HSR Gun-Jumping Case Results in $1.8 Million Fine

WCSR attorneys Tom McLain and Jim Phillips have authored an interesting client alert regarding DOJ's complaint against QUALCOMM and Flarion for gun-jumping under the HSR Act based, in part, on rather standard terms in their merger agreement. The client alert explains:

On April 13, 2006, the US Department of Justice ("DOJ") charged two companies with unlawful premerger coordination in violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). In announcing a case settlement that requires the companies to pay $1.8 million in civil penalties, Thomas O. Barnett, Assistant Attorney General in charge of the DOJ's Antitrust Division, stated that "merging parties must continue to operate independently until the end of the premerger waiting period" under the HSR Act. He added that the DOJ "will vigorously enforce this requirement" against any company that prematurely attempts to assume "operationally control of a business that it is acquiring" (conduct
commonly referred to as "gun-jumping").

The DOJ's complaint charged QUALCOMM Incorporated ("QUALCOMM") and Flarion Technologies Inc. ("Flarion") with gun-jumping based on the terms of their merger agreement and certain conduct by the parties prior to the closing of the transaction. It is noteworthy that the DOJ brought this suit even though it concluded after its HSR premerger review that the proposed merger itself did not raise competitive concerns.

The client alert continues to describe the actions scrutinized by the DOJ, including several negative covenants customarily found in merger and acquisition agreements as well as other actions including coordination of marketing and pricing, the related exchange of information, and assumption of key decision-making.

The client alert concludes:

Typically it is not just one contractual provision or action that creates the problem, but a series of smaller things that ultimately add up to gun-jumping. By working with antitrust counsel, a company involved in a merger or acquisition transaction can develop a plan that properly balances business needs with antitrust concerns.

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