DOJ and FTC Push Merger Consent Decree Enforcement to Top of the Agenda

The US Department of Justice (DOJ) and Federal Trade Commission (FTC) have long recognised that the strength of their commitment to prosecuting consent decree violations helps to ensure that merging companies comply with their decree obligations and that merger remedies are effective. For instance, the DOJ’s Merger Remedies Manual expressly provides that the Antitrust Division ‘will not hesitate to bring actions to enforce consent decrees’ because the Division has a ‘responsibility to the public interest, as well as to the court . . . to ensure strict implementation of and compliance with the agreed-upon remedy’.² Similarly, the FTC has emphasised that its consent decrees must be ‘vigorously enforce[d]’ to ‘make clear . . . that [its] orders are to be taken seriously’.³ Federal courts have likewise stressed the importance of robust enforcement of merger consent decrees. In United States v. Boston Scientific Corporation, for example, the court held that ‘there is a compelling interest in vindicating the authority of the FTC in enforcing its consent decrees’ because ‘otherwise, parties to anticompetitive mergers will have every incentive to sign a consent decree to induce the FTC to withdraw its injunction, and then breach the promises made in the order’.⁴

Consistent with these well-settled principles, the DOJ and FTC have made enforcement of their merger consent decrees a top priority in recent years. For instance, during the Trump Administration, the agencies successfully prosecuted several companies for violating their obligations in merger consent decrees. In bringing these enforcement actions, the agencies demanded and secured significant remedial relief, including the lengthy extension of the term of a decree; the payment of millions in fines; the reimbursement of millions in investigatory and litigation costs; the appointment of independent monitoring trustees; and the appointment of an antitrust compliance officer required to implement robust antitrust training programmes that are subject to government review.⁵ In renewing its focus on the strict enforcement of merger consent decrees, the DOJ stressed that companies entering into merger consent decrees must understand that ‘[w]hen a defendant violates the terms of a settlement decree, it [will] be held accountable to its obligations to the department and the American consumer’.⁶ Similarly, the FTC stressed that the vigorous enforcement of merger consent decrees ‘sends a strong message to the public: the Commission takes its orders seriously, and parties should too’.⁷

As part of its renewed focus on enforcing its consent decrees, the DOJ Antitrust Division also implemented certain changes to its organisational structure and ‘standard’ decree provisions that are specifically intended to make it easier for the Division to successfully prosecute decree violations. For example, the Division now requires companies entering into a merger consent decree to expressly agree to lowering the evidentiary standard that the DOJ must satisfy when bringing a decree enforcement action; reimbursing the DOJ for its investigatory and litigation costs (if a violation is established); and the possible extension of the term of the decree (if a violation is established).⁸ To further ensure that merging companies comply with their decree obligations, the Division also established an Office of Decree Enforcement and Compliance in 2020. In announcing the creation of this Office, the Division emphasised that it will have dedicated staff whose primary responsibility will be to ‘hold parties fully to account for the agreements they enter with the Antitrust Division’ because far ‘[t]oo often, companies make promises to the American people, only to turn their back on some of those obligations when the cops are not on the beat’.⁹

The DOJ and FTC have continued their focus on the enforcement of merger consent decrees during the Biden Administration. For instance, the DOJ brought an enforcement action in September 2021 against CenturyLink (now known as Lumen Technologies Inc.) for violating for a second time the consent decree’s requirement that CenturyLinks refrain from soliciting customers of the divested assets for two years. In announcing this enforcement action, the DOJ noted that ‘CenturyLink is a repeat offender’ and that ‘[w]hen companies fail to comply with court-ordered obligations, the Antitrust Division will take action to enforce them.’¹⁰

Moreover, in one of her first moves as head of the FTC, Chair Lina Khan implemented a ‘series of enforcement resolutions that would authorise [FTC] staff to use . . . “compulsory process,” such as civil investigative demands and subpoenas’ to investigate ‘firms under a[n] [FTC] order’ as a means of determining whether the firms have violated the FTC decree or engaged in related or similar anticompetitive conduct.¹¹ In applauding the announcement of these resolutions, then-FTC Commissioner Rohit Chopra emphasised that these measures will provide FTC prosecutors with additional tools, such as issuing compulsory process on third parties, that help to ensure companies subject to an FTC decree do not violate the decree or engage in other anticompetitive conduct:

FTC orders are not suggestions, but many bad actors see them as such. The repeat offender enforcement resolution authorises Commission staff to use compulsory process to investigate companies subject to Commission orders. While past Commission orders allow our staff to request certain types of information from the company itself to determine whether it is complying with the order, Commissioners have not previously authorized agency staff to compel information from third parties. In addition, Commissioners have not given our staff the explicit authorisation to investigate other potential misconduct, including those adjacent to the original law violation. Today’s reforms will increase the capacity for agency staff to protect the public from repeat offenders and is another step toward restoring the agency’s legitimacy and credibility.¹²

In a 3-to-2 vote along political party lines, the FTC followed up these resolutions by reinstituting a practice that allows the agency to include provisions in merger consent decrees that require merging parties to provide notice to the FTC about future transactions in the markets covered by the decree for 10 years (even if they are not reportable under the Hart-Scott-Rodino Act) and obtain its approval of these transactions.¹³ Under these notice and approval provisions, companies may face the burden of proving to the FTC that a proposed transaction is not anticompetitive. Absent these provisions, the FTC would have the burden of proving that a proposed transaction may substantially lessen competition.¹⁴ Since reinstituting this practice, the FTC has included prior notice and approval requirements in several merger consent decrees.¹⁵

Thus, while entering into a consent decree allows merging parties to avoid a government challenge to their proposed transaction, they should fully understand that the DOJ and FTC will carefully monitor their compliance with the decree and will be more than willing to bring an enforcement action seeking, among other things, significant injunctive relief and large monetary penalties if they determine that a party has failed to do so.

