Content originally from Transaction Advisors
This paper reports and comments on the Federal Trade Commission’s recent caution against the pre-closing exchange of competitively sensitive information; especially with respect to current (and future) prices, strategic plans and costs.
The agency warned that the exchange of this information, especially in transactions involving direct or potential competitors, poses risks of “gun jumping” in violation of the Hart-Scott-Rodino Act (HSR), as well as violations of the Sherman Antitrust Act (Sherman Act).
As a preventive measure, the FTC suggests employing a “clean team” when current pricing, cost and customer-specific data must be disclosed to permit a buyer to evaluate a transaction.
HSR and Sherman Act risks are related, but different. First, HSR is a notification statute, not a substantive law prohibiting anticompetitive conduct; gun jumping is unlawful regardless of whether the buyer and seller are actual or potential competitors. Second, gun jumping is most likely to come to the agency's attention in a transaction undergoing HSR review.
Third, gun jumping does not require evidence that the underlying transaction is unlawfully anticompetitive. Finally, once the HSR review period expires, gun jumping is no longer a risk from an HSR standpoint.
In contrast, the author then explains that the reciprocal (“two-way”) exchange of competitively sensitive information (for example, a "merger of equals") poses far more risk than a unilateral (“one-way”) disclosure from seller to buyer.
Although reciprocal exchange may not of itself violate HSR or the Sherman Act, it may call into question the lawfulness of subsequent conduct by the parties prior to the expiration of the waiting period—for example, ostensibly independent decisions by both firms to raise their prices or refocus their sales efforts on non-overlapping categories of customers.
Such conduct may strongly suggest both HSR gun jumping and a per se violation of section 1 of the Sherman Act (customer allocation). Moreover, unilateral data disclosure may also call into question the lawfulness of subsequent conduct.
The author demonstrates these principles with two hypothetical examples: one that constitutes classic HSR gun jumping, but which is unlikely to violate the Sherman Act; and another that may constitute both gun jumping in violation of HSR, and per se Sherman Act section 1 violations (price-fixing and product market allocation).
In further discussing these issues, the author reminds that the delay and expense attendant with the use of a clean team must be weighed against the risks of investigation and possible litigation.
By, Barry Reingold, Esq., Partner at Perkins Coie in the firm's Washington DC office.