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FEDERAL TRADE COMMlSSION

WASHINGTON. D. C. 20510

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Ln~ House of Representatives

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Gent".'~en:

Se~tion 201 of the Hart-Scott-Rodino Antitrust Improvements

Act of 1976, Pub.L. ~4-435, aa~~~ d new S 7A to the Clayton

Act, 15 u.s.c. S 18A (hereinaf:er referred to as •t~e

Act"). Subsection (j) of the Act provides as follows:

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Beginning not later than January 1, 1978, the

Federal Trade Commission, with the concurrence

of the Assistant Attorney Gen~ral, shall annually

report ~o the Congress on the operation of this

section. Su~h report shall include an assessment

of the effects ~f this section, of the effects,

purpose, and need for any rules prorr.ulgated

pursuant thereto, and any recommendations for

rev~siC~$ of thls section.

Tilic. .s · · .~nual

repo~to the Congress mand~ i:ed by

subs ;:cti .·n - ~<! Act.

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,. ~ -: :. ·;.. i::t~··.,-ie_-: a mechanism unde'~ which persons of

spe:: '{ ,,; ~ ize or 14rger, who intend ;; ~. ma~~e stock or asset

ac ;,' ·',ii: .. e:.-.·. .:-f sp~cified size or larger, must report their

i,~ te); ~."'.""ls t.o the }.i'l t.i ~""U~t Di vision of the Department of

Justice ar; to t~·.a- Faderal T.rade Commission and must thereafter

t.Jai t a pr. 'Scribed period of time before consummating the

tran~a~tjoo

That waiting period may be extended by either

enZ~:·1. ;:!t!TT.f~.rlt agency by means of a request for additional

inforlt\.;) ;:.«.on. The Act contains eleven specific types of

exemptions, along with a grant of rulemaking authority to

the Federal Trade Commission to dcf ine any terms used in tha

Aet, to ~~eate additional ~~emptions, and generally to carry

out the purposes of the Act.

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'l'he Act provides for expedited consideration by a

federal district court in the event that either agency seeks

a preliminary injunction to prevent consummation of a proposed

acquisition. It also contains penalty and enforcement

provisions, a requirement that information filed by reporting

persons be kept c~nfidential, provisions clarifying the

relationship between the Act-and other substantive and

procedural aspects of traditional antitrust law, and the

requirement of an annual report.

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'l'he Act was signed by the President on September 30,

1976. On December 15, 1976, the Federal 'l'rade Commission,

with the informal concurrence of the Assistant Attorney

General in charge of the Antitrust Division, issued proposed

rules and a proposed Notification and Report Form for public

comment; the proposed rulemaking was published in the Federal

Register of December 20, 1976 (see attachment I). 'l'he

thirty-day comment period was extended by the Commission on

January 12, 1977, and expired on February 18, 1977.

Approximately 130 comments were received in 1 response to

those proposed rules and form.

Because of the extensiveness of public comment, it

became clear to the Commission that some substantial revisions

would have to be made in the proposed rules. On July 25,

1977, the Commission approved revised propos~d rules and a

revised proposed Notification and Report Form and determined

that additional public comment thereon would be desirable.

'l'he revised proposed rules and form were published in the

Federal Register of August 1, 1977 (see attachment II), and

a thirty-day co,nment period began on that date. *I In

response to numerous requests for additional time for comment,

the Commission on August 23, 1977, extended the comment

period by thirty days, through September 30, 1977. A to~al

of 116 comments were received during the second comment

period.

'l'he process of preparing rules to implement the Act has

been time consuming for several reasons. First, the Act

covers all types of acquisitions of assets or of voting

securities -- acquisitions by corporations, partnerships and

natural persons, acquisitions directly from the owner or

issuer, acquisitions of voting securities from third parties

or in the open market, acquisitions by means of tender offer

or negotiated sale, acquisitions by or from foreign parties,

*I At the time of publication, the Commission staff also

made available a side-by-side comparison of the revised

proposed rules with those originally proposed (see attachment

III).

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acquisitions by affiliates, and others. Each of these, and

many others, have their own peculiar factual settings, of

which the rules must take account.

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Second, there are a large variety of .other situations

where the extent and type of notification appropriate under

the Act is affected by the existence of other statutes and

~ther regulatory systems.

Some of these underlie particular

exemptions appearing in subsection (c) of the Act. Others

may suggest the advisability of creating additional exemptions

by rule.

Third, the infinite variety of existing business practices

and forms of organization may in some cases permit or require

variat'ions in reporting obligations, depending upon the

likelihood that certain types of acquisitions may raise

anticompetitive problems, the extent to which certain types

of acquisitions occur in the ordinary course of business of

one or more of the parties, and the relationship between the

parties to the transaction.

Finally, the drafting of regulations implementing the

Act involves the attempt to strike ·what is often a difficult

balance between the need of the enforcement agencies for

•such documentary material and information relevant to a

proposed acquisition as is necessary and appropriate to

enable [them] to determine whether such acquisitions may, if

consummated, violate the antitrust laws,• •/ and the cost

to the persons who must provide such information. The

process of gathering sufficient information to determine

where this balance may be ·struck has been a sizeable task.

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At the present time, the staffs of the Commission and

of the Antitrust Division are working on.revisions of the

rules and form. Following conditional approval of the rules

and form by the Commission and conditional concurrence by

the Assistant Attorney General in charge of the Antitrust

Divisiop, the form will be submitted to the General Accounting

Office for consideration under the Federal Reports Act, 44

u.s.c. S 3502. While that.review, which must be completed

within 45 days, is pending, the staff will complete preparation

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S 7A (d) (1).

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of a final statement of basis and purpose. Thereafter, the

Commission will formally promulgate the rules and form and

submit them to the Assistant Attorney General for concurrence.

After concurrence .has been obtained, the final rules and

form will be published in the Federal Register, along with a

•tatement of basis and purpose. Under Section 4 of the

Administrative Procedure Aet, 5 u.s.c. S 553, the rules may

become effective no sooner than thirty days after publication. !/

Throughout preparation of both sets of proposed rules

and during preparation of final rules, the staffs of the

Commission and of the Antitrust Division have worked closely

together. Staff-level procedures are being developed for

coordinating the administration of the premerger notification

program by the two agencies, including clearance mechanisms,

continual exchange of information concerning the status of

pendins notifications, interpretations of the rules and

proposals for modification of any reporting requirements,

and any enforcement 'ctions which may need to be instituted •

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Section 202 of the Antitrust Improvements Act of 1976

specified that Section 201, containing new S 7A of the

Clayton Act, would become effective 150 days after enactment,

i.e., February 27, 1977. (The rulemaking provisions contained

in subsection (d) of S 7A became effective upon enactment.)

Because final rules could not be promulgated prior to the

effective date of the Act, the Commission on January 27,

1977, with the concurrence of the Assistant Attorney General,

promulgated a Transitional Rule, which was published in the

Federal Register of February 2, 1977 (see attachment IV).

The Transitional Rule created an exemption for all transactions

consummated prior to the effective date of the final rules

and specified the manner in which the final rules would be

implemented during the first thirty days following the

effective date of the rule$.

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Because the final rules have not become effective as of

this date, the Commission cannot now provide a full assessment

of the Act, or of the related rules, as contemplated by

subsection (j). The Commission expects to be able, on the

basis of experience administering the premer9er notification

program, to provide a more·c~mprehensive and detailed assessment

of these matters in its second annual report.

The Assistant Attorney General in charge of the Antitrust

Division bas indicated his concurrence with this annual

report •

By direction of the Commission.

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Carol M. Thomas

Secretary

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