Merger Remedies Guide - Second Edition

Enforcement of Merger Consent Decrees

14 October 2019

Crowell & Moring LLP

The US Department of Justice (DOJ) and the Federal Trade Commission (FTC) have long recognised that their strong commitment toward prosecuting consent decree violations helps ensure that merging companies comply with their decree obligations and that merger remedies are effective. For instance, the DOJ’s Policy Guide to Merger Remedies 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]’ in order 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 Corp, 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]

Over the past two years, the DOJ and FTC have made a concerted effort to remind companies – both through their public statements and enforcement actions – that they must take their consent decree obligations seriously and that their failure to do so could subject them to large fines and other penalties. In announcing a recent enforcement action related to the violation of a non-merger consent decree, FTC Chairman Joseph Simons stated that the ‘record-breaking $5 billion penalty’ and ‘sweeping’ reforms to the company’s corporate governance structure and business operations shows that the FTC ‘will enforce [its] orders to the fullest extent of the law.’ [5] While this enforcement action involved a non-merger consent decree, Chairman Simons has similarly taken a tough stance on the need to vigorously enforce merger consent decrees. While serving as the FTC’s Competition Bureau Director, Chairman Simons warned companies that they could face stiff consequences if they fail to honour their decree obligations:

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. [6]

Likewise, in announcing a recent enforcement action arising out of a merger consent decree violation, Assistant Attorney General Makan Delrahim stressed that the merging companies were required to pay a daily fine until they completed the necessary divestitures, as well as reimburse the Antitrust Division for its investigatory and litigations costs, because the ‘Division takes seriously the enforcement of commitments parties make when [entering decrees].’ [7] In his most recent congressional testimony, Assistant Attorney General Delrahim re-emphasised the Antitrust Division’s commitment to vigorously enforcing its consent decrees by noting that the Division has implemented various changes to its policies and practices that are specifically intended to ‘strengthen [the Division’s] ability to ensure decree compliance’ and ‘enforce . . . the [agreed-upon] remedy.’ [8]

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 read 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 non-public 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.

Moreover, merging companies should anticipate an uptick in the number of formal consent decree enforcement actions that the agencies file in court in the coming years. During the past two years, the DOJ has added several new ‘standard’ provisions to its merger consent decrees that are specifically intended to enhance the Antitrust Division’s ability to successfully prosecute consent decree violation actions in court, as well as increase the express relief that the Division can seek when bringing such actions. These new consent decree provisions require merging companies 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 decree’s term (if a violation is established). In addition, the DOJ Antitrust Division has announced that it intends to create an Office of Decree Enforcement that will focus on ensuring strict compliance with and strong enforcement of the Division’s consent decrees.

While the FTC – which already has a decree enforcement unit – has not included any of these provisions in its recent merger consent decrees, the absence of such provisions should not automatically be read to mean that the FTC has officially declined to follow the DOJ’s lead. Although the DOJ and FTC have taken opposing positions on certain policy issues and enforcement actions during the past year, they historically have sought to minimise any differences in their enforcement approaches. Thus, until the FTC makes an official pronouncement to the contrary, it remains possible that the FTC could decide to begin including these provisions in its 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: (1) 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; (2) the key standard consent decree provisions that the DOJ and FTC utilise to ensure the merging parties’ compliance; (3) recent DOJ initiatives intended to increase the DOJ’s ability to enforce its consent decrees in court; and (4) 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. [9] As the DOJ’s merger remedies guidelines note, 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’. [10]

To prevail in a civil contempt action, the DOJ must prove with clear and convincing evidence that a lawful decree exists, the defendant had knowledge of the decree, and the defendant violated a clear and unambiguous provision of the decree. [11] (But see the section below titled ‘DOJ civil contempt actions are now governed by a preponderance of evidence standard’.) 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. [12]

In civil contempt actions, the DOJ may seek injunctive relief, fines that accumulate on a daily basis until compliance is achieved, and attorney’s fees and costs. [13] 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. [14] 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. [15] 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. [16]

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. [17] 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. [18] In bringing a criminal contempt action, the DOJ can seek ‘a fine, or imprisonment, or both’. [19] 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. [20]

