[Federal Register Volume 60, Number 149 (Thursday, August 3, 1995)]
[Notices]
[Pages 39745-39747]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19111]
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FEDERAL TRADE COMMISSION
Notice and Request for Comment Regarding Statement of Policy
Concerning Prior Approval and Prior Notice Provisions in Merger Cases
AGENCY: Federal Trade Commission.
ACTION: Notice of policy statement and request for public comment.
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SUMMARY: The Federal Trade Commission has adopted a policy statement
regarding the use of prior approval and prior notice provisions in
Commission orders entered in merger cases. Under the policy, the
Commission will no longer require prior approval of certain future
acquisitions in such orders as a routine matter. The Commission will
henceforth rely on the premerger notification and waiting period
requirements of Section 7A of the Clayton Act, commonly referred to as
the Hart-Scott-Rodino (HSR) Act, as the principal means of learning
about and reviewing mergers proposed by such companies. Narrow prior
notice or approval requirements will be retained for certain limited
situations described in the Commission's Statement of Policy. The
Commission also stated that it would initiate a process for reviewing
the retention or modification of prior approval requirements in
existing Commission orders.
Although these policies are already in effect, the Commission is
soliciting comment from interested persons.
DATES: The policy statement was effective on June 21, 1995. Comments
will be received until September 5, 1995.
ADDRESSES: Comments should be sent to the Secretary, Federal Trade
Commission, Sixth Street and Pennsylvania Avenue, NW., Washington, DC
20580. Comments will be entered on the public record of the Commission
and will be available for public inspection in Room 130 during the
hours of 9 a.m. until 5 p.m.
FOR FURTHER INFORMATION CONTACT: Daniel P. Ducore, Assistant Director
for Compliance, Bureau of Competition, (202) 326-2526.
SUPPLEMENTARY INFORMATION: Under previous Commission policy, Commission
orders entered in merger cases generally have required that the
respondent obtain the Commission's prior approval for certain future
acquisitions in the same market. The Commission has reassessed that
policy and has determined that prior approval of future acquisitions by
a respondent should no longer be required as a routine matter. The
Commission has issued the following Policy Statement as an exercise of
its discretion.
The Commission invites comments on the issues discussed in this
notice, in the Policy Statement and in the separate statement of
Commissioner Azcuenaga.
Statement of Federal Trade Commission Policy Concerning Prior Approval
and Prior Notice Provisions
Introduction
Under longstanding Commission policy, Commission orders entered in
merger cases generally have contained a requirement that the respondent
seek the Commission's prior approval for any future acquisition over a
de minimis threshold within certain markets for a ten-year period.\1\
In a few cases, the Commission also has required prior notice of
intended transactions that would not be subject to the premerger
notification and waiting period requirements of section 7A of the
Clayton Act, commonly referred to as the Hart-Scott-Rodino (HSR)
Act.\2\ Prior approval and notice requirements are imposed pursuant to
the Commission's broad authority to fashion remedies to prevent the
recurrence of anticompetitive conduct.
\1\ As used herein, the term ``merger'' includes mergers,
acquisitions, joint ventures, and equivalent transactions.
\2\ Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15
U.S.C. 18a.
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In light of its now extensive experience with the HSR Act, the
Commission has reassessed whether it needs to continue regularly to
impose prior approval requirements. Although prior approval
requirements in some cases may save the Commission the costs of re-
litigating issues that already have been resolved, prior approval
provisions also may impose costs on a company subject to such a
requirement. Moreover, the HSR Act has proven to be an effective means
of investigating and challenging most anticompetitive transactions
before they occur.
[[Page 39746]]
Consequently, the Commission has concluded that a general policy of
requiring prior approval is no longer needed. Narrow prior notice or
approval requirements will be retained for certain situations, as
described below.