The fact that the DOJ and FTC have brought a relatively small number of formal enforcement actions should not be interpreted by merging companies as suggesting that they can ignore their commitments under a consent decree. The bulk of the agencies’ consent decree enforcement efforts occur through nonpublic administrative processes, which, among other things, require companies to expend significant time and resources on extensive monitoring by the agencies (and trustees) and on responding to investigations that the agencies conduct whenever they have reason to believe a violation may have occurred. These administrative investigations into possible decree violations can often last more than a year and typically require companies to produce large volumes of information, submit written interrogatory responses and make their employees available for interviews.

Furthermore, as detailed below, the DOJ and FTC have brought several merger decree enforcement actions in recent years, thereby showing a growing willingness to hold merging companies formally accountable for failing to honour their decree commitments. This trend is likely to continue because the FTC and DOJ Antitrust Division’s current leadership teams have taken a strong stance on merger enforcement, as reflected by their proposed changes to the Merger Guidelines, and have demonstrated a willingness to bring enforcement actions under both traditional and non-traditional theories.¹⁶

In addition, as detailed below, the agencies have made significant changes in recent years to both their consent decrees and organisational structures that are specifically intended to enhance their ability to successfully prosecute companies that violate merger and non-merger consent decrees.

In providing an overview of the penalties that companies may face if they are found to have violated a consent decree, this chapter discusses the following:

• the legal principles that generally govern enforcement actions brought by the DOJ and FTC when they determine that a party has violated a consent decree;
• the key standard consent decree provisions that the DOJ and FTC utilise to ensure the merging parties’ compliance;
• recent DOJ initiatives intended to increase the DOJ’s ability to enforce its consent decrees in court; and
• key merger consent decree enforcement actions that the DOJ and FTC have successfully prosecuted and the relief secured in these actions.

Legal principles governing merger consent decree enforcement actions

If the DOJ determines that a party has violated a consent decree, it has the authority to file a civil or criminal contempt action (or both) that seeks injunctive relief, monetary penalties, imprisonment and other equitable relief.¹⁷ As the DOJ’s Merger Remedies Manual notes, civil contempt proceedings serve ‘a remedial purpose – compelling compliance with the court’s order or compensating the complainant for losses sustained’, whereas criminal contempt proceedings serve a punitive and deterrence purpose – ‘punish[ing] the violator . . . vindicat[ing] the authority of the court, and . . . deter[ring] others from engaging in similar conduct in the future’.¹⁸

To prevail in a civil contempt action, the DOJ must prove with clear and convincing evidence that a lawful decree exists, that the defendant had knowledge of the decree and that the defendant violated a clear and unambiguous provision of the decree.¹⁹ (But see the ‘DOJ civil contempt actions are now governed by apreponderance of evidence standard’ section, below.) Unlike in criminal contempt proceedings, the DOJ need not show that the defendant intentionally or wilfully violated the decree when seeking to hold a party in civil contempt.²⁰

In civil contempt actions, the DOJ may seek injunctive relief, fines that accumulate daily until compliance is achieved, and attorneys’ fees and costs.²¹ Moreover, the DOJ may seek additional equitable remedies that are intended to ensure compliance with the decree and remedy the harm caused by the decree violation, including the rescission of the transaction in question, disgorgement of any unlawful profits and imposition of conditions on the violating party’s ability to pursue future transactions.²² In determining the appropriate fine amount, courts seek to impose a fine that will ensure the violating party’s immediate and continued compliance with the decree, and that will remedy the harm caused by the violation.²³ Among other factors, courts often consider the nature of the violation, the harm caused by the violation and the violating party’s ability to pay when calculating the appropriate fine amount.²⁴

If the DOJ seeks to hold a party in criminal contempt for violating a merger consent decree, it must prove beyond a reasonable doubt (1) the elements of civil contempt and (2) that the defendant wilfully violated the consent decree.²⁵ To satisfy the wilfulness element, the DOJ must establish that the defendant acted with deliberate or reckless disregard with respect to its obligations under the decree.²⁶ In bringing a criminal contempt action, the DOJ can seek ‘a fine, or imprisonment, or both’.²⁷ In determining the appropriate fine amount, courts consider various factors, including:

• the violating party’s ability to pay;
• the degree to which the violating party knew its conduct was prohibited under the consent decree;
• the harm caused by the violation;
• the violating party’s motives and the benefits that it derived from the violation; and
• the extent to which the violating party cooperated with the DOJ’s investigation and enforcement action.²⁸

