In 1976, the United States became the first jurisdiction with a mandatory pre-merger notification requirement when Congress promulgated the Hart-Scott-Rodino Antitrust Improvements Act (the HSR Act) to enhance enforcement of Section 7 of the Clayton Act. Under the HSR Act, the US Federal Trade Commission (FTC or the Commission) and the US Department of Justice's Antitrust Division (DOJ) (collectively, the agencies) receive such notifications concurrently and, through a clearance process, decide which agency will investigate transactions that potentially raise issues under Section 7 of the Clayton Act. The HSR Act provides both a 'size-of-transaction' test and a 'size-of-person' test for determining whether a filing is required. Subject to certain exemptions, for 2022,2 the size-of-transaction test is satisfied if the acquirer would hold an aggregate total amount of voting securities and assets of the target in excess of US$101 million. Transactions in which holdings post-acquisition will be valued between US$101 million and US$403.9 million are reportable only if the size-of-person threshold is also met: either the acquiring or acquired person must have total assets or annual net sales of at least US$202 million, and at least one other person must have total assets or annual net sales of US$20.2 million. Transactions valued over US$403.9 million are not subject to the size-of-person test, and are reportable unless otherwise exempt.
Important exemptions are provided in the implementing regulations,3 most notably for: (1) acquisitions of goods or real property in the ordinary course of business; (2) acquisitions of bonds, mortgages and other debt obligations; (3) acquisitions of voting securities by an acquirer holding at least 50 per cent of the issuer's voting securities prior to the acquisition; (4) acquisitions made solely for investment purposes in which, as a result of the acquisition, the acquirer holds 10 per cent or less of the outstanding voting securities of the issuer; (5) intra-corporate transactions; (6) acquisitions of convertible voting securities (but not the conversion of such securities); (7) acquisitions by securities underwriters in the process of underwriting; (8) acquisitions of collateral by creditors upon default; and (9) acquisitions involving foreign persons if the assets or revenues involved fall below certain adjusted thresholds that are intended to focus on assets located in the United States or for which there are sufficient sales in or into the United States. Failure to file can result in civil penalties of up to US$46,517 for every day that the person does not comply with the HSR Act.
The non-reportability of a transaction under the HSR Act does not preclude either the FTC or the DOJ from reviewing, and even challenging, a transaction under Section 7 of the Clayton Act.4 Nor does the expiry or termination of the HSR Act waiting period immunise a transaction from post-consummation challenge under Section 7.5 In addition, even in reportable transactions, state attorneys general may review, and even challenge, transactions, typically, but not always, in conjunction with the federal enforcement agency handling the transaction.6 Certain industries also require pre-merger approval from federal regulatory agencies. For instance, the Federal Energy Regulatory Commission will review electric utility and interstate pipeline mergers; the Federal Communications Commission will review telecommunications and media mergers;7 the Board of Governors of the Federal Reserve System will review bank mergers;8 and the Surface Transportation Board will review railway mergers.
State public utilities commissions may have separate authority to review telecommunications and utilities mergers. Finally, under the Exon-Florio Act, the Committee on Foreign Investment in the United States may review acquisitions by foreign persons that raise national security issues.
Year in review
Despite the pandemic and the change in agency leadership, the US agencies remained vigorous in their merger enforcement actions during 2021.9 The current enforcement policy is part of a growing broader political consensus that antitrust laws should promote societal goals beyond market efficiencies or consumer welfare, to include labour, privacy, sustainability and equities. To some extent, this new approach is consistent with what competition authorities in other key jurisdictions have adopted.
In the United States, there are two agencies that have concurrent jurisdiction over merger review. The FTC uniquely possesses the ability to seek a preliminary injunction to block completion of a proposed merger in federal district court and to challenge both proposed and completed mergers in its own administrative proceeding. In addition, the FTC can enter into a binding consent decree with the transaction parties without judicial intervention. In contrast, the DOJ must bring its challenges (and file any consents) in federal district court, with a judge ultimately deciding the case. The duration of the administrative process is sufficiently long that rarely will a pending transaction survive the appeals process.
For instance, the FTC's administrative challenge of a completed acquisition by Polypore International, Inc that commenced in September 2008 resulted in a March 2010 ruling by the administrative law judge that the acquisition violated the law. The transaction parties appealed the ruling to the full Commission, which held oral argument on 28 July 2010 and unanimously affirmed the decision on 8 November 2010 (over two years after the challenge commenced); the Eleventh Circuit affirmed the Commission's decision almost two years later (i.e., over four years after it challenged the merger). The US Supreme Court denied certiorari in 2013. Similarly, in the challenge of the September 2017 Otto Bock/Freedom Innovations transaction, the FTC brought its administrative challenge in December 2017, the administrative law judge ruled in May 2019 that the transaction violated the law, and the full Commission unanimously affirmed the decision on 30 December 2019. Otto Bock petitioned the DC Circuit to review the Commission's decision, but pending the DC Circuit's decision, agreed to settle with the FTC by divesting Freedom's microprocessor-equipped prosthetic knee business to Proteor on 9 October 2020 (almost three years after the FTC had commenced its challenge).
