General Foods Corporation

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IN THE MATTER OF GENERAL FOODS CORPORATION Docket 9085. Interlocutory Order, Aug. 18, 1980 ORDER DEFINING PERMISSIBLE SCOPE OF TESTIMONY OF WILLIAM H. SPRUNK UNDER QUARTERLY FINANCIAL REPORTS CONFIDENTIAI.TY RULES By order of March 20, 1980, the Commission stayed, pending its review of the matter, the return on the subpoena issued to a Commission employee, Wiliam H. Sprunk, Assistant Director for Financial Statistics, Bureau of Economics. The purpose of the stay was for the Commission to review the interpretation and application of the confidentiality rules governing the Quarterly Financial Reports (QFR)' and Line of Business (LB)' programs to the subpoenaed testimony of an employee of the Commission s Division of Financial Statistics, Bureau of Economics, in a Commission adjudicative proceeding. The crux of the instant order is the resolution of the apparent conflct between Mr. Sprunk's permissible functions under the QFR and Line of Business confidentiality rules and his testimony in response to the adjudicative subpoena.

The complaint in this case alleges General Foods' use of pricing practices and other policies to the injury of competitors in eastern coffee markets. Complaint counsel's expert witness used data obtained from published aggregate data in the QFR survey to establish a benchmark as to the existence of monopoly power, one of subpoena ad testificandum for Mr.the issues in the case. The Sprunk, who heads the Division of Financial Statistics, in which the QFR report is prepared, was issued by the Administrative Law Judge in order to ha(veJ someone who knows what these figures are about testify as to the accuracy of the figures. how they are compiled, and why this contract was let to Standard and Poor s. (Tr. 52421 The Commission s order staying the subpoena return invited , 38 Fed. Reg. 18120 26162 (1973).

. 41 Fed. Re. 28041 , 34703 (1976); 40 Io'ed. Reg. 21542, 22318 (1975); 39 Fed. Reg. 30970 (1914). The subpoena iBBUedto Mr. Sprunk appears to concern only QFR data, and the Commissioo s LB confidentiality rule! a relevant here only in!lfar aB they might sugge t that no employee of the Division of Financial Statistics may appear in an adjudicutive proceeding for ally purfX- The Commission s order does not reach issues concerning the admit&ibility of LB report Of the privileged status of individual company data obtained in the LB progam.See notes infra . The transcript reflects discussion of a contrlict using a data tape preplired by Standard & Poor s leading to II final report, including Ii statistical statement re Qfo'R accuracy (Tr. 5237) . . . .

.._.u.- - ---- 162 Interlocutory Order General Foods and complaint counsel to submit simultaneous memoranda on the following issues:

1. Whether response to a subpoena in a Commission adjudicative proceeding by an employee of the Division of Financial Statistics constitutes "engag(ing) in any activity of the Commission which "4 orinvolves regulation or investigation "participat(ion) in any Commission investigation or proceeding for carrying out specific "5 within law enforcement responsibilities of the Commission the meaning of the prohibitions established by the QFR and LB confidentiality rules;

2. If such activity is appropriate, whether it nevertheless remains the case that an employee of the Division of Financial Statistics may not give an answer concerning the QFR program which would and all otherdisclose "the names of companies, financial data, information which are obtained from the -respondent companies (i. individual company data) in connection with the QFR program; and 3. Whether substantial prejudice to any party wil result if the confidentiality rules are interpreted as outlined in (1) and (2) above. The first question posed in the Commission s order staying the subpoena return may be answered directly, and in the negative. The clear purpose of both the LB and QFR confidentiality rules is to ensure that the individual company data be kept confidential and used only for statistical purposes, and specifically, as stated in the Commission s QFR authorizing resolution, that the individual company data "not be available for use in any Commission adjudication or in connection with any investigation for the purpose of initiating adjudicative proceedings '" Both sets of rules prohibit employees of DFS, which in general has sole access to the data, from engaging in investigatory and law enforcement activities of the Commission. This division of internal agency functions is a preventative measure designed to avoid any appearance, or any remote possibility, that investigatory or enforcement decisions at the FTC would be made on the basis of individual company QFR or LB data. To the extent that Mr. Sprunk's testimony here would not be based on individual company QFR data, it would be consistent with the purpose of the confidentiality rules. Accordingly, insofar as the rules are concerned, Mr. Sprunk should be permitted to testify about matters such as the methods and procedures for compilng the QFR survey and its overall accuracy, but he should not be permitted to . 38 Fed. Reg. at 26162 (l973).

, E.g. 41 Fed. Re. at 28041 (1976).

. 38 Fed. Reg-at 18720(1973) Interlocutory Order 96 F. or totestify to the extent that he would be required to disclose, utilize his knowledge of, individual company data. The second and third questions present related issues: (1) whether the QFR aggregate data meet tests of admissibilty without inquiry into the underlying data, despite their arguably hearsay nature and respondent' s right to "conduct such cross-examination as may be required for a full and true disclosure of the facts." 5 U. C. 556(d); and (2) whether the privilege against disclosure created by the QFR confidentiality rules is outweighed by respondent' s need for individual company data.