With respect to FTC merger consent decrees, the Federal Trade Commission Act (FTCA) grants the FTC the authority to file enforcement actions that seek civil penalties.²⁹ Prior to bringing such an action, the FTC is required, pursuant to the FTCA, ‘to give the [DOJ] 45 days’ advance notice, in case the [DOJ] decides to bring the case in the name of the United States’.³⁰ However, in competition matters (such as the enforcement of the FTC’s merger consent decrees), the ‘[DOJ] has agreed informally that it will generally allow the [FTC] to bring the action in its own name’.³¹ In bringing a merger consent decree enforcement action, the FTC can seek the imposition of US$50,120 in fines for each day that the party has failed to comply with the decree.³² Moreover, the FTC can ask the court to exercise its express statutory authority to ‘grant mandatory injunctions and such other and further equitable relief as [it] deem[s] appropriate in the enforcement of [the FTC’s consent decree]’.³³

In calculating the appropriate fine to impose when an FTC consent decree has been violated, courts typically consider the following factors:

• harm to the public;
• benefit to the violator;
• good or bad faith of the violator;
• the violator’s ability to pay;
• deterrence of future violations by the violator or others; and
• vindication of the FTC’s authority.³⁴

Standard compliance provisions within merger consent decrees

The DOJ and FTC typically require merging parties to agree to various reporting and monitoring provisions that are designed to ensure that parties honour their decree obligations. Some of these standard compliance provisions are discussed below.

Reporting and inspection obligations

The DOJ and FTC will typically reserve the right to (1) inspect the parties’ business records, documents, data and any other material concerning all matters covered by the decree, and (2) interview the parties’ personnel and agents regarding any topic covered by the decree.³⁵ In addition, the DOJ and FTC typically reserve the right to require the parties to submit written reports or sworn written responses to interrogatories regarding their compliance with the decree.³⁶ In general, consent decrees will provide that any compliance-related materials that parties provide to the agencies will not be disclosed to third parties except where the agencies seek to enforce the decree, comply with a court order or other lawful disclosure obligation, or litigate an action involving the executive branch of the federal government.³⁷ If parties believe that this material contains trade secrets or other confidential commercial information, they will typically have the right to designate this material as ‘subject to a claim of protection under Rule 26(c)(1)(G) of the Federal Rules of Civil Procedure’.³⁸ Such a designation will normally require the agency to provide the producing party with sufficient notice (often 10 days) prior to producing the material in any legal proceeding (other than a grand jury proceeding).³⁹

Appointment of a divestiture trustee

If a consent decree requires the merging parties to divest certain assets, the DOJ and FTC will routinely include provisions requiring the parties (or any appointed trustee) to submit periodic written reports detailing the efforts to complete the divestiture within the specified period (usually 90 to 120 days).⁴⁰ In addition, the agencies will reserve the right to appoint a divestiture trustee if the parties fail to complete the divestiture within the specified period.⁴¹

If a divestiture trustee is appointed, the trustee will have exclusive authority to complete the divestiture and the parties will effectively be precluded from objecting to a sale that is secured by the trustee and approved by the appointing agency.⁴² Moreover, the parties will be required to (1) pay the fees and expenses of the trustee and any consultants hired by the trustee, (2) provide the trustee with full access to their documents, facilities and personnel, and (3) assist the trustee’s efforts to complete the divestiture, including preparing any written material requested by the trustee (e.g., financial and operations reports detailing the performance and commercial attributes of the divestiture assets).⁴³

The divestiture trustee will typically be required to provide the appointing agency and, as appropriate, the presiding court with periodic reports detailing the trustee’s efforts to complete the divestiture.⁴⁴ To the extent that these reports are submitted to the court, they will be filed under seal if the trustee determines that they contain confidential information.⁴⁵ If the trustee fails to complete the divestiture within the specified period, the appointing agency can seek an extension of the trustee’s appointment or the appointment of a substitute trustee.⁴⁶

Appointment of monitoring trustee

The DOJ and FTC may reserve the right to appoint a monitoring trustee charged with observing and reporting on the merging parties’ compliance with the decree.⁴⁷ As with a divestiture trustee, if the agencies opt to appoint a monitoring trustee, the parties will be required to (1) pay the fees and expenses of the trustee and any consultants hired by the trustee, (2) provide the trustee with complete access to their documents, facilities and personnel, and (3) fully assist the trustee’s efforts to monitor their compliance with the decree.⁴⁸ If the monitoring trustee determines that the parties have violated the decree, the trustee will report the violation to the appointing agency and recommend an appropriate remedy, which the agency can accept, reject or modify when deciding whether to pursue a formal enforcement action.⁴⁹

In general, the FTC has used monitoring trustees more regularly than the DOJ because the DOJ has traditionally taken the position that the appointment of a monitoring trustee should be reserved for situations ‘when technical expertise unavailable within the [Antitrust] Division is critical to an effective divestiture’.⁵⁰ In explaining this position, the DOJ has stated that in a typical merger case, ‘a monitoring trustee’s efforts would simply duplicate, and could potentially conflict with, the [Antitrust] Division’s own decree enforcement efforts’.⁵¹ Recent merger decrees in which the DOJ opted to reserve the right to appoint a monitoring trustee include Assa Abloy/Spectrum Brands, Intuit/Credit Karma, Liberty Latin America/AT&T, T-Mobile/ Sprint, Bayer/Monsanto and Anheuser-Busch InBev/SABMiller.⁵²

Like a divestiture trustee, a monitoring trustee will be required to provide the appointing agency and, as appropriate, presiding court with periodic reports detailing the merging companies’ compliance with the decree.⁵³ To the extent that any such reports are submitted to the court, they will be filed under seal if the trustee determines that they contain confidential information.⁵⁴

Recent DOJ initiatives designed to increase enforceability of merger consent decrees

For several years, the DOJ has sought to strengthen its ability to enforce its merger consent decrees by making several changes to its ‘standard’ decree provisions and organisational structure. For instance, the DOJ Antitrust Division created the Office of Decree Enforcement and Compliance.