Statement of Policy Concerning Future Orders
The Commission will henceforth rely on the HSR process as its
principal means of learning about and reviewing mergers by companies as
to which the Commission had previously found a reason to believe that
the companies had engaged or attempted to engage in an illegal merger.
The Commission believes that in most such situations the availability
of HSR premerger notification and waiting period requirements will
adequately protect the public interest in effective merger enforcement,
without being unduly burdensome. Therefore, as a general matter,
Commission orders in such cases will not include prior approval or
prior notification requirements.
The Commission reserves its equitable power to fashion remedies
needed to protect the public interest, including by ordering limited
prior approval and/or notification in certain limited circumstances.
Such orders are most likely to be used in two situations:
First, a narrow prior approval provision may be used where there is
a credible risk that a company that engaged or attempted to engage in
an anticompetitive merger would, but for the provision, attempt the
same or approximately the same merger.\3\ The prior approval
requirement in such cases would typically be limited to the proposed
merger or other combination of essentially the same relevant assets
that were involved in the challenged transaction.
\3\ Such a provision is included in some consent judgments in
cases brought by the Department of Justice. See, e.g., United States
v. Browning-Ferris Indus. Inc., Civ. Action No. 1:94CV02588
(proposed final judgment) (D.D.C., filed Nov 1, 1994).
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Second, a narrow prior notification provision may be used where
there is a credible risk that a company that engaged or attempted to
engage in an anticompetitive merger would, but for an order, engage in
an otherwise unreportable anticompetitive merger.\4\ The need for this
supplemental, HSR-like premerger notification and waiting period
requirement will depend on circumstances such as the structural
characteristics of the relevant markets, the size and other
characteristics of the market participants, and other relevant factors
(including whether the challenged transaction itself was not
reportable).
\4\ Such prior notice orders would require the company to comply
with HSR-like premerger notification and waiting periods. From FY
1990 through FY 1994, the Commission undertook enforcement actions
against twelve transactions that were not reportable under HSR. Four
were hospital mergers, and the others covered a variety of markets
including electrical products, scientific equipment, medical
products or devices, security equipment, and food products.
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Statement of Policy for Existing Prior Approval Orders
There are approximately 90 outstanding Commission orders that
contain a current prior approval requirement; some of these orders also
contain a prior notice requirement. The Commission has determined to
initiate a process for reviewing the retention or modification of these
existing requirements. The Commission will issue to each person subject
to such an order a notice regarding the Commission's prior approval
policy as set forth in this Statement and an invitation to submit a
request to reopen the order, pursuant to section 5(b) of the Federal
Trade Commission Act and Rule 2.51 of the Commission's rules of
practice.
The Commission has determined that, when a petition is filed to
reopen and modify an order pursuant to this Statement of Policy, the
Commission will apply a rebuttable presumption that the public interest
requires reopening of the order and modification of the prior approval
requirement consistent with the policy announced in this Statement. No
presumption will apply to existing prior notice requirements, which
have been adopted on a case-by-case basis and will continue to be
considered on a case-by-case basis under the policy announced in this
Statement.
Although the policies set forth in this Statement are effective
immediately, the Commission will issue within thirty days a Federal
Register notice soliciting public comment on them.
By direction of the Commission, Commissioner Azcuenaga
dissenting.
Donald S. Clark,
Secretary.
Dissenting Statement of Commissioner Mary L. Azcuenaga on Decision to
Abandon Prior Approval Requirements in Merger Orders
The Commission has abandoned its longstanding policy to include
prior approval as a remedy in cases involving transactions that are
unlawful under section 7 of the Clayton Act.\1\ The Commission cites in
support of its decision the effectiveness of premerger notification
under the Hart-Scott-Rodino Act as a ``means of investigating and
challenging most anticompetitive transactions before they occur'' and
the possibility that ``prior approval provisions * * * may impose costs
on a company subject to such a requirement.'' \2\ In my view, the
policy should be retained because the benefits of prior approval
requirements easily outweigh the costs.