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. [21] 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’. [22] 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 its own name’. [23] In bringing a merger consent decree enforcement action, the FTC can seek the imposition of US$42,530 in fines for each day that the party has failed to comply with the decree. [24] 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]’. [25]

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. [26]

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 related to all matters covered by the decree, and (2) interview the parties’ personnel and agents regarding any topic covered by the decree. [27] 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. [28]

In general, consent decrees will provide that any compliance-related materials that parties provide 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. [29] If parties believe that such 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’. [30] 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). [31]

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). [32] 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. [33]

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. [34] 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). [35]

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. [36] To the extent that such reports are submitted to the court, they will be filed under seal if the trustee determines that the reports contain confidential information. [37] 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. [38]

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. [39] 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. [40] 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. [41]

In general, the FTC has utilised 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 relatively rare situations where a monitoring trustee with technical expertise unavailable to the [Antitrust] Division could perform a valuable role’. [42] In explaining this position, the DOJ has stated that ‘[i]n 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’. [43] Recent merger decrees where the DOJ opted to reserve the right to appoint a monitoring trustee include the T-Mobile/Sprint, Bayer/Monsanto, Anheuser-Busch InBev/SABMiller, Verso Paper/NewPage and Anheuser-Busch InBev/Grupo Modelo decrees. [44]

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. [45] To the extent any such reports are submitted to the court, they will be filed under seal if the trustee determines that the reports contain confidential information. [46]

Recent DOJ initiatives designed to increase enforceability of merger consent decrees

During the past two 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 has announced its intention to create an Office of Decree Enforcement, which will have ‘the sole goal [of] ensur[ing] compliance with, and enforcement of, [the Division’s consent] decrees’. [47] While the DOJ has yet to disclose any details about the structure, authority and resources of this new office, it could decide to use the FTC’s Compliance Division as a model. Among other things, the FTC’s Compliance Division is responsible for overseeing compliance with the FTC’s orders, investigating possible violations thereof, and bringing enforcement actions against non-complying parties. [48]

In addition, the DOJ has revised its antitrust consent decrees to include new standard provisions ‘designed to ensure [that the Antitrust Division] can meaningfully enforce [these decrees.]’. [49] 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. [50]

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 governmental approvals, and implementing appropriate compliance and monitoring programmes). Otherwise, merging companies could find themselves the subject of an enforcement action where 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 decree’s term and reimbursement for all costs associated with successfully investigating and prosecuting the decree violation.

To date, the FTC has not required merging parties to agree to similar provisions prior to approving a merger consent decree. The absence of such provisions could be another recent example of the DOJ and FTC reaching directly opposite positions on an issue. However, it could also mean that the FTC is continuing to study the issue and the impact that the inclusion of these provisions has on the DOJ’s ability to effectively administer and enforce its consent decrees. Thus, one key issue to monitor in the coming year is whether the FTC decides to follow the DOJ’s lead or announces that it has opted not to do so.

DOJ civil contempt actions are now governed by a preponderance of evidence standard

As discussed in the above section entitled ‘Legal principles governing merger consent decree enforcement actions’, 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. Over the past two 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. [51] In doing so, the DOJ has explained that it has 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; [52]
  • ‘[t]he default clear and convincing evidence standard makes it difficult for the [Antitrust] Division to enforce decrees’; [53]
  • 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’; [54] 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’. [55]

Non-complying parties must reimburse the 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’. [56] During the past two 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’. [57] The types of expenses covered by this fee-shifting provision include ‘attorney’s fees, expert fees, and [other decree enforcement-related] costs’. [58]

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. [59] 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. [60]

Violations can result in the extension of a merger consent decree’s term

The DOJ’s antitrust consent decrees typically last 10 years. In consent decrees entered during the past two 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’. [61] In doing so, the DOJ has explained that these decree extension provisions ‘should make the relief in decree enforcement proceedings more meaningful, and [thus] discourage violations’. [62] The DOJ has also explained that it would ‘only [seek a consent decree extension] if appropriate to the market circumstances and the facts of the violation’. [63]

Although the DOJ has not provided any guidance as to what circumstances or facts would cause it to seek a consent decree extension, it could potentially take into consideration the violating party’s market power, the violating party’s efforts to comply with the consent decree and motivations for engaging in the challenged conduct, the nature and extent of the violation, the type and amount of harm caused by the violation, and the violating party’s past compliance history.

