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Sometimes a quick start can be too quick. In February the U.S. Department of Justice announced that Gemstar-TV Guide International Inc. would pay $5.67 million for “gun-jumping” — illegally coordinating the activities of its predecessor companies prior to their 1999 merger. The penalty is the largest ever against merging companies accused of fixing prices, coordinating production, or taking other steps to integrate their operations before all of the waiting periods required in a federal merger review have expired. Several Justice officials have previously warned companies to steer clear of gun-jumping, and with the Gemstar-TV Guide penalty, they’ve backed their threats with action. “Merging parties must remain separate and independent until the end of the statutory waiting period,” said R. Hewitt Pate, acting assistant attorney general for antitrust, in announcing the settlement with Gemstar-TV Guide. Pate added, “A plan to merge in the future does not justify price-fixing, customer allocation, or otherwise combining their businesses while the Justice Department is investigating the competitive effects of the transaction.” The Justice Department alleged that in June 1999, TV Guide and Gemstar stopped competing for customers for interactive program guides, which are used by satellite and cable television providers. At the time, the companies were discussing a potential joint venture. Those plans were scrapped in October 1999, when the companies agreed to merge in a stock swap, which was completed in July 2000. Gemstar-TV Guide disclosed in an SEC filing last year that it was under investigation for gun-jumping. Though it said its conduct was not illegal, the company also said it was considering paying a penalty to end the investigation. Gemstar-TV Guide faced a maximum penalty of $11,000 per day for each day it was in violation of the Hart-Scott-Rodino act, which sets the rules for federal merger review. In addition to paying the penalty, Gemstar-TV Guide agreed not to violate the law in the future and to give customers who signed contracts during the waiting period with either predecessor company the right to rescind their agreements.

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