In addition, the DOJ revised its antitrust consent decrees to include new standard provisions ‘designed to ensure [that the Antitrust Division] can meaningfully enforce [these decrees]’.⁵⁵ As discussed below, these provisions seek to (1) lower the evidentiary standard that the DOJ must satisfy when seeking to enforce a consent decree in court, (2) require parties to reimburse the DOJ for its investigatory and litigation costs if they are found to have violated the decree, and (3) allow the DOJ to obtain an extension of the decree if a violation is found to have occurred.⁵⁶

In light of these new provisions, companies entering into DOJ merger consent decrees must ensure that they fully understand their decree obligations and can perform these obligations within the prescribed time frames (i.e., completing divestitures, obtaining necessary government approvals and implementing appro-priate compliance and monitoring programmes). Otherwise, merging companies could find themselves the subject of an enforcement action in which the DOJ will have to satisfy a much lower evidentiary standard and could seek significantly greater injunctive and monetary relief, including a lengthy extension of the term of the decree and reimbursement for all costs associated with successfully investigating and prosecuting the decree violation.⁵⁷

DOJ Office of Decree Enforcement and Compliance

In April 2018, the DOJ Antitrust Division announced that it planned to create a unit that would have ‘the sole goal [of] ensur[ing] compliance with, and enforcement of, [the Division’s consent] decrees’.⁵⁸ In August 2020, the Antitrust Division followed through on this promise by establishing an Office of Decree Enforcement and Compliance, which will be responsible for ‘hold[ing] parties fully to account for the agreements they enter with the Antitrust Division’ and ‘ensur[ing] the American consumer fully benefits from the Antitrust Division’s hard work identifying anticompetitive mergers and conduct’.⁵⁹

In announcing the creation of this Office, the Antitrust Division provided the following details:⁶⁰

• the Office will have primary responsibility for the enforcement of judgments and consent decrees in civil matters;
• the Office will work closely with the Antitrust Division’s attorneys, as well as monitors and corporate compliance officers, to ensure the effective implementation of, and compliance with, the Division’s judgments and decrees;
• the Office will serve as the central repository for receiving and responding to whistle-blower and citizen complaints regarding potential judgment and decree violations; and
• the Office will advise the Antitrust Division’s Criminal Sections when parties seek credit at the charging stage for their corporate compliance programmes.

In discussing the rationale for creating the Office of Decree Enforcement and Compliance, which is similar to the FTC’s Compliance Division, the DOJ Antitrust Division stated that it needed to establish an office that focuses exclusively on monitoring and enforcing compliance with the Division’s consent decrees because far ‘[t]oo often, companies make promises to the American people, only to turn their back on some of those obligations when they feel that the cops are not on the beat’.⁶¹

DOJ civil contempt actions now governed by preponderance of evidence standard

As discussed in the ‘Legal principles governing merger consent decree enforcement actions’ section, above, the DOJ has historically been required to satisfy the clear and convincing evidentiary standard when seeking to hold a party in civil contempt for violating a decree. During the past four years, the DOJ has sought to lower its burden of proof by requiring the parties to agree that such actions will be governed by the preponderance of the evidence standard.⁶² In doing so, the DOJ explained that it decided to ‘contract[ ] around’ the default clear and convincing standard because:

• consent decree violation actions should be governed by the ‘same preponderance of the evidence standard’ that would apply in a challenge to the underlying transaction that resulted in the consent decree or an action seeking a decree interpretation;⁶³
• ‘[t]he default clear and convincing evidence standard makes it difficult for the [Antitrust] Division to enforce decrees’;⁶⁴
• the need to satisfy the clear and convincing standard ‘sets up a dynamic’ that is ‘counterproductive for both parties’ given that the Antitrust Division, ‘needing to meet the heightened standard, must engage in extensive investigative efforts’ that ‘subject[ ] parties to more burdensome CID investigations’;⁶⁵ and
• the clear and convincing standard ‘adds burden and delay to decree violation investigations’ given that parties, ‘knowing they will have the benefit of a favorable evidentiary standard, [have] an incentive to hold out from resolving disputes and exacerbate the situation’.⁶⁶

Non-complying parties must reimburse DOJ for investigatory and litigation costs

Traditionally, the DOJ has borne the ‘costs of decree enforcement investigations and proceedings, even in the presence of a serious violation of the decree and a meritorious judgment from the court’.⁶⁷ During the past four years, the DOJ has sought to reverse this default rule by requiring parties to agree to a fee-shifting provision whereby they agree to reimburse the DOJ for investigatory and litigation expenses ‘incurred in connection with any successful consent decree enforcement effort’.⁶⁸ The types of expenses covered by this fee-shifting provision include ‘attorney’s fees, expert fees, and [other decree enforcement-related] costs’.⁶⁹

The DOJ has explained that the inclusion of such fee-shifting provisions is both necessary and appropriate because it ‘encourage[s] speedy resolution of decree violation investigations’ and ‘compensate[s] taxpayers for the costs’ that the DOJ incurs whenever parties fail to honour their commitments under a consent decree.⁷⁰ The DOJ has also noted that most companies entering into antitrust consent decrees are familiar with fee-shifting provisions because many of them include such provisions in their commercial contracts.⁷¹

