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By: Michael B. Bernstein, Matthew A. Tabas, and Matthew H. Fine, Arnold & Porter
Even in the very earliest stages of planning a merger or an acquisition, it is never too soon to begin considering the antitrust issues. In fact, it is critical to provide parties with guidance about ensuring compliance with the antitrust laws during due diligence, including guidance on avoiding inappropriate information sharing (i.e., complying with Section 1 of the Sherman Act), creating documents related to the transaction and the potential impact of those documents in a government investigation, and joint defense/common interest privilege arrangements. This article addresses these issues.
Section 1 of the Sherman Act and Information Sharing
Transactions among competitors–or potential competitors–raise antitrust concerns regarding the type of information that can and should be shared to evaluate the transaction. To properly evaluate a transaction, the parties to the transaction typically need to share sensitive information–potentially nonpublic and competitively sensitive information. When sharing such information, the parties need to be careful not to violate the antitrust laws, as discussed below
Sherman Act Elements
It is critical to ensure that competitively sensitive information is not improperly shared during due diligence. Section 1 of the Sherman Act, 15 U.S.C. § 1 et seq., prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce.” The basic elements of a Section 1 violation are:
If an improper information exchange is discovered during a government antitrust review of a proposed transaction, the government may challenge the conduct. Moreover, a private plaintiff may also attempt to use such improper information sharing as evidence in alleging a conspiracy.
Information Exchange under the Rule of Reason
Because there is some other legitimate business purpose for the conduct–negotiating the transaction–improper information exchange typically is evaluated under the rule of reason. That is, the government must show that the improper information exchange harmed competition.
Because the rule of reason is a balancing test, not every exchange of sensitive information is inherently unlawful. However, certain types of information are more likely to have such an impact and may be found to constitute a violation of Section 1 of the Sherman Act. Also, the ability to establish a harm to competition can be easier in more highly concentrated industries involving fewer competitors, as price changes by any one competitor can have a greater impact on the overall market.
To read the full practice note in Lexis Practice Advisor, follow this link.
Michael B. Bernstein, a partner at Arnold & Porter and a Chambers USA ranked practitioner, has served as lead antitrust counsel in numerous high-profile matters for companies such as GE, BP, Kroger, Boston Scientific, and AMC Entertainment, among others. He has extensive experience obtaining antitrust clearance for mergers, acquisitions, and other business combinations from federal, state, and foreign competition authorities. He also represents clients in government investigations and civil litigation and counsels clients on the antitrust implications of business practices. Matthew A. Tabas is an associate at Arnold & Porter. His practice focuses on federal and state government reviews of mergers and acquisitions, civil antitrust litigation, civil and criminal government investigations, and antitrust counseling. He has represented clients in a number of industries in all phases of merger clearance, including pre-merger business counseling, before the U.S. Department of Justice, Antitrust Division, the Federal Trade Commission, and state antitrust enforcement authorities, as well as before federal courts in litigated challenges by the government. Matthew H. Fine is an associate at Arnold & Porter. His practice focuses on assisting clients in complex civil antitrust litigation, government review of mergers and acquisitions, filing obligations under the HartScott-Rodino Act, and counseling on a variety of antitrust issues. Mr. Fine has represented clients in a broad range of industries, including publishing, pharmaceuticals, medical devices, and foodservice.
For a list of guidelines to distribute to employees involved in due diligence for a potential transaction, see
> INFORMATION SHARING GUIDELINES
RESEARCH PATH: Antitrust > Mergers and Acquisitions > Pre-signing and Integration Planning > Forms
For an example of a Clean Team Agreement, see
> CLEAN TEAM AGREEMENT
For guidance on how to fashion a joint defense agreement, see
> JOINT DEFENSE AGREEMENT
For best practices for identifying and collecting documents required under the Hart-Scott-Rodino (HSR) Act, see
> ITEM 4(C) AND 4(D) DOCUMENTS FOR THE HARTSCOTT-RODINO (HSR) ACT FILING
RESEARCH PATH: Antitrust > Mergers and Acquisitions > Premerger Notification > Practice Notes
For a discussion of how to determine whether a merger or acquisition must be reported to the antitrust authorities, see
> REPORTABILITY OF A MERGER OR ACQUISITION UNDER THE HART-SCOTT-RODINO (HSR) ACT
To learn about preparing and submitting an HSR filing, see
> HART-SCOTT-RODINO (HSR) ACT FILINGS
For a review of federal merger investigation methods, see
> DOJ/FTC MERGER INVESTIGATION PROCESS
RESEARCH PATH: Antitrust > Mergers and Acquisitions > Antitrust Investigations (US) > Practice Notes