Notably, the consent decrees that have included these extension provisions do not set forth any parameters regarding the length of the extensions that the DOJ may seek in court. This creates significant uncertainty and risks for merging parties because the DOJ could opt to seek a lengthy extension and will only need to prove the appropriateness of this relief by a preponderance of the evidence. [64] Moreover, these extension provisions could greatly increase the expenses associated with entering into a merger consent decree where, for example, the decree contains costly monitoring and imposes affirmative compliance obligations.

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 such 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). [65] Pursuant to the decree, Dresser sold its controlling ownership interest in a company that produced drilling fluids to Smith International Inc (Smith International). [66] 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). [67]

In 1999, Smith International and Schlumberger entered into a joint venture agreement whereby they sought to combine their drilling fluid business. [68] In doing so, the companies acknowledged that they would need to seek a modification of the Dresser/Baroid decree before completing their proposed transaction. [69] 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. [70] 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. [71]

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. [72] 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. [73] 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 antitrust questions] complies with the antitrust laws’. [74]

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. [75] 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. [76] 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’. [77]

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’. [78]

Boston Scientific Corporation

In 1995, Boston Scientific Corp (BSC) entered into a consent decree in order 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 [Hewlett-Packard Co]’. [79] The FTC required BSC to agree to these conditions in order to facilitate HP’s entry as a competitor to BSC in the market for IVUS catheters. [80] 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. [81]

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 unsuccessfully sought to settle their dispute and HP eventually exited the IVUS catheter market. [82] The FTC subsequently brought a consent decree violation action against BSC and sought US$35 million in civil penalties. [83]

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: (1) harm to the public; (2) benefit to the violator; (3) good or bad faith of the violator; (4) the violator’s ability to pay; (5) deterrence of future violations by the violator or others; and (6) vindication of the FTC’s authority. [84] 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’; [85]
  • 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]’; [86]
  • 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’; [87]
  • BSC – which had a market capitalisation in excess of US$10 billion – had not ‘raise[d] an inability to pay’ argument; [88] 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’. [89]

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’. [90] 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’. [91]

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. [92]

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’. [93]

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’. [94]

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. [95] GE completed 90 per cent of this divestiture within the agreed upon time frame but was unable to divest the remaining 10 per cent because of various administrative challenges in certain jurisdictions. [96]

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. [97] 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 timeframe]’. [98] 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 timeframe’. [99]

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. [100] 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. [101] 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 $5,000 per day if it failed to complete the remaining divestitures within the 16-month extension that it received. [102]

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 over US$1 million. [103] While its appeal was pending, WWC completed the necessary divestitures and negotiated a settlement with the DOJ that cut its fine in 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.’ [104] 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.’ [105]

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.’ [106] 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. [107]

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. [108] 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 related to CoreLogic’s licensing and servicing obligations. [109]

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. [110] 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. [111] 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’. [112] 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. [113] 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. [114]

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 above, 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 decree’s term and the need to reimburse the DOJ for all of 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 upon time frame, before entering into these decrees.


Notes

1 Juan A Arteaga is a partner at Crowell & Moring LLP.

2 US Dep’t of Justice, Antitrust Div, Policy Guide to Merger Remedies at 40–41 (October 2004) (the DOJ Merger Remedies Guide), available at www.justice.gov/atr/page/file/1175116/download; see also Press Release, US Dep’t of Justice, Court Finds Smith International and Schlumberger Ltd. Guilty of Criminal Contempt for Violating Consent Decree at 2–3 (9 December 1999) (the Smith International Press Release) (‘This ruling sends a strong message that companies must comply with antitrust consent decrees . . . . Consent decrees are an essential tool in our efforts to enforce the antitrust laws, and this ruling clearly demonstrates that companies subject to consent decrees must respect the rule of law.’ (internal quotation marks and citation omitted)), available at www.justice.gov/archive/atr/public/press_releases/1999/3948.pdf.

