Statement Concerning Prior Approval and Prior Notice Provisions in Merger Cases

39745	Federal Register / Vol. 60, No. 149 / Thursday, August 3, 1995 / Notices
10 Off-the-record discussions with the
respondents, followed by dismissal of the
complaint, also may create misperceptions of
unfairness and favoritism, with the implication that
nonpublic communications that could not bear the
light of day influenced the Commission’s decision.
11 This assumes that complaint counsel find
themselves unable to make a principled argument
in support of the complaint. See Jose Calimlin,
M.D., Dkt. No. 9199 (June 24, 1986) (‘‘complaint
counsel represent the Commission’s prosecutorial
decision as embodied in the allegations of
complaint and in the notice of contemplated
relief’’); accord R.J. Reynolds Tobacco Co., Dkt. No.
9206 (interlocutory order, Dec. 1, 1986); see also
R.J. Reynolds Tobacco Co. (interlocutory order, Dec.
10, 1986) (purpose of adjudication is ‘‘to subject the
Commission’s complaint to an adversarial test’’).
12 See 5 U.S.C. § 552(d); 16 C.F.R. § 4.7.
1 As used herein, the term ‘‘merger’’ includes
mergers, acquisitions, joint ventures, and equivalent
transactions.
2 Hart-Scott-Rodino Antitrust Improvements Act
of 1976, 15 U.S.C. 18a.
role of the Commission as an unbiased
decisionmaker.10
A third scenario is that the case is
weak, respondents move to withdraw
the matter from adjudication, and
complaint counsel file nothing in
support of the complaint.11 In such an
instance, the Commission may agree
with the respondents and dismiss the
adjudication, or it may disagree and
order that the proceeding continue.
There seems no good reason not to have
this occur on the public record. Again,
private discussions between the
Commission and its staff can create a
public perception of unfairness to the
respondents arising from apparent
complicity between the prosecuting
attorneys and the purportedly impartial
adjudicators—the very danger the
separation of functions requirements of
the Administrative Procedure Act and
the Commission’s ex parte rule are
designed to avoid.12
In addition to undermining the
separation of functions at the
Commission, the new rule limits the
Commission’s discretion to decide when
individual cases should be in
adjudication and remain on the public
record. The exercise of discretion in an
adjudicative matter is a responsibility of
the Commission, not an occasion for
apology. This responsibility, which
must be carried out consistent with the
law and with fundamental fairness,
should not be ceded without a reason
for doing so. Here, I see none. Both the
policy to maintain the separation of
deliberative and prosecutorial functions
and the appearance of having done so
are enhanced when the Commission
retains its discretion to determine the
appropriate disposition of a motion to
withdraw from adjudication. The
shifting of a portion of that discretion in
favor of the respondents may appear
open-minded, but, in the long term, it
will disserve the Commission and the
public interest.
On balance, the Commission and the
public would be better served if the
Commission retained its discretion to
decide which, if any, cases should be
withdrawn from adjudication following
denial of a preliminary injunction. The
new rule is likely to undermine the
integrity of the Commission and its
adjudicative process by breaking down
the wall between the Commission’s
prosecutorial and adjudicatory roles in
a manner inconsistent with the
separation of functions requirement of
the Administrative Procedure Act and
its own ex parte rule.
I dissent.
[FR Doc. 95–19110 Filed 8–2–95; 8:45 am]
BILLING CODE 6750–01–M
Notice and Request for Comment
Regarding Statement of Policy
Concerning Prior Approval and Prior
Notice Provisions in Merger Cases
AGENCY : Federal Trade Commission.
ACTION : Notice of policy statement and
request for public comment.
SUMMARY: The Federal Trade
Commission has adopted a policy
statement regarding the use of prior
approval and prior notice provisions in
Commission orders entered in merger
cases. Under the policy, the
Commission will no longer require prior
approval of certain future acquisitions
in such orders as a routine matter. The
Commission will henceforth rely on the
premerger notification and waiting
period requirements of Section 7A of
the Clayton Act, commonly referred to
as the Hart-Scott-Rodino (HSR) Act, as
the principal means of learning about
and reviewing mergers proposed by
such companies. Narrow prior notice or
approval requirements will be retained
for certain limited situations described
in the Commission’s Statement of
Policy. The Commission also stated that
it would initiate a process for reviewing
the retention or modification of prior
approval requirements in existing
Commission orders.
