it's again, it's go -- it's defining

issues, it's trying to figure out where the

concerns really are.

faster the solution and the more effective I can be

in providing information.

The more narrow you get the

And sometimes it just takes another 30 days

to narrow the issue.

Sometimes the agency's just

not going to know and it's going to take you some

amount of time -- we had an issue in the tech area,

and so again this was justice, but we -- it took us

30 days to explain the issue, and that was okay.

We used people, we used technicians to talk to the

reviewers and spent a little time bringing them up

to speed, and once they understood what the issues

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was and the technology that was there, and once I

understood it, we could explain why the concerns

weren't really there, that there wasn't any

constraint.

And that's very valuable.

I think it's

valuable in the short term to get the transaction

done, it's also valuable in the long term because

it helps the reviewer stay up to speed in different

emerging areas in the marketplace.

And I just want to spend two minutes,

because this is a two-way street, I think there's a

lot that the private bar can do to help the

process.

do, but the main, the biggest thing you can do is -

- to be prepared is don't be surprised by an

inquiry, always anticipate an inquiry.

look and see at your -- look at your transaction,

talk to your business people, look at the structure

of the market as you go into it.

you've got substantive antitrust analysis as part

of the checklist when you go into a transaction.

I think there's four main things you can

You can

Make sure that

And then if you see something that may

raise a red flag, that may be a constraint, or that

may be a full-blown problem, then be proactive and

get it -- get with the other side, get with

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somebody in the agencies and get the issue out on

the table as soon as possible.

go, well, maybe they won't notice, maybe they won't

care.

if you put it out there it's a lot better.

Don't sit there and

And sometimes they don't care, but at least

And in the first place, I think that it

enhances your ability to deal with them if you get

the problem out on the table immediately.

save yourself some time, you are able to prep, at

that point you've got your economist, you've got

your documents lined up, you kind of know where

you're going and so you're taking the best

advantage you can of the initial waiting period.

It's how to stretch that 30 days and give yourself

a little more time and a little more flexibility.

And be sensitive and aware of the

You also

constraints of the reviewer that you have.

Understand, you know, what kind of things are

bearing upon them.

Don't just come in and say, "We

have got to close.

You don't understand my

client's urgency, the economics of this thing are

all going to go, or my client's going to go down

the tubes, or I've got to..."

sensitivity on both sides about what's going on

with everyone.

You know, have some

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And then lastly, just remain flexible.

Remain flexible.

Don't put your back up.

Understand that there's a couple different ways to

go and keep your options open.

MR. WIEGAND:

People want to come up?

MR. KLURFELD:

Thank you, Allison.

At the risk of committing an

act of lese majeste, I think I committed an error

in terms of not recognizing Mike Cowie's new title,

which recognizes his considerable talents and the

asset he is to the agency.

director of the Bureau of Competition.

apologize.

MR. COWIE:

He is an assistant

So I

While we're doing the subject

of titles, could we identify the speaker by their

company, organization?

MS. DAVIS:

Sure.

I'm with Thelen, Reid,

Wiele and Priest, I'm an antitrust lawyer there,

I'm a litigator.

doing HSR work for about 13 years.

We have national offices, been

MR. HOFFMAN:

Did anybody else want to say

anything about the initial waiting period?

Any

comments about things that we could do better?

that we do well?

at least tell us who you are and --

If you're going to comment just

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MR. OLEANNA:

Is there a move towards a

more standard access letter, sort of for the

initial letter that you get from the agency when

they -- it's not clear it's determined a problem

and they want customer list information, customer

names, volumes, et cetera?

that was more standard, because I've gotten letters

both from the FTC and DOJ in the past, like, two

years that have been pretty different.

stuff that I try to drill into my business people

to prepare during (inaudible) deal so that we have

it, but when you then get a request that you didn't

anticipate it's awfully hard to get that quickly.

MR. COWIE:

It would be good if

And it's

That's a good question, and

it's something we've thought about.

want to try that?

thought we should have a model posted on our web

site.

Rhett, do you

Because there's been some

MR. KRULLA:

We are internally, among the

shops, exchanging drafts of initial access letters.

With their October 2001 announcement DOJ has

affirmatively indicated that they want to make

greater use, more effective use of the initial 30-

day waiting period, and we're discussing with them

types of things that we routinely seek in the

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initial period.

Also emphasizing to staff that we need to

be ready with those letters as soon as we get

clearance, so it's not something we should be

thinking about after clearance is obtained.

But they need to be focused on the industry

we're dealing with, focused on the nature of the

transaction, are there vertical issues, horizontal

issues, is it a regulated industry, is it high-

tech.

would be problematic.

So a standard form access letter I think

But a checklist of the types of things we

will -- you can expect us to be asking for and the

types of things you should be assembling, including

the names of customers, contact people, phone

numbers, addresses for top customers for the

overlapped products.

Other routine things we ask for would be

most recent business plans, any analyses of the

acquisition, any industry -- or consultant studies

or reports about the industry.

and product brochures, if it's a product where a

widget, we don't know what a widget is so give us

something to show us what that is.

Those would be --

Those would be the key elements that we

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would seek.

And also preliminary market share or

competition share information in terms of what are

the overlap products.

we get a debate, well, it's not a market, who knows

what the market is, we don't track market shares.

Well, most companies have an estimate of what the

universe sales figure is.

If we ask for market share

And depending on the nature of the product,

we'd also be interested in capacity and production

figures, identify who the competition is, i.e. who

are the people that do that stuff.

estimates of what their capacities are, what their

production is, what their sales are, and from that

we can calculate market shares.

have those figures but you do have market share

guesstimates, and then we can talk later about what

the basis of those is and how reliable they are.

MR. COWIE:

that question?

a C-O (inaudible).

And do you have

Or maybe you don't

Gil, do you regret having asked

Because it sounds like Rhett wants

MR. OLEANNA:

That's the other question, is

the concern is that (inaudible) suggested

(inaudible).

MR. KRULLA:

We try to keep these short,

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the time frames are shorter than for a second

request.

had another transaction in the industry say four

years ago, we may want to go back and look at what

the competitive environment was prior to and

following that transaction, so there may be a

particular reason in that first 30-day period to

look more deeply at a particular case.

But in any given transaction we may have

MR. HOFFMAN:

Anybody else have any

thoughts on the initial waiting period?

turn and talk a little bit about the second request

itself.

Or we can

Mike, I'll lay it on the table.

MR. COWIE:

Well, the main purpose here is

to get criticism and this certainly won't -- we

deal with the subject of the content and scope of

the second request, that's an area where I expect

some of you have some concerns or criticisms or

recommendations.

Are there issues concerning the second

request instructions, the type of information we're

asking for, the nature of the records we're asking

for that any of you think is overly burdensome and

not worth the effort?

hearing about that.

MR. SUTIS:

We'd be interested in

Bob Sutis from Hewlett Packard.

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Certainly back-up detail systems are, from

Hewlett Packard's point of view I think asking for

backup e-mail system tapes is pretty much an idle

exercise.

archive systems by the nature of those systems, and

so you spend an enormous amount of time and energy

in trying to produce those systems for almost no

return.

There is no way to search those backup

MR. COWIE:

Well, why we maintain that,

what we're encountering, Bob, are situations where

companies are becoming more sophisticated at

imposing involuntary e-mail deletion programs.

in other words, employees have no choice but to see

their e-mail every two or three months be deleted.

So we're facing situations where companies have two

or three months of live e-mail, that's all, yet

they're telling us they have these backup tapes

where someone's taken a picture every three or four

months of everything they have and then maintaining

them.

MR. SUTIS:

I suppose I have two comments.

