FTC Revises Rules Regarding Merger Challenges

Merger Rule Change FTCThe major difference between a merger challenge brought by the DOJ and one brought by the FTC is that the FTC may not only challenge a proposed merger in district court by seeking a preliminary injunction, but may also challenge that same merger through administrative litigation. However, recently, the FTC announced that they were making a revision to their own Rules of Practice regarding how the agency challenges mergers. The changes come amid growing pressure from congressional Republicans, and the FTC hopes that the changes will help foster more settlements and less litigation, and will clear up any confusion that the FTC would automatically continue with a case even if they lost in district court.

The major revision comes under Part 3 of the agency’s Rules of Practice, returning to the approach utilized under an earlier version of the rule. Under the revised Rule 3.26, when the FTC seeks a preliminary injunction in district court and loses, the administrative litigation will now be automatically stayed if requested by the merging parties in the administrative proceeding. According to the FTC, the rule update is a sign of the agency’s continuing commitment “to consider the specific circumstances of each case when deciding whether it would be in the public interest to continue pursuing administrative litigation,” as set forth in the a 1995 policy statement.

So how does the FTC’s rule changes affect the merger challenge process? First, as a background, it must be noted that the rule change returns to a previous version of the rule. The previous version of the rule, in place from 1995 to 2009, was implemented following complaints about the FTC’s decision to pursue administrative litigation against R.R. Donnelley & Sons Co.’s acquisition of a competitor despite losing their request for a preliminary injunction. In that case, the FTC did not dismiss the administrative action until five years after being denied a permanent injunction, and only after the parties were required to defend the then-completed merger deal before and ALJ and the full Commission. It is interesting to note that in the ten years following the initial adoption of the rule in 1995, the FTC never chose to pursue administrative litigation following a loss in federal court. However, for whatever reason, in 2009, Rule 3.26 along with several others rules was changed in what the FTC termed as an effort to expedite the administrative process. That 2009 rule change meant that a matter was not automatically withdrawn from administrative litigation following a loss in district court. Instead, the default rule became that the administrative case would continue unless and until the FTC decided otherwise. Even still, in the time since the 2009 rule change, the FTC has not seen fit since 2009 to exercise its ability to continue with administrative litigation following a loss on a preliminary injunction. As a result, it might appear as if nothing has changed, but many who advocated for the rule change say the new rule removes the uncertainty created by the 2009 rule change, and replaces it with the case-by-case determination in place from 1995 to 2009.

As previously noted, the FTC’s rule changes come at time where pressure from Congress and other antitrust policy groups continues to mount regarding the FTC’s ability to challenge mergers as they have traditionally done. In fact, both Congress and several antitrust policy groups have proposed the Standard Merger and Acquisitions Review Through Equal Rules (SMARTER) Act. The proposed SMARTER Act incorporates the change now made by the FTC but goes further by changing the injunctive standard the FTC must meet to block a merger. While sponsors of that bill have approved of the Commission’s recent rule change, others have reiterated that it does not go far enough.  As a result, the Commission’s rule change clearly will not end this debate.

The FTC also announced changes to other parts of its Rules of Practice. Under Part 2, the FTC made changes that add the director and deputy director of the Office of Policy Planning to the list of FTC officials who have the authority to modify the terms of compliance with compulsory process because of that Office’s frequent role in conducting studies that involve the use of process. The Commission is also extending by 10 days its deadline for disposing of petitions to limit or quash compulsory process.

Under Part 4, the FTC has made changes in the rule to reflect the FTC’s updated procedures for responding to public record requests, now that many of its documents are available on the agency website. The changes also implement technical revisions to the rule governing Freedom of Information Act requests and to the FTC’s Privacy Act rule.

The FTC’s new rule changes are important, especially as the FTC is embroiled in a battle to block the proposed merger between Sysco and US Foods. It remains to be seen what will come of the rule changes if anything. But one thing is sure, the FTC will no longer be able to continue to pursue administrative litigation following a loss in district court unless the respondent’s so choose.

FTC Rules of Practice