Although these policies are already in
effect, the Commission is soliciting
comment from interested persons.
DATES: The policy statement was
effective on June 21, 1995. Comments
will be received until September 5,
1995.
ADDRESSES : Comments should be sent to
the Secretary, Federal Trade
Commission, Sixth Street and
Pennsylvania Avenue, NW.,
Washington, DC 20580. Comments will
be entered on the public record of the
Commission and will be available for
public inspection in Room 130 during
the hours of 9 a.m. until 5 p.m.
FOR FURTHER INFORMATION CONTACT:
Daniel P. Ducore, Assistant Director for
Compliance, Bureau of Competition,
(202) 326–2526.
SUPPLEMENTARY INFORMATION: Under
previous Commission policy,
Commission orders entered in merger
cases generally have required that the
respondent obtain the Commission’s
prior approval for certain future
acquisitions in the same market. The
Commission has reassessed that policy
and has determined that prior approval
of future acquisitions by a respondent
should no longer be required as a
routine matter. The Commission has
issued the following Policy Statement as
an exercise of its discretion.
The Commission invites comments on
the issues discussed in this notice, in
the Policy Statement and in the separate
statement of Commissioner Azcuenaga.
Statement of Federal Trade
Commission Policy Concerning Prior
Approval and Prior Notice Provisions
Introduction
Under longstanding Commission
policy, Commission orders entered in
merger cases generally have contained a
requirement that the respondent seek
the Commission’s prior approval for any
future acquisition over a de minimis
threshold within certain markets for a
ten-year period.1 In a few cases, the
Commission also has required prior
notice of intended transactions that
would not be subject to the premerger
notification and waiting period
requirements of section 7A of the
Clayton Act, commonly referred to as
the Hart-Scott-Rodino (HSR) Act.2 Prior
approval and notice requirements are
imposed pursuant to the Commission’s
broad authority to fashion remedies to
prevent the recurrence of
anticompetitive conduct.
In light of its now extensive
experience with the HSR Act, the
Commission has reassessed whether it
needs to continue regularly to impose
prior approval requirements. Although
prior approval requirements in some
cases may save the Commission the
costs of re-litigating issues that already
have been resolved, prior approval
provisions also may impose costs on a
company subject to such a requirement.
Moreover, the HSR Act has proven to be
an effective means of investigating and
challenging most anticompetitive
transactions before they occur.

39746 	Federal Register / Vol. 60, No. 149 / Thursday, August 3, 1995 / Notices
3 Such a provision is included in some consent
judgments in cases brought by the Department of
Justice. See, e.g., United States v. Browning-Ferris
Indus. Inc., Civ. Action No. 1:94CV02588 (proposed
final judgment) (D.D.C., filed Nov 1, 1994).
4 Such prior notice orders would require the
company to comply with HSR-like premerger
notification and waiting periods. From FY 1990
through FY 1994, the Commission undertook
enforcement actions against twelve transactions that
were not reportable under HSR. Four were hospital
mergers, and the others covered a variety of markets
including electrical products, scientific equipment,
medical products or devices, security equipment,
and food products.
1 Prior approval provisions require the firm under
order to obtain the approval of the Commission
before making acquisitions in the same market in
which the unlawful acquisition occurred.
Early cases enjoined future acquisitions entirely,
often together with a divestiture requirement, to
remedy the effects of an unlawful acquisition. Prior
approval was introduced as an ‘‘escape clause,’’
‘‘[t]o prevent the possibility of the injunction
(against acquisitions) having unintended harsh
results.’’ Luria Brothers, 62 F.T.C. 243, 638 (1963),
aff’d, 389 F.2d 847, 865–66 (3d Cir.), cert. denied,
393 U.S. 829 (1968). Early prior approval clauses
varied in length, ranging from perpetual
requirements to those with a duration of 5, 10 or
20 years.
2 Statement of FTC Policy Concerning Prior
Approval and Prior Notice Provisions at 4 (June 21,
1995) (hereafter ‘‘Prior Approval Statement’’).
3 See FTC Staff Bulletin 88–01 (May 18, 1988).
4 The Coca-Cola Co., Docket 9707 (June 13, 1994),
Commissioners Azcuenaga & Starek recused; order
modified (May 17, 1995); appeal dismissed per
stipulation (D.C. Cir. May 18, 1995).
