On Friday, January 12, 2024, the US Federal Trade Commission (FTC) announced its annual updates to the Clayton Act Section 8 enforcement thresholds, which are effective as of that date. In the last few years, both the FTC and DOJ have ramped up Section 8 enforcement efforts, which is anticipated not only to continue but also to expand in scope.
I. Updated Threshold for Interlocking Directorate Enforcement
Section 8 of the Clayton Act prohibits simultaneous service of officers or directors of two competing corporations (i.e., an “interlocking directorate”) if certain thresholds are met. Similar to the reportability thresholds under the Hart-Scott-Rodino Act (HSR Act) reporting statute, the Section 8 enforcement thresholds are adjusted annually based on changes to the US gross national product.
For 2024, an interlocking directorate is prohibited where:
- Each competitor corporation has capital, surplus, and undivided profits aggregating more than $48,559,000 (previously $45,257,000); AND
- Both competitor corporations have competitive sales of more than $4,855,900 (previously $4,525,700).
Section 8 thresholds increased by about 7% (compared to a 10% increase last year). This variation reflects the slight slowdown in the US economy over the last US fiscal year.
II. Spotlight on Section 8 Enforcement by the US Antitrust Agencies
In recent years, both the US Federal Trade Commission (FTC) and the Antitrust Division of the US Department of Justice (DOJ) have reinvigorated Section 8 as an enforcement tool. In October 2022, March 2023, and August 2023, the DOJ announced that 14 directors resigned from boards in response to threatened Section 8 enforcement actions. Other companies have announced director resignations in the face of DOJ pressure.
On August 16, 2023, the FTC reached a settlement with Quantum Energy Partners and EQT Corporation to “prevent an interlocking directorate arrangement.” As we discussed in our August blog post, the FTC’s settlement in Quantum/EQT, for the first-time expanded the enforcement of Section 8 to apply to non-corporate entities (such as LLCs or partnerships) and required a prior approval notice for future board appointments. The Quantum/EQT settlement, which was entered into as part of an HSR Act investigation, demonstrates that the FTC is willing to impose interlocking directorate structural remedies, even where the underlying transaction does not raise competition issues.
Additionally, the FTC’s proposed changes to the HSR Act filing requirements include proposals that filers will provide information about officers and directors and their other board appointments, including any board observers and persons holding officer/director-like roles in LLCs or partnerships. As previously illustrated in our July blog post, this proposed rule change is an effort to uncover interlocking directorates in HSR filings for potential Section 8 enforcement.
III. Section 8 Enforcement Is Here to Stay
The demonstrable increase in Section 8 enforcement results, at least in part, from a concerted effort by the FTC and DOJ to “reactivate” a previously “underenforced part of [the US] antitrust laws.” Both US antitrust agencies have vowed to broaden Section 8’s boundaries to “pioneer a new category of antitrust enforcement.” Another factor is the focus of current leadership of the US Antitrust Agencies on private equity and financial sponsors as targets in antitrust investigations generally and in Section 8 enforcement actions specifically. Companies should consider what Section 8 compliance mechanisms they have in place, and those parties that are frequent HSR filers will have to consider how to track the officer/director information that will be required during the HSR process.
If you have any questions, feel free to reach out to our Merger Antitrust Team, including Jamillia Ferris, Mary Lehner, Bruce McCulloch, Jenn Mellott, Meghan Rissmiller, Jan Rybnicek, and Justin Stewart-Teitelbaum.