On March 23, the U.S. House of Representatives voted favorably on the Standard Merger and Acquisition Reviews Through Equal Rules Act (the “SMARTER Act”), H.R. 2745. The bill, introduced by Representative Blake Farenthold of Texas’ 27th congressional district, would eliminate the differences in the procedures currently utilized by the FTC and DOJ when challenging proposed M&A transactions.
There are two main components to the bill. First, the bill would harmonize the differing preliminary injunction standards applicable to each agency by amending § 13(b) of the FTC Act and § 15 of the Clayton Act. Second, and perhaps more controversial, the SMARTER Act would strip the FTC of its authority to initiate administrative proceedings to block nascent mergers under FTC Act § 5 and Clayton Act § 11 and instead only allow challenges via the judicial system.
Under FTC Act § 13(b), the FTC is allowed to seek preliminary injunctions for suspected violations of the laws it administers. This section directs courts to grant such relief “upon a showing that, weighing the equities and considering the Commission’s ultimate success, such action would be in the public interest . . . .”
The DOJ, on the other hand, acting pursuant to Clayton Act § 15 may seek preliminary injunctions against proposed M&A transactions as well. Unlike the FTC Act, however, the Clayton Act does not provide a standard of review and therefore courts apply traditional equitable principles before enjoining a transaction. This means the DOJ has the burden of establishing, among other things, that there is a substantial likelihood the transaction would lessen competition.
The FTC’s standard of review is arguably less burdensome than traditional principles governing preliminary injunctions since FTC Act § 15(b) only requires the FTC to make a showing that the injunction “would be in the public interest,” while the burden of establishing a likelihood of success on the merits is relieved and instead left to the court’s discretion.
The SMARTER Act would amend FTC Act § 13(b) to carve-out suspected Clayton Act § 7 violations from the FTC’s power to seek preliminary injunctions. Also, Clayton Act § 15 would be revised to clarify that, in addition to the DOJ, the FTC has the power to challenge unconsummated mergers under that provision. Therefore, both agencies’ preliminary motions would be reviewed using the traditional equitable standards.
FTC Chairperson Edith Ramirez argued in front of the Senate antitrust subcommittee that in practice, courts apply the same standards notwithstanding the different statutory language and therefore an amendment to her Agency’s enabling act is unnecessary. FTC commissioner Maureen Ohlhausen, on the other hand, is on the record in support of such a change.
The FTC, but not the DOJ, may also challenge proposed M&A transactions by initiating administrative proceedings pursuant to FTC Act § 5 and Clayton Act § 11. While the DOJ usually dismisses merger challenges after an unsuccessful preliminary injunction ruling, it has been the practice of the FTC to seek injunctions while also simultaneously initiating administrative actions. While the FTC ha not continued to challenge administratively mergers in the face of a negative preliminary injunction ruling, they are not prohibited from doing so. This approach has led to uncertainly in the marketplace due to the potential for the FTC to continue to challenge administratively a merger even if it is denied a preliminary injunction. And, because both agencies receive merger notifications under the Hart-Scott-Rodino Act, proponents of the legislation argue that it is unfair to companies that face challenges from the FTC (rather than the DOJ) based on the availability of the dual adjudicatory avenues available to the FTC, but not the DOJ.
The SMARTER Act would strip the FTC of its administrative authority by amending FTC Act § 5 to exclude initiation of administrative proceedings on the basis of merger review pursuant to Clayton Act § 7. Therefore, if the SMARTER Act becomes law, both the DOJ and FTC would be limited to a judicial forum to challenge unconsummated mergers under Clayton Act § 7.
The White House strongly opposes the SMARTER Act and publically stated as much in the days leading up to the House vote.
Even if this bill is stymied in either the Senate or by President Obama, it is likely that the measure will resurface in a subsequent congress.
You can read the text of the bill here.