5 See, e.g., FTC v. Starlink, Inc., Civ. No. 91–1085
(E.D. Pa. Feb. 10, 1992) (lifetime ban on advertising,
marketing or selling information concerning
employment opportunities).
6 Examples of highly regulatory orders are
unfortunately plentiful. See, e.g., Dissenting
Statement of Commissioner Mary L. Azcuenaga in
Silicon Graphics, Inc., File 951–0064 (published for
comment June 9, 1995).
Consequently, the Commission has
concluded that a general policy of
requiring prior approval is no longer
needed. Narrow prior notice or approval
requirements will be retained for certain
situations, as described below.
Statement of Policy Concerning Future
Orders
The Commission will henceforth rely
on the HSR process as its principal
means of learning about and reviewing
mergers by companies as to which the
Commission had previously found a
reason to believe that the companies
had engaged or attempted to engage in
an illegal merger. The Commission
believes that in most such situations the
availability of HSR premerger
notification and waiting period
requirements will adequately protect the
public interest in effective merger
enforcement, without being unduly
burdensome. Therefore, as a general
matter, Commission orders in such
cases will not include prior approval or
prior notification requirements.
The Commission reserves its equitable
power to fashion remedies needed to
protect the public interest, including by
ordering limited prior approval and/or
notification in certain limited
circumstances. Such orders are most
likely to be used in two situations:
First, a narrow prior approval
provision may be used where there is a
credible risk that a company that
engaged or attempted to engage in an
anticompetitive merger would, but for
the provision, attempt the same or
approximately the same merger.3 The
prior approval requirement in such
cases would typically be limited to the
proposed merger or other combination
of essentially the same relevant assets
that were involved in the challenged
transaction.
Second, a narrow prior notification
provision may be used where there is a
credible risk that a company that
engaged or attempted to engage in an
anticompetitive merger would, but for
an order, engage in an otherwise
unreportable anticompetitive merger.4
The need for this supplemental, HSR-
like premerger notification and waiting
period requirement will depend on
circumstances such as the structural
characteristics of the relevant markets,
the size and other characteristics of the
market participants, and other relevant
factors (including whether the
challenged transaction itself was not
reportable).
Statement of Policy for Existing Prior
Approval Orders
There are approximately 90
outstanding Commission orders that
contain a current prior approval
requirement; some of these orders also
contain a prior notice requirement. The
Commission has determined to initiate
a process for reviewing the retention or
modification of these existing
requirements. The Commission will
issue to each person subject to such an
order a notice regarding the
Commission’s prior approval policy as
set forth in this Statement and an
invitation to submit a request to reopen
the order, pursuant to section 5(b) of the
Federal Trade Commission Act and Rule
2.51 of the Commission’s rules of
practice.
The Commission has determined that,
when a petition is filed to reopen and
modify an order pursuant to this
Statement of Policy, the Commission
will apply a rebuttable presumption that
the public interest requires reopening of
the order and modification of the prior
approval requirement consistent with
the policy announced in this Statement.
No presumption will apply to existing
prior notice requirements, which have
been adopted on a case-by-case basis
and will continue to be considered on
a case-by-case basis under the policy
announced in this Statement.
Although the policies set forth in this
Statement are effective immediately, the
Commission will issue within thirty
days a Federal Register notice soliciting
public comment on them.
By direction of the Commission,
Commissioner Azcuenaga dissenting.
Donald S. Clark,
Secretary.
Dissenting Statement of Commissioner
Mary L. Azcuenaga on Decision to
Abandon Prior Approval Requirements
in Merger Orders
The Commission has abandoned its
longstanding policy to include prior
approval as a remedy in cases involving
transactions that are unlawful under
section 7 of the Clayton Act.1 The
Commission cites in support of its
decision the effectiveness of premerger
notification under the Hart-Scott-Rodino
Act as a ‘‘means of investigating and
challenging most anticompetitive
transactions before they occur’’ and the
possibility that ‘‘prior approval
provisions * * * may impose costs on
a company subject to such a
requirement.’’ 2 In my view, the policy
should be retained because the benefits
of prior approval requirements easily
outweigh the costs.
