On January 10, 2025, U.S. Chamber of Commerce (the Chamber), joined by the Business Roundtable, American Investment Council, and the Longview Chamber of Commerce, filed a complaint in the US District Court for the Eastern District of Texas seeking to enjoin enforcement of the forthcoming revisions to the HSR Act Rules. Filed exactly 30 days prior to their effective date, the complaint alleges that the rule changes violate the Administrative Procedures Act (the APA).
Key Take-Aways:
- The challenge to the HSR rules could provide relief to merging parties more quickly than a new Republican majority at the FTC if they decided to streamline the rules using APA rule-making procedures. President-Elect Trump has indicated that, upon taking office on January 20, he will designate sitting Republican FTC Commissioner Andrew Ferguson to serve as FTC chair. Both Commissioner Ferguson and fellow Republican Commissioner Melissa Holyoak voted with the Democratic majority to adopt the changes to the HSR rules, but view the final product as “not perfect.” Any attempt to streamline the rules would require a Republican majority, which will arise only upon Senate confirmation of President-Elect Trump’s additional FTC Commissioner selection, Mark Meador. Revising the HSR rules under the APA procedures, which would be required, could 12 months or more (the APA process for the current rules changes took more than 15 months).
- The court could enjoin enforcement of the entirety of the Final Rules, or the court could enjoin enforcement of only those changes that it finds to be out of bounds. The Final Rules do have a “savings clause,” meaning that if any part is held to be invalid, the remainder stays in effect. Further, the parts of the Final Rules relating to foreign subsidies are mandated by Congressional statute and likely will remain in place.
- Until the court rules (or Congress or the FTC acts to delay or stop enforcement), parties with deals anticipated to sign after February 10 should assume that the Final Rules will be in place and plan accordingly.
Background
In June 2023, the US Federal Trade Commission (FTC), joined by the Antitrust Division at the US Department of Justice (DOJ), announced a comprehensive overhaul of the U.S. premerger notification form (the HSR Form) that is governed by the Hart-Scott-Rodino Antitrust Improvements Act (the HSR Act). The final rules (Final Rules), announced on October 10, 2024, pared back the scope of the original proposed changes but still will impose significantly higher compliance burdens on filing parties than does the current HSR Act process. The Final Rules are set to be effective on February 10, 2025, absent intervention by the FTC, Congress, or the courts.
The Complaint
The Chamber argues that the Final Rules are not “necessary and appropriate” within the meaning of the HSR Act and therefore are “arbitrary and capricious” under the APA. The heart of the Chamber’s argument is that the costs of complying with the Final Rules will swamp any benefits obtained by the agencies. Specifically, the Chamber asserts that the Final Rules will impose a heavy burden on the thousands of filing parties that report no issue transactions every year while potentially capturing a small number of problematic deals that might otherwise fly under the radar. More specifically, the Chamber argues:
- Final Rules exceed the FTC’s statutory authority.
The Chamber asserts that the Final Rules exceed the FTC’s statutory authority: (a) by failing to properly consider potential costs/delays when determining what information is necessary; (b) by seeking information regarding officers and directors (including from LLCs and partnerships) to identify violations of Clayton Act Section 8 (interlocking directorates); and (c) by requiring parties to submit substantive antitrust analyses containing contestable legal claims upfront under penalty of perjury.
- Benefits of Final Rules do not outweigh their costs.
The Chamber alleges that the costs of the Final Rules are much higher than the FTC disclosed and, conversely, that the FTC’s stated benefits are significantly less than promised. The Chamber asserts that the FTC offered no evidence that problematic HSR reportable transactions have not received scrutiny or that the revisions to the Final Rules are necessary to detect anticompetitive mergers. The Chamber’s argument continues that the Final Rules will still impose the same immense cost and compliance burdens on all parties notwithstanding the FTC’s lack of evidence that a change if required and the fact that only a small percentage of deals annually are investigated.
- Even when evaluated individually, the Final Rules still are not justified.
The Chamber in addition takes issue with specific Final Rules, including the obligation to produce transaction-related drafts provided to any board member, provide ordinary course documents, describe any supply relationships, submit potential competition information, include global sales in the horizontal overlap narrative, and provide additional information about officers’ and directors’ overlapping board positions. The Chamber alleges that each will require production of documents or information that will be excessive and burdensome.
- The FTC failed to justify its departure from the HSR status quo.
The Chamber asserts that in the absence of proof that the HSR process was not working, the FTC cannot now enact a new HSR regime that will impose significant burdens on filing parties. The Chamber states that the FTC has not identified one “missed” transaction and that the study and comments cited by the FTC apparently demonstrating deficiencies with the HSR Act are irrelevant because they do not address the premerger notification process. And it claims that any arguments that the Final Rules are mandated because of new commercial realities and complexity of transactions are specious. By contrast, the Chamber argues that what has changed are the legal theories the FTC wants to test, such as nascent competition, vertical foreclosure, and labor market impacts. It asserts that using the HSR process as a legal proving ground is not sufficient justification for the HSR Form overhaul.
- The FTC fails to explain why there are no alternatives.
Finally, the Chamber argues that the FTC has failed the APA’s requirement to consider reasonable alternatives. The FTC and DOJ have other tools at their disposal to learn about filing parties during the initial 30-day HSR waiting period, including public sources, third parties, Voluntary Access Letters, and Civil Investigative Demands. At the end of the initial waiting period, if they still need more information, the FTC and DOJ can issue a Second Request. The Chamber further argues that if the FTC and DOJ believe that the Second Request process is deficient, that process can be modified by the agencies, which they can modify as necessary. Moreover, use of these tools is not exclusive; the FTC and DOJ can use some or all at their discretion. The Chamber acknowledges that the use of these options may impose heavy costs on some filers but also that it would spare the burden on thousands of filers with no-issue deals every year.
Conclusion
With the Chamber’s complaint, there are several avenues through which enforcement of the Final Rules could be delayed or stopped entirely. The court in Texas could issue a preliminary injunction for all or part of the rules or there could be Congress or FTC action. Notwithstanding the pending complaint and other potential avenues to impacting enforcement of the Final Rules, filing parties are advised that until there is more information, the assumption should be that the Final Rules will be effective on February 10, 2025.
