On March 23, 2016, the U.S. House of Representatives passed the Standard Merger and Acquisition Reviews Through Equal Rules (SMARTER) Act by a vote of 235-171, despite strenuous objections from the Federal Trade Commission (FTC). The FTC and the Department of Justice (DOJ) review proposed mergers and acquisitions. Currently, the FTC can challenge transactions under different processes and standards than the DOJ, and those procedures provide several advantages to the FTC. The SMARTER Act would neutralize those advantages for the FTC by: (1) eliminating the FTC’s ability to use its internal administrative proceedings to challenge unconsummated transactions; and (2) standardizing the criteria for the FTC and DOJ to obtain a preliminary injunction to block a merger in federal court.
The FTC has the authority to pursue administrative relief to challenge a transaction. Even if the FTC is denied a preliminary injunction in federal court, the agency may continue to seek to block or unwind a transaction in an administrative trial at the FTC’s own in-house court. That process creates two procedural advantages for the FTC. First, the FTC can continue to challenge a transaction even after a federal district court denies an injunction. Second, because the full trial will take place in the FTC’s court, some courts have said that the the standard the FTC uses to obtain a federal court injunction is lower than the standard the DOJ must meet. The courts will generally grant the FTC an injunction if the case “raise[s] questions going to the merits so serious, substantial, difficult and doubtful as to make them fair ground” for a full hearing “by the FTC in the first instance and ultimately by the Court of Appeals.” Under that standard, the FTC need not show a substantial likelihood of success at the trial on the merits or irreparable harm.
The DOJ can only challenge transactions in federal court proceedings. The DOJ can seek a preliminary injunction under Section 15 of the Clayton Act (15 U.S.C. § 25) on the grounds that the transaction is likely to substantially lessen competition. The DOJ is subject to a traditional equitable injunction standard including criteria such as a showing of a substantial likelihood of success and the potential for irreparable harm.
Supporters of the SMARTER Act argue that reform is necessary to ensure consistent and fair application of the antitrust laws. SMARTER Act supporters also argue that courts apply a more lenient standard to the FTC for blocking a transaction than to the DOJ. However, those that oppose the SMARTER Act argue that in practice, courts impose the same standards on the FTC and DOJ during injunction hearings. Those against the SMARTER Act also argue that workload statistics compiled in the DOJ and FTC Annual Competition Reports actually demonstrate that mergers reviewed by the DOJ are more likely to be challenged or receive a Second Request than mergers reviewed by the FTC. FTC Chairwoman Edith Ramirez expressed concern that the SMARTER Act “risks undermining the effectiveness of the FTC.” Chairwoman Ramirez also stated, “We were designed to have this administrative function” and she pointed out that the FTC has not pursued an administrative complaint after losing a preliminary injunction in federal court in more than two decades. She argues that removing the FTC’s administrative proceedings would eliminate an important function that the expert agency has utilized to helped shape antitrust law and would add workload to the federal courts.
If the SMARTER Act becomes law, it may increase the likelihood that companies could successfully litigate a FTC preliminary injunction merger challenge because the FTC would need to meet the traditional standards for obtaining a preliminary injunction, and not just show that the transaction raises “serious, substantial” issues. In addition, it could decrease the precedential value of prior FTC merger challenges that federal courts have decided under the current standard, which is often more deferential to the FTC. Passage of the SMARTER Act to law seems unlikely under the current Obama administration, but could be more likely in a Republican administration.