Our authority to impose prior
approval requirements is unquestioned,
and the Commission reaffirmed its
policy to require prior approval clauses
in section 7 orders in 1988 3 and, most
recently, in 1994 in its adjudicative
opinion in the Coca Cola case.4 The
Commission imposes a variety of more
costly requirements in its orders every
day, ranging from complete bans on
engaging in certain businesses and
activities 5 to provisions that some
might characterize as highly regulatory.6
Why the Commission would choose
now to eliminate this straightforward,
modest, fencing-in relief for unlawful
mergers is mystifying.
Prior approval clauses benefit the
Commission by conserving public law
enforcement dollars. A respondent
subject to a prior approval requirement
must notify the Commission of the
proposed transaction and demonstrate
that it would not be anticompetitive
before consummating the deal. From the
Commission’s perspective, this process
is less costly than a new investigation of
a proposed transaction and a second
challenge under the law. In the absence
of a prior approval requirement,
subsequent acquisitions that was
challenged and found unlawful, must be

39747	Federal Register / Vol. 60, No. 149 / Thursday, August 3, 1995 / Notices
7 The Antitrust Division of the Department of
Justice recently filed a civil antitrust complaint to
block a company’s second attempt in eight years to
acquire its largest competitor. See United States v.
Engelhard Corp., Civ. Action No. 6:95–CV–454
(M.D. Ga. filed June 12, 1995). Engelhard
abandoned its previous acquisition attempt in 1987,
after the Department announced that it would
challenge the transaction.
8 If the prior approval requirement is costly in fact
or if it is perceived to be costly, then the
requirement may have a deterrent effect. Formerly,
a firm contemplating an anticompetitive acquisition
might have decided that on balance the risk of
prosecution combined with the likelihood of
becoming subject to a prior approval requirement
was sufficient cause not to go forward. Because
firms cannot know in advance whether their
transaction will be reviewed by the Commission or
by the Department of Justice, any deterrent effect
from the Commission’s policy would apply to all
transactions.
9 Prior approval is a form of fencing-in relief.
Fencing-in provisions ordinarily impose a limited
ban on otherwise lawful conduct to inhibit
repetition of the unlawful conduct. See FTC v.
Ruberoid Co., 343 U.S. 470, 473 (1952) (‘‘[T]he
Commission is not limited to prohibiting the illegal
practice in the precise form in which it is found to
have existed in the past. If the Commission is to
attain the objectives Congress envisioned, it cannot
be required to confine its road block to the narrow
land the transgressor has traveled; it must be
allowed effectively to close all roads to the
prohibited goal, so that its order may not be by-
passed with impunity.’’).
10 Then-Chairman Oliver favored dismissal of the
compliant when ‘‘the only relief * * * would be an
order requiring prior notice or prior approval,’’ but
he observed (as did the majority) that Coca-Cola and
complaint counsel could ‘‘choose to withdraw this
matter from adjudication’’ by negotiating a
settlement containing ‘‘narrow prior approval
provisions . . . [that in his view would] be
preferable to the continuance of unwarranted
litigation.’’
11 See also Warner Communications, Inc., 105
F.T.C. 342, 343 (1985) (‘‘nothing in its legislative
history suggests that [premerger notification under
the Hart-Scott-Rodino Act] was intended to
supersede the use of fencing-in provisions imposed
after a merger has actually been found improper’’);
Louisiana-Pacific Corporation, 112 F.T.C. 547, 566
(1989) (Hart-Scott-Rodino ‘‘premerger notification
program is not coextensive with the order’s prior
approval requirement’’).
12 Determining on a case-by-case basis whether to
require prior approval, see Prior Approval
Statement at 2–3, increases the costs of negotiating
and litigating orders in merger cases. Given the
benefits of prior approval, this is a waste of
government resources.
investigated and challenged de nove.7
To the extent that the prospect of the
prior approval requirement may deter
unlawful acquisitions by a respondent,
this would appear to be a benefit. To the
extent that the prospect of prior
approval may deter unlawful
acquisitions by firms that are not under
order, this, too, would appear to be a
benefit.8
Despite considerable squawking from
a few representatives of firms that are
actual, alleged or potential violators of
section 7, there is little if anything to
suggest that the burden of prior
approval requirements is undue. It is
important to remember how very
limited the Commission’s prior approval
requirements are. First, and most
obviously, the prior approval
requirement is imposed only on firms
that have attempted unlawful
acquisitions. 9 It is limited to proposed
acquisitions in the same geographic and
product markets in which the
Commission has found reason to believe
that an acquisition by the respondent
would violate the law. It is limited in
time, usually to a duration of ten years.