\1\ Prior approval provisions require the firm under order to
obtain the approval of the Commission before making acquisitions in
the same market in which the unlawful acquisition occurred.
Early cases enjoined future acquisitions entirely, often
together with a divestiture requirement, to remedy the effects of an
unlawful acquisition. Prior approval was introduced as an ``escape
clause,'' ``[t]o prevent the possibility of the injunction (against
acquisitions) having unintended harsh results.'' Luria Brothers, 62
F.T.C. 243, 638 (1963), aff'd, 389 F.2d 847, 865-66 (3d Cir.), cert.
denied, 393 U.S. 829 (1968). Early prior approval clauses varied in
length, ranging from perpetual requirements to those with a duration
of 5, 10 or 20 years.
\2\ Statement of FTC Policy Concerning Prior Approval and Prior
Notice Provisions at 4 (June 21, 1995) (hereafter ``Prior Approval
Statement'').
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Our authority to impose prior approval requirements is
unquestioned, and the Commission reaffirmed its policy to require prior
approval clauses in section 7 orders in 1988 \3\ and, most recently, in
1994 in its adjudicative opinion in the Coca Cola case.\4\ The
Commission imposes a variety of more costly requirements in its orders
every day, ranging from complete bans on engaging in certain businesses
and activities \5\ to provisions that some might characterize as highly
regulatory.\6\ Why the Commission would choose now to eliminate this
straightforward, modest, fencing-in relief for unlawful mergers is
mystifying.
\3\ See FTC Staff Bulletin 88-01 (May 18, 1988).
\4\ The Coca-Cola Co., Docket 9707 (June 13, 1994),
Commissioners Azcuenaga & Starek recused; order modified (May 17,
1995); appeal dismissed per stipulation (D.C. Cir. May 18, 1995).
\5\ See, e.g., FTC v. Starlink, Inc., Civ. No. 91-1085 (E.D. Pa.
Feb. 10, 1992) (lifetime ban on advertising, marketing or selling
information concerning employment opportunities).
\6\ Examples of highly regulatory orders are unfortunately
plentiful. See, e.g., Dissenting Statement of Commissioner Mary L.
Azcuenaga in Silicon Graphics, Inc., File 951-0064 (published for
comment June 9, 1995).
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Prior approval clauses benefit the Commission by conserving public
law enforcement dollars. A respondent subject to a prior approval
requirement must notify the Commission of the proposed transaction and
demonstrate that it would not be anticompetitive before consummating
the deal. From the Commission's perspective, this process is less
costly than a new investigation of a proposed transaction and a second
challenge under the law. In the absence of a prior approval
requirement, subsequent acquisitions that was challenged and found
unlawful, must be
[[Page 39747]]
investigated and challenged de nove.\7\ To the extent that the prospect
of the prior approval requirement may deter unlawful acquisitions by a
respondent, this would appear to be a benefit. To the extent that the
prospect of prior approval may deter unlawful acquisitions by firms
that are not under order, this, too, would appear to be a benefit.\8\
\7\ The Antitrust Division of the Department of Justice recently
filed a civil antitrust complaint to block a company's second
attempt in eight years to acquire its largest competitor. See United
States v. Engelhard Corp., Civ. Action No. 6:95-CV-454 (M.D. Ga.
filed June 12, 1995). Engelhard abandoned its previous acquisition
attempt in 1987, after the Department announced that it would
challenge the transaction.
\8\ If the prior approval requirement is costly in fact or if it
is perceived to be costly, then the requirement may have a deterrent
effect. Formerly, a firm contemplating an anticompetitive
acquisition might have decided that on balance the risk of
prosecution combined with the likelihood of becoming subject to a
prior approval requirement was sufficient cause not to go forward.
Because firms cannot know in advance whether their transaction will
be reviewed by the Commission or by the Department of Justice, any
deterrent effect from the Commission's policy would apply to all
transactions.