First is, you know, there may be companies -- and

I've worked for Hewlett Packard for a long time so

I'm unfamiliar with the practices of a lot of the

other companies -- but I doubt that their e-mail

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traffic essentially is evaporating in 60 to 90

days.

their e-mails systems, but certainly not their

personal holder and a lot of records that are

stored on their C drives or on their company

servers.

still available.

Maybe their in-box or their delete trays in

So I think that plenty of information's

And I still would think that the backup

tapes -- and it would have to be perhaps on a case-

by-case situation if you did find somebody who is

erasing every form of e-mail communications after

60 or 90 days as a matter of company policy, I

still think that, except in those situations, that

there's very little return for looking at backup

tapes.

MR. HOFFMAN:

Karen did you -- Karen

Silverman from Latham & Watkins I know had a couple

things to say about the second request.

MS. SILVERMAN:

More generally, but also

about some of the electronic process in production

and the backup systems for a minute.

But just to finish Bob's point, I think one

of the challenges, too, with the electronic

productions and the backup systems is the

(indiscernible) and the details is going to differ

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by company.

divisions will very often have different systems in

place.

And I know that even with companies

One of the things that we have recently

encountered is that on big productions where

there's a continuing obligation to produce

(indiscernible) current within 30 days, every time

you take a snapshot of that system you're capturing

sort of what came before, and so there's a lot of

detail in programming associated with sorting, to

producing a current production and then sorting out

the material that's unique.

So what you need to do is work with the

agencies about -- in terms of what they actually

need to see, what they're really interested in

getting at, whether it's a limited number of

sources or whether it's a particular kind of

document.

But to technically comply with the

obligations of the continuing second request

production requirement -- and this gets to the

instruction about how current your production has

to be at the end -- it just raises all sorts of new

sort of practical problems when you throw in the

electronic production piece of it, because it's not

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static.

not throwing their material away, it's a question

of the system taking the damn picture over and over

again and sort of recapturing all the same

information.

And it's not just a question of somebody

So I would commend to those agencies taking

a sort of broad and creative view, and maybe

soliciting more practical experience from folks

about how they've specifically solved that problem.

It's confounded several clients of mine

lately, not actually the FTC, but probably delayed

an ultimate production by about a month just

dealing with that issue on -- so.

MR. HOFFMAN:

Well, is that issue, for

example, eliminating the requirement that people

update (indiscernible) records?

have any sort of general best practice type of idea

that we should do?

MS. SILVERMAN:

Or, I mean, do you

I think that arriving at a

cut-off date that if, if anything's updated that

it's updated for a limited number of sources

identified up front so that you're not dealing with

sort of a wholesale production each time.

really just a volume of records issue.

And it's

And the problem is, if anybody's ever done

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this -- and several colleagues back here have done

too much of it -- but if you read an e-mail,

they're just time-consuming to process from a

review standpoint, and so it's a little bit of the

waterwheel problem, which is you have to read them

backwards and to print them out and decide whether

this stream went left or right and how is it going

to read from the last one and so forth.

mean, it just raises unique issues.

So, I

So I would confine the updating requirement

to a limited number of sources or a time frame that

is sensible, or a topic that's searchable in the

subject line, or some -- it'll be a very practical

solution but -- and it will probably need to be

customized by event.

attention.

MR. COWIE:

But it's worth giving it some

Karen, are you referring to a

situation where you were telling the companies to

cease deleting e-mail when the system is

overloading, or are you just talking about --

MS. SILVERMAN:

(The parties simultaneously speak.)

MR. COWIE:

MS. SILVERMAN:

problem.

Well, that --

-- searches in general?

Well, that's part of the

And also different systems are capable of

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different backup functions.

And there are people sitting here who know

a lot more about than I do but -- some of whom have

designed these systems.

But they -- there's a requirement not to

delete which sort of creates this accretive

problems (inaudible) behind it.

the problem that on any given person's drive

they're keeping threads and strings that are sort

of lesser-included.

But there's also

And we've come up with some interesting

filter solutions for instance, where it's possible

where you can have the system match up files so it

can tell when you have a duplicate e-mail and just

sort of delete one and produce the other, so you

can compare...

And we've negotiated -- again, this was

with Justice -- we ended up negotiating sort of a

methodology for presuming that e-mails were

duplicates of one another and sort of excluding

them.

going to get it 20 times and --

Because otherwise if you cc 20 people you're

MR. COWIE:

Right.

And we ought not to

care about those people because there is -MS. SILVERMAN:

Right.

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MR. COWIE:

-- for other types of

duplicates the argument has been made that I want

to know what was in his files --

MS. SILVERMAN:

(The parties simultaneously speak.)

MR. COWIE:

And that -- right.

-- and when I'm deposing a CEO

or the V.P. of marketing I want to know what was in

his files, therefore need to produce the duplicates

for the --

(The parties simultaneously speak.)

MS. SILVERMAN:

And my feeling is if you

can come up ahead of time with some stipulations

that say, listen, if the re line, if the cc line

says that you were copied on the e-mail and it

didn't actually come out of your in-box, let's

assume you got it.

MR. COWIE:

MS. SILVERMAN:

stipulations along those lines.

Right.

Yes.

You can probably get

You can probably arrive at a list of filter

terms so that if you were to run a generic search

for everything having to do with, you know, green

widgets, plus about 40 other terms, you're going to

get most of the e-mail you care about, you're not

going to get the softball schedule and, you know,

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some of these high school play obligations and

things like that.

MR. COWIE:

MS. SILVERMAN:

to be printed and read.

enormously burdensome.

Right.

Because all that stuff has

I mean, and it's just

So, I know it's a topic for other speakers,

but I think there are some standard sort of

parameters that could be --

MR. COWIE:

Yeah.

Well, we could have a

standard --

(The parties simultaneously speak.)

MR. COWIE:

-- second request saying it's

unnecessary to produce duplicates in the case of e-

mail.

For non-e-mail --

MS. SILVERMAN:

MR. COWIE:

Right.

-- there's been some debate for

the reasons I've stated.

loud it's hard to articulate a reason why you would

need duplicate e-mail given that you have a very

clear record of who are the recipients.

MS. SILVERMAN:

But just thinking out

And I think it's -- the

systems are -- many of them capable of, if you

compare the recipients, the date and the size of

the file and the subject line, you can pretty

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quickly identify almost mechanically where you have

duplicates on your hands.

with some rules of operation on that I think it

would help.

So if you can come up

And the other thing, we're generally on the

second request, what's interesting to me is that --

and the model second request is a huge improvement

over where we were.

What's -- what has occurred, though, over

the last couple of years since it was really

generated again, is that it continues to grow with

the times, as it should, but nothing is ever taken

out.

practicing long enough -- you can see, like, the

deal you did in 1998, you know, sort of reflected

in these generic terms.

So you can actually -- if you've been

I think depending on how you have used the

initial waiting period and how focused you know

your issues to be the second request -- which

always looks the same anyway -- is more or less

frustrating.

know, the first 30 or 60 days narrowing issues you

are still going to get the complete second request

from beginning to end, in my experience.

Right?

If you have spent the, you

That it's very infrequently the case that

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the agency would up-front any -- they'll invite you

in to modify and they will be prepared to modify,

but the operative document, and the document that

will determine when you're in compliance and when

you can actually start clocks running on doing your

deal, is the same document we all see all the time,

and you can pull it up off the web this afternoon.

What changes are the definitions, first.

will tell you that when a second request comes in

there's a parlor game that we play, and we compare

it to the model and figure out sort of where we are

to be surprised, and what's different about this,

and we probably read too much into the differences

between the model and the actual request that comes

over.

differences.

But frankly, there aren't usually that many

The model is a great tool for educating and

preparing clients, particularly in deals where you

know you're going to get an investigation.

great device to use to help them understand sort of

what the breadth of their obligation is going to

be, and even start preparing for it in some

instances.