Violations can result in extension of term of merger consent decree

The DOJ’s antitrust consent decrees typically last 10 years. In consent decrees entered during the recent years, the DOJ has required parties to agree that the DOJ may seek a ‘one-time extension of the [decree’s] term’ if a court ‘finds that a defendant has violated the consent decree’.⁷² In doing so, the DOJ explained that these decree extension provisions ‘should make the relief in decree enforcement proceedings more meaningful, and [thus] discourage violations’.⁷³ The DOJ also explained that it would ‘only [seek a consent decree extension] if appropriate to the market circumstances and the facts of the violation’.⁷⁴

In 2019 and 2020, the DOJ brought two separate merger consent decree enforcement actions that required the companies to agree to extend the term of the decree. These enforcement actions (discussed below) provide helpful guidance as to the types of ‘market circumstances’ and ‘facts’ that will cause the DOJ to invoke its right to seek a decree extension.

Overview of key merger consent decree enforcement actions

As noted above, the DOJ and FTC have brought a relatively small number of formal consent decree enforcement actions in court. Nonetheless, these cases provide helpful guidance because they show the types of facts that will cause the agencies to bring these actions and the type of relief that they may seek when doing so. In addition, a review of these enforcement actions is particularly timely given that the DOJ’s recent changes to its organisational structure and consent decrees – which the FTC may eventually follow – could lead to an increase in the number of formal merger decree enforcement actions that are brought by the agencies in the coming years.

Smith International/Schlumberger

In 1994, the DOJ entered into a merger consent decree with Dresser Industries Inc (Dresser) and Baroid Corp (Baroid).⁷⁵ Pursuant to the decree, Dresser sold its controlling ownership interest in a company that produced drilling fluids to Smith International Inc (Smith International).⁷⁶ In acquiring this ownership interest, Smith International agreed to be bound by the Dresser/Baroid consent decree, which prohibited Smith International ‘from selling the divested drilling fluid business to, or combining that business with, the drilling fluid operations of certain companies’, including Schlumberger Ltd (Schlumberger).⁷⁷

In 1999, Smith International and Schlumberger entered into a joint venture agreement whereby they sought to combine their drilling fluid business.⁷⁸ In doing so, the companies acknowledged that they would need to seek a modification of the Dresser/Baroid decree before completing their proposed transaction.⁷⁹ After seeking the DOJ’s consent to such a modification, the companies decided to proceed with consummating their joint venture prior to the DOJ completing its investigation.⁸⁰ Thereafter, the DOJ sent the companies a letter indicating that their proposed joint venture would constitute a violation of the Dresser/Baroid decree, but the companies nonetheless proceeded with finalising the transaction.⁸¹ The DOJ immediately brought an enforcement action seeking to hold both Smith International and Schlumberger in civil and criminal contempt for violating the Dresser/Baroid decree. Although Schlumberger was not a party to the decree, the DOJ argued that it should nonetheless be held liable for the decree violation because it knowingly aided and abetted Smith International’s purposeful decree violation.⁸² After concluding that the decree’s unambiguous language clearly prohibited the companies’ joint venture and that they chose to ignore the DOJ’s express warnings that consummating their transaction would violate the Dresser/ Baroid decree, the court found Smith International and Schlumberger guilty of criminal contempt and ordered each of them to pay a US$750,000 fine.⁸³ The court also imposed a five-year ‘probationary condition’ that required them to obtain ‘an opinion from an outside counsel that [any transaction that raises anti-trust questions] complies with the antitrust laws’.⁸⁴

In issuing its decision, the court stressed that ‘it is clear that consent decrees issued by the Antitrust Division and signed by courts[ ] must be followed’ and that parties must follow the formal process for obtaining decree modifications – where they can petition both the DOJ and court for a desired decree modification – rather than simply pursuing transactions that risk violating the decree.⁸⁵ However, the court also stressed that it opted to impose a fine that was lower than the amount it was authorised to order because the companies cooperated with the DOJ’s efforts to obtain discovery that proved central to its case.⁸⁶ In doing so, the court stated that it ‘want[ed] the word to go out’ that courts will impose lower fines when companies ‘cooperate and do these kinds of things’.⁸⁷

After being found guilty of criminal contempt, the companies agreed to settle the DOJ’s civil contempt case for US$13.1 million, which ‘represented a full disgorgement of all of the joint venture’s profits during the time that the companies were in contempt’.⁸⁸

Live Nation/Ticketmaster

In 2009, Live Nation (the largest concert promoter in the United States) agreed to merge with Ticketmaster (the largest ticketing service provider for major concert venues in the United States). To secure DOJ approval, the companies entered into a consent decree in 2010 that, among other things, prohibited them from (1) conditioning or threatening to condition Live Nation’s provision of concerts and other live events on a venue’s purchase of Ticketmaster’s ticketing services, or (2) retaliating against concert venues that opted to use another ticketing company. In December 2019, the DOJ announced that it planned to move to amend and extend the consent decree because its multi-year investigation showed that the companies had repeatedly violated the terms of the decree. According to the DOJ, Live Nation and Ticketmaster began violating the aforementioned provisions ‘shortly after the decree was entered in 2010’ and continued to violate them ‘as late as March 2019’.⁸⁹ As alleged by the DOJ, Live Nation and Ticketmaster gained a ‘well-earned reputation for threatening behavior’ and ‘retaliatory conduct’ because they ‘repeatedly conditioned and threatened to condition Live Nation’s provision of live concerts on a venue’s purchase of Ticketmaster ticketing services’, and ‘retaliated against venues that opted to use competing ticketing services’.⁹⁰ The DOJ concluded that this conduct ‘hinder[ed] effective competition for primary ticketing services’ because ‘venues are afraid to leave Ticketmaster lest they risk losing Live Nation concerts’, which generate revenue that is of ‘paramount importance . . . to a venue’s bottom line’.⁹¹