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Despite considerable squawking from a few representatives of firms
that are actual, alleged or potential violators of section 7, there is
little if anything to suggest that the burden of prior approval
requirements is undue. It is important to remember how very limited the
Commission's prior approval requirements are. First, and most
obviously, the prior approval requirement is imposed only on firms that
have attempted unlawful acquisitions.\9\ It is limited to proposed
acquisitions in the same geographic and product markets in which the
Commission has found reason to believe that an acquisition by the
respondent would violate the law. It is limited in time, usually to a
duration of ten years. And it involves a minute universe of cases. For
example, in the past five years, the Commission has issued 58 orders
containing prior approval provisions, fewer than twelve per year. In
comparison, in fiscal year 1994, 2,305 transactions were reported under
the Hart-Scott-Rodino Act. In the first six months of fiscal year 1995,
through the end of March 1, 348 transactions were filed.
\9\ Prior approval is a form of fencing-in relief. Fencing-in
provisions ordinarily impose a limited ban on otherwise lawful
conduct to inhibit repetition of the unlawful conduct. See FTC v.
Ruberoid Co., 343 U.S. 470, 473 (1952) (``[T]he Commission is not
limited to prohibiting the illegal practice in the precise form in
which it is found to have existed in the past. If the Commission is
to attain the objectives Congress envisioned, it cannot be required
to confine its road block to the narrow land the transgressor has
traveled; it must be allowed effectively to close all roads to the
prohibited goal, so that its order may not be by-passed with
impunity.'').
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According to the Commission, the policy should be changed because
premerger notification under the Hart-Scott-Rodino Act is an adequate
substitute. While the Hart-Scott-Rodino Act enables the Commission to
investigate and challenge reported transactions before they occur, the
success of the premerger notification program is not a recent
discovery. If pre-transaction notice were the only purpose of prior
approval clauses in orders, the policy could have been abandoned years
ago. Instead, the Commission consistently has concluded (until now)
that the Hart-Scott-Rodino Act does not eliminate the need for prior
approval clauses in merger orders. See, e.g., The Coca-Cola Co., Docket
9207, Order Denying Motion To Dismiss (August 9, 1988), Chairman Oliver
dissenting \10\ and Commissioner Azcuenaga recused.\11\
\10\ Then-Chairman Oliver favored dismissal of the compliant
when ``the only relief * * * would be an order requiring prior
notice or prior approval,'' but he observed (as did the majority)
that Coca-Cola and complaint counsel could ``choose to withdraw this
matter from adjudication'' by negotiating a settlement containing
``narrow prior approval provisions . . . [that in his view would] be
preferable to the continuance of unwarranted litigation.''
\11\ See also Warner Communications, Inc., 105 F.T.C. 342, 343
(1985) (``nothing in its legislative history suggests that
[premerger notification under the Hart-Scott-Rodino Act] was
intended to supersede the use of fencing-in provisions imposed after
a merger has actually been found improper''); Louisiana-Pacific
Corporation, 112 F.T.C. 547, 566 (1989) (Hart-Scott-Rodino
``premerger notification program is not coextensive with the order's
prior approval requirement'').
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A prior approval requirement is a simple, direct and limited remedy
to prevent recurrence of unlawful acquisitions. Even if we assume that
prior approval is costly (i.e., more costly than is compliance with the
Hart-Scott-Rodino Act--and I am not persuaded that it is), the policy
provides important law enforcement benefits. The decision to abandon
prior approval in Commission orders relinquishes the benefits for no
apparent return.\12\
\12\ Determining on a case-by-case basis whether to require
prior approval, see Prior Approval Statement at 2-3, increases the
costs of negotiating and litigating orders in merger cases. Given
the benefits of prior approval, this is a waste of government
resources.
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I am against it.
[FR Doc. 95-19111 Filed 8-2-95; 8:45 am]
BILLING CODE 6750-01-M