It's a

Many instances.

But that's it, when it arrives it is still

a -- I don't want to say it's a meaningless

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document, but until you really understand the

definitions and how specifically they are going to

apply to your case and your parties and the

individuals identified, it's sort of inoperable.

You know, and so we'll get to modifications

in a little bit, but some of my recommendations for

best practices really go to the modification

process, because I don't know that you can get

around the need for a broad second request given

the agency's --

MR. HOFFMAN:

Well, let me ask you about

that.

Should we abandon them all, or should we

have it just as an educational or structuring tool

for people to look at in advance, but when we

actually do a second request, assuming that it's in

a situation where we've had some first 30-day

communications and perhaps it's an industry we know

a little about, you know, should we be doing second

requests that are really just narrowly focused on

whatever the issues are at the time?

And one of the ways this comes up is we've

heard -- we started to hear that, you know, the

agency uses the second request process to not only

get everything that we need to make our decision,

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but also to get everything that we need to litigate

in the, frankly, extremely unlikely event that

things actually ever go in front of a judge.

And one possible suggestion is that we

restructure the second request to not seek those

litigation-type things but instead to focus in on

just the stuff that we look at internally.

MS. SILVERMAN:

From a -- and I think, I

think that would be a step in the right direction,

to actually -- particularly where there has been

aggressive use and productive use of the 30-day

waiting period, to have that reflected in some

respect in the operative document and, you know,

the subpoena.

And one of the reasons is this breadth and

fishing expedition and litigation interests, you

know, concerned.

The other is just the straight-up

compliance and timing concern, which is that you

are not done until the second request is complied

with, whatever that ends up meaning, in whatever

way, shape or form it emerges from the modification

process, so that it becomes the tool that both

sides use to control the clock as much as it does

to control the analysis and the investigation.

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And we've had some interesting -- I think

the staff has lately become pretty creative in how

it gets here or depart from the actual model second

request, you know, we've been through deals where

we have completed the investigation and no one ever

referred again to the second request after the day

it arrived, because we were answering separate

questions that actually did go to the substantive

issues, but as a result nobody ever knew when we

were done.

You know what I mean?

And so we would -- there was a very

unsettling -- I mean we had a very good

relationship with staff, it worked in that instance

because we talked and we understood, you know, the

crux (phon) and the -- and the expectations for the

crux and everybody lived up to their

representations in that regard.

advise the client that they were taking it on faith

that, you know, on day X, you know, we'd be

determined to be finished with the production.

It didn't come because we --

(The parties simultaneously speak.)

MR. HOFFMAN:

MS. SILVERMAN:

But we had to

-- when you gave that advice?

And that has happened too.

But, I mean, so there's -- it shouldn't have to be

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taken on faith.

the device that we use to run the schedule.

And I don't think it ought to be

And one of the recommendations I would have

for the modification process would be to put

calendar on there.

you know, we can even do it binding or non-binding,

but have a set of expectations and dates set out

where, you know, if we produce, you know, on June 1

we can be expecting to, you know, at meetings on

June 15 and, you know, we're -- or whatever, you

know, we draw one and sort of set out a calendar

that everybody can start to work with and build

into their own internal plans.

I mean it doesn't have to --

You know, one thing, as I was talking to

some of our folks internally about this that was

sort of so notable to me is that the fact of the

matter is that when you go to pull documents from

your client and review documents from your client

the 18-page second request is easily reducible to

one page.

it says "All documents related to competition in

the following 17 ways," is all documentation

related to competition, right?

you tell your young attorneys, that's what you tell

your client and that's what you collect and

You know, spec seven or whatever it is,

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I mean that's what

produce.

So I think that a lot of the language

that's there is unnecessary.

I mean I know why

it's there and I know that, you know, that there

are competing interests in the agency, but it would

be helpful to get a little recognition of that when

you're coming up with the definitions that are

really going to inform how you go about making that

a reality.

know, it's infinite.

Because otherwise you're just, you

And so the model is useful there to, as I

say, instruct your clients that they have a very

serious issue, but in terms of how it's going to

get done it almost bears no, you know, resemblance

ultimately, so it swallows itself.

You know, and like I said, I have been very

pleased lately with the ability to work with staff

on modifications and to creative solutions, they're

given very open to understand, you know, the

technical electronic problems and were -- you know,

it's unreasonable to have to search, you know, 40

people who all have basically the same job, we can

use the sampling technique or -- I mean, they're

being a little bit more creative and flexible in

how that goes down, and then ultimately what the

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size and shape of the second request ends up being,

so...

MR. HOFFMAN:

Thanks.

MS. SILVERMAN:

MR. COWIE:

Okay.

Any other comments on the

subject of the content and scope of the second

request?

Alec, you must have something to say.

MR. CHANG:

I think what Bruce said is

actually very interesting and definitely a step in

the right direction, because again, if we go back

to the underpinnings of this, it's to give the

agencies notice that if there is going to be a

problem they have time to go to court and do

something about it.

It's not necessarily to give the agencies

time to wrap up their case and figure out who their

witnesses are going to be, know where they want to

file, know which theories, which arguments are

going to be the primary arguments, which argument

is going to be their secondary arguments.

know, HSR is a notice, it's a notice but not a

precomplaint discovery, precomplaint preparations.

But, you

So I mean I think that's a very positive

and a good thought.

Because the second (inaudible)

need to be modeling the -- everybody expects to get

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the model because it becomes a negotiating point,

it becomes a leverage point, which goes to timing

which can catch on.

And so if we can, if agencies are willing

to focus and live by the model, then that -- I

think what that means is that the agency who has

the seed lawyers will be using the first 30 days,

just as defense counsel typically try to use the

first 30 days (inaudible).

MR. HOFFMAN:

Shall we turn to negotiation?

NEGOTIATING MODIFICATIONS TO SECOND REQUEST

MR. KRULLA:

The HSR review process, the

second request process, as we view it is an

educational process to help advise staff in

determining whatever further investigation at any

point in time is warranted, whether we can with

some degree of confidence close out the

investigation after we've received some quantity of

documents, information, document questions

answered, whether there's a problem that can be

solved through a consent to a remedy, in which case

we need to know that we have the documents and

information sufficient to identify the problem and

sufficient to give us confidence and let us

represent to the Commission that the proposed fix

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fixes the problem.

And then there are those cases where we

then need to litigate the matter.

present the initial investigation of the matter to

the Commission, say, "Well, we have to be in court

tomorrow, we need to get a TRO, that TRO will be

good for 20 days, assuming it's 10 days ---- again

for 10 days, and then we need a preliminary

injunction order.

us, "What evidence do you have in hand?"

And when we

The Commission's going to ask

Now in one scenario, as suggested today, we

can tell the Commission, "Well, what we got was

enough to tell us that we should be doing something

but, frankly, looking at some of the legislative

history, taking it out of context, we didn't think

that we needed to start preparing our case until we

got into court."

MR. COWIE:

MR. KRULLA:

Alec Chang told us -Yes.

So Alec's assured me

that in the next 20 days I could (inaudible) my

investigation.

MR. CHANG:

Discovery (inaudible) in those

20 days, as any other litagee would have, and I

don't know why necessarily the Federal Trade

Commission should be somehow a special class.

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MR. KRULLA:

Well, again, the whole process

of the second request, and this is a preamble to

negotiation, is to educate us.

it is not compliance with the request, the goal is

to get us the information we need.

The goal as we see

We've got 30 days, or if clearance takes

time out of that 30 days less than 30 days in a

cash tender offer, in a bankruptcy proceeding 15

days, sometimes we renew that for 30 days.

do what we can in drafting the second request

within the time we've got, that's an absolute

statutory deadline; the second request is only

valid if it issues in a timely manner.

