Changes to Commission Rule 3.26 re: Part 3 proceedings following federal court denial of a preliminary injunction

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From time to time, the Commission revises its rules of practice in the interest of fairness, flexibility and efficiency—in other words, to improve the process it relies on for its investigations, studies and adjudicative proceedings. For instance, in 2009, the Commission made comprehensive changes that overhauled the Commission’s Part 3 adjudicative proceedings with the main goal of addressing concerns that they were too protracted. This week the Commission has made additional changes to reduce delay and improve the predictability and transparency of Commission actions.

An important feature of the Commission’s merger enforcement process is that it can seek an injunction in federal court under Section 13(b) of the FTC Act to prevent parties to a merger from combining their businesses during the Commission’s administrative proceeding to determine the merger’s legality. (This process can be used for other matters, but is primarily used in mergers.) The option to seek preliminary relief is important to preserving the Commission’s ability to fashion an effective merger remedy in the event that the acquisition is found to violate Section 7. Like any litigant, the Commission can continue its litigation even if it does not obtain a preliminary injunction. The Commission has had a longstanding policy, embodied in a written statement since 1995, of reconsidering on a case-by-case basis whether it would be in the public interest to continue its administrative litigation if it does not obtain preliminary federal court relief.

Commission Rule of Practice 3.26, which was first adopted in 1995 to support the Commission’s execution of its policy, provides parties with two options for having their views heard when the Commission is reconsidering its decision to challenge a transaction. One option is to have the administrative case withdrawn from adjudication, which allows the parties to present their views to the Commission informally, just as they do when the Commission is considering a staff recommendation to vote out a complaint in the first place. The other option is to ask the Commission to dismiss the administrative complaint as part of the formal administrative proceeding, which means the issue is briefed and decided on the record.

The Commission’s changes to Rule 3.26 reinstate the practice of an automatic withdrawal from, or stay of, the administrative litigation if the merging parties file a qualifying motion in the pending Part 3 case. Such a mechanism was in place until 2009 when the Commission revised the rule to allow parties to file such motions at an earlier time following the denial of a preliminary injunction motion. Seeking to prevent delay in the Commission’s decision about whether to continue the administrative litigation, the 2009 revision did not provide for an automatic withdrawal or stay. The Commission has now decided to return to the automatic mechanisms in the pre-2009 rules, but is keeping the early deadlines for filing and decision in order to avoid the long delays that often resulted under the automatic stay provisions before 2009.

Here’s how the new process will work. If all respondents move to have the administrative case withdrawn from adjudication, it will automatically be withdrawn two days after the motion is filed, unless complaint counsel file an objection that the procedural requirements have not been satisfied. Alternatively, if any respondent files a motion to dismiss the administrative complaint, the administrative case will automatically be stayed until 7 days after the Commission rules on the motion for dismissal, and all deadlines established by the rules will be tolled for the amount of time the proceeding is stayed.

What has not changed since at least 1995 is the Commission’s commitment to reconsider its need for an administrative proceeding challenging a proposed merger after failing to obtain preliminary relief in federal court. The Commission’s 1995 Policy Statement regarding Administrative Merger Litigation Following the Denial of a Preliminary Injunction, issued in conjunction with the original version of Rule 3.26, lays out five factors to guide the Commission’s determination whether continuing with administrative litigation after losing a preliminary injunction motion is in the public interest:

  1. the factual findings and legal conclusions of the district court or any appellate court;
  2. any new evidence developed during the preliminary injunction proceeding;
  3. whether the transaction raises important issues of fact, law, or merger policy that need resolution in administrative litigation;
  4. an overall assessment of the costs and benefits of further proceedings; and
  5. any other matter that bears on whether it would be in the public interest to proceed with the merger challenge.

The Commission continues to follow the Policy Statement. For example, in 2011 the Commission ended its administrative litigation involving Laboratory Corporation of America’s acquisition of Westcliff Medical Labs after carefully considering the factors outlined in the Policy Statement. With this latest round of procedural updates, the Commission has reiterated its commitment to consider the specific circumstances of each case as outlined in the 1995 Policy Statement when deciding whether to proceed with administrative litigation after losing a preliminary injunction motion.

Sometimes new rules are good; sometimes old ones work fine. This rule change combines the best of the 1995 version of Rule 3.26 with the shortened timelines of the 2009 version to create a new and improved process that aims to be quicker, more predictable, and more transparent.