Respondent relies on Wirtz v. Baldor Elec. Co. 337 F.2d 518 (D. Cir. 1963) and Powhatan Mining Co. v. Ickes, 118 F.2d 105 (6th Cir. 1941), for the proposition that survey results may not be admitted into evidence unless the underlying data are made available to respondent' s counsel. In both cases, the challenged survey results were tabulated specifically for use in administrative proceedings by offcials who had exclusive access to the underlying material. The agency offcials introduced the survey results into evidence during the administrative proceedings, but objected to discovery of the underlying survey data because of confidentiality provision. In neither case was the claim of privilege upheld. The Wirtz and PfYMtan cases may be distinguished on a number of grounds. First, while the Commission has followed the general rule making underlying data available when survey results are compiled for litigation Avnet, Inc. 78 F. C. 1562, 1563 n. l (1971), there is no allegation here that tabulation of QFR data was in any way connected to this case. In fact, as the confidentiality rules make clear, QFR data are collected and reports prepared "for the purpose of preparing statistical compilations. " 38 Fed. Reg. at 18720. Second, this is evidently not a case where a governmental party s introduction of survey results waives its right to a claim of privilege for underlying data to which it has access. See Wright & Miler, Federal of United StatesPractice and Procedure: Civil Section 2019; Reynolds, 345 U.S. 1, 12 (1953). Rather, because of the strict confidentiality rules in effect, complaint counsel here have no access to the data General Foods is seeking; indeed, complaint counsel cannot produce the data because they have no authority to do so. See United States v. International Business Mach. Corp. CCH 1975- Trade Cas. 60383, 66666-67 (S. Y. 1975). Third, should the preceding grounds for distinction not be deemed dispositive, the Commission notes that the Wirtz court held: (DJocuments supporting the tables and on which they are based must also be introduced or at least be made available to the opposing party to the extent that they GENERAL FOODS CORP. 165 162 Interlocutory Order are necessary for purposes of rebuttal and cross-examination. 337 F. 2d at 526. (Emphasis added.) Thus, the respondent would be required to demonstrate why information on QFR methodology and procedures would be inadequate for rebuttal or cross-examination, and why individual company data are necessary.

It does not appear that the respondent has successfully made such a showing; and, as is discussed below, the record before the Commission is too limited to suggest whether or not this showing might be made in the future. The Commission wil therefore not make a final determination on admissibility at this time, but will simply assume that the challenged QFR aggregate data may properly be introduced without necessarily requiring disclosure of individual company information.

As to the issue of privilege, the Commission finds that the QFR rules create a qualified privilege for individual company data. This privilege is unique to government and may be termed a qualified confidential report privilege. See Association for Women in Science v. Califano 566 F.2d 339, 346 (D.C. Cir. 1977). This privilege requires a balancing of" ' the need of the litigants for information possessed by the Government and the need of the Government to foster the free flow of information provided to it' " recognizing that" 'clear and strong indication is required before it may be implied that the policy of prohibition is of such force as to dominate the broad objective of doing justice.' " Id. (citations omitted). See Avnet, Inc. 77 F. C. 1686 1687-88 (1970).

Respondent asserts a need for, and a basic procedural right to unrestricted discovery of information as to the "validity, accuracy, reliabilty and composition" of QFR data for its " efforts to cross- 1 IB/ue3 of admisibility a., in any event, bet determined initially by the Jaw ju . Rulings on the admiibility of the aggrgate QFR data should be mae, however, not only in light of the foregoing diBllion, but al with t; circumBtantilll guarte of the t.tworthines of QFR report and the necity for nang QFR data in form. agte it to the natur of the privilege Cl'te, the Commision that an abolute privieg a,t\t reizdi!!l08ure mult be ba on statutory language that at lenat Bpeficely addr the confdentiily of the !Moori!. The QFR confidentiality rules were b8. on SetiOtl 6(f) and 6(g) of the Flc Act, 15 U. 46f), (g), and to some extent on confdentiality prov1aioll of the Tax Reform A t of 1976, 2S U. 6103, and prior ta law. Whle Seon 6(1) doe pertin speificaUy confidential trtment of busine! information, it doe not act.! an ab8lute ba to the releli of such data in adjudications. Se H.P. Hoo, Inc. 58 F. C. 1148, 1150 (1961). Seion 6(g) genernly cmpowen the Commi ion to make rules and regulatioJl for the purp of C8ng Ollt the Ac and thus doc not readily appe to Slipport a claim of abslute privilege. The tax statute. de& explicitly with codential trtment and may therefore provide the baiI of an abslute privilege for some QFR mateal. In view of itb dipoition of this interlocutory appel, the Commission nee not decide the applic/bilty of the ta statute at th time, and wil MIume argund that they to support only n qualified privilCj. By contract, the Commilon s Line of Busines oonfidentia.ity rules ar ba ditly on statutory lan thtexprely protetB LB data from disclOlll. &e 41 10'00. Reg. 281, 34703 (1976); 40 Fed. Reg. 2lf2, 2218 (1976); Section 6 of the Federal Tre Commision Act, 15 U . , fL amended by Pub. Law No. 962; 8U ak 88 Stat. 1822, 184 (1974); 89 Stat. 611, 63 (1975), and 90 Stat. 937, 956 (1976). Such authority provides mor compellng justification for a claim of abslute privilege. The typ of evident.ar privil that may be claimed for LB data is not at issue in this proing, however.

