[Federal Register Volume 76, Number 199 (Friday, October 14, 2011)]
[Rules and Regulations]
[Pages 63833-63836]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-26463]



16 CFR Part 2

Commission Approval of Divestiture Agreements

AGENCY: Federal Trade Commission (FTC).

ACTION: Final rule.


SUMMARY: This final rule clarifies the process whereby the FTC will 
consider for approval a modification to a divestiture agreement, which 
agreement the Commission has either previously approved or incorporated 
by reference into a final order. As described fully below, the final 
rule delegates to certain senior staff at the Commission the authority, 
following notice to the Commissioners, to waive formal application to 
the Commission for approval of certain modifications, and to waive the 
otherwise required period for public comment; the delegation will 
streamline the process for approval of ministerial and other minor 
contract modifications that will not diminish the Commission's order.

DATES: Effective Date: This rule shall be effective on November 14, 

Competition, Compliance Division, 600 Pennsylvania Avenue NW., 
Washington, DC, 20580, (202) 326-2526, dducore@ftc.gov.


I. Background

    The Federal Trade Commission has amended Sec.  2.41 of its Rules of 
Practice, 16 CFR 2.41, which deals with requests for the Commission's 
approval of divestitures and acquisitions, pursuant to final orders. 
The Commission has amended the section to add a new paragraph (f)(5) 
and to modify existing paragraphs (f)(1) and (f)(2). New paragraph 
(f)(5) codifies and improves the Commission's existing process for 
reviewing and approving modifications to certain agreements that have 
been approved by the Commission or incorporated by reference into the 
Commission's final orders. The modifications to paragraphs (1) and (2) 
add to the public comment requirements in Rule 2.41(f) applications for 
approval of agreement modifications under new paragraph (5). The 
Commission has also amended the title to reflect better the subjects 
addressed by the rule. These changes are effective November 14, 2011.
    The Federal Trade Commission, inter alia, enforces Section 5 of the 
Federal Trade Commission Act, 15 U.S.C. 45, and, with the Department of 
Justice, Section 7 of the Clayton Act, 15 U.S.C. 18, to challenge 
mergers and acquisitions that the Commission has reason to believe 
would unlawfully lead to a substantial lessening of competition. In 
some circumstances, the Commission seeks to prevent such mergers 
through litigation to enjoin the merger. In other circumstances, 
however, the Commission seeks to prevent the harm either by unwinding 
the merger entirely (if the merger has already occurred) or, as is much 
more common, by negotiating a settlement with the parties that requires 
them to sell off a business or set of assets, with the goal of 
recreating, to the greatest extent possible, the competition that is, 
or would be, eliminated through the merger.\1\

    \1\ Most settlements are reached during the Commission's review 
of the merger, pursuant to the premerger notification provisions of 
the Hart-Scott-Rodino Antitrust Improvements Act, 15 U.S.C. 18a.

    Rule 2.41(f) applies specifically to final administrative orders 
issued by the Commission. With the exception of Federal court actions 
seeking to enjoin a pending merger, the Commission typically achieves 
its merger remedies in one of two ways. If the acquirer has been 
identified during negotiation of the settlement, the order will require 
divestiture to that acquirer pursuant to the agreement(s) that are 
attached to and incorporated into the order (known as a divestiture 
with an ``up-front buyer''). If the order requires the respondent to 
divest within some deadline after the order is final, it will require 
the respondent to obtain subsequent approval under Rule 2.41(f) (known 
as a ``post-order'' divestiture). The criteria used by the Commission 
to determine whether a divestiture is more appropriately ``up-front'' 
or ``post-order'' are detailed in Frequently Asked Questions about 
Merger Consent Order Provisions, available on the FTC's Web site at: 
http://www.ftc.gov/bc/mergerfaq.shtm; and Statement of the Federal 
Trade Commission's Bureau of Competition on Negotiating Merger 
Remedies, available at: http://www.ftc.gov/bc/mergerfaq.shtm.
    Rule 2.41(f) sets forth the procedure by which respondents must 
seek the Commission's approval of a divestiture if such approval has 
not been explicitly incorporated into a Commission order. Briefly, 
pursuant to the Rule, a respondent must file an application for prior 
approval of a proposed divestiture.\2\ The application, along with 
relevant supporting material, is placed on the public record for thirty 
days for the receipt of public comments. Confidential portions of the 
application and supporting materials are not made public.\3\ Only after 
the Commission has approved an application for prior approval may the 
respondent consummate the proposed transaction. The burden of proof for 
any request for approval lies with the respondent.\4\