3 Memorandum from FTC Commissioner Rohit Chopra to Commission Staff and Commissioners at 1, 3 (14 May 2018), available at www.ftc.gov/system/files/documents/public_statements/1378225/chopra_-_repeat_offenders_memo_5-14-18.pdf.

4 253 F Supp 85, 101 (D Mass 2003); see also Bench Decision at 1 (‘[I]t is clear that consent decrees issued by the Antitrust Division and signed by the courts[ ] must be followed.’), United States v. Smith Int’l Inc, No. 93-2621-SS (D DC 9 December 1999) (the Smith Int’l Bench Decision), available at www.justice.gov/atr/case-document/file/511196/download.

5 Press Release, Fed Trade Comm’n, FTC Imposes $5 Billion Penalty and Sweeping New Privacy Restrictions on Facebook (24 July 2019), available at www.ftc.gov/news-events/press-releases/2019/07/ftc-imposes-5-billion-penalty-sweeping-new-privacy-restrictions.

6 Press Release, Fed Trade Comm’n, Federal Judge Issues Record $7 Million Fine Against Boston Scientific Corporation (31 March 2013) (the Boston Scientific Press Release), available at www.ftc.gov/news-events/press-releases/2003/03/federal-judge-issues-record-7-million-fine-against-boston.

7 Press Release, US Dep’t of Justice, Justice Department Requires General Electric Company to Make Incentive Payments to Encourage Completion of Divestitures Agreed to as a Condition of Baker Hughes Merger (17 Oct 2017) (the GE Press Release), available at www.justice.gov/opa/pr/justice-department-requires-general-electric-company-make-incentive-payments-encourage.

8 Makan Delrahim, Assistant Attorney General, US Dep’t of Justice, Antitrust Div, Prepared Statement for Oversight Hearing on the Antitrust Enforcement Agencies at 9 (12 December 2018) (the AAG Delrahim Congressional Testimony), US House of Representatives, Judiciary Committee, Subcommittee on Regulatory Reform, Commercial and Antitrust Law, available at www.justice.gov/sites/default/files/testimonies/witnesses/attachments/2018/12/13/atr_delrahim_oversight_testimony_for_hjc_12.12.18_clear.pdf; see also Makan Delrahim, Assistant Attorney General, US Dep’t of Justice, Antitrust Div, Remarks Delivered at the New York State Bar Association: Improving the Antitrust Consensus at 4 (25 Jan 2018) (the AAG Delrahim NY Bar Speech) (‘Our approach will be to enter into consent decrees only when we can effectively enforce them, and when we do enter into consent decrees, to enforce them effectively.’), available at www.justice.gov/opa/speech/file/1028896/download.

9 See, e.g., DOJ Merger Remedies Guide, supra note 2, at 43–44; Smith Int’l Bench Decision, supra note 4, at 2–4.

10 DOJ Merger Remedies Guide, supra note 2, at 43.

11 See, e.g., United States v. Microsoft Corp, 147 F.3d 935, 940 (DC Cir 1998); Washington-Baltimore Newspaper Guild v. Washington Post, 626 F.2d 1029, 1031 (DC Cir 1980); United States v. Greyhound Corp, 363 F Supp 525, 570 (ND Ill), aff’d, 508 F.2d 529 (7th Cir 1974).

12 McComb v. Jacksonville Paper Co, 336 US 187, 191 (1949) (listing cases).

13 DOJ Merger Remedies Guide, supra note 2, at 43; Memorandum of the United States in Support of Petition for An Order to Show Cause Why Respondents Smith International, Inc. and Schlumberger Ltd. Should Not Be Found in Civil Contempt at 11, United States v. Smith Int’l Inc, No. 93-2621-SS (D DC 27 July 1999) (the Smith Int’l Civil Contempt Motion), available at www.justice.gov/atr/case-document/memorandum-united-states-support-petition-united-states-order-show-cause-why.

14 DOJ Merger Remedies Guide, supra note 2, at 43 n. 60; Smith Int’l Bench Decision, supra note 4, at 2–4.

15 United States v. IBM Corp, 60 FRD 658, 667 (SDNY 1973); Smith Int’l Bench Decision, supra note 4, at 2–4; DOJ Merger Remedies Guide, supra note 2, at 43.