‘[T]o ensure that American consumers get the benefit of the bargain reached in [the] 2010 [consent decree]’ and to ‘prevent future violations’, the DOJ required Live Nation and Ticketmaster to agree to the following key modifications to the decree:⁹²

• extending the decree by five and a half years to ensure that ‘at least one full cycle of most venue ticketing contracts [will] be free from [the companies’] coercive tactics and give competition a chance to take hold’;
• adding language ‘that makes even clearer’ the ‘specific conduct prohibited by’ the decree’s anti-retaliation and anti-conditioning provisions;
• appointing an independent monitoring trustee with the authority to investigate and report on the companies’ compliance with the decree, including making recommendations to the DOJ about appropriate remedies for any violations;
• hiring an antitrust compliance officer who will be responsible for ensuring compliance with the consent decree and implementing a whistle-blower protection policy and DOJ-approved antitrust training, among other things;
• lowering the DOJ’s burden of proof in any future decree enforcement action from the traditional clear and convincing evidentiary standard to a preponderance of the evidence standard;
• requiring the companies to pay a US$1 million fine for any future violations of the decree’s anti-retaliation or anti-conditioning provisions;
• enabling the DOJ to file an enforcement action for any decree violations for up to four years after expiry of the decree; and
• requiring the companies to reimburse the DOJ the US$3 million it incurred in costs in connection with investigating and prosecuting the alleged decree violations.

In announcing this enforcement action, the DOJ described it as ‘the most significant enforcement action of an existing antitrust decree by the Department in 20 years’.⁹³

Boston Scientific Corporation

In 1995, Boston Scientific Corporation (BSC) entered into a consent decree to settle the FTC’s challenge to its acquisition of CVIS, which manufactured ultravascular ultrasound (IVUS) catheters. As part of the decree, BSC agreed to ‘share its IVUS catheter technology, licenses, and know-how with HP [HewlettPackard Co]’.⁹⁴ The FTC required BSC to agree to these conditions to facilitate HP’s entry as a competitor to BSC in the market for IVUS catheters.⁹⁵ Although BSC provided some information and products to HP, it withheld certain intellectual property when the companies were unable to reach an amicable resolution regarding whether the consent decree required BSC to make these assets available to HP.⁹⁶

After learning about the companies’ dispute, the FTC’s Compliance Division provided the companies with its interpretation of the consent decree, which disagreed with BSC’s position. Thereafter, the companies sought unsuccessfully to settle their dispute and HP eventually exited the IVUS catheter market.⁹⁷ The FTC subsequently brought a consent decree violation action against BSC and sought US$35 million in civil penalties.⁹⁸

The court held that BSC violated the consent decree and ordered it to pay nearly US$7.1 million in fines. In determining the appropriate fine amount, the court considered the following six factors that courts routinely apply in FTC decree enforcement actions: harm to the public; benefit to the violator; good or bad faith of the violator; the violator’s ability to pay; deterrence of future violations by the violator or others; and vindication of the FTC’s authority.⁹⁹

With respect to each of these factors, the court found that:

• ‘BSC’s conduct harmed the public because its violations of the [FTC’s decree] were a substantial contributing cause of HP’s decision to withdraw from the IVUS catheter market’;¹⁰⁰
• there was an insufficient basis to assess the economic benefits that BSC derived from violating the decree because ‘the record [was] not clear on the correct methodology for determining [these benefits]’;¹⁰¹
• BSC acted in bad faith when it ‘chose to take the risk of ignoring the FTC’s staff [consent decree] interpretation’ and to ‘see how close it could fly to the sun with impunity’ because it believed that seeking a formal FTC advisory opinion ‘would worsen the situation for BSC’;¹⁰²
• BSC – which had a market capitalisation in excess of US$10 billion – had not ‘raise[d] an inability to pay’ argument;¹⁰³ and
• strictly enforcing the decree against BSC served the ‘compelling interest’ of ensuring that ‘FTC orders [are] not . . . disregarded with impunity’ given that the facts showed that ‘BSC received a 90% market share by entering into [the] consent order and then proceeded to violate’ the ‘letter’ and ‘spirit of the consent order’ by pursuing the ‘goal [of ] driv[ing] HP out of the IVUS catheter market’.¹⁰⁴

After successfully prosecuting this decree enforcement action, the FTC issued a statement indicating that the court’s decision and the penalties imposed should serve as a stark reminder to companies about the importance of complying with consent decrees:

We are pleased that [the court] has underscored, with this [$7 million] penalty, the importance of complying with the FTC’s orders. The penalty here should serve as a clear signal to all firms under FTC order that they must abide by those terms or face severe consequences. Penalties are meant to penalize and deter, and we hope that everyone will take that lesson from the result here.¹⁰⁵