    \2\ Rule 2.41(f) continues to apply as well to applications for 
approval of acquisitions by a respondent, if the particular order 
includes a prohibition on acquisitions without the Commission's 
prior approval.
    \3\ See Rules 4.9 and 4.10, 16 CFR 4.9, 4.10 for a description 
of the Commission's public records and what items are exempt from 
public disclosure.
    \4\ See Dr Pepper/Seven-Up Companies, Inc. v. F.T.C., 991 F.2d 
859, 863 (DC Cir. 1993).

    The Commission's divestiture orders mandate that the required 
divestiture be made ``only to an acquirer approved by the Commission 
and only in a manner approved by the Commission.'' That is, the 
Commission must approve both the acquirer of the divested assets and 
all agreements relating to the divestiture. Further, once the 
Commission has approved a divestiture agreement, a respondent who does 
not perform as required in that agreement fails to divest in the 
approved manner, and thereby,

[[Page 63834]]

fails to comply with the underlying divestiture order.\5\

    \5\ The Commission thoroughly evaluates the proposed agreement 
(as well as the proposed acquirer) to determine whether it will 
achieve the order's purpose and is consistent with both the 
competition laws and any other provisions in the order. This 
evaluation includes review of the purchase and sale agreement, all 
exhibits and appendices to that agreement, and all related and 
ancillary documents.

    The Commission has consistently taken the position that it must 
approve any changes to a divestiture agreement previously approved 
through an order or in response to an application filed under Rule 
2.41. The Commission must review and approve changes to a previously-
approved divestiture agreement to ensure that the agreement remains 
consistent with the order and will continue to achieve its purposes. 
The Commission's main concern is that post-approval changes to the 
agreements, although acceptable to both the respondent and the 
acquirer, may nevertheless diminish the competitive and remedial 
effectiveness of the order.
    Historically, the Commission's divestiture orders required a 
respondent to divest a specified business or set of assets, which the 
respondent accomplished soon after the order became final. Because the 
respondent's obligations under the divestiture agreement were fully 
performed in a short time frame, there was no need for parties to 
modify their agreements. In recent years, however, the Commission's 
orders have frequently included ongoing obligations to supply products 
or services to the acquirer for some interim period, and at times the 
parties have agreed to modify the agreements implementing these 
obligations. Therefore, the need to review changes in divestiture 
agreements has become more common.
    The Commission recognizes, however, that there may be instances in 
which the parties change their agreements in ways that are purely 
ministerial, or that are unlikely under any plausible facts to affect 
achieving the order's remedial purposes. There is currently no 
procedure for distinguishing such changes from those that more 
appropriately require the Commission's approval.\6\ As detailed further 
below, the Commission has therefore modified Rule 2.41 to authorize 
certain staff in the Commission's Bureau of Competition to waive the 
prior approval requirement--or to shorten, eliminate, extend, or reopen 
the public comment period--in appropriate circumstances.

    \6\ The Commission's orders do not exclude particular types of 
future modifications from the requirement to obtain approval. When a 
divestiture agreement is approved, it is difficult to predict what 
types of future modifications the parties may seek or to define a 
meaningful category of modifications that under no circumstances 
would implicate the purposes an order. For example, ``immaterial'' 
may have a specific meaning under contract law that is not fully 
consistent with the remedial goals of the order. Accordingly, the 
Commission will assess those proposed changes at the time they are 
made, and not hypothetically beforehand.

II. The Amendment to the Rules

    New paragraph (5) of Sec.  2.41(f) confirms the Commission's long-
standing position that modifications to divestiture agreements must be 
approved by the Commission. The new paragraph, accordingly, expressly 
provides that, before modifying an agreement subject to paragraph Sec.  
2.41(f), a respondent must obtain either the Commission's approval of 
the proposed modification or a waiver of the approval requirement.\7\ 
Item (i) Identifies the types of agreements that are subject to the 
proposed modification review and approval process and states the 
approval requirement. Item (ii) allows a waiver of the approval 
requirement and the public comment period, and item (iii) confirms that 
a modified agreement remains subject to the Commission's order to the 
same extent as the original unmodified agreement, and that all 
modifications shall be considered part of the original agreement when 
determining compliance with and enforcement of a Commission order.