At the beginning of 2021, the FTC had pending two merger challenges in federal district court and two consummated merger challenges in its administrative court. The FTC lost one of these pending district court challenges10 and won the other one,11 although the transaction parties appealed that decision to the Third Circuit (and eventually lost that appeal in March 2022). Both administrative challenges remained undecided at the conclusion of 2021; on 15 February 2022, however, the administrative law judge ruled in favour of the transaction parties in the Altria/Juul case, which the FTC has now appealed to the full Commission.12 During 2021, the Commission authorised staff to challenge three additional mergers in district court; the transaction parties abandoned two of these mergers prior to trial,13 and the FTC sought the dismissal of the other case, choosing to pursue its challenge solely in administrative court.14 In addition, the FTC brought another administrative challenge of a proposed merger, which the transaction parties abandoned before trial.15
The FTC entered into six consents involving proposed mergers in 2021. In addition, the FTC reports that in four deals, the parties abandoned their transaction when faced with FTC opposition to the transaction.
At the beginning of 2021, the DOJ had two merger challenges pending in district court: it settled one,16 and the parties abandoned the deal in the other one.17 The DOJ brought four district court merger challenges – three of which remained pending at the end of the year.18 The DOJ also entered into 11 consents involving proposed transactions in 2021.
Both agencies have shown an increased willingness to challenge mergers on potential competition and vertical concerns, particularly in high-technology and healthcare sectors. In addition, monopsony theories, particularly relating to labour markets, are currently at the forefront of the agencies' reviews of mergers.
The merger control regime
Parties may approach the agencies prior to the filing of an HSR Act notification (or, in transactions that are not notifiable but that may raise antitrust concerns, in lieu of filing under the HSR Act), and the agencies can extend confidentiality to any substantive discussions by officially commencing an investigation. In contrast with many other jurisdictions, such consultations are not common prior to the public announcement of a transaction.
An acquisition that is subject to an HSR Act notification may not be completed until the requisite HSR Act notification has been filed with the agencies and the applicable waiting period has expired or has been terminated early. In most transactions, the acquired and the acquiring parties must file separate HSR Act notifications, and the waiting period will not commence until both parties make their filings. In tender offers, the waiting period commences with the filing of the HSR Act notification by the acquirer.
The initial waiting period is 30 days (or 15 days, in the case of a cash tender offer or bankruptcy filing). If the period expires on a weekend or holiday, then it will be extended until the following business day. At the parties' request, the waiting period can be terminated earlier by the agencies. Technically, the waiting period may not be extended other than by the issuance of a request for additional information and documentary material (second request). In practice, however, the acquiring party may withdraw and refile its HSR notification (recommencing the waiting period), agree not to complete the transaction to grant the antitrust enforcement agency additional time, or agree with the enforcement agency out of court that compliance with the HSR Act will not occur until a further submission is made.
The FTC and the DOJ have concurrent jurisdiction over HSR Act notifications. A clearance process exists between the agencies whereby one of the agencies can get 'cleared' to investigate the transaction. Once an agency is cleared, it can contact the parties (and third parties) for information relating to the transaction. The agencies have adopted policies to facilitate the investigation of transactions during the initial waiting period, aimed at decreasing the number of transactions in which second requests are issued and developing more precise second requests. The ability to engage in meaningful review of a transaction during this initial waiting period, however, depends on the transaction parties' willingness to provide certain documents and information quickly and voluntarily.
If, prior to the expiry of the initial waiting period, the reviewing agency issues a second request (typically on the last business day of the waiting period), then the clock stops until the transaction parties comply with the second request. Unless terminated earlier or otherwise agreed to by the parties, the second waiting period ends on the 30th day (or, in the case of a cash tender offer or bankruptcy, the 10th day) following substantial compliance with the second request. Again, if the waiting period expires on a weekend or holiday, it is extended to the following business day. In tender offers, the waiting period is determined according to when the acquiring party substantially complies with the second request. It is not unusual for the parties to agree to extend the waiting period in exchange for a dialogue with the agency regarding the concerns presented, particularly if the parties are willing to resolve any remaining concerns with a consent decree.
In merger investigations, the agencies typically seek information from third parties (competitors, customers, suppliers, etc.) that is relevant to the review of the transaction. The information may be requested or required. Both agencies can also seek interviews or depositions. Generally, the information provided by the merger parties and third parties is not subject to public disclosure. State attorneys general can also review mergers – a process has been in place for about a decade that facilitates their participation in HSR review. With the consent of the merger parties, the agencies will discuss the information received by them and coordinate their investigations with the state enforcers. Ultimately, if the transaction is challenged, the state attorneys general often, but not always, join with the agency as plaintiffs. In some transactions, the state attorneys general will seek additional relief. State attorneys general will sometimes also require transaction parties to pay 'attorneys' fees' for their review of the transaction as part of the settlement. In addition, the US antitrust authorities regularly consult with their foreign counterparts during a merger investigation. Such coordination and dialogue require consent from the transaction parties. The US authorities recently signed a cooperation agreement with China to facilitate such cooperation.