Alimentation Couche-Tard Inc

In 2018, Alimentation Couche-Tard Inc (ACT), a fuel station and convenience store operator, acquired approximately 380 retail fuel outlets with attached convenience stores from Holiday Stationstores, Inc (Holiday) in 10 states. When the FTC alleged that the transaction would reduce competition in the retail sale of petrol and diesel in 10 local markets in Minnesota and Wisconsin, ACT entered into a consent decree with the FTC that required (1) the divestiture of 10 locations within 120 days of the order; (2) the maintenance of the viability, marketability and competitiveness of the operations of the divested locations; and (3) monthly reporting that provided the FTC with information about the status of the divestiture efforts and compliance with the rest of the decree’s obligations.¹⁰⁶ In July 2020, the FTC brought an enforcement action alleging that ACT violated each of the above decree provisions. Specifically, the FTC alleged that ACT failed to (1) complete the required divestitures by the 15 June 2018 deadline; (2) properly maintain the operations of one of the Minnesota locations that it was required to divest by failing to renew the lease for the lessee-operator, which resulted in the location being closed before it could be divested; (3) submit reports that contained sufficient details about ACT’s efforts to complete the required divestitures; and (4) disclose the closure of the aforementioned Minnesota location until long after it had ceased operating.¹⁰⁷

In light of these facts, the FTC fined ACT US$3.5 million while emphasising that it ‘will not permit parties to profit from order violations of any kind, including late divestitures’.¹⁰⁸

CenturyLink

In connection with its October 2016 acquisition of Level 3, CenturyLink entered into a consent decree with the DOJ whereby it agreed to divest Level 3’s local fibre optic networks and certain facilities, and committed to refrain from initiating customer-specific communications to solicit customers of the divested assets for two years.

In August 2020, the DOJ filed an unopposed motion to modify the consent decree, alleging that CenturyLink’s sales associates contacted the customers of one of the divestiture buyers in violation of the terms of the decree.¹⁰⁹ To resolve the DOJ’s allegations, CenturyLink agreed to extend the non-solicitation requirement for two years as well as to pay US$250,000 to reimburse the DOJ for its ‘costs and attorney fees’.¹¹⁰ CenturyLink further agreed to the appointment of an independent trustee to monitor its compliance with the terms of the decree and to certain ‘procedural provisions designed to promote compliance and make the enforcement of the new [decree] as effective as possible’.

Although it acknowledged that CenturyLink cooperated with its investigation, the DOJ nonetheless brought this enforcement action because ‘[w]hen a defendant violates the terms of a settlement decree, it must be held accountable to its obligations to the department and the American consumer’.¹¹¹

In September 2021, the DOJ announced that CenturyLink (now known as Lumen Technologies Inc.) had agreed to pay US$275,000 after being found to have violated for a second time the consent decree’s requirement that CenturyLink refrain from soliciting the customers of the divested assets.¹¹² The US$275,000 included reimbursement for the DOJ’s cost of investigating the violation.¹¹³ In announcing this settlement, the DOJ stated:

Century Link is a repeat offender. The request for a finding of civil contempt is appropriate because the company violated its amended obligations immediately after the court imposed them. When companies fail to comply with court-ordered obligations, the Antitrust Division will take action to enforce them.¹¹⁴

Exelon Corporation

In 2011, Exelon Corporation (Exelon) entered into a consent decree with the DOJ in connection with its acquisition of Constellation. As part of the consent decree, Exelon agreed to divest three electricity plants and entered into a hold separate agreement that required Exelon ‘to bid certain of its electricity generating plants at or below cost to ensure that Exelon would not be able to raise market prices for electricity’ between the time it ‘closed the acquisition and divested the plants’.¹¹⁵ Exelon violated this requirement by submitting ‘certain offers for sales of electricity during this period at above-cost prices’ and by ‘fail[ing] to take all necessary steps to ensure that its offers would comply with the hold separate requirements’.¹¹⁶

The record showed that ‘Exelon’s above-cost offers were inadvertent’ and that:

Exelon, upon recognizing that it had made above-cost offers, took appropriate remedial steps, including notifying the [DOJ] and market regulators . . . implementing measures to ensure that no additional above-cost offers occurred, and agreeing with the market regulators to return any incremental revenues Exelon earned from, and to redress any market harm caused by, its above-cost offers.¹¹⁷

Nonetheless, the DOJ moved to hold Exelon in civil contempt and obtained a US$400,000 fine, which ‘represent[ed] disgorgement of profits gained through Exelon’s [decree] violations and reimbursement to the [DOJ] for the cost of its investigation’.¹¹⁸

In bringing this decree enforcement action, the DOJ stressed that ‘companies must fully adhere to the terms of their court-ordered agreements’ and that the DOJ ‘will vigorously prosecute those who enter into agreements with the [DOJ] and do not comply with their legal obligations’.¹¹⁹

General Electric/Baker Hughes

In 2017, General Electric Co (GE) entered into a consent decree with the DOJ in connection with its acquisition of Baker Hughes Inc. As part of the consent decree, GE agreed to divest its worldwide water and technologies business to Suez SA (Suez) by the end of September 2017.¹²⁰ GE completed 90 per cent of this divestiture within the agreed time frame but was unable to divest the remaining 10 per cent because of various administrative challenges in certain jurisdictions.¹²¹ To further incentivise GE to promptly complete the outstanding divestitures, the DOJ required GE to agree to pay US$1,500 per day (after a certain date) until the outstanding divestitures in each jurisdiction were completed.¹²² The DOJ also required GE to agree to ‘reimburse the [DOJ] $50,000 for attorney’s fees and costs [that it] incurred . . . in connection with [addressing GE’s failure to complete the divestitures within the agreed upon time frame]’.¹²³ The DOJ sought this relief even though it ‘recognize[d] and commend[ed] [GE] for its proactive cooperation in resolving the issues arising from the incomplete execution of the required divestitures within the original time frame’.¹²⁴