But we

So we issue that but at that point if we

haven't succeeded in sorting out the issues,

disposing of the issues say in the first 30 days

it's timely to sit down with the parties, figure

out what the issues are, what is the most relevant

information and documents to address those issues

and see if we can't in this triage process put this

matter in the category of transactions that don't

warrant further investigation.

What would also be welcome, and if we look

at a transaction where there are multiple products

at issue, it may be that five products lend

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themselves to disposal relatively quickly.

During

the second request we didn't have enough confidence

to eliminate those, we can eliminate those.

Then there's one or two products where

there's a clear fix that can be -- deal with the

problem.

maybe a recognition on the part of counsel

undisclosed to us that the parties are prepared to

fix that problem.

And there may be an inkling on our part,

And then there's that other one out there

where the parties say, "Well, you may have an

antitrust concern but we're not willing to fix the

problem."

at an impasse and where the path at the end of the

road is we've got to go to court, then

notwithstanding procedures for getting discovery

and litigation, we have to show the Commission --

D.O.J. has to show the Assistant Attorney General

that they've got a case.

your case?" and we have to have that case in hand

to be able to demonstrate to our decision-makers

that they should send us into court.

So we're at an impasse.

And when we're

They'll ask, "What is

And so I think the -- considering what the

scope and breadth of the needed modifications are

in order to get through the process, the earlier

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firms come to the recognition that they may have to

fix a problem they'd rather not fix the earlier we

can shortcut the process and get to the bottom

line, which is do we have the documents and

information we need to identify the problem and to

ascertain that the fix is correct.

When we go into a second request process

where from day one the parties say, "There's no

problem in any area, we defy you to find one, and

we're not particularly going to help you understand

the industry, help you understand where the problem

is because we think -- we don't think you're going

to be able to develop that record."

thing the parties are offering is, "But I need

modifications, there are all these burdens in the

second request and I need them modified because it

costs too much for me to find these documents and

you don't need these documents anyway because you

would only need them if you go to court and

there'll be plenty of time in the 20-day period to

get discovery, and it would take us months and

months to produce those now, but in the 20 days we

assure you we'll do what we can to get them to you

under the circumstances."

And the only

Well, we're looking at a confrontational

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scenario that we can address that through a

negotiated modification of request.

earlier the parties come to recognition as to where

is this headed, is this -- "Hey, look, I've dealt

with you before, I think I can show you there isn't

a problem," well, show me, I'm here to be shown.

And I can't present a case to the Commission that's

not a case.

That the

But in conducting the investigation, if I'm

looking to assemble the documents and information

not only that will guide me in ascertaining is

there a problem, is there not a problem; not only

to ascertain whether should a fix arise out of the

blue, and it often arises in the 11th hour, is that

fix adequate.

But also I've got to prepare my case, and

that's the direction I'm going when the agenda on

the table is only, "Look, we need a modification to

this request, I'm not going to talk to you about

substantive issues.

be able to make your case at the end of the day,

please grant me concessions and modifications.

We'll be as reasonable as we can be under the

circumstances."

MR. HOFFMAN:

I don't think you're going to

In terms of talking about

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proposals from our side, from the private bar side,

about what to do with the negotiations, Eva, I know

that you are prepared to start the private bar view

on that.

MS. ALMIRANTEARENA:

responsibility for the entire private bar.

MR. HOFFMAN:

MS. ALMIRANTEARENA:

But --

I said start.

quick comments.

Simon, Arnold and White.

(Inaudible) take total

Start.

I did have two

Oh, Eva Almirantearna from Howry,

Sorry about the spelling.

I wanted to make a comment both on what I

call the data request or interrogatory side and

then on the document request side.

My experience generally with negotiating

modifications with the FTC has not been a bad one,

so I'll start out with that.

But I do -- I have had the experience of

receiving the second request, I've had data

requests or interrogatories that really look more

like the wish list of the economists in how they

want the data recorded, all the different ways,

they want it cut this way and that way.

take that second request to the business people at

the client and they look at you and say, "We don't

keep it that way, we don't know anyone who keeps it

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And you

that way," and it creates a real frustration and a

real disconnect.

in the negotiation process to go back and say, "You

know what, we don't keep it this way."

And it creates for a lot of time

And I think one of the problems that has

developed is that once it is written in the second

request as "this is what we want" then it becomes

"you must have it then this way because this is how

we would like to see it."

psychological shift there that takes place.

And it's a little

And I guess I'm not sure what the solution

to that is.

I mean ideally it would be a good

start for there to be more discussion between the

staff that's writing the second request and the

parties that are receiving the second request about

how data is actually kept.

you're not going to give it to them but how can you

cut it in your database and how can you report

capacity, and what capacity can we report before

the second request is issued.

And not so much that

If that's not possible then I think that

there should be some more strict deadlines on the

staff's responding to requests for modifications in

that area, because you're not asking them to

eliminate a product or eliminate a geographic area

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or eliminate a category of documents, but literally

coming in and saying, "This is how our data is

kept," and if you believe us then there should be a

modification of how you're going to get the data.

That's on the data side.

On the document request side I think the

age-old problem of we really don't want to produce

a million documents in every second request, and

the tension between what the agencies need and what

the parties need to conduct an efficient merger

review is problematic.

And my person experience has been that at

the end of the day, in most of the cases that I've

worked on, the documents that are important or

useful or are going to establish the case are a

very limited number of documents, and they usually

come from a limited universe of executives or

people on the org chart.

million pages a lot of times the universe of

documents that are important are 500.

And even if you produce a

And I guess one thing that I would be

interested in seeing is the FTC, and DOJ for that

matter, conducting some kind of retrospective on

some of their old cases either that they've

litigated or that they've recommended a case, to

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sort of see how many documents did we ask for, how

many documents did we get, and at the end of the

day how many documents -- and from whom, who's

files -- did we use to convince the Commission, and

then did we actually use litigation.

And that if there -- you know, maybe after

conducting something like that there would be less

of a sense that I need to get two million because

who knows what's in there, knowing that, you know,

generally we all tend to recognize which documents

are the important ones, and who's going to keep

them.

another sent five years ago really going to be a

make-or-break on any particular merger case.

And is a e-mail from one salesperson to

MR. HOFFMAN:

Let me ask you this though.

Let's assume that we could probably all agree that

in 95 percent of cases the stuff that's important

is the stuff that comes from say the top 20 people

in the company.

really talking about is that we use as a standard

procedure rolling productions that start at the top

of the org chart and then work their way down if we

need them.

So it seems to me that what you're

But the downside to that, it seems to me

from a party's perspective, is that that could

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extend the length of the second request if it turns

out that we think that we're going to need to get

further and further into the org chart because

you're not out there preparing at once, everyone is

being searched or searching incrementally and

producing incrementally.

like that would probably be an efficient process

and produce a lot less documents and still enable

us to make good decisions most of the time, but

also as a tradeoff to the parties, in that they

might face a longer back-end --

I mean, it seems to me

MS. ALMIRANTEARENA:

Sure.

And I think

that's a huge tension, because most of the time you

are under incredible pressure to substantially

comply.

whole, "Well, we'll just give them now," they just

want the clock to start on the government's end

usually because they have reasons to want to move

forward, business reasons to want to move forward.

But I mean sometimes -- and again, I don't

think this is a solution, but for many of us --

And clients aren't really in to this

MR. HOFFMAN:

(Inaudible) have a solution -

(The parties simultaneously speak.)

MS. ALMIRANTEARENA:

I've changed the

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rules.

No.

But a lot of us are paying for the

sins of the few, if that makes any sense.

for every one case that's litigated or every one

case that's challenged there may be 15 transactions

where the scope of what's being produced is

probably much broader because you're worrying

about, you know, that one...

