By Jeffrey May, J.D.
Largely along party lines, the U.S. House of Representatives on May 9 passed legislation that is intended to align the procedures used by the FTC and the Department of Justice Antitrust Division in challenging unconsummated acquisitions and mergers. The 230-185 vote in favor of the proposed "Standard Merger and Acquisition Reviews Through Equal Rules (SMARTER) Act" (H.R. 5645) came shortly after a motion to recommit, which could have stalled the bill, was defeated.
Similar legislation passed the House in March 2016 but stalled in the Senate. That measure was opposed by the Obama Administration.
For the current bill, Senate passage could be a difficult hurdle. If the measure can get through the Senate, it is likely that President Trump would sign it, as the proposal has strong Republican support.
Currently, the federal antitrust agencies utilize different processes when seeking to block a proposed merger or acquisition. There also are different standards that apply to each agency when seeking a preliminary injunction in court.
Generally, the FTC files a preliminary injunction in federal court and initiates administrative litigation when challenging a proposed combination. The Antitrust Division does not have the ability to pursue administrative litigation and, as a result, seeks a court order to halt such transactions.
In an effort to harmonize the standards, the measure would remove the FTC’s ability to pursue administrative or Part 3 litigation to challenge a proposed or unconsummated combination. However, the agency can continue to resolve competition concerns over unconsummated mergers with administrative settlements.
The legislation would amend Section 4F of the Clayton Act. Under the amendment, in lieu of administrative litigation proceedings, the FTC "may institute proceedings in a district court under section 15 to prevent the consummation of such a transaction. In any such proceeding the district court shall apply the same standard for granting injunctive relieve as applicable to a proceeding brought by the United States attorneys under section 15 [of the Clayton Act]." These provisions are intended to bring consistency to the approaches used by the agencies.
Under Section 15 of the Clayton Act, the Justice Department can seek to enjoin a transaction on the grounds that the acquisition would substantially lessen competition. However, the provision does not define the standard of review for the government's preliminary injunction motion. Consequently, a traditional equitable standard applies. This means that the Justice Department must make a showing of a substantial likelihood that the transaction violates Section 7 of the Clayton Act.
Under current law, a different procedure and standard applies for FTC enforcement. Section 13(b) of the FTC Act authorizes the FTC to bring a federal court action, seeking preliminary injunctive relief against a violation of any law that the agency enforces, "pending the issuance of a complaint by the Commission and until such complaint is dismissed by the Commission or set aside by the court on review, or until the order of the Commission made thereon has become final. . .." Under this provision, a preliminary injunction may be granted "[u]pon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest . . .."
This "public interest" standard is considered to be a more lenient standard than the test imposed in Justice Department challenges. The proposed SMARTER Act would also amend the FTC Act to change the preliminary injunction standard.
Opposition to measure. On the House floor, Jerrold Nadler (D-NY), Ranking Member of the House Judiciary Committee strongly opposed the measure.
"This bill would significantly undermine the Federal Trade Commission’s ability to enforce the nation’s antitrust laws, which help protect Americans from anti-competitive behavior in the marketplace," said Nadler. "In the guise of ‘harmonization’ with the Department of Justice, it would eliminate the FTC’s administrative litigation enforcement authority with respect to corporate mergers and other transactions. It would also change—and potentially increase—the burden the FTC must demonstrate in court when seeking a preliminary injunction of a proposed merger."
Nadler continued noting that Republican FTC Chairman William Kovacic had warned: "Without a substantial, effective administrative litigation program, the aim of making the Commission an influential competition policy tribunal could not be accomplished."
The measure does not dismantle administrative litigation entirely, however. It dispenses with such litigation for challenges to pending mergers or acquisitions.
Republican support. According to the bill's sponsor, Rep. Karen Handel (R.-Ga.), the measure is aimed at addressing conflicting standards for merging parties that depend upon the agency reviewing the case. "By focusing on consistency, the SMARTER Act does not weaken or undermine our antitrust review process, and it does not prevent or hinder either agency from conducting a full and thorough review," she added.
House Judiciary Committee Chairman Bob Goodlatte (R-Va.) issued a statement on the passage of the bill, saying that the SMARTER Act "will ensure companies face a standardized set of procedures regardless of which agency reviews the potential merger."
MainStory: TopStory AcquisitionsMergers Antitrust AntitrustDivisionNews FederalTradeCommissionNews FedTracker
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