DOJ/FTC HIGHLIGHTS
DOJ and FTC Issue Hart Scott Rodino Statistics for 2005
- On September 8, the Federal Trade Commission released its annual report to Congress on merger filings under the Hart Scott Rodino Act. According to the report, the total number of HSR filings increased by 17%, from 1,454 transactions in 2004 to 1,695 in 2005. Although this still represents a substantial decrease from the 4,926 filings in 2000, the report noted that the thresholds had been amended in 2001, increasing the minimum size of a reportable transaction from $15 million to $50 million (now $56.7 million for 2006).
During 2005, the FTC issued second requests for 25 transactions and challenged 14, while the Antitrust Division also issued 25 second requests, while only challenging 4 of the transactions. Each agency had a challenge rate of approximately 3.1% of transactions, an increase from a rate of 2.5% in 2004. Of the 14 transactions challenged by the FTC, 9 resulted in consent decrees, 4 resulted in abandoned transactions, and only 1 required the FTC to obtain an injunction.
The agencies also recovered $2,350,000 in fines from two parties in 2005 for failing to notify the agencies of transactions. In a footnote, however, the report stated that "[w]hen the parties inadvertently fail to file, the enforcement agencies generally do not seek penalties where the parties promptly make corrective filings after discovering the failure to file, submit an acceptable explanation of their failure to file, and have not previously violated the act." However, in the two cases where the department did collect fines, the agencies focused on either the intent of the acquiring party or on tardy applications with incorrect information.
The Antitrust Division obtained a $2,000,000 fine from Smithfield, Incorporated after Smithfield, the largest pork packer in the United States, bought shares worth more than $15 million of IBP, the second largest pork packer in the United States. Smithfield had argued that the transaction was not reportable, because it had acquired the shares for investment purposes only. The antitrust division disagreed, noting that Smithfield had actively contemplated acquiring IBP prior to making the share acquisition, meaning that it did not qualify under the investment purpose exception to the rules. In the final consent decree, the Smithfield did not admit liability, but did agree to pay $2,000,000.
The other transaction which resulted in a fine involved a hedge fund manager who had made share acquisitions of two companies beyond the thresholds without reporting them. In both cases, the hedge fund had acquired fewer than 50% of the outstanding shares, but had acquired shares in excess of the threshold value, approximately $50 million. Although the fund had made a corrective filing within a few months of the acquisition in 2003, in January 2005 the FTC notified the fund that the actual ultimate parent entity of the fund was Mr. Sarcane, its manager, and that therefore he was required to file a notification. Therefore, because Mr. Sarcane had failed to file the notification, the notification was defective, and he had to pay $350,000 in fines.
These examples from the report highlight the importance of correctly determining the ultimate parent entity when filing a notification and exercising caution when using the investment purpose only exemption, especially when acquiring shares of a competitor.
FTC Approves Consent Decree with Austin Realtors
- On September 5, 2006, the FTC announced that it had approved a settlement with the Austin Board of Realtors that forces the Board of Realtors to make real estate information available on its multiple listings services website from brokers who use discounted services.
Under the prior rule adopted by the Board of Realtors, only brokers using a traditional Exclusive Right to Sell Listing arrangement, whereby the buyer pays the agent a set commission to sell the house, could have their listings advertised on the MLS and other websites. Those brokers using a Exclusive Agency Listing, in which the agent agrees to be paid a set commission but permits the homeowners to pay him or her a reduced commission if the owner sells it without the assistance of the broker, were barred from having their homes listed on the MLS. Exclusive Agency Listing arrangements are typically offered by discount brokers in return for unbundled services.
On July 13, 2006, the FTC filed a complaint and proposed consent decree, asking that the Board of Realtors be enjoined from enforcing this rule. According to the complaint, the rule had substantial anticompetitive effects, in that brokers offering discounted or unbundled services were unable to have their homes seen by a wide audience. As a result, many brokers had stopped offering discounted services. In addition, the MLS and other websites controlled by the Board of Realtors were the only way in which a wide audience could see the which homes were available, giving them substantial market power. In the decision and order, the FTC not only forced the Board of Realtors to allow homes listed under the Exclusive Agency contracts to be seen, it also forced the Board of Realtors to not discriminate against the listings, through limits on downloads or viewings.
The consent decree is significant, because it represents a successful prosecution of a real-estate practice by the FTC. Although private litigants sued realtors for practices such as commission fixing and exclusive websites, their successes have been limited. This consent decree could potentially be used by private litigants to both establish market power and market harm in real estate cases.
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