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The Hart-Scott-Rodino Act’s First Amendment Problem

The Hart-Scott-Rodino Antitrust Improvements Act (“HSR Act”) is a centerpiece of federal antitrust law. Designed to aid enforcement of Clayton Act Section 7, which prohibits mergers and acquisitions that “may . . . substantially . . . lessen competition” or “tend to create a monopoly,” the statute requires purchasers of an issuer’s voting securities exceeding a certain amount to notify the Federal Trade Commission (“FTC”) and the Antitrust Division of the Department of Justice (“DOJ”) of the potential acquisition, pay a filing fee, and observe a thirty-day waiting period before proceeding. The FTC or DOJ may thereafter issue to the proposed acquirer a “second request” for additional information about the acquisition, and then conduct an investigation, take testimony, and seek to prevent the acquisition. Investors that have acquired shares without complying with these requirements are subject to civil penalties up to $40,000 per day. Because the HSR Act is supposed to concern itself only with transactions which may lessen competition, when Congress enacted the statute in 1976 it exempted eleven types of transactions from its filing requirement, and also authorized the FTC to exempt other acquisitions “not likely to violate the antitrust laws.” The most prevalent and important exemption is the “Investment-Only” carve-out, which applies to “acquisitions, solely for the purpose of investment, of voting securities, if, as a result of such acquisition, the securities acquired or held do not exceed 10 [percent] of the outstanding voting securities of the issuer.”

Congress created these exemptions intending that the filing requirement would apply only to “the very largest corporate mergers—about the 150 largest out of the thousands that take place every year.” But things have turned out quite differently. Even with the numerous exemptions, in recent years the HSR Act’s filing requirement has applied to more than ten times the number of transactions originally envisioned. This is in part due to the fact that the FTC has consistently advanced and enforced an unduly restrictive view of the Investment Only (“I-O”) Exemption. While the antitrust laws are unquestionably important for well-functioning markets and a vibrant economy, the government’s enforcement of them is subject to constitutional constraints. The enforcement agencies have veered off course by effectively coercing large numbers of speakers qualifying for the I-O Exemption to abstain from engaging in otherwise permissible speech in order to avoid the HSR filing fee and waiting-period (and by coercing others to pay the filing fee and observe the thirty-day waiting period so that they can engage in permissible speech), thereby effecting a widespread infringement of the First Amendment which cannot be justified by legitimate antitrust enforcement objectives.

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