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Second Request Compliance: Governing Legal Standards Sharis Arnold Pozen Hogan & Hartson July 19, 2005.

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Presentation on theme: "Second Request Compliance: Governing Legal Standards Sharis Arnold Pozen Hogan & Hartson July 19, 2005."— Presentation transcript:

1 Second Request Compliance: Governing Legal Standards Sharis Arnold Pozen Hogan & Hartson July 19, 2005

2 2 Clayton Act § 7A(e)(2) – The Standard for Substantial Compliance?? “The Federal Trade Commission or the Assistant Attorney General, in its or his discretion, may extend the 30-day waiting period... for an additional period of not more than 30 days... after the date on which the Federal Trade Commission or the Assistant Attorney General, as the case may be, receives from any person to whom a [second request is made],... (A)all the information and documentary material required to be submitted pursuant to such a request, or (B) if such request is not fully complied with, the information and documentary material submitted and a statement of the reasons for such noncompliance. Such additional period may be further extended only by the United States district court, upon an application by the Federal Trade Commission or the Assistant Attorney General pursuant to subsection (g)(2) of this section.”

3 3 Statement of Reasons for Noncompliance 16 C.F.R. § “A complete response shall be supplied to each item on the Notification and Report Form and to any request for additional information.... Whenever the person filing notification is unable to supply a complete response, that person shall provide, for each item for which less than a complete response has been supplied, a statement of reasons for noncompliance. The statement of reasons for noncompliance shall contain all information upon which a person relies in explanation of its noncompliance and shall include at least the following:

4 4 Statement of Reasons for Noncompliance 16 C.F.R. § (a)Why the person is unable to supply a complete response; (b) What information, and what specific documents or categories of documents, would have been required for a complete response; (c) Who, if anyone, has the required information, and specific documents or categories of documents; and a description of all efforts made to obtain such information and documents, including the names of persons who searched for required information and documents, and where the search was conducted.

5 5 Statement of Reasons for Noncompliance 16 C.F.R. § If no such efforts were made, provide an explanation of the reasons why, and a description of all efforts necessary to obtain required information and documents; (d) Where noncompliance is based on a claim of privilege, a statement of the claim of privilege and all facts relied on in support thereof, including the identity of each document, its author, addressee, date, subject matter, all recipients of the original and of any copies, its present location, and who has control of it. ”

6 6 Clayton Act § 7A(e)(1)(B)(i) and (ii) – Agency Internal Review Process (I) "The Assistant Attorney General and the Federal Trade Commission shall each designate a senior official who does not have direct responsibility for the review of any enforcement recommendation under this section concerning the transaction at issue to determine (I) whether the request for additional information or documentary material is unreasonably cumulative, unduly burdensome, or duplicative; or (II) whether the request for additional information or documentary material has been substantially complied with by the petitioning person.” (ii) Internal review procedures for petitions filed pursuant to clause (i) shall include reasonable deadlines for expedited review of such petitions, after reasonable negotiations with investigative staff, in order to avoid undue delay of the merger review process.”

7 7 FTC and DOJ Second Request Appeals Processes If recipient of a Second Request believes that compliance with portions of the Request should not be required, or believes that it has substantially complied with the Second Request, and Recipient has exhausted reasonable efforts to obtain modification of the Request or agreement as to compliance from the lead staff attorney and the Bureau of Competition Assistant Director supervising the investigation (FTC) or section chief (DOJ), then Recipient may petition the General Counsel (FTC) or a Deputy Assistant Attorney General who does not have direct responsibility for the review of any enforcement recommendation concerning the transaction at issue (DOJ) to hear an appeal on unresolved issues. See Federal Trade Commission, Model Request for Additional Information and Documentary Material (Second Request), Jan See also 16 C.F.R. § 2.20 (2005).

8 8 Clayton Act § 7A(g)(2) – Enforcement Standard?? “If any person, or any officer, director, partner, agent, or employee thereof, fails substantially to comply with... any request for the submission of additional information or documentary material..., the United States district court- (A) may order compliance; (B) shall extend the waiting period... until there has been substantial compliance...; and (C) may grant such other equitable relief as the court in its discretion determines necessary or appropriate, upon application of the Federal Trade Commission or the Assistant Attorney General.”

9 9 Remarks of Senator Hart “What constitutes ‘substantial compliance’ is to be determined by the court, and is to be measured in both qualitative and quantitative terms as well as whether the court finds that the compliance effort was reasonable and appropriate under the prevailing circumstances.” Remarks of Sen. Hart, 122 Cong. Rec. 29,341 (1976).

10 10 F.T.C. v. McCormick & Co., Trade Cas. (CCH) ¶ 67,976 (D.D.C. 1988) FTC complaint charged that McCormick’s responses “were incomplete and neither McCormick nor Specialty provided the Commission with a statement of reasons for noncompliance.” Specialty later complied with the Commission request, but McCormick allegedly had not provided requested information as to its corporate structure, specifically, information from files of the company’s sales managers, its senior brand manager for spices and extracts, its private label manager, and one of the members of its acquisition transition team. FTC complaint stated, “These files are very likely to contain documents vital to the Commission’s analysis of the proposed acquisition.”

11 11 F.T.C. v. McCormick & Co. The court stated, “[B]y failing to supply the requisite additional information McCormick has not complied with the premerger notification requirements... [and the] waiting period has not begun, and will not begin, unless and until McCormick substantially complies with the Commission’s request for additional information by providing complete responses....” “A complete response is one that either (a) sets forth all the information and documentary material required to be submitted pursuant to the request, or (b) in the event a person is unable to provide a complete response, a detailed statement of reasons for noncompliance.” Without further discussion, the court found that McCormick had not substantially complied and issued the injunction.

12 12 F.T.C. v. Blockbuster, Inc. FTC’s complaint alleged that “Blockbuster’s response to the Second Request was incomplete in multiple respects.” –FTC alleged that Blockbuster had provided inaccurate pricing information, in the form of rental fees, at certain Blockbuster stores – more than 60,000 of the approximately 120,000 data points that Blockbuster initially provided were allegedly inaccurate. –Additionally, the FTC alleged that Blockbuster had initially provided data regarding late fees for only 400 of its approximately 4,600 U.S. company stores.

13 13 F.T.C. v. Blockbuster, Inc. The complaint stated that “[t]imely submission of the pricing information... is critical to the Commission’s economic analysis of the potential competitive effects of Blockbuster’s proposed acquisition.” “The result of Blockbuster’s failure to provide the accurate data, combined with its theory that its initial submission constituted substantial compliance, would be to reduce, by over half, the statutory period that Congress has provided to the Commission to use the information it is entitled to obtain from Blockbuster.”

14 14 F.T.C. v. Blockbuster, Inc. The court never reached the question of substantial compliance because the parties agreed that Blockbuster would not consummate the transaction before the ten day waiting period had expired.


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