A high percentage of the transactions for which an agency issues a second request will result in some type of enforcement action (i.e., court challenge, consent decree or restructuring). The agencies have a strong preference for structural relief, and require either upfront buyers or short (i.e., 60 to 90 days) divestiture periods. The DOJ will sometimes forgo the need for a consent decree if the merger parties eliminate the potential anticompetitive problems through a voluntary restructuring of the transaction or a sale of assets (a 'fix-it- first' solution). The DOJ also uses 'pocket consent decrees' (decrees that are entered into by the parties and the DOJ but not filed with the court unless either the agency decides that it needs relief or the parties fail to implement the remedy or obtain a regulatory order). These pocket consent decrees can also be used to permit a transaction to proceed before the agency completes its investigation; for instance, in a hostile tender offer situation where the target is uncooperative and seeks to use the HSR review as a means of delay or process denial. Both the FTC and the DOJ permit the transaction to close once they provisionally accept the consent decree and publish it for public comment. The FTC approves the final consent decree after the public comment period expires and the staff sends its recommendation to the Commission; the DOJ files the proposed judgment with a federal district court and seeks approval and entry of the judgment by the judge following the public comment period provided under the Tunney Act.19
If the parties and the reviewing agency are unable to reach an agreement that resolves the agency's concerns, then the agency can seek a preliminary injunction from a federal district court to block the transaction's completion. The DOJ can also challenge a completed merger in federal district court. The FTC, regardless of whether it seeks a preliminary injunction, can also challenge a proposed or consummated merger in its own administrative court.
The agencies can challenge a transaction at any time post-consummation. There is no statute of limitations barring the challenge or suspensory effect from the expiry of the HSR Act waiting periods. State attorneys general can bring challenges as well, on their own behalf or as parens patriae of their citizens. Private parties can bring challenges, although, in most jurisdictions, the standing requirements may be difficult to meet.
Other strategic considerations
Although providing the state attorneys general with an active role in the HSR Act review may complicate the process and potentially delay the resolution of the review at the agency, it is generally advisable that transaction parties consent to such a request. Most states have compulsory process authority and, absent the protocol, can issue subpoenas for information, documents and even testimony. States can also bring challenges. Having the states work with the agency eliminates confusion, an additional burden of compliance with requests and potentially diverging outcomes. Although the T-Mobile/Sprint transaction provided an example of where some states may diverge with a federal antitrust agency, in a number of recent FTC challenges, state attorneys general joined with the FTC in the matter.
Similarly, many transactions meeting the jurisdictional thresholds of the HSR Act will also require notification in a number of other jurisdictions.20 The trend is for the FTC and the DOJ to cooperate with other jurisdictions in reviewing cross-border mergers. In that regard, the US agencies have entered into several bilateral and multilateral cooperation agreements. The agencies have cooperated extensively with Canada, Mexico and the European Commission on several mergers, and this cooperation is likely to continue. Transaction parties should consider agreeing to such cooperation for the same reasons as with the states: to avoid confusion, the burden of compliance with requests and potential diverging outcomes. Such coordination is particularly crucial when remedies are likely to be required that affect assets or businesses in more than one jurisdiction. Even with such cooperation, however, geographic and analytical differences can exist among reviewing jurisdictions. It is more likely that divergence will occur between the established competition authorities (e.g., the United States' and the European Commission's) and the newer competition authorities (e.g., India's and China's).
Outlook and conclusions
The simultaneous district court and administrative court litigation strategy being used by the FTC raises the question of whether there should be different standards for the FTC and the DOJ in reviewing merger cases. Section 13(b) of the FTC Act authorises the FTC in a 'proper case' to seek permanent injunctive relief against entities that have violated or threatened to violate any of the laws it administers.21 The statute provides that an injunction may be granted only 'upon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest'.22 In contrast, under traditional equitable standards, a plaintiff must show a likelihood of success on the merits. The circuit courts have not reached an agreement on what the FTC's burden of proof should be. Reference to a public interest criterion has resulted in some circuits relaxing the standard imposed on the FTC from the traditional equitable standards applicable to the DOJ and other plaintiffs in an injunctive proceeding. There is a bill pending in Congress that would conform the process and standard applied to the two agencies. There are also pending in Congress bills that would potentially radically reform the burdens of proof and standards applied in merger reviews; it is by no means clear that these bills will pass in Congress.
US antitrust enforcement continues unabated as at the time of writing. US antitrust agencies have continued actively to investigate and take enforcement actions – through consents and legal challenges – in both proposed and consummated transactions. The matters include vertical mergers, minority interests and acquisitions of nascent or potential competitors. Even prior to the 2020 presidential elections, Congress and the federal antitrust agencies had debated the adequacy and usage of the antitrust laws and enforcement to address broader industry and societal policy objectives. Antitrust was a part of the political debate in the 2020 presidential elections, and remains of interest to Congress, the Biden administration and the state attorneys general. The leadership appointments made at both agencies suggest a very active enforcement agenda during the next few years, with some uncertainty in the outcomes until precedent is adopted in some of the areas currently being included as part of merger review.