Some antitrust practitioners see vindication in last week's Texas federal court decision throwing out the Federal Trade Commission's premerger reporting overhaul, saying it gives credence to arguments that U.S. antitrust enforcers were trying to plug holes in merger review where there were none.
The FTC gave notice Tuesday that it would be appealing, asking U.S. District Judge Jeremy D. Kernodle of the Eastern District of Texas to issue an emergency pause while it seeks Fifth Circuit intervention against his decision vacating the first overhaul of the Hart-Scott-Rodino Act of 1976 in its 50-year history.
"A stay of the court's decision pending appeal is necessary to preserve the status quo, which would otherwise be irreparably altered if the rule is vacated while appellate review proceeds," the FTC said, asking Judge Kernodle to extend the seven-day pause he imposed on his order to allow the agency to appeal. "Parties to impending HSR-reportable transactions face substantial uncertainty as to which form to prepare and file, and parties to future HSR-reportable transactions will continue to face significant uncertainty while the commission's forthcoming appeal proceeds, given the possibility that the commission will prevail on appeal."
Observers generally suggested, however, that the agency, taking the lead on a rule that the U.S. Department of Justice Antitrust Division assented to, faces a steep climb against the court's findings that it hasn't shown that the dramatically increased costs on merging parties are justified by the benefits of increasing the amount of information companies must present upfront.
"The judge pointed out that the FTC couldn't show a single case in 46 years that it would have challenged, but didn't because it didn't have sufficient information in the [Hart-Scott-Rodino] form and the FTC, until very recently, had said that the HSR form and process had been a resounding success," said Kara Kuritz, a partner in Vinson & Elkins LLP's antitrust practice and a former specialist in the legislation at the Justice Department. "In the judge's view, the FTC inflicted costs on every merger and couldn't point to any verifiable benefit."
According to Kuritz, Judge Kernodle's decision, siding with a challenge by the U.S. Chamber of Commerce and other business groups, underscores the difficulty in promulgating sweeping rules instead of more narrowly tailored and less costly alternatives.
"I read this opinion as saying there was nothing wrong with the FTC's and DOJ's merger review under the old form, so if it wasn't broken, don't fix it — especially when the 'fix' is costly and burdensome," Kuritz said.
The new rule, which remains in place at least until Thursday depending on how Judge Kernodle rules on the FTC's emergency motion, went into effect in February 2025. It requires merging parties to include more transaction documents from deal team supervisors and any documents, even nonfinal drafts, sent to at least one company board member.
It also requires descriptions of overlapping business lines and disclosures of investors in the buying company, and mandates disclosing other parties, especially private equity firms, with a minority stake in one of the merging companies, which can influence the deal. Furthermore, the rule calls for details on vertical and other nonhorizontal components, such as supply relationships and products and services still in the development stage.
"At a basic level, what the FTC did here was that they shifted the cost of the voluntary production process," said Brian McCalmon, a shareholder with Vedder Price PC. Where before the FTC would follow up with questions for the subset of deals that seemed potentially problematic, McCalmon said the new rule shifted the extra burden "to all parties."
Underscoring all the changes imposed by the overhaul is a presumption that antitrust enforcers need more information upfront and an implication that they may have missed key details or, according to the new rule, that there are "significant gaps in the information generated for premerger review under the current HSR rules."
But the Chamber and many attorneys who navigate U.S. merger reviews have argued that the dramatic increase in work — even the FTC's own estimates put it at a threefold increase in time spent preparing initial notifications — isn't worth it. Many attorneys said the agencies could already ask all the follow-up questions to find areas of potential competitive overlap or ways that merging parties could leverage their new connections to boost themselves or disadvantage rivals.
"There is no question that the current HSR requirements (before this rule) were more than sufficient to allow both agencies adequate information to review both an initial filing and later filed information to determine if a challenge should be initiated," said R. Mark McCareins, a professor at Northwestern University's Kellogg School of Management.
Fried Frank Harris Shriver & Jacobson LLP antitrust partner Alex Livshits said last week's ruling is a vindication of those arguments.
"The message from the bar was that the information being provided to the agencies has worked for 40 years," Livshits said.
Livshits and others noted that even by the FTC's own estimates, only a tiny fraction of transactions draw follow-up questions within the initial 30-day review, and fewer still draw an in-depth "second request" probe that freezes that one-month waiting period, let alone draw an enforcement action from the FTC or DOJ.
"We all know that only 8% get investigated and 3% of those get second requests, so to up the burden on the other 92% is what the court focused on," said Gregory Heltzer, a partner with McDermott Will & Schulte.
Even so, Heltzer said, Judge Kernodle's analysis "is not quite right because the burden didn't necessarily go up on all of those 92%." Some practitioners say mergers with no horizontal overlap and no preexisting supply or vertical relationships experienced a much less dramatic increase in the work needed for their notifications. And observers also offered a mixed assessment about exactly how much extra burden the new form has imposed. Some called the extra burden dramatic, some said fears of significant extra costs did not fully come to pass.
Judge Kernodle did, however, give the Chamber exactly what it was looking for when it filed its suit where it chose to file, according to Stephen Calkins, a Wayne State University Law School professor and a former FTC general counsel.
