January is a good time to take stock of compliance programs and set aside dated opinions and guidance to avoid relying on old rules, and antitrust is no exception to that. Because the FTC announces revisions to HSR Act and Clayton Act Section 8 thresholds this time each year, it marks a natural time to think beyond just the thresholds.

The Hart-Scott-Rodino Antitrust Improvements Act of 1976, commonly known as the HSR Act, requires parties to certain corporate transactions to notify the Federal Trade Commission and Department of Justice, and to observe a waiting period prior to consummation. The HSR Act enables antitrust regulators to review transactions, investigate and address potential competitive concerns prior to consummation, and carries with it substantial monetary penalties for failure to comply.

Section 8 of the Clayton Act prohibits certain interlocking directorates between competing companies to guard against the facilitation of anti-competitive coordination and information exchanges through simultaneous board membership. Thus, as a general rule a person cannot serve on the boards of two competing companies.

Revised HSR Thresholds

By statute, the HSR dollar thresholds that trigger the obligation to make HSR filings are revised annually based on changes in the gross national product. The FTC has announced the new thresholds for 2015, and effective February 20, 2015 the basic notification threshold will be adjusted upward from $75.9 million to $76.3 million.

Unless otherwise exempt, a person or entity that directly or indirectly acquires assets or voting securities (or interests in an unincorporated entity) in excess of the HSR threshold may be required to file notification under the Act and to observe the applicable waiting period before consummating the transaction. Subsequent transactions involving the acquisition of additional interests in the same issuer typically are exempt from further notification unless a subsequent notification threshold is exceeded.

Under the revised thresholds, transactions valued at $305.1 million or less will be subject to the HSR Act if the parties also meet the size-of-person thresholds. As of February 20, the size-of-person is generally met where a person with annual sales or total assets of $152.5 million acquires a person with annual sales or total assets of $15.3 million, or vice-versa. Transactions valued at more than $305.1 million are subject to the HSR Act without reference to the size of the person, unless otherwise exempt.

The following charts provide a summary of the HSR Act's threshold adjustments:

SIZE OF TRANSACTION		Current Thresholds	New Thresholds as of February 20, 2015
Jurisdictional Threshold	Basic Notification Threshold	$75.9 Million	$76.3 Million
	Subsequent Notification Thresholds	$151.7 Million	$152.5 Million
		$758.6 Million	$762.7 Million
		25% (if value exceeds $1.5171 billion)	25% (if value exceeds $1.5253 billion)
		50% (where value exceeds $75.9 million)	50% (where value exceeds $76.3 million)

 

SIZE OF PERSON		Current Thresholds	New Threshold as of February 20, 2015
Jurisdictional Threshold	Size-of-Person Thresholds	$15.2 Million	$15.3 Million
		$151.7 Million	$152.5 Million
	Size-of-Person Inapplicable Where Transaction Exceeds	$303.4 Million	$305.1 Million

Filing Fees

The dollar amount of the filing fee payable to the Federal Trade Commission with HSR Act filings is not subject to annual indexing; however, the thresholds applicable to the statutory filing fees do adjust with indexing. The revised schedule of HSR filing fees will be as follows:  

Transaction Size as of February 20, 2015	Filing Fee
Greater than $76.3 million but less than $152.5 million	$45,000
$152.5 million or greater but less than $762.7 million	$125,000
$762.7 million or greater	$280,000

 
It is prudent to consider HSR filing obligations in all types of transactions, including smaller transactions, minority investments, follow-on investments, joint ventures, asset acquisitions and exercises of warrants or options. HSR enforcement has extended, for instance, even to the unexpected case of company executives acquiring stock in their employers, which may seem counterintuitive. To be sure, when a company employee or director acquires company stock that results in a holding above the HSR reporting threshold, filing obligations can arise. The most common form of "corrective filing" relates to this very scenario, so now is a good time to review employee stock ownership plans to make sure HSR notification triggers are properly accounted for to avoid violations.

Also consider the current value of previously acquired minority positions to plan accordingly for potential HSR filing and waiting period requirements when participating in follow-on offerings. Now is a good time to review minority holdings that may have appreciated above the HSR notification threshold to plan for future incremental purchases that will trip the initial or subsequent notification thresholds.

For a final HSR practice tip, consider HSR reporting in all patent licensing transactions, even where the up-front payments may be far below the reporting threshold. The HSR valuation rules with respect to these types of transitions take numerous other factors into account.

Revised Clayton Act Section 8 Thresholds

Clayton Act Section 8 is particularly relevant for investment funds with separate but competing companies in a portfolio under common management. Under the statute, no person, or representative of the same person or entity, is permitted to serve simultaneously as a director or officer of competing corporations, but there are important carve-outs and exceptions.

The prohibitions of Section 8 are limited to cases in which each of the companies has, under the revised thresholds, capital, surplus, and undivided profits of more than $31,084,000. This is generally read as a net equity test. Even where the threshold is met, however, the restrictions do not apply where the total competitive sales of either company represents less than 2 percent of its total sales, or less than $3,108,400; or where the competitive sales of each company represent less than 4 percent of its total sales. The statute also permits directors and officers whose appointments were not prohibited at the time of appointment to continue to serve for up to one year after the Section 8 thresholds are exceeded, thus the revised Clayton Act Section 8 thresholds can potentially eliminate an existing violation, which is not the case with the HSR threshold revisions. Always consider Clayton Act Section 8 when installing board members of potentially competing portfolio companies. This is a good time to examine whether violations exist and cure them, ideally within the one-year grace period.

Correct application of the HSR Act and Clayton Act Section 8 can be complex and requires detailed and careful analysis. Proskauer's Antitrust Practice Group has extensive experience with the issues presented under these statutes and the entire range of antitrust compliance and enforcement.