Federal Register / Vol. 60, No. 149 / Thursday, August 3, 1995 / Notices 39745

10Off-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.

11This 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’’).

12See 5 U.S.C. § 552(d); 16 C.F.R. § 4.7.

1As used herein, the term ‘‘merger’’ includes

mergers, acquisitions, joint ventures, and equivalent

transactions.

2Hart-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

3Such 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).

4Such 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.

1Prior 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.

2Statement of FTC Policy Concerning Prior

Approval and Prior Notice Provisions at 4 (June 21,

1995) (hereafter ‘‘Prior Approval Statement’’).

3See FTC Staff Bulletin 88–01 (May 18, 1988).

4The 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).

5See, 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).

6Examples 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, HSRlike 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
Federal Register / Vol. 60, No. 149 / Thursday, August 3, 1995 / Notices 39747

7The 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.

9Prior 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 bypassed with impunity.’’).

10Then-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.’’

11See 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 HartScott-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 pretransaction 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-ScottRodino 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 (‘‘MercyPort 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