A recent Department of Justice (DOJ) complaint against a non-life sciences firm has important implications for all companies, including those in the life sciences area. On October 15, 2007, Iconix Brand Group agreed to pay a civil penalty totaling $550,000 to settle charges from the Department of Justice that Iconix failed to produce certain documents in connection with its acquisition of Rocawear as required by the HSR Act. According to the complaint, the DOJ discovered that Iconix had withheld several documents responsive to Item 4(c) of the HSR Notification and Report Form (HSR Form), including an e-mail addressed to Iconix directors, a presentation sent to the Executive Vice President of Iconix, and certain board materials. The DOJ’s diligence in pursuing this matter serves as a reminder that neglecting 4(c) obligations, even for seemingly trivial documents in a transaction that does not raise competitive concerns, can have serious repercussions.
The HSR Act requires that parties to certain mergers and acquisitions notify the Federal Trade Commission (FTC) and DOJ prior to consummating these transactions and must provide certain documents and details about the transaction. Item 4(c) of the HSR Form requires parties to submit “[a]ll studies, surveys, analyses and reports which were prepared by or for any officer(s) or director(s) . . . for the purpose of evaluating or analyzing the acquisition with respect to market shares, competition, competitors, markets, [and/or] potential for sales growth or expansion into product or geographic markets….”
The transaction at issue was Iconix Brand Group’s $204 million acquisition of assets owned by clothing designer Rocawear in late March 2007. According to the DOJ’s complaint, neither Iconix nor Rocawear submitted any documents responsive to Item 4(c) when submitting their HSR Forms in early March. As required by rules under the HSR Act, Iconix’s submission was accompanied by a sworn statement by its President and CEO that the information provided by Iconix was “to the best of [his] knowledge, true, correct, and complete in accordance with the statute and rules.” One week after receiving this submission, an FTC staff member contacted Iconix and received further confirmation that Iconix had duly searched for documents responsive to Item 4(c) and that no such documents existed.
In late March 2007, the DOJ and FTC informed the parties that neither agency intended to investigate or challenge the effects of the acquisition, thereby granting the parties’ requests for early termination of the HSR waiting period. The DOJ nevertheless opened an investigation into Iconix’s compliance with the HSR Act in April and issued a civil investigative demand to Iconix in May. As a result of this investigation, the DOJ uncovered the following documents responsive to Item 4(c): (i) an e-mail addressed to “the Iconix directors” including language describing Rocawear as a “leader in the urban lifestyle category” and describing the acquisition as “a great opportunity to expand into this market segment … [and] in new categories … [including] international tie-ins;” (ii) a presentation sent to the Executive Vice President of Iconix containing similar language about “Rocawear’s presence in the urban lifestyle market” and including charts with market share data on Rocawear and its competitors; and (iii) . board materials containing the same market share data included in the above presentation.
Iconix’s failure to produce these documents ultimately resulted in a $550,000 civil penalty despite the fact that neither the DOJ nor the FTC intended to investigate the underlying transaction. This is an important reminder that parties should always take 4(c) obligations seriously, regardless of the nature of a transaction or the apparent trivial nature of potentially responsive documents.