The FTC is raising the maximum civil penalty that may be imposed for certain violations from $16,000 to $40,000.
For HSR Act violations, where penalties may be imposed for each day the person is in violation, and for other continuing violations, maximum civil penalties may now be $1.2 million per month or $14.4 million per year.
Investors and other acquirers should have a compliance program in place to ensure that they make all necessary HSR filings.
Respondents to FTC Orders should have a compliance program in place to avoid Order violations.
For anyone who viewed FTC civil penalties as a cost of doing business, the cost just went up dramatically. The U.S. Federal Trade Commission (“FTC”) has increased the maximum civil penalty for certain violations to $40,000, a 250% increase over the current $16,000 maximum civil penalty. The full notice can be seen here. Because of the way civil penalties are computed under various statutes enforced by the FTC, the impact of this change will be most acute in enforcement against Hart-Scott-Rodino Act (“HSR Act”) violations and other continuing violations. Under the HSR Act, where the civil penalty is set by statute on a per day basis, the maximum total civil penalty could be $40,000 multiplied by the number of days the person is deemed to be in violation. Similarly for continuing violations, the FTC considers each day to be a separate violation of the statute or Order. In other words, maximum civil penalties for HSR Act violations and other continuing violations could be as much as $1.2 million per month or $14.4 million per year.
The new maximum civil penalty applies to any penalty assessed after August 1, 2016, regardless of the date of the associated violation. The changes were mandated by the so-called “catch up adjustment” provision of the Federal Civil Penalties Inflation Adjustment Act Improvements of 2015. Going forward, the maximum civil penalty will be subject to an annual inflation adjustment every January, in much the same way as the FTC annually adjusts the HSR Act reporting and filing fee thresholds.
The FTC has no power to assess civil penalties but a number of statutes enforced by the FTC authorize federal courts in civil actions brought by the United States to assess civil penalties up to specified maximum levels against persons found to be in violation of the associated statutory provision.
Violations subject to the new $40,000 maximum civil penalty include:
Click here to view table.
In determining the amount of a civil penalty to be sought, the FTC applies the same statutory criteria that a court would apply under Section 5(m)(1)(C) of the FTC Act, which is “the degree of culpability, any history of prior such conduct, ability to pay, effect on ability to continue to do business, and such other matters as justice may require.” The FTC also has a civil penalty leniency program for small businesses.
The HSR premerger notification program consists of highly technical rules that apply to transactions and parties engaged in commerce that meet certain size thresholds. The FTC has had a long standing “one free bite at the apple” approach pursuant to which it will generally not seek civil penalties against a person for failure to file as long as that person self-reports the violation, makes a corrective filing, is a first time violator, and details the circumstances demonstrating that the failure to file was inadvertent.
The FTC and the Department of Justice (“DOJ”) (the agencies have shared enforcement jurisdiction) have brought more than 50 enforcement actions for failure to comply with the premerger notification reporting requirements since the inception of the HSR Act in 1976. Typically these are for a percentage of what the agencies believe to be the maximum civil penalty.
Examples of FTC and DOJ enforcement actions for failure to file violations include Biglari Holdings agreeing in 2012 to pay a $850,000 civil penalty to settle charges that it violated premerger notification requirements in connection with acquisitions of voting securities in 2011 and Smithfield Foods agreeing in 2004 to pay a $2 million civil penalty to settle charges that it failed to comply with premerger reporting requirements for acquisitions of voting securities that occurred in 1998 and 1999.
FTC and DOJ settlements for “gun jumping” activities in violation of the HSR premerger waiting period requirements have been larger. For example, Gemstar-TV Guide agreed in 2003 to pay a record $5.67 million civil penalty to settle charges that Gemstar and TV Guide, prior to their July 2000 merger, had violated the waiting period requirements by certain conduct, including agreeing to stop competing for customers, agreeing on prices and terms to be offered, and jointly managing certain parts of their businesses.
The other notable increases in maximum civil penalties apply to violations of final FTC Orders and trade regulation rules that address unfair and deceptive acts and practices. Examples of FTC civil penalties for such violations include Toys “R” Us agreeing in 2011 to a $1.3 million civil penalty to settle charges that it violated a 1998 Order and Google agreeing in 2012 to pay a $22.5 million civil penalty to settle charges that it violated a 2011 Order.