I mean

The thing is, this is my sense of what the

universe of important documents are in every case,

but I just don't know whether there's ever been any

empirical work done, or anything done that would

actually -- people would look and say, "Oh, wow,

you know, we haven't been missing the smoking

guns."

So that's my two cents on that topic.

MR. SUTIS:

At least from Hewlett Packard's

point of view and in a large-scale transaction, I

would not like to see a rolling production starting

at a managerial level and working down out of sight

because the logistics of gathering documents is

enormous if you've got to keep visiting a site.

negotiated, you know, site-by-site or entity-by-

entity discussion with the agency about whose

documents to produce is the most efficient I think

for both parties.

MS. SILVERMAN:

To echo sort of what both

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of you are saying, I think one of the frustrations

is that we each, from a private standpoint, have

our own perspective on what's occurring, and how

the sense of the agency has a much broader sort of

vista.

And the impression that I get is that of

the 12 important modifications that you eventually

get and negotiate six to eight of them are

standard.

whether documents related to it we're discussing

are going to be produced, they go to sort of how

are we actually going to produce the statistical

information that are (inaudible).

Right?

And they go to scope, they go to

But what would help the negotiations I

think go forward quickly would be to have the staff

show up with sort of a checklist of here are the

things you're going to want to talk about, as

opposed to making it seem like a treasure hunt each

time.

letter on my word processor that says "make sure

you ask about X, Y, Z."

like you're (inaudible) because as it's written on

the second request it comes out as a very broad

statement.

against which you have to work.

I mean, you walk in with -- and I have the

You know, but you do feel

And that's the, that's the bracket

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And if there were a little bit of up-front

acknowledgment I think on the part of the agencies

that -- not just that you're welcome to come in and

talk about modifications, but we understand that

they were loaded scopes, they were (inaudible)

depth as well to breadth, that sampling is on the

table and you don't have to ask for it, but it's a

reasonable thing to be discussing with a view to

regional sales departments that all more or less

look the same.

addressed, whatever that is.

a long way to sort of getting everybody off to the

right sort of thing and (inaudible) negotiating.

The electronic universities to be

I think that would go

And I would add a calendar that, you know,

again whether it's something that's -- it can't be

strictly bound or binding, but setting expectations

up front about so now that we know where we have to

go and what we have to do, here's how we sort of

see it rolling out.

touch about the following trees or watershed

events.

round of core documents to you -- we'll collect

them from everybody, but during the course

(inaudible) on X date we'll follow up with Y date.

Or, you know, we'll stay in

Or we can get documents to you, the first

You're going to want to talk about how, you

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know, the standard second requests -- is it 30

days?

production has to be current within 14 days.

don't think I've ever done one, with the exception

-- you know, there are a couple specs that are

updated, but you always have to ask for that.

No, it's 14 days or something?

Your

I mean that -- you know, either changing

the model request or, or we're coming to the table

saying we recognize that it's not workable because

you've got (inaudible) employees.

MR. HOFFMAN:

Well, with that one, should

we change it to say something like, for example, if

you agree with a rolling production you won't have

to update anybody provided that you comply within a

certain period of time, like six months, so things

don't get too stale?

requirement entirely, as long as you substantially

comply within a set period of time?

create negative incentives?

Or should we abolish the

MS. SILVERMAN:

Or does that

I don't know if that

creates negative incentives, but even having a menu

of options would be better.

that any one solution is going to fit every

transaction.

makes the practice interesting, is that they're all

Because I don't know

I mean, that's one of the things that

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different.

But having a menu of sort of

acceptable, sort of this has worked in the past,

maybe we can improve on it here sort of options

that both parties bring to the table, as opposed to

putting all the burden on private parties

(inaudible) and start complaining right out of the

blocks.

we're not there to complain, we're there to make it

fit the actual organization (inaudible) sort of

comply list.

Because I think everybody understands that

So, and that's the data point I think,

which is that everybody knows you -- you know,

they're going to get data but it's not going to get

-- it's never been enough for them so far as I...

MS. ALMIRANTEARENA:

And quite frankly, you

know, there's a real downside to this that creates

-- the business people, the client really then

starts saying, "Well, what's wrong with those

people in government?

our industry works?" and it creates a sort of bad

feedback with...

Don't they understand how

MS. SILVERMAN:

Yeah.

MS. ALMIRANTEARENA:

But on this issue of

how -- what to do about the rolling production, I

mean the whole issue of committing to a rolling

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production or giving that up or -- it's just very

difficult, because every deal people are going to

have very different reasons for why they can or

can't roll --

(The parties simultaneously speak.)

MR. HOFFMAN:

-- as a possibility that you,

you know, that you're rolling, you don't need to

update because it creates a difficult situation

where you produce the files of this group of people

maybe from this site, or these executives, but then

you're later -- you're going to have to update

them, so in a way you sort of get penalized for

producing certain people early.

MS. ALMIRANTEARENA:

In my experience,

there's only very few specs that anyone really

wants updated, and they're usually from very few

people.

And that is the truth.

I mean why do you need to have the last 14

days for every person?

Or, usually it's only

certain people in certain jobs and about certain

topics and that's -- everybody, sort of you know

that, and so going in you know you're probably

going to negotiate that almost, because why would

they care what the person wrote in the last 14 days

about the org chart.

You know, things like that.

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So that I think that there's -- I think

what Karen's saying is that some of this stuff, you

sort of look at it and you're like, "Okay, well, I

know I'm going to have to go in and get that," but,

you know.

MR. COWIE:

How realistic do you think it

is that there will be meaningful dialogue about the

form of data the company maintains within the

initial 30-day period?

MS. ALMIRANTEARENA:

Well, I mean, if you

got clearance on day two you could have a lot of

dialogue.

very hard line to walk.

I mean, I don't know.

You know, it's a

I don't know if there's been any dialogue,

but I do think that not having any has a big

downside.

Now I realize it's a timing thing -- right?

-- like why talk to you about it before --

(The parties simultaneously speak.)

MS. ALMIRANTEARENA:

-- second request, we

can just talk to you about it afterwards, after the

second request is issued.

MR. COWIE:

But you're trying to issue the

second request, and I say to you, bring your

controller in to tell me about your cost

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accounting, financial accounting systems, you know,

what do you say in response?

MS. ALMIRANTEARENA:

Well, the thing is in

most -- I think they're -- in most transactions you

pretty much know whether the staff is going to --

(The parties simultaneously speak.)

MS. ALMIRANTEARENA:

to recommend it or the staff is not.

are some places where you're in the middle, but

most of the time either people understand it's

coming or it's not coming.

initial waiting period you're -- you know, you

spend trying not to get one, and in some cases you

know you're going to get one anyway, so that also

varies.

-- the staff is going

I mean there

And so how much of the

I mean I would rather spend the time in the

initial waiting period trying to narrow the scope

of the request or tailor the scope of request that

I know I'm going to get, because I'm not going to,

probably not to convince you not to give it to me.

So it also depends on what my transaction is like.

MS. SILVERMAN:

And I think some of those

questions are built in or --

listed in the order

(inaudible) explicitly be (inaudible) in this

access letter process, or this up-front -- you

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know, how do you -- put in a neutral term -- and

how do you keep sales data.

stage answering for 17 divisions of which three end

up being of any competitive significance.

But then when the second request arrives it

And you may be at that

just reflects a little bit more --

(The parties simultaneously speak.)

MS. ALMIRANTEARENA:

-- it's a request to

you, to the company as opposed to a request to the

world.

MS. DAVIS:

I think the concern, too, is

the same thing I said in the initial waiting

period, and it happens all the time, is you want to

get to the issues faster.

narrow down what it is you want in the form that

you want to prior to the second request is good

because it gets you to the solution faster.