    \7\ In addition, applications for modifications have been 
explicitly added to the public comment requirements of Sec.  
2.41(f)(1) and (2).

    As described in item (i) of Sec.  2.41(f)(5), agreements subject to 
the new paragraph are those that accomplish divestitures and related 
remedial measures required by orders issued by the Commission in 
connection with an investigation of a proposed or consummated merger, 
acquisition or similar transaction. These agreements are either 
incorporated into a final Commission order or approved by the 
Commission through the process provided in Rule 2.41(f)(i).
    Item (i) of the new paragraph states that the respondent shall use 
the process set forth in Rule 2.41(f)(1)-(4) to submit an application 
requesting approval of a proposed modification. The process requires a 
respondent to submit an application to the Commission explaining the 
proposed modification and describing its necessity and purpose. The 
respondent should also indicate that all signatories to the agreement 
have agreed to the proposed modification. The level of detail required 
in an application for approval of a proposed modification will vary 
depending on the complexity and significance of the proposed 
modification, but it should be sufficient to establish that the 
proposed modification will not interfere with the requirements or 
purpose of the Commission-ordered remedial measures implemented through 
the underlying agreement. If an initial application lacks sufficient 
detail, the Commission may deny approval, or may request further 
information to enable it to effectively evaluate the proposed 
modification. Pursuant to the provisions of existing Rule 2.41(f), an 
application for approval of a proposed modification, except for 
confidential portions, will be placed on the public record for comment.
    Item (ii) of new paragraph (5) delegates to certain Commission 
officials, including the Bureau of Competition's Assistant Director for 
Compliance, the authority, for good cause shown, to shorten, eliminate, 
extend or reopen the public comment period for an application for 
modification.\8\ As with the underlying remedial agreements, 
modifications subject to proposed paragraph (5) often contain sensitive 
non-public information, which is accorded confidential treatment by the 
Commission. See Rule 4.10, 16 CFR 4.10. In such cases, there may be 
little information regarding the proposed modification that can be 
disclosed publicly, and therefore little benefit in providing a public 
comment period. Further, there may be cases where prompt action on a 
modification is necessary to prevent economic harm to the parties or 
competition. Such circumstances will often provide good cause to 
shorten or eliminate the public comment period. However, the Commission 
will be unlikely to take that step in cases where the comment period 
may provide transparency or where the proposed modification involves an 
issue of general interest and applicability that can be discussed 
without disclosing confidential information.

    \8\ The Commission anticipates that most requests for waivers 
will be made to the Assistant Director of the Compliance Division, 
as the Compliance Division is responsible for reviewing and 
monitoring remedial agreements approved by the Commission and will 
be primarily responsible for reviewing proposed modifications under 
this paragraph.

    Item (ii) of new paragraph (5) also provides that, in order to 
expedite the modification process, the designated officials can, for 
good cause shown, waive the modification approval requirement when a 
proposed modification is purely ministerial, or is unlikely under any 
plausible facts to affect achieving the remedial purposes of the order 
at issue. The information a respondent must provide to show good cause 
for a waiver of the approval

[[Page 63835]]

requirement will depend on the nature of the proposed modification. In 
all cases, a respondent should provide the exact language of the 
proposed modification and verify that the modification is agreed to by 
the signatories to the underlying agreement. It is anticipated that 
respondents will often be able to establish good cause for waiving 
approval for modifications that are purely ministerial in nature, such 
as a change in the method of service of required notices, on the basis 
of this information alone.
    A modification that is more substantial--for example, alteration of 
the payment structure of an agreement--may also qualify for a waiver if 
the respondent can establish that the proposed change does not affect 
achievement of the order's remedial purposes. Respondents, however, 
will generally be required to submit facts beyond the language of the 
waiver itself to substantiate that there is good cause to grant a 
waiver for this type of modification. If a respondent believes there is 
good cause to waive the approval requirement for a particular proposed 
modification, the respondent should discuss the matter with the 
Commission's staff and obtain guidance on the type and level of 
information that should be provided.
    The waiver of the modification approval requirement under the 
foregoing delegation shall not be effective, however, until the file 
has been transmitted to the Secretary and the Secretary shall have 
advised the Commission of the decision to waive and given the 
Commissioners three business days thereafter to object. If, upon the 
expiration of the three-day period, no Commissioner shall have 
objected, the Secretary shall enter upon the records of the Commission 
the waiver in the matter and take such other action as the matter 
    A respondent may effect a proposed modification covered by proposed 
paragraph (5) after the respondent has obtained approval for the 
modification or a waiver of the approval requirement. In either case, 
staff will request that respondent submit a copy of the amendment to 
the agreement that contains the modification. Further, as item (iii) of 
the new paragraph confirms, a Commission order that incorporates the 
underlying agreement also incorporates all approved modifications to 
the agreement or modifications for which a waiver of the approval 
requirement was obtained.
    Finally, the Commission has changed the title of Rule 2.41 to 
better reflect the subject matter included in the Rule. The previous 
title did not fully describe the main provisions of the rule.

