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— Rules of the Road —
Some aspects of the FTC's proposed changes are intended to speed the pace of in-house litigation, which is sometimes used in merger challenges. But many lawyers say the process could upset a delicate legal balance between the nation's antitrust agencies and the federal court system established by the Constitution. The American Bar Association has criticized the proposed rules, as has the U.S. Chamber of Commerce and even some former FTC officials. The concern is that industries under the FTC's jurisdiction would be more likely to have mergers blocked than those reviewed by the Department of Justice. And regardless of a federal court judge's ruling, the FTC could march on with a merger challenge, even after the deal is completed.
The FTC's comment period on the new rules expired Nov. 6, two days after the national election. The short 30-day time frame allotted for the comment period has come under fire. While the FTC is not required to have a comment period for changes of this type, it seems to many unfair that such a narrow window was allotted while Washington was focused on the fight for the White House and Congress. But the more substantive question is how the rule would change merger reviews. Unlike the Department of Justice, which can challenge mergers only within the federal court system, the FTC can use the in-house Part 3 process, which gets it name from the 1914 FTC Act that created the agency. Antitrust practitioners complain that the dichotomy is unfair because, historically, industries subject to FTC merger review are more vulnerable to a protracted legal battle. The mere threat of a Part 3 proceeding has derailed mergers. In recent years, in-house litigation has been limited to completed mergers, because the process takes so long and because the FTC has lost several preliminary injunction cases to pre-emptively block mergers in the U.S. District Courts. With injunctions rare, the FTC's threat of a Part 3 trial has been virtually nonexistent. More than a decade ago, then-Chairman Robert Pitofsky announced that the agency would not, except under rare circumstances, litigate a case in-house once the federal courts had ruled against the agency. Pitofsky's so-called five factors for continuing a case were generally embraced by his successors -- until the current FTC lineup embarked on reviving the Part 3 process. As the Chamber of Commerce wrote, "The FTC's proposed regulation now furtively advises the world that its former Policy Statement is null and void.' " That's not cricket, according to the chamber. Moreover, the Antitrust Modernization Commission, a bipartisan panel aimed at reviewing the nation's antitrust laws, recommended last year that the government drop a merger challenge after a federal court rules a deal does not violate antitrust law. Highlighting what's at stake is the merger between Whole Foods Market Inc. and rival Wild Oats Markets Inc. In that case, U.S. District Court Judge Paul Friedman held that the merger would not harm consumers. The FTC appealed immediately, but the appellate review upheld Friedman's decision, and the companies closed the merger. In an unusual move, the FTC kept the Part 3 process alive, but on ice, while launching an unusual full-court press on the U.S. Court of Appeals for the District of Columbia Circuit. Nearly one year after the deal closed, the FTC won that subsequent appeal. The FTC revived the in-house proceeding. Under the new rules, the most likely scenario for merging parties threatened with an in-house challenge would be to divest more than the companies believe justified or to tank the deal. That's only good if one believes all mergers harm consumers, which is contrary to the law. Cecile Kohrs Lindell covers antitrust for The Deal. |
The Federal Trade Commission is attempting to update the arcane procedures for in-house trials.
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