16 IBM, 60 FRD at 667 (citing United States v. United Mineworkers of Am, 330 US 258, 303–04 (1947) and Sweetarts v. Sunline Inc, 299 F Supp 572, 579 (ED Mo 1969)).

17 See, e.g., IBM, 60 FRD at 667; United States v. NYNEX Corp, 8 F.3d 52, 54 (DC Cir 1993); DOJ Merger Remedies Guide, supra note 2, at 43–44.

18 See, e.g., Smith Int’l Bench Decision, supra note 4, at 2–4; United States’ Post-Trial Brief 18 (listing cases), United States v. Smith Int’l Inc, No. 1:93-cv-02621-SS (D DC 3 December 1999) (the Smith Int’l Post-Trial Brief), available at www.justice.gov/atr/case-document/file/511211/download.

19 DOJ Merger Remedies Guide, supra note 2, at 44; see also 18 USC Section 401; United States v. Schine, 125 F Supp 734, 737 (WDNY 1954).

20 See, e.g., Smith Int’l Bench Decision, supra note 4, at 2–4.

21 Fed Trade Comm’n, FTC Operating Manual Section 12.5.1 (January 1998), available at www.ftc.gov/sites/default/files/attachments/ftc-administrative-staff-manuals/ch12compliance.pdf.

22 Id.

23 Id.

24 15 USC Section 45(l). As required by law, the original US$10,000 fine amount set forth in the FTCA has been increased over the years to account for inflation. See Press Release, Fed Trade Comm’n, FTC Publishes Inflation-Adjusted Civil Penalty Amounts (1 March 2018), available at www.ftc.gov/news-events/press-releases/2019/03/ftc-publishes-inflation-adjusted-civil-penalty-amounts.

25 15 USC Section 45(l).

26 Boston Scientific, 253 F Supp at 98 (citing cases).

27 See, e.g., Proposed Final Judgment at 30, United States v. Deutsche Telekom AG., No.1:19-cv-02232 (D D C 26 July 2019) ( T-Mobile PFJ), available at www.justice.gov/atr/case-document/file/1187771/download; Final Judgment at 38, United States v. Bayer AG, No. 1:18-cv-01241 (D D C 29 May 2018) (Bayer FJ), available at www.justice.gov/atr/case-document/file/1165136/download; Decision and Order at 19, CRH plc (CRH Order), No. C-4653 (FTC 20 June 2018), available at www.ftc.gov/system/files/documents/cases/1710230_crh_plc_order_to_maintain_assets.pdf; Decision and Order at 20, Air Medical Group, No. C-4642 (FTC 3 May 2018) (Air Medical Group Order), available at www.ftc.gov/enforcement/cases-proceedings/171-0217-c-4642/air-medical-group-kkr-north-america-amr-holdco.

28 See, e.g., T-Mobile PFJ, supra note 27, at 30; Bayer FJ, supra note 27, at 38; CRH Order, supra note 27, at 18; Air Medical Group Order, supra note 27, at 19..

29 See, e.g., T-Mobile PFJ, supra note 27, at 31; Bayer FJ, supra note 27, at 38–39; Proposed Final Judgment at 15, United States v. The Walt Disney Co., No. 1:18-cv-05800 (SDNY 27 June 2018) ( Disney PFJ), available at https://www.justice.gov/atr/case-document/file/1075176/download.

30 See, e.g., T-Mobile PFJ, supra note 27, at 31; Bayer FJ, supra note 27, at 39; Disney PFJ, supra note 29, at 15.

31 See, e.g., T-Mobile PFJ, supra note 27, at 15; Bayer FJ, supra note 27, at 39; Disney PFJ, supra note 29, at 15.

32 See, e.g., Disney PFJ, supra note 29, at 12–13; Bayer FJ, supra note 27, at 32–33; CRH Order, supra note 27, at 12–14; Air Medical Group Order, supra note 27, at 19.