And it involves a minute universe of
cases. For example, in the past five
years, the Commission has issued 58
orders containing prior approval
provisions, fewer than twelve per year.
In comparison, in fiscal year 1994, 2,305
transactions were reported under the
Hart-Scott-Rodino Act. In the first six
months of fiscal year 1995, through the
end of March 1, 348 transactions were
filed.
According to the Commission, the
policy should be changed because
premerger notification under the Hart-
Scott-Rodino Act is an adequate
substitute. While the Hart-Scott-Rodino
Act enables the Commission to
investigate and challenge reported
transactions before they occur, the
success of the premerger notification
program is not a recent discovery. If pre-
transaction notice were the only
purpose of prior approval clauses in
orders, the policy could have been
abandoned years ago. Instead, the
Commission consistently has concluded
(until now) that the Hart-Scott-Rodino
Act does not eliminate the need for
prior approval clauses in merger orders.
See, e.g., The Coca-Cola Co., Docket
9207, Order Denying Motion To Dismiss
(August 9, 1988), Chairman Oliver
dissenting 10 and Commissioner
Azcuenaga recused.11
A prior approval requirement is a
simple, direct and limited remedy to
prevent recurrence of unlawful
acquisitions. Even if we assume that
prior approval is costly (i.e., more costly
than is compliance with the Hart-Scott-
Rodino Act—and I am not persuaded
that it is), the policy provides important
law enforcement benefits. The decision
to abandon prior approval in
Commission orders relinquishes the
benefits for no apparent return.12
I am against it.
[FR Doc. 95–19111 Filed 8–2–95; 8:45 am]
BILLING CODE 6750–01–M
[File No. 941–0076]
Local Health System, Inc., et al;
Proposed Consent Agreement With
Analysis To Aid Public Comment
AGENCY : Federal trade commission.
ACTION: Proposed consent agreement.
SUMMARY : In settlement of alleged
violations of federal law prohibiting
unfair acts and practices and unfair
methods of competition, this consent
agreement, accepted subject to final
Commission approval, would prohibit
the merger of the two largest hospitals
in St. Clair County, Michigan and would
require the hospitals, for a limited time,
to notify the Commission or obtain
Commission approval before acquiring
certain hospital assets in the Port
Huron, Michigan area.
DATES : Comments must be received on
or before October 2, 1995.
ADDRESSES : Comments should be
directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., NW,
Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT:
Phillip L. Broyles, Cleveland Regional
Office, Federal Trade Commission, 668
Euclid Avenue, Suite 520–A, Cleveland,
OH 44114. (216) 522–4207.
SUPPLEMENTARY INFORMATION: Pursuant
to section 6(f) of the Federal Trade
Commission Act, 38 Stat. 721, 15 U.S.C.
46 and section 2.34 of the Commission’s
rules of practice (16 CFR 2.34), notice is
hereby given that the following consent
agreement containing a consent order to
cease and desist, having been filed with
and accepted, subject to final approval,
by the Commission, has been placed on
the public record for a period of sixty
(60) days. Public comment is invited.
Such comments or views will be
considered by the Commission and will
be available for inspection and copying
at its principal office in accordance with
§ 4.9(b)(6)(ii) of the Commission’s rules
of practice (16 CFR 4.9(b)(6)(ii)).
[File No. 941–0076]
Agreement Containing Consent Order
In the matter of LOCAL HEALTH SYSTEM,
INC., a corporation, BLUE WATER HEALTH
SERVICES CORP., a corporation, and MERCY
HEALTH SERVICES, a corporation.
The Federal Trade Commission
(‘‘Commission’’), having initiated an
investigation of the proposed
acquisition by Local Health System, Inc.
(‘‘Local Health’’), of certain assets of
Mercy Hospital Port Huron (‘‘Mercy-
Port Huron’’) from Mercy Health
Services (‘‘Mercy Health’’), and of
certain assets of Port Huron Hospital
from Blue Water Health Services
Corporation (‘‘Blue Water Health’’), and