Interlocutory Order 96 F. examine and defend against a benchmark based on that data, arguing that the aggregate data is not otherwise admissible. General Foods notes its prior objection to "utilization ofQFR data for computing a 'competitive benchmark' and to receipt in evidence of documents containing the QFR calculations" and its prior questioning of complaint counsel's witness as to " the percentage of companies in the 'QFR benchmark' which are engaged in the sale of branded consumer grocery products and the number of food companies comprising the 'QFR benchmark' " (Memorandum of Respondent General Foods Corporation, at 1 , 2, 3- ) General Foods cites to statements assertedly casting doubt on the validity of QFR data and argues that the confidentiality rules were not intended to foreclose a respondent' s inquiry under these circumstances. We need not decide the question of the admissibility of the aggregate QFR data at this time, but wil assume it is admissible and discuss the application of the QFR rules to the individual company data. Balanced against respondent's claims of need are complaint counsel' s arguments that: (1) respondent has other means at its disposal suffcient to challenge use of QFR data; and (2) the overriding concern" of the QFR rules to protect individual company data, and the evident purpose of the rules to encourage compliance with the reporting requirements by assuring confidentiality. The parties have referred to such matters as the reliability of the QFR data, the adequacy of the information respondent has already obtained, and the degree to which the QFR data are relied on exclusively in this case. However, a full record is not before the Commission on these and other issues concerning the respondent' need for the data, nor should it be at this stage. Rather, it is within the broad discretion of the ALJ to rule on discovery and evidentiary questions, including privilege, in light of the circumstances of the proceeding. Missouri Portland Cement Co. 77 F. C. 1688, 1689-70 (1970). The purpose of Rule 3.36 (concerning suhpoenas addressed to the Commission or its employees) may be understood in light of a predecessor provision, which required certification to the full Commission of requests for subpoenas to government offcials. There, the Commission said that the purpose of the rule "is not to relieve the examiner of his essential role concerning basic questions of discovery and evidence, but rather " provide a means of informing the Commission of any such action to prevent the possibility of abuse" and to "give the Commission an opportunity to work out appropriate arrangements with other agencies involved if a request is found to be justified. Avnet, Inc. supra 77 F. C. at 1687-88, 1688 n.3. Here, although it is not obvious .

162 Interlocutory Order from the papers before the Commission that inquiry into individual company data was contemplated by the ALJ in issuing the subpoena and, if so, how he viewed the confidentiality rules, the Commission must make an interim decision on the scope of discovery, reserving to the ALJ (and to the Commission on review of the entire record of the proceeding) the ultimate resolution of this issue. Based on the necessarily limited record, the Commission has determined that the agency s need for accurate, timely and complete individual company QFR data (including company names) is more compellng than respondent' s need for that data. See Association for Women in Science v. Califano, supra, 566 F.2d at 346-47.' Nor is respondent' s need so evident from the materials before the Commission to require disclosure under a protective order. Therefore, the Commission wil at this time construe the QFR confidentiality rules to create a qualified privilege, barring the testimony of Mr. Sprunk as to individual company data in connection with the QFR program. Accordingly, it is ordered, That Wiliam H. Sprunk may, consistent with the Commission s LB and QFR confidentiality rules, appear and testify in response to the Administrative Law Judge s subpoena testificandum issued March 3, 1980, but that the inquiry be limited to only those questions which would not disclose "the names of companies, financial data, and aU other information which are obtained from the respondent companies" as protected by the QFR confidentiality rules in connection with the QFR program. The General Counsel is directed to represent Mr. Sprunk for the purpose of asserting any other privileges arising out of his Commission employment.

Commissioner Bailey did not participate.

. This conclusion is bas, in part, on the nature of respondent's QFR criticisms. These criticisms relate to the methodology and Procedures for compiling the QI"R report, a:pets of the QFR program into which respondent can inquire of Mr. Sprunk without inquiriL::; into individual company dataAvTUSe Tnc. supro, 78 F. C. at 1563. Moreover, given the agency s compelling need to obtain the QFR data, respondent must make a strong showing of nee in order to overcome the qualified privilegetlnd thereby compel disclosure of the individual company information. On the record as it now stands, respondent' sshowinf; is wholly inadequate. ... _._ Interlocutory Order 96 F.