Hart-Scott-Rodino Antitrust Improvements Act
Over 30 years ago, Congress passed the Hart-Scott- Rodino Antitrust Improvements Act of 1976 (the “HSR Act”). The HSR Act provided a mechanism pursuant to which parties to an acquisition of assets or voting securities would be required, assuming certain thresholds were met, to file a notification form with the antitrust enforcement agencies – the Federal Trade Commission (the “FTC”) and the Department of Justice, Antitrust Division (the “DOJ”)—and observe a waiting period before they consummated the transaction. The HSR Act empowered the FTC to promulgate rules and regulations governing the circumstances under which the parties would be required to submit an HSR Act filing.
The FTC established the Premerger Notification Office (the “PNO”) to administer the HSR Act program and review HSR Act filings for compliance with those rules and regulations. Because the HSR Act rules and regulations are extensive and extremely complex, a well-established practice has developed that allows counsel to consult with PNO staff to obtain guidance in applying the rules and regulations to specific situations. Although such advice is deemed “informal” and is not binding on the FTC, it is relied upon daily. Letters from counsel, annotated by the PNO staff, are available on the FTC’s website as a resource for HSR Act practitioners. Counsel will often rely on these letters in advising clients regarding the clients’ specific transactions. A case last year, however, called this practice somewhat into question.
United States v. Malone
In United States v. Malone,1 the U.S. government sued an individual named John Malone for violation of the HSR Act. Malone was the first HSR Act enforcement action in which the defense was based on reliance upon an informal interpretation letter from the PNO staff. In May 2005, Mr. Malone, who already held voting securities of Liberty Media Corporation (“Liberty”), made an HSR Act filing in connection with a proposed acquisition of additional Liberty voting securities. At that time, Liberty had a subsidiary, Discovery Holding Company (“Discovery”). Shortly after the HSR Act filing, Discovery was spun-off. Thereafter, Mr. Malone made several acquisitions of Discovery shares between August 2005 and April 2008, but never made an HSR Act filing in respect of those acquisitions Mr. Malone apparently did not file because he relied on advice contained in an informal interpretation letter from 2001, in conjunction with an explicit regulation. That 2001 position, however, was subsequently disavowed and the reversal of the position was noted in a February 2005 informal interpretation letter. In June 2008, Mr. Malone made a corrective filing for the acquisitions of Discovery shares that he had made in violation of the HSR Act, explaining that neither he nor his counsel checked the FTC database, or contacted PNO, to determine whether the 2001 position was still valid. Two days after making the corrective filing, Mr. Malone, through an escrow arrangement, exercised his options on additional Discovery shares without waiting for the expiration of the waiting period for that corrective filing, again in violation of the HSR Act. As a result of these violations, the DOJ brought suit against Mr. Malone and the parties entered into a consent whereby Mr. Malone agreed to pay $1.4 million in civil penalties.2
It is unlikely that this case will stand for the proposition that enforcement agencies will seek civil penalties for every inadvertent missed filing. Indeed, the FTC has long held a “one bite at the apple” policy, whereby the agencies will not seek civil penalties the first time a party misses a filing, assuming the failure to file was inadvertent.
Nevertheless, HSR Act practitioners and their clients must take notice that the enforcement agencies do expect them to check whether informal advice obtained in the past is still regarded as good policy with the PNO. As the FTC stated in its press release announcing the consent, the bottom line is this: “Although informal interpretations of the premerger rules are available on [the FTC’s] website and may provide useful information to filers, it is important that filers confirm whether a particular interpretation reflects the current view of the Premerger Notification Office.3