Anything that pushes it forward faster is going to

be better.

So, you know, if you can

ELECTRONIC RECORDS AND FINANCIAL DATA

MR. HOFFMAN:

The next sort of topic we

have deals with electronic records.

surprised, especially here in San Francisco, that

most of what we've been talking about in general is

dealing with electronic records and e-mails and so

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I shouldn't be

forth.

which kind of cuts across all of the boundaries of

the second request and, as a result, I don't want

to really limit it to just talking about

electronics.

So, you know, I think this is an issue

I mean some of the points that we've

thought about in the context of how electronics

have affected the second request process deal with

whether searching for electronic documents creates

substantially different circumstances for companies

than the traditional search for physical documents.

For example, do you use term searches?

what should the agency's role be in responding to

people's request to use specific kinds of

connector-type, you know, West Law-type searches as

opposed to physically reviewing everything that

exists on a company's server.

And, if so,

What do you do about backup and archive

materials, which we have already touched on but

we're always glad to hear more about.

What do we do about legacy systems when

companies have done significant changes in the

systems that they're using.

may not exist any more or less degraded form on old

versions of software the company no longer uses for

And some things may or

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but that fall within the time period of the second

request.

And also in sort of related way, production

formats.

people giving us things, whether the documents

originally lived as electronic documents or paper.

You know, people giving us stuff either in

electronic and images and OCR'd or text-searchable

of old document form, or printing electronic

documents out and giving them to us in paper, or

giving us live files.

You know, what should we be doing about

I've recently had an experience where we

had a production that involved a tremendous number

of live, active files.

original Word documents in Word, e-mail in

Microsoft -- you know, I had this -- you know,

everything seems to be Microsoft.

spreadsheets.

In other words, the

Excel, the

But there's sort of an infinite variation

in the way things can be produced to us, so I

wanted to lay those on the table, but also keep the

discussion open for anything that you all want to

address in terms of -- I guess this really

primarily deals with modifications, but anything in

the second request process.

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I know that Bob Sutis from Hewlett Packard

and Alec Chang from Skadden had some thoughts on

these topics, so I guess what I'd like to do is

start by asking if either of them want to address

this point, or any of these points specifically,

and then go on to anything else that anybody wants

to add.

Bob or Alec?

MR. SUTIS:

Maybe the two of us could do a

little point-counterpoint here, simply work on the

same deal but do parallel sides of the same deal.

MR. HOFFMAN:

MR. SUTIS:

That would be great.

So from Hewlett Packard's point

of view, we negotiated with the agency to produce

everything electronically, and we produced about

three and a half million documents at the end of

the day electronically.

percent of our production was electronic versus

paper.

electronic (inaudible) chip image so it was full-

text searchable, and we agreed with the agency that

if any training was necessary we would offer that

training to staff that were examining the

documents.

And it was -- about 86

And in the paper -- and everything in the

For the paper documents we decided not to

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OCR the documents.

There is a procedure for taking

all those paper documents, turning them into OCR

images, but the search ability of them is a

reliability of only like 60 or 65 percent.

MR. HOFFMAN:

Well, we were told the other

day that the error rate on OCR'ing is only 10

percent.

10 letters is wrong.

that means in the document it's really not too

good.

But what that means is one out of every

MR. SUTIS:

So when you think about what

Yeah.

And for the paper

production -- and in a large part the paper

production is duplicative of (indiscernible), at

least in our experience, of what (inaudible)

electronic document and it's origin.

out a version of something, tuck it into a paper

file.

documents that are floating around HP.

People print

There aren't a lot of newly-created paper

MR. HOFFMAN:

Bob, you guys did this, if I

remember right, with an outside vendor who set up

essentially a web site.

that things could be -- that the agency could

access, had secure access to sort of one side of it

and you guys had access to the other side?

right?

Am I correct about this,

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Is that

MR. SUTIS:

Correct.

We loaded everything

on a server and then the agency, Rhett and his

team, just examined it privately at their leisure.

MR. HOFFMAN:

Is this a practice that you

would recommend us using a lot in the future?

your experience with this good or were there things

that --

MR. SUTIS:

Oh, yeah, absolutely.

Was

It would

be -- we used a company called S.B. Technology,

based out of Los Angeles and San Francisco, and

they have several Gibson, Dunn and Crutcher,

including a president 12 years in litigation, Adam

Bendell for Gibson and Dunn, so we felt pretty

confident in their production capabilities, and so

they did an outstanding job of it.

MR. COWIE:

Do you have a sense of how the

cost compares with doing an old-fashioned paper

production?

MR. SUTIS:

Well, I think it's dramatically

lower.

getting Mr. Chang's bills for the other side

(inaudible) portion of this transaction very soon

(inaudible).

tremendous cost-savings.

And Hewlett Packard will probably be

We're fairly confident that it's a

Maybe Rhett has any thoughts on the use of

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the documents, especially being full-text

searchable on the remote server.

MR. KRULLA:

I think in this experience

getting electronic copies of documents was a

positive experience for us, it was very

(inaudible).

We've had some cases in the past where

we've gotten productions on CD and we try to access

the documents, they don't open up, they want a

soft-pointer, and the clock is running.

just been a mess.

evolves, as these contractors develop experience,

capabilities and provide these kind of services, I

think it's going to work more and more.

It has

So I think as the technology

I think also as we learn often in our side,

or DOJ, it should be possible for the agencies to

receive material in electronic form or in CD form

in a form we're -- we'll have confidence that we

can in fact access it.

So that involves, again back to rolling

production or (inaudible) modification, involves

not a dump on the last day of materials that we may

or may not be able to access, but samples of

material or rolling production so that we can

report back to the submitting companies on how it's

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working, what problems we're having, and if we have

some assurance and the companies are going to work

with us in enabling us to access that material then

we will be much more comfortable in experimenting

and saying, you know, we don't want hundreds of

boxes, you know, our hallways and move toward the

electronic format.

MR. SUTIS:

And one of the things we did,

you just reminded me, is our I.T. characters worked

with the I.T. staff of the agency to make sure that

the marriage of their capabilities and the database

(indiscernible) tools the agency wanted to use

matched what we put on the servers so that, you

know, the access from the agency point of view is

seamless.

MR. KRULLA:

Yeah.

Our I.T. people are

available and eager to work with the companies'

I.T. people to make sure that we get a seamless

production.

MR. SUTIS:

One just issue on scope, and

then I'll pass to Alec.

One of the issues that

came up in this particular production was that when

you search a particular person's files what do you

do if they throw information on a web site.

know, marketing department, we have something like

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You

1500 internal web sites at HP or so and a lot of

people have access to web sites, and that can just

become a mushroom cloud of difficulty if you want

all the information from a particular person or all

the information they may have access to.

worked through that issue and negotiated with the

agency as to what we had to produce from those web

sides.

MR. OLEANNA:

And so we

Well, what do you do about

the fact that the content of those internet web

sites (inaudible) HP and Csco are constantly

changing?

difficult -- and it's pretty easy for individual

contributors to upload stuff to a web site.

That makes historical production pretty

It seems to me that that makes it awfully

hard to make representation to the agency

(inaudible) providing the complete web site for the

entire period searched.

MR. SUTIS:

We simply negotiated with the

agency and explained the problem, that that was

impossible because those web sites are ephemeral

and they are not archived, and so we could only

produce what was requested from what we had in our

possession at the time that the second request came

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(The parties simultaneously speak.)

MR. COWIE:

-- that may be another reason

to rethink the refreshing (cross talk).

Bob, did you have any complications in

dealing with our traditional instructions on

sorting and the like?

documents are organized by individual and indicate

which specification is --

MR. SUTIS:

In other words, the

I'm sure the attorneys that did

the work did, but I didn't have any.