III. Procedural Requirements

A. Administrative Procedure Act

    The FTC has determined that implementation of this rule without 
prior notice and the opportunity for public comment is warranted 
because this rule is one of agency procedure and practice and therefore 
is exempt from notice and comment rulemaking requirements of the 
Administrative Procedure Act at 5 U.S.C. 553(b)(A) and (B).

B. Regulatory Flexibility Act

    Because the Commission has determined that it may issue this rule 
without public comment, the Commission is also not required to publish 
any initial or final regulatory flexibility analysis under the 
Regulatory Flexibility Act as part of such action. See 5 U.S.C. 601(2).

C. Paperwork Reduction Act of 1995

    The rule revisions to part 2 are also not subject to the 
requirements of the Paperwork Reduction Act, which contains an 
exemption for information collected during the conduct of 
administrative proceedings or investigations against specific 
individuals or entities. 44 U.S.C. 3518(c)(1)(B)(ii); 5 CFR 

List of Subjects in 16 CFR Part 2

    Administrative practice and procedure, Investigations, Reporting 
and recordkeeping requirements.

Authority and Issuance

    For the reasons set forth in the preamble, the FTC is amending 
Title 16, Chapter I, part 2, as follows.


1. The authority citation for part 2 continues to read as follows:

    Authority: 15 U.S.C. 46, unless otherwise noted.

2. Amend Sec.  2.41 by revising the section heading and paragraphs 
(f)(1) and (2), and adding paragraph (f)(5), to read as follows:

Sec.  2.41  General compliance obligations and specific obligations 
regarding acquisitions and divestitures.

* * * * *
    (f)(1) All applications for approval of proposed divestitures, 
acquisitions, or similar transactions subject to Commission review 
under outstanding orders (including modifications to previously 
approved transactions) shall fully describe the terms of the 
transaction or modification and shall set forth why the transaction or 
modification merits Commission approval. Such applications will be 
placed on the public record, together with any additional applicant 
submissions that the Commission directs be placed on the public record. 
The Director of the Bureau of Competition is delegated authority to 
direct such placement.
    (2) The Commission will receive public comment on a prior approval 
application submitted pursuant to paragraphs (f)(1) or (5) of this 
section for thirty (30) days. During the comment period, any person may 
file formal written objections or comments with the Secretary of the 
Commission, and such objections or comments shall be placed on the 
public record. In appropriate cases, the Commission may shorten, 
eliminate, extend, or reopen a comment period.
* * * * *
    (5)(i) Any application to modify either:
    (A) An agreement that has been approved by the Commission pursuant 
to paragraph (f) of this section, or
    (B) An agreement incorporated by reference into a final order of 
the Commission issued in connection with a merger, acquisition, or 
similar transaction shall be subject to review and approval in the 
manner described in paragraphs (f)(1) through (4) of this section, 
except as provided in paragraph (f)(5)(ii) of this section.
    (ii) If the application establishes that the proposed modification 
is purely ministerial, or unlikely under any plausible facts to affect 
achieving the remedial purposes of the order at issue, the Commission 
has delegated to the Director, Deputy Directors, and Assistant Director 
for Compliance of the Bureau of Competition, without power of 
redelegation, for good cause shown, the authority.
    (A) To waive the approval requirement of paragraph (f)(5)(i) of 
this section; and
    (B) To shorten, eliminate, extend or reopen the comment period 
pursuant to paragraph (f)(2) of this section.
    (iii) Any agreement containing a modification approved, or for 
which the approval requirement is waived, pursuant to this paragraph 
(f)(5), shall be subject to any outstanding Commission order to the 
same extent as was the original agreement.
* * * * *

[[Page 63836]]

    By direction of the Commission.
Donald S. Clark,
[FR Doc. 2011-26463 Filed 10-13-11; 8:45 am]