Work Wear Corp

In 1968, Work Wear Corp (WWC) acquired a number of industrial laundries. To address the DOJ’s concerns, WWC entered into a consent decree that required it to divest 11 industrial laundry facilities.¹²⁵ Despite receiving an extension from the DOJ and divesting certain facilities, WWC was unable to divest all 11 facilities within the specified period because it received an unfavourable Internal Revenue Service (IRS) determination regarding a proposed spin-off of these assets. Thereafter, the DOJ brought a civil contempt action after rejecting WWC’s request to modify the decree, which, if accepted, would have reduced the number of facilities that WWC had to divest.¹²⁶ Even though it found that WWC had technically violated the consent decree, the district court declined to hold the company in contempt because WWC had acted in good faith and because WWC’s ability to complete the necessary divestitures was stymied by economic conditions outside its control. However, the district court warned WWC that it would be fined US$5,000 per day if it failed to complete the remaining divestitures within the 16-month extension that it received.¹²⁷

After the DOJ rejected a proposed buyer and the IRS again rendered an unfavourable ruling for another proposed spin-off, WWC failed to complete the outstanding divestitures within the extension period, which resulted in its being held in contempt and fined more than US$1 million.¹²⁸ While its appeal was pending, WWC completed the necessary divestitures and negotiated a settlement with the DOJ that reduced its fine by half. However, the district court rejected the parties’ proposed settlement, stating that accepting the parties’ efforts to reduce the fine, ‘without just cause or a showing of mitigating circumstances, would denigrate the authority of the Court and sanction mere lip service to its Orders’.¹²⁹ The district court also found the DOJ’s efforts to negotiate a lower fine to constitute a ‘presumption upon the jurisdiction and authority of the Court and an interference with its power of contempt’.¹³⁰

On appeal, the Sixth Circuit affirmed the district court’s refusal to accept the parties’ proposed lower fine because the district court’s decision was entitled to ‘deference’ given its ‘intimate familiarity . . . with the . . . drawn-out proceedings, and its patient granting of an initial extension of time for compliance’.¹³¹ Notably, the Sixth Circuit affirmed the district court’s decision despite noting that it ‘very well may have acted favorably on [WWC’s] appeal’ had it been applying a de novo, rather than abuse of discretion, review.¹³²

CoreLogic/DataQuick

In 2014, CoreLogic, Inc (a provider of real estate data and analytics) entered into a consent decree with the FTC in connection with its acquisition of DataQuick Information Systems, Inc. As part of the consent decree, CoreLogic agreed to license certain data and provide transitional services to a new market entrant, Renwood RealtyTrac LLC.¹³³ After CoreLogic failed to comply with its data licensing obligations, the FTC required the company to agree to a three-year extension of the consent decree and several decree modifications that expressly set forth specific quality metrics and other requirements relating to CoreLogic’s licensing and servicing obligations.¹³⁴

Morton Plant Hospital/Mease Hospital

In 1994, Morton Plant Hospital Association (Morton) and Mease Hospital (Mease) entered into a consent decree with the DOJ that permitted the hospitals to create a partnership that would provide certain outpatient and administrative services, but explicitly prohibited them from (1) jointly selling services, (2) jointly contracting with third parties and (3) sharing information.¹³⁵ In 2000, the DOJ brought a civil enforcement action against Morton and the Trustees of Mease for ‘repeated and widespread violations’ of the consent decree.¹³⁶ The hospitals settled with the DOJ and ‘admit[ted] to repeated violations of the [consent] decree, [which] includ[ed] coordinating managed care contracting, jointly selling services, and sharing competitive information’.¹³⁷ The hospitals agreed to pay a US$300,000 civil penalty and to reimburse the DOJ (and State of Florida) approximately US$200,000 for the costs incurred in connection with the decree violation investigation.¹³⁸ Moreover, the hospitals agreed to refrain from engaging in the prohibited conduct and to being barred from seeking to modify or terminate the consent decree or enforcement order for three years.¹³⁹

Conclusion

The enforcement actions and principles discussed above illustrate the importance of complying with merger consent decrees and the significant civil and criminal penalties that companies can face when they fail to do so. As noted, the DOJ and FTC have consistently stressed the importance of compliance with their consent decrees and the DOJ has recently implemented various initiatives – which the FTC may ultimately follow – that are specifically designed to increase its ability to successfully prosecute companies that violate their consent decree obligations. In addition to increasing the likelihood that the DOJ (and potentially FTC) will bring a greater number of formal decree enforcement actions in the coming years, these initiatives significantly expand the costs and penalties that could be imposed on companies found to have violated a merger consent decree, including a lengthy extension of the term of the decree and the need to reimburse the DOJ for all its investigatory and litigation expenses. Accordingly, merging parties must carefully consider and negotiate any obligations imposed on them by a DOJ or FTC consent decree, as well as confirm that they can fully comply with these obligations within the agreed time frame, before entering into these decrees.

Notes