MR. HOFFMAN:

that work?

On that note, Alec, you did

Because I think you did that work --

(The parties simultaneously speak.)

MR. CHANG:

On the Compaq side our production was more

I did that work.

of a traditional nature, occasional paper and

touching on everything we've talked about today,

modifications and everything was done very

traditionally.

proactive and helped us, you know, take products

off the, sort of the potential interest list, and

so we did narrow as time went on.

Staff was very responsive and

We were fortunate in one regard that timing

was not the primary issue.

This transaction,

unlike many others, had some extra (inaudible).

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If I can go back to the one that Legacy

systems and what will you do about -- how you think

about Legacy systems from, say from components of a

company that a current party may have acquired four

years ago but falls within the time period, one

suggestion there is if there's a Legacy system and

it hasn't been -- you know, if nobody's sort of

gone into it in three years or in two years, well

then it may not be that helpful to you, just as if

it's not useful to the business people on an

ongoing basis.

about four years ago and nobody's looked at since,

you know, shouldn't really have much dispositive

sort of use to anybody today.

thing on the Legacy system.

Then what somebody else thought

So that's just one

So on the idea about as parties and as the

technology improves so that there can be increased

production electronically, what would be helpful

also is to have some more standardization sort of

across shops.

You know?

And obviously this will take time, as

individuals become more comfortable with and more

facile with the technology and what they can and

can't get and what they can and can't do, you know,

whether something comes across by e-mail or we

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produce it, and DVD or in some kind of CD or

something like that, consistency and some

generalized standards would help, would help the

parties quite a bit.

MR. SUTIS:

I just remembered one thing on

the electronic production, too, that was really

helpful.

January 14th or so and then after that we produced

at least two or three more white papers.

think the benefit, from HP and from the agency in

both producing and reviewing those came almost

exclusively from a electronic production, so that

we were able to -- you know, we got really expert

at string searches and pulling up relevant

documents to produce information to give to the

agency and that they would be able to review it.

I think we certified the compliance about

MR. COWIE:

And I

Alec, consistency across shops

is certainly an important objective.

electronic records there was a practical problem

that, you know, there are

old-school people who want, you know, to get green

post-its and pink post-its and yellow

post-its, and they want to see the paper.

there's...

MS. SILVERMAN:

With -- on

From the private site --

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it's Karen again -- you know, I think a menu of

options is still a valuable thing.

don't -- I mean in your instances, because of the

volume and everybody sort of knew what the

investigation was going to be like, I mean that

made some sense.

Because I, I

I think there have definitely been episodes

that I've been involved with where I would be

concerned -- well, first of all, just the review of

the documents on line is more difficult for the

attorneys who are doing it.

often printing it out anyway so that you can have

your team of people reading things consistently.

Because we try to review consistently as --

(The parties simultaneously speak.)

MR. COWIE:

So you end up very

-- that's a question, an issue

to be explored.

Some of the people who did the

review on HP Compaq reported that was actually

quite friendly, it was in internet protocol

language.

individual and you have the title, so if you want

to look at, you know, vice president of this

product line you would --

And as I understand it, it was sorted by

(The parties simultaneously speak.)

MS. SILVERMAN:

-- and I could see how it'd

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work.

No, no, and I see, I see a great opportunity

for utility there, but I don't know that it's going

to fit again all situations.

And for instance, we had a situation

recently where we had a -- we had two review rooms

going, one was the hard-copy stuff and the other

one was a bank of computers where they were doing

the computer review but they could still be talking

to each other about making consistent calls about

what was in, what was out, what this meant, what

that meant.

collective review.

all instances.

So you still have to do a very

And it may or may not work in

The other thing I'm a little concerned

about is that if we default to the electronic

production there is a chance that a dynamic will

develop where the thought is, "Well, listen, you're

just getting it to us in bits and bytes so you can

produce everything."

pressure off, you don't want to know your records,

you know, in your hallway, and that's a good

discipline, I mean because you don't want to know

your own records.

it just means another

CD --

You know, I mean it takes the

And I'm a little worried that if

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MR. HOFFMAN:

We don't want them on our

server either, necessarily.

doing it on a separate web site --

Of course they're

(The parties simultaneously speak.)

MS. SILVERMAN:

Yeah.

I mean so I think it

-- we just need to be a little bit careful about

how that plays out from a practical standpoint.

MR. CHANG:

At the same time I think we

also need to be -- and this goes some to Mike's

problem -- we need to be careful that -- this

transaction was again kind of a unique one because

you had two computer companies who weren't afraid

of the technology themselves and, and HP could do a

lot of this work.

Nonetheless, out there in the real

world there's still lots of industries and

companies whose computer systems are surprisingly

primitive, and so they're not going to be

able to provide quite so easily, you know, and

getting you all the marketing materials or all the

financial materials, and it is surprising and

frustrating when we run across those kinds of

companies and those kinds of industries, but it's

still going to happen for some time until, you

know, the technology really takes over.

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Just as

it'll take time for folks at the FTC and folks at

various other firms to stop using the yellow post-

it for this and the pink post-it for that --

(The parties simultaneously speak.)

MR. COWIE:

Just so the record's clear, HP

Compaq is not by any means the only paperless

production.

industry deals where we've had parties do paperless

productions.

We've had a number of notable oil

MR. HOFFMAN: There have been a series of

internet mergers recently but it's

not --

(The parties simultaneously speak.)

MALE VOICE:

But it's not just high-tech,

though, we've had some more traditional industries

proceed that way as well.

MR. OSTRAU:

Mark Ostrau from Fenwich &

West.

I think that the more time we spend talking

about electronic mail and electronic production is

best here.

mean, it is probably not an overstatement to say

90-plus percent of the documents are going to be

electronic, and a huge part of them are electronic

mail where the burden of reviewing and producing is

Because the reason Silicon Valley -- I

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enormous.

And really from the clients' perspective

they just want to know how much this is going to

cost, and they want to figure out how to get you

the information in the most efficient way possible.

And it strikes me that we kind of have only gone

halfway with the technology.

The notion of, the option of word searching

and gnashing our teeth about doing it is incredibly

antiquated.

Google is.

that's the way, if we've got -- if everything's in

electronics that's the way people should think and

people should do their searching and think about

how to do -- how to arrive at the right terms and

do that.

that because that's really the way it works.

Everyone word searches.

That's what Lexis is before that.

And

And I don't think we should be afraid of

MR. HOFFMAN:

That's what

Let me pose a couple

scenarios to you and to everybody and see what you

think.

Term-searching obviously -- you know, for

example a private practice, I -- we get very

aggressive about people who were doing research for

me who are only relied on West Law term searches

because they constantly fail to find critical cases

because some court somewhere would decide to use

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all synonyms for the terms they searched.

And we have had investigations recently

where, for example, we discovered that a company

had a practice of only referring to their

competitors by their stock-ticker symbols which,

you know, knowing that -- you know, if you knew

that in advance it would be quite easy to ascertain

with a term search, but it could be pretty darn

hard, you know, to find that if you were just doing

a term search.

searching.

So there's obvious risks in term-

Now the agency can do a number of

things here.

with a request for a formal modification that says

if we conduct a term search using the following

terms and the following connectors, and if you're

doing cost platform searching, using the following

engine or whatever you want to do to search, that

will be deemed substantial compliance regardless of

what it produces.

For example, people could come to us

Or parties can come to us and say, "We

would like to do term searches using these kinds of

terms and connectors, what do you think?

work together to try to get it as best we can, but

we're not going to ask you to grant a modification

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Let's

saying that this is necessary enough because you

don't necessarily know from, you know, the agency"

-- it's almost impossible for the agency to know,

at least at the outset, whether those terms are

really going to be the right ones.

are some ways you can address that but, you know,

those are two ways you could approach term

searches.

