[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