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From Antitrust Law Daily, October 7, 2015

FTC chairwoman concerned about wisdom of SMARTER Act

By Jeffrey May, J.D.

The proposed “Standard Merger and Acquisition Reviews Through Equal Rules Act of 2015” or “SMARTER Act” is “unnecessary” and risks “undermining the beneficial role the Commission plays in merger enforcement,” FTC Chairwoman Edith Ramirez told Senate lawmakers today. Testifying before the Senate Judiciary Committee's antitrust subcommittee, Ramirez said that the agency's main concern is with provisions in the legislation that remove certain aspects of the FTC’s adjudicative function. Further, she noted that the legislative efforts to harmonize the preliminary injunction standards imposed on the FTC and the Department of Justice Antitrust Division were not needed because the courts already impose the same standard in practice.

The SMARTER Act (S. 2102) was introduced by Senators Mike Lee (R-Utah), Chuck Grassley (R-Iowa), and Orrin Hatch (R-Utah) on September 30. According to its sponsors, the measure is intended to eliminate disparities between the procedures used by the FTC and the Department of Justice in challenging proposed acquisitions and mergers. The legislation would ensure that courts employ the same standard for the FTC and Justice Department in seeking a preliminary injunction (PI) against a pending acquisition or merger. It also would remove the FTC's ability to pursue administrative litigation following judicial denial of a PI request in a merger case. In effect, it would standardize the method for obtaining permanent relief against a proposed merger or acquisition.

A House version of the measure (H.R. 2745) was introduced by Rep. Blake Farenthold (R-Texas) on June 12. H.R. 2745 was approved by the House Judiciary Committee with a bipartisan vote of 18-10 on September 30.

According to the Commission's testimony, the FTC’s administrative process in challenging harmful mergers and advancing consumers’ interests through fact-driven application of antitrust principles has been one of the key components of the agency's antitrust enforcement efforts. At the hearing, Ramirez touted the agency's administrative record, noting that the vast majority of administrative competition decisions have been affirmed by federal appellate courts.

The Commission’s procedures do not prejudice the parties, Ramirez added. She suggested that the administrative process was comparable to federal court timelines.

“By seeking to alter the Commission’s adjudicative function, the proposed legislation risks eroding a fundamental institutional attribute of the FTC,” the testimony stated. “This quasi-judicial role is a defining characteristic of the agency—authority Congress very deliberately granted to the FTC when the agency was created to serve as a complement to enforcement by DOJ. The current system has worked well for over one hundred years, and all indications are that it will continue to do so to the benefit of competition and consumers.”

Harmonizing the PI standard. Despite the difference in language between the PI standard under Section 13(b) of the FTC Act and the general standard for a PI that applies to the Justice Department, Ramirez contended that there is no evidence to suggest that there is a difference in outcomes. Noting that there was no practical difference between what each agency must show in order to win a PI, Ramirez suggested that attempts to harmonize the language are unnecessary and potentially harmful. The chairwoman expressed concern that if the language is changed, courts might not understand the purpose of the change and might “impose a higher standard” on the FTC. The statutory change might otherwise “create confusion” or lead to “needless litigation over what the standard is.”

Senator Lee, chairman of the antitrust subcommittee, did not appear convinced by the arguments against the legislation. Calling the Justice Department process “straight-forward,” Lee questioned why some merging parties must face a more onerous process. Merging parties before the FTC face the potential of litigating twice, with a PI motion in front of a district judge and entirely separate proceeding on the merits, the senator said.

The idea that the outcome of merger can depend on the agency that reviews the transaction was a concern of Senator Hatch.  Suggesting that court proceedings would be sufficient, the senator questioned why the FTC should have the ability to proceed to the merits of a merger challenge as both judge and jury.

Senator Thom Tillis (R-N.C.), a supporter of the SMARTER Act, was not satisfied that Ramirez had offered a specific reason why the legislative changes presented a problem. Tillis remarked that, despite the chairwoman’s consistent response to questions that the current process was fair and open, it appeared to him that businesses face an “unfair fight” against the “devices that the government has available to it.”

“The best thing about this proposal is its title,” Senator Richard Blumenthal (D-Conn.) quipped. “It's a solution in search of a problem.”

Lee said that he was sympathetic to the notion that Congress should not adopt solutions in search of a problem. However, he questioned the agency's argument that because the FTC has not used the authority to pursue administrative litigation after a PI denial in 20 years, there is no need for a change. “If the existing provision of law is itself a solution in search of a problem, why not make the two standards the same,” Lee said.

Practitioner panel.  The senators also heard from experienced antitrust practitioners: Covington & Burling antitrust and competition law practice group co-chair Deborah Garza, Baker & McKenzie senior counsel David Clanton, Latham & Watkins partner Tad Lipsky, and Wilson Sonsini Goodrich & Rosati partner Jonathan Jacobson. Jacobson and Garza had differing views on the impact that the procedural differences have on merging parties.

Defending the FTC's option to pursue Part III administrative litigation after an injunction has been denied, Jacobson said that the idea that one agency has an advantage over the other is a myth. He suggested that when parties are trying to get a deal through, they are focused on the PI and not the administrative proceedings that might follow.

On the other hand, former Justice Department official Garza contended that the differences have a significant impact when counseling clients. Garza, who chaired the Antitrust Modernization Commission that recommended the changes underlying the SMARTER Act, suggested that the FTC has an advantage over the Justice Department in merger challenges.

MainStory: TopStory AcquisitionsMergers Antitrust FederalTradeCommissionNews

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