I mean, there

Another one of course would be -- and I

know some shops that have done this in cases --

saying, "We won't accept term searches and, well,

being that you're not in substantial compliance if

we discover that you've done a term search rather

than physically reviewing everything that's

resident on the servers."

So how should we -- you know, which of

those three should we use as a model?

of these situations where you're not going to be

really able to tell at the outset?

MR. OSTRAU:

Or is it one

Well, I can tell you that the

third choice is be careful what you wish for.

Because what I know people would do is just give

you everything because it's too expensive to go

through and pull out the

MR. COWIE:

No, I thought that -- I thought

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the third choice was do --

(The parties simultaneously speak.)

MR. COWIE:

-- but don't tell them you did

a --

(The parties simultaneously speak.)

MR. OLEANNA:

This is Gil Oleanna from

Csco, that's C-s-c-o if anybody's interested.

Let me make a point about the term searches

and what you know at the time that you're

negotiating the term searches.

Presumably at the time of negotiating with

term searches, assuming that it’s day 29, is you've

already gotten some documents from the company.

You've gotten your field documents, you've gotten

the transaction documents, the actual contract, and

you've gotten the 4-C documents.

have a pretty good sense of the vocabulary used

within the A company and the B company to the point

where you can have intelligent conversation with

counsel for those companies about term searches.

By that point you

So you're not totally operative on an

FYI slate at that point, you've seen a fair amount

of stuff on paper, you've gotten information from

the industry, you can probably -- we could ask you

what terms you would search out here, that would

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probably do, and get information back.

So I think that that maybe offers a middle

leg.

MR. HOFFMAN:

So I mean the idea here is --

and I would limit this just to the first 30 days,

you know, the more information that the parties can

provide early on in terms of constructing a search

and providing -- not just telling us but coming in

and showing things, you know, these are sample

documents, this is the way we talk about things, I

would think that would certainly be helpful.

But I guess what I'll go back to is should

our practice be -- you know, because we're doing,

trying to construct some best practice ideas here -

- should it be that we actually negotiate term

searches as formal modifications or should it be

that we work with and interact with the parties to

get a term search as best they can, but we don't

necessarily say that when you do this search it's

compliance even if it actually turns up zero

documents.

MR. SUTIS:

Bob, again, at least for a

large-scale production I go back to the statement I

made earlier, and that is you really only go --

want to go to a person once.

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So in your hypothetical number two, where

you have a best guess and then we'll go back and

see if we need more, there's this giant steamship

that's moving and very hard to steer back and go

get people, it's just enormously inefficient to do

that.

So my only recourse in that case would be

to gather everything from all those people anyway,

do the term search and then see if you have more.

So it's actually not a very helpful --

MS. SILVERMAN:

And you can run tests.

mean, you can, you can try your filter list, see

what you -- look at what it missed, review -- and,

you know, for one or two people figure out of

anything critical was overlooked and go back and

either add those terms.

I mean, there are ways to, I think, get

everybody comfort around the list and connectors

and protocols, whether it's the, you know, the

elimination of duplicates or the addition of

certain terms or whatever it is.

on a limited basis at the reject pile, if you will,

to evaluate how good a job that it's doing.

know, until everybody's happy that it's doing a

good job -For The Record, Inc.

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But you can look

You

(The parties simultaneously speak.)

MR. CHANG:

Yeah, Bruce, you know, that's

really just a modification of your idea that, look,

we'll agree on the search terms.

document that's substantial compliance; if it

yields a million documents that's substantial

compliance.

sufficient, you know, up front, build into that

process the test, you know, the test runs, the --

you know, you can pick three people maybe and do --

If it yields one

Just rather than agreeing that that is

MS. SILVERMAN:

(The parties simultaneously speak.)

MR. CHANG:

And verifying --

Yeah, run the search terms and

see what you get.

MR. HOFFMAN:

I think it's very helpful.

Because I mean I think from our perspective it puts

a tremendous burden and risk on the staff to say

agree at the outset that a particular term search

is going to constitute substantial compliance.

mean, what happens if it comes back with virtually

no documents, then the staff is virtually out on a

limb, and I just can't imagine, you know, in the

abstract agreeing to that.

mechanisms you're suggesting might help.

MR. CHANG:

But the kinds of

I think staff have -- you know,

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my experience is that we've done that.

You know,

where people have said -- we've come up with sort

of a list of terms and circulated it, and this was

at DOJ and they said, "Okay, that looks all right.

But what about this and what about this," and

they'll add -- you know, you can add people's

names, and you add some more names, you run

another, oh, little test and see what you get.

if it doesn't yield anything, on one hand, yeah,

you add those names in -- right? -- but there are

ways to get I think both sides comfortable, that

you can come to a comfortable search --

And

(Multiple parties simultaneously speak.)

MR. SUTIS:

-- you could also have a hybrid

too, where there's some key people that you just

know that you need to produce the entire file.

as we're moving down the organization to the lower

functional-level managers of below you may want to

accept a term search.

MR. COWIE:

And

Is term searching of e-mail

becoming the norm in private litigation, such as

patent litigation say around here or --

VOICE:

MR. FEINBERG:

Yeah.

Ian Feinberg, Gray Carey, I

do a lot of patent and other (inaudible)

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litigation.

Essentially they're going to do a document

production, you -- and you're working on electronic

documents, e-mail or otherwise, you do word

searches, there is no other way to do it.

And you often negotiate on the other

side with archival issues as well, because

sometimes each side has not just one generation for

archival systems but sometimes several, and you

have to negotiate among how far back you're going

to go.

not always possible to go back two or three

generations, there is no way to search it --

And, frankly, what's possible, because it's

(Multiple parties simultaneously speak.)

MR. HOFFMAN:

MR. FEINBERG:

-- punch cards still -I haven't encountered punch

cards but I have encountered stuff that nobody else

has

MR. COWIE:

But you're saying in terms of

archives with backup takes, that is an issue in

private litigation?

MR. FEINBERG:

You bet.

Now I think that,

particularly why the companies, they systemically

archive.

backup -- and there are multiple types of backups

So, and there are

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too.

Some people do system-wide backups, they do

flash backups

You have to understand what the other

sides' information systems look like before you can

have intelligent discussions about what's going to

be searched on what search to implement.

that's the way it's done.

MR. COWIE:

But

We've reached our end point.

Thank you for your significant input.

As mentioned earlier, this will be posted

on the web site and additional sessions in L.A.,

New York, Chicago and Washington.

you can participate further if you have the time

and energy is by written submission.

bar association groups are preparing papers and we

hope to publish some of them on our web site as

well.

Thank you.

FEMALE VOICE:

One other way

I think some

Is there a schedule for that

publication?

MR. COWIE:

There is no schedule.

is to do it expeditiously.

Our plan

C E R T I F I C A T I O N

O F

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R E P O R T E R

1DOCKET/FILE NUMBER:

2TITLE:

3DATE:

P019503

CASE

BEST MERGER PRACTICES WORKSHOP

HEARING

JUNE 5, 2002

I HEREBY CERTIFY that the transcript contained herein is

5a full and accurate transcript of the notes taken by me at

6the hearing on the above cause before the FEDERAL TRADE

7COMMISSION to the best of my knowledge and belief.

DATED:

ADRIAN EDLER

14 C E R T I F I C A T I O N

O F

P R O O F R E A D E R

I HEREBY CERTIFY that I proofread the transcript for

17 a c c u r a c y i n s p e l l i n g , h y p h e n a t i o n , p u n c t u a t i o n a n d f o r m a t .

SARA J. VANCE

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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.