"The Chamber obviously looked around the country and deliberately chose to bring suit in the Tyler Division of the Eastern District of Texas, creating a significant chance of having Judge Kernodle — a smart, very conservative judge — decide the case, with any appeal going to the very conservative Fifth Circuit," Calkins said. "After that, well, it's by no means clear that the [solicitor general] would support taking this to the (also conservative) Supreme Court."
In seeking an emergency pause Tuesday, the FTC said its appeal is likely to succeed, contending that Judge Kernodle wrongly credited hearsay evidence of the business groups' standing to appeal that was based only on "assertions about unnamed members" and how the rule will affect them. More importantly, it argued, Judge Kernodle was wrong on the FTC's rulemaking authority.
"Congress directed the commission to create a form that 'is necessary and appropriate' to allow the antitrust agencies 'to determine whether' an HSR-reportable transaction 'may, if consummated, violate the antitrust laws,'" it said.
"This is an unambiguously 'capacious' standard that signals Congress' intent to confer considerable discretion on the commission … discretion that, respectfully, the court failed to afford," it continued, quoting from the U.S. Supreme Court's 2015 decision in Michigan v. EPA.
Outside the filing, the FTC has so far said little beyond noting that the new form remains in place at least through this Thursday, although its director of public affairs, Joseph Simonson, did also throw in a jab accusing the Chamber of being "a left-wing, open-borders-supporting activist group."
"Since the court concluded the rule both exceeded the FTC's authority because it wasn't 'necessary or appropriate' and the rule was 'arbitrary and capricious,' it seems the FTC will have an uphill battle," Kuritz said. "When the HSR Act was adopted, Congress intended for it [to] be a broadly applicable, but relatively simple notification. The new HSR rule still broadly applies, but filing became much more time-consuming and costly, inflicting significant burden on many non-problematic deals."
The FTC on Tuesday defended its cost-benefit analysis. It said nothing in the Hart-Scott-Rodino Act or the Administrative Procedure Act "requires the commission to identify mergers that violated the Clayton Act but that the antitrust agencies did not identify during the HSR review period."
"A missed merger inflicts serious harm on society through its harm to competition, and Congress did not require the commission to wait until society has suffered that harm before updating the HSR form," the agency said, arguing that it "extensively documented the need for the rule," including the obsolescence and inadequacy of the old form "to review modern mergers and acquisitions."
Antitrust observers had expected the FTC to appeal, noting that while the rule was adopted under the Biden-era FTC, it was approved on a bipartisan 5-0 vote.
"It's noteworthy that the new HSR rule, even though it was issued under the previous administration, the FTC vote was 5-0 with both Republican commissioners voting in favor," said Kevin Hahm, a partner with Hunton Andrews Kurth LLP and a former FTC official. "That is in contrast to the FTC rule on noncompetes (also issued under the previous administration), which was also struck down by a Texas court where the FTC voted 3-2 along party lines."
The FTC's Republican chairman under the Trump administration, Andrew Ferguson, has embraced the new rule, while leaving open the possibility of changes down the road.
"He said it wasn't perfect, but that it was plainly authorized by a valid grant of authority from Congress," and that it was an improvement over the old rule, said Wendy K. Arends, a Husch Blackwell LLP partner.
Even if Judge Kernodle's decision becomes the final word on this rule, Brian Concklin, a partner at Clifford Chance LLP, said the FTC would almost certainly try again on a new regulation. "I would not bank on a reversion back to the old form forever," he said.
Observers say the FTC can craft a new rule that would survive a new challenge. But Edward B. Schwartz, a Reed Smith LLP partner, says the FTC would have to show that it took costs into account. And it likely wouldn't be able to put forward the same expansive new requirements. "They're going to have to scale back," he said.
In the interim, observers say, the rule's precarious position raises at least some measure of uncertainty for companies that are facing binding transactional deadlines and other time pressures to notify their transactions before it becomes clear whether Judge Kernodle's decision will be put on hold for more than a week. And some say that uncertainty is heightened by the turmoil surrounding the abrupt departure last week of DOJ Antitrust Division head Gail Slater.
"As of now, companies contemplating a reportable transaction lack clarity as to who will be the lead antitrust official reviewing their deal — assuming it is reviewed by DOJ, rather than the FTC — and what type and quantity of information will have to be provided to the agencies on the front end," said Robert "Bob" M. Cooper, a partner at King & Spalding LLP.
Attorneys note that reverting back to the old form, which makes fewer information demands, likely wouldn't be particularly disruptive for companies and antitrust attorneys.
"In most instances, it should not be too challenging, to use the old form," Concklin said.
Carl Hittinger, the national team leader of BakerHostetler's antitrust and competition practice, said that if forced to use the old form, enforcers may ramp up their scrutiny, including by issuing more in-depth second-request probes. "That could be very disruptive, and very expensive," he said.
The case is Chamber of Commerce of the United States of America et al. v. Federal Trade Commission et al., case number 6:25-cv-00009, in the U.S. District Court for the Eastern District of Texas.
Feb 17
Deal Summary
