Parties Fail to Provide "Item 4(c) Documents"
On October 15, 2007 Iconix was fined $550,000 for failing to provide certain required documents in its premerger filings made to federal antitrust enforcement agencies for its completed purchase of Rocawear licensing LLC. The Antitrust Division of the United States Department of Justice ("DOJ") filed a complaint and stipulated judgment of $550,000 against Iconix Brand Group, Inc. for alleged violation of the Hart- Scott-Rodino Act of 1976, as amended (the "HSR Act" or the "Act"). This case serves as a reminder to use proper care and experienced antitrust counsel when making a filing pursuant to the HSR Act.
The HSR Act requires parties to transactions, including but not limited to mergers and acquisitions, certain joint ventures and the sale of certain partnership interests, that meet certain thresholds to notify the Federal Trade Commission ("FTC") and the DOJ (the "Agencies") of their transaction and observe a waiting period before completing the transaction. The waiting period provides the Agencies an opportunity to investigate proposed transactions and to determine whether to seek injunctive relief if the investigating agency concludes that a transaction may violate the antitrust laws. As part of the notification, each party is required to submit any studies, surveys, analyses and reports, prepared by or for any officer or director for the purpose of evaluating or analyzing the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets. These documents are typically identified as Item 4(c) documents, a reference to the item of the Notification Report to which they respond.
The Agencies strictly enforce the requirements for the submission of Item 4(c) documents, particularly when omitted documents are found to contain non-cumulative, relevant information. The statutory penalty for failure to comply is $11,000 for each day of a violation. In the Iconix case, the suspicion of both Agencies was aroused because neither company submitted any documents responsive to Item 4(c) of the HSR filing. While there are reportable transactions in which neither party has created documents that are responsive to Item 4(c), it is not very common and can raise a red flag for the Agencies. Shortly after the HSR filing the staff of the FTC telephoned Iconix and sought confirmation that an appropriate search had been conducted. According to the complaint, counsel for Iconix reaffirmed that the company had duly searched for 4(c) documents and that no such documents existed. While granting early termination of the HSR statutory waiting period, the Agencies remained skeptical of the company’s representation and, as explained in the complaint, the Antitrust Division promptly opened an investigation "[t]o determine whether [Iconix] in fact had undertaken an acquisition requiring more than $200 million in financing without its officers or directors having prepared or reviewed documents that evaluated or analyzed the proposed acquisition with regard to competitive factors that would be responsive to Item 4(c) . . . ."
In response to the Antitrust Division’s Civil Investigative Demand, Iconix provided several documents that, according to the complaint, should previously have been submitted with the HSR filing. The documents cited by the Antitrust Division included an e-mail addressed to the Iconix directors and sent to several of Iconix’s officers, a presentation sent to an Iconix officer, and materials prepared for a meeting of Iconix’s Board of Directors.
In the Antitrust Division’s press release, Thomas O. Barnett, Assistant Attorney General of the DOJ said "Compliance with Hart-Scott-Rodino Act filing obligations is fundamental to the agencies’ ability quickly and accurately to evaluate a transaction’s competitive impact . . . . Filing parties must understand that the Division will vigorously enforce filing requirements even if we conclude that the transaction poses no threat to competition or consumers." This is an important statement because it underlines the fact that the absence of substantive antitrust considerations is neither a defense to failure to comply with the HSR Act nor a signal that the Agencies will not closely scrutinize the filing.
In a similar noteworthy case, United States v. The Hearst Trust et. al., The Hearst Trust and its wholly owned subsidiary, The Hearst Corporation ("Hearst"), were fined $4 million in 2001 for their failure to submit certain documents responsive to Item 4(c). Acting at the request of the FTC, the DOJ charged that Hearst’s search for 4(c) documents was inadequate, and that the "failure to submit documents . . . hindered the ability of the federal antitrust agencies to analyze the competitive effects of the Acquisition prior to consummation." The FTC also sought and obtained disgorgement of profits from Hearst and divestiture of the assets Hearst had acquired.
The Iconix case serves as an important reminder of the importance of strict compliance with the Hart-Scott-Rodino Act requirements. When an initial search for 4(c) documents yields nothing, it is prudent to look again; and when the FTC’s Premerger Notification office calls to question an absence of 4(c) documents, it may be wise to take advantage of the invitation to look one more time and to reconsider what may fall within the bounds of Item 4(c). Parties involved in reportable transactions should always consult with experienced counsel and ensure that HSR submissions are in compliance with the Act.
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