33 See, e.g., Disney PFJ, supra note 29, at 8–10; CRH Order, supra note 27, at 14–17; Air Medical Group Order, supra note 27, at 15–18.

34 See, e.g., Disney PFJ, supra note 29 at 8–9; CRH Order, supra note 27, at 14–17; Air Medical Group Order, supra note 27, at 16.

35 See, e.g., Disney PFJ supra note 29, at 8–10; CRH Order, supra note 27, at 14–17; Air Medical Group Order, supra note 27, at 16–17.

36 See, e.g., Disney PFJ, supra note 29, at 10; CRH Order, supra note 27, at 16; Air Medical Group Order, supra note 27, at 17.

37 See, e.g., Disney PFJ, supra note 29, at 10; Modified Final Judgment at 22, United States v. Anheuser-Busch InBev SA/NV, No. 1:16-cv-01483 (D.D.C. 22 October 2016) (the ABI FJ), available at www.justice.gov/atr/case-document/file/1104016/download.

38 See, e.g., ABI FJ, supra note 37, at 23; Disney PFJ, supra note 29, at 10–11; CRH Order, supra note 27, at 15, 17; Air Medical Group Order, supra note 27, at 16, 18.

39 See, e.g., T-Mobile PFJ, supra note 27, at 25; Bayer FJ, supra note 27, at 33; CRH Order, supra note 27, at 12–14; Air Medical Group Order, supra note 27, at 13–16.

40 See, e.g., T-Mobile PFJ, supra note 27, at 25-27; Bayer FJ, supra note 27, at 33–35; CRH Order, supra note 25, at 12–14; Air Medical Group Order, supra note 25, at 13–14.

41 See, e.g., Bayer FJ, supra note 27, at 33; ABI FJ, supra note 37, at 24–25.

42 DOJ Merger Remedies Guide, supra note 2, at 40.

43 Id.

44 See, e.g., T-Mobile PFJ, supra note 27, at 25; Bayer FJ, supra note 27, at 27; ABI FJ, supra note 37, at 24; Final Judgment at 15, United States v. Verso Paper Corp, No. 1:14-cv-02216 (DDC 11 December 2015), available at www.justice.gov/atr/file/813371/download; Final Judgment at 20, United States v. Anheuser-Busch InBev SA/NV, No. 1:13-cv-00127-RWR (DDC 24 October 2013), available at www.justice.gov/atr/case-document/file/486311/download.

45 See, e.g., T-Mobile PFJ, supra note 27, at 27; Bayer FJ, supra note 27, at 35; CRH Order, supra note 27, at 13, 16; Air Medical Group Order, supra note 27, at 14.

46 See, e.g., T-Mobile PFJ, supra note 27, at 27; Disney PFJ, supra note 29, at 10; Bayer FJ, supra note 27, at 35 ; ABI FJ, supra note 37, at 26.

47 Makan Delrahim, Assistant Attorney General, US Dep’t of Justice, Antitrust Div, Keynote Address at the University of Chicago’s Antitrust and Competition Conference: Don’t Stop Believin’: Antitrust Enforcement in the Digital Era at 20 (19 April 2018), available at www.justice.gov/opa/speech/file/1054766/download.

49 AAG Delrahim NY Bar Speech, supra note 8, at 3–4.

50 The DOJ has also begun including a provision which permits it, ‘after a certain number of years from the date of [a consent decree’s] entry, to terminate the decree upon notice to the Court and the defendant(s)’. Id. at 9. The DOJ has explained that this provision is intended to provide it with ‘a mechanism to do away with decrees that no longer make sense for [the DOJ or merging parties]’ owing to market changes. Id. at 8. Relatedly, the DOJ has also begun reviewing nearly 1,300 ‘legacy’ decrees (i.e., decrees that have been in place for several decades and do not have a sunset provision) in order to ‘determine whether these decrees are [still] necessary to protect competition and consumers’ in light of market changes, legal and regulatory developments, and new economic thinking. AAG Delrahim Congressional Testimony, supra note 8, at 9. This process has already resulted in the DOJ successfully moving to terminate several ‘outdated’ decrees as part of its efforts to ‘better focus [its] resources and attention’ on monitoring and enforcing antitrust decrees that continue to serve a procompetitive purpose. Id.

