Business Groups Sue to Block Enforcement of New HSR Rule

The complaint seeks to block enforcement of the new HSR Rule and preserve the existing HSR regime. Specifically, the complaint alleges that the Rule violates the APA for five reasons:

1. The new HSR Rule goes beyond limits Congress placed on the FTC’s authority. The FTC may only request information that is “appropriate and necessary” to determine whether a specific transaction is likely to violate the antitrust laws. But, the complaint argues, the FTC promulgated the new HSR Rule to vigorously enforce the antitrust laws more generally, which is not what Congress intended. Congress intended a two-step HSR review: a simple notification of the transaction as a first step, followed by a more in-depth Second Request if the agencies want additional information about a transaction. The complaint particularly takes aim at requesting information regarding officers and directors, because that information has nothing to do with whether the specific transaction is likely to violate the antitrust laws as it is about enforcing Section 8 of the Clayton Act’s prohibition on interlocking directorates. The complaint further alleges that the FTC cannot require parties to submit substantive legal analysis in the HSR form because executives cannot certify (under penalty of perjury) subjective legal analysis as complete and accurate, the HSR form is intended to merely be a “notification,” and the new HSR form’s inclusion of substantive legal analysis means the FTC can reject an HSR filing for any subjective reason.
2. The FTC did not conclude that the overall benefits of the new HSR Rule outweigh its costs. Even the FTC’s own estimates demonstrate that the new HSR Rule will inflict significant burden and costs. Not only does the complaint allege that these costs are understated in the final Rule, but the complaint also alleges the new HSR Rule will have significant indirect costs as well in the form of extended closing dates. The complaint alleges that the FTC overstated the purported benefits of the Rule – detecting and preventing more unlawful mergers and reduced effort by FTC staff and third parties – because the FTC doesn’t have the resources to review all the new information the new HSR Rule requires.
3. The benefits of each part of the new HSR Rule do not outweigh the costs. The complaint alleges that even if the new HSR Rule overall passes a cost-benefit analysis, many individual parts do not and should be rejected. These include requiring drafts of transaction-related documents, ordinary course documents, descriptions of customer-supplier relationships, descriptions of potential competition, global overlap information (as opposed to only US), and information about officers and directors.
4. The FTC did not adequately justify the need for the new HSR Rule and, therefore, did not exercise reasoned decision-making. By the FTC’s own statements, the HSR program has been functioning well since 1978, so the complaint alleges that there is no need for the new HSR Rule. The complaint adds that the FTC did not cite any adequate data that there is a problem under the current HSR program, and the agency cannot simply rely on its “experience” without adequate support.
5. Even if the FTC had demonstrated that the HSR program was deficient, there are better, more narrowly tailored alternatives, such as making better use of Second Requests. Rather than inflict up-front costs on all merger activity regardless of whether a deal is likely to violate the antitrust laws, the complaint alleges that the FTC can use voluntary requests (to which merging parties are incentivized to respond) and Second Requests, to gather whatever additional information they need to assess a transaction under the antitrust laws.

Despite this challenge to the new HSR Rule, it is unclear whether the plaintiffs will ultimately succeed in blocking its enforcement. Thus, it is crucial that companies continue to prepare for the new HSR regime unless there is a definitive ruling preventing it from taking effect.