Part 3 Litigation

• Pages: 449-466

449

CHAPTER XI

PART 3 LITIGATION

A unique aspect of Federal Trade Commission (FTC or Commission)

merger enforcement is administrative litigation, commonly known as

“Part 3 administrative litigation” because the relevant rules for

adjudicative proceedings are outlined in Part 3 of the FTC’s Rules of

Practice.1011

Part 3 litigation has become an important part of FTC merger

enforcement in recent years.1012 In the last decade, the FTC has

challenged several consummated mergers through Part 3 litigation, for

example, Chicago Bridge & Iron, Evanston Northwestern Healthcare

Corp. and Polypore International.1013 The FTC may also use Part 3

litigation in a preclosing merger context; however, given the time,

expense, and distraction required in litigating against the FTC and the

uncertainty of success in the Part 3 process, the parties to a non-

consummated transaction may abandon the transaction or settle rather

than proceeding through Part 3 litigation.

As highlighted in this chapter, Part 3 litigation is in many aspects the

same as other types of civil litigation, with pleadings, discovery by the

parties, motions, and ultimately a trial and potentially an appeal. This

chapter will not provide an in-depth discussion of the various stages and

procedures of such litigation, but instead provide an overview of the

mechanics of Part 3 proceedings and the strategic considerations

involved.

1011. Whereas the FTC can initiate administrative proceedings against a

transaction, the U.S. Department of Justice does not have that option and

must instead pursue its merger cases solely in federal court.

1012. While we focus in this book on merger enforcement, Part 3 proceedings

have been used in adjudicating conduct challenges, such as standard-

setting cases, horizontal restraint cases, and pharmaceutical cases, among

others.

1013. J. Robert Robertson, FTC Part III Litigation: Lessons from Chicago

Bridge and Evanston Northwestern Healthcare, ANTITRUST, Spring 2006,

at 12.

450 The Merger Review Process

A. Initiation of Part 3 Litigation

The Commission initiates Part 3 litigation through an affirmative

vote to issue an administrative complaint.

Once the applicable Hart-Scott-Rodino (HSR) waiting period has

expired, the FTC may not enjoin a transaction—even though a Part 3

case is ongoing. Therefore, in a preclosing investigation, the Commission

would seek an injunction in federal court against the consummation of

the merger at around the same time Part 3 proceedings are initiated. The

FTC has substantial flexibility with respect to when it initiates an

administrative complaint: it can do so before or after filing a motion for a

preliminary injunction in the district court, or even after the preliminary

injunction motion has been decided.1014 In the past, the FTC generally

did not issue an administrative complaint until after the preliminary

injunction case was decided. In recent years, however, the Commission

has tended to issue administrative complaints within a short time of filing

for a preliminary injunction.1015 The Commission now appears likely

simultaneously to initiate an administrative complaint in order to

accelerate the Part 3 litigation process and address concerns about the

effect that protracted proceedings can have on unconsummated

mergers.1016

If the district court grants the FTC’s motion for preliminary

injunction, the case continues before the administrative law judge (ALJ).

Even if the district court denies the FTC’s preliminary injunction motion,

Part 3 proceedings could continue.1017 In 1995, the FTC issued a policy

statement indicating that it would consider whether to continue with

administrative proceedings after the denial of a preliminary injunction on

a case-by-case basis depending on whether the proceedings are in the

1014. See Jeffrey W. Brennan & Sean P. Pugh, Inova and the FTC’s Revamped

Merger Litigation Model, ANTITRUST, Fall 2008, at 29-31.

1015. Id. at 30-31 (citing Equitable-Domain,Western-Giant, and Whole Foods

as examples of instances in which the FTC issued an administrative

complaint either just before or just after filing the federal complaint).

1016. Ilene Knable Gotts, et al., Recent DC Circuit decisions in Whole Foods

leave standard for future mergers unsettled, 5 COMPETITION L. INT’L 12,

15 (2009).

1017. Fed. Trade Comm’n, Policy Statement Regarding Administrative Merger

Litigation Following the Denial of a Preliminary Injunction, 60 Fed. Reg.

39743 (Aug. 3, 1995) (citing as examples R.R. Donnelley & Sons,Owens-

Illinois, Inc., Promodes, and Occidental Petroleum Co.).