51 See, e.g., T-Mobile PFJ, supra note 27, at 34–35; Bayer FJ, supra note 27, at 41; Disney PFJ, supra note 29, at 15-16; ABI FJ, supra note 37, at 33.

52 AAG Delrahim NY Bar Speech, supra note 8, at 6.

53 Id. at 7.

54 Id.

55 Id.

56 Id.

57 Id.; see, e.g., T-Mobile PFJ, supra note 27, at 35; Bayer FJ, supra note 27, at 42; Disney FJ, supra note 29, at 16; ABI FJ, supra note 37, at 34.

58 AAG Delrahim NY Bar Speech, supra note 8, at 8.

59 Id.

60 Id. at 7–8.

61 Id. at 8; see, e.g., T-Mobile PFJ, supra note 27, at 35; Bayer FJ, supra note 27, at 41-42; Disney PFJ, supra note 29, at 16; ABI FJ, supra note 37, at 34.

62 AAG Delrahim NY Bar Speech, supra note 8, at 8.

63 Id.

64 See T-Mobile PFJ, supra note 27, at 34–35 (stating that DOJ ‘may establish . . . the appropriateness of any remedy . . . by a preponderance of the evidence’); Bayer FJ, supra note 27, at 41 (same); Disney PFJ, supra note 29, at 15–16 (same); ABI FJ, supra note 37, at 33 (same).

65 Smith International Press Release, supra note 2, at 2.

66 Id.

67 Id.

68 See Smith Int’l Civil Contempt Motion, supra note 13, at 5.

69 Id.

70 Id. at 6.

71 Id. at 7.

72 Id. at 8–11.

73 Smith Int’l Bench Decision, supra note 4, at 2–4.

74 Id. at 3.

75 Id. at 1–2.

76 Id. at 3.

77 Id.

78 Smith International Press Release, supra note 2, at 1.

79 Boston Scientific Press Release, supra note 6.

80 Id.

81 253 F Supp 2d at 91–97.

82 Id. at 95–98.

83 Id. at 86.

84 Id. at 98.

85 Id. at 98–100.

86 Id. at 100–01.

87 Id.

88 Id. at 101.

89 Id. at 101–02.

90 Press Release, US Dep’t of Justice, Justice Department Settles Civil Contempt Claim Against Exelon Corporation (15 November 2012), available at www.justice.gov/opa/pr/justice-department-settles-civil-contempt-claim-against-exelon-corporation.

91 Id.

92 Id.

93 Id.

94 Id.

95 GE Press Release, supra note 7.

96 Id.

97 Final Judgment at 5, United States v. General Electric Co, No. 1:17-cv-01146-BAH (DDC 16 October 2017), available at www.justice.gov/atr/case-document/file/1056411/download.

98 Id. at 8.

99 GE Press Release, supra note 7.

100 United States v. Work Wear Corp., 602 F.2d 110, 111-12 (6th Cir. 1979).

101 Id. at 112.

102 Id. at 112–13.

103 Id. at 113-14.

104 Id. at 114.

105 Id.

106 Id. at 116.

107 Id.

108 Press Release, Fed. Trade Comm’n, FTC Puts Conditions on CoreLogic, Inc’s Proposed Acquisition of DataQuick Information Systems (24 March 2014), available at www.ftc.gov/news-events/press-releases/2014/03/ftc-puts-conditions-corelogic-incs-proposed-acquisition-dataquick.

109 Press Release, Fed Trade Comm’n, FTC Adds Requirements to 2014 Order to Remedy CoreLogic Inc’s Compliance Deficiencies (15 March 2018), available at www.ftc.gov/news-events/press-releases/2018/03/ftc-adds-requirements-2014-order-remedy-corelogic-incs-compliance.

110 Press Release, US Dep’t of Justice, Justice Department Requires Hospitals to Enter into Enforcement Order to Remedy Consent Decree Violations at 1 (12 July 2000), available at www.justice.gov/archive/atr/public/press_releases/2000/5147.pdf.

111 Id.

112 Id.

113 Id. at 2.

114 Id. at 3.

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