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In a sign that mandated forfeiture of profits could become a key weapon in the merger enforcement arsenal, Federal Trade Commission Chairman Timothy J. Muris supported a consent decree that will force New York-based Hearst Corp. to return $19 million in profits from an illegal merger. Muris joined three other FTC commissioners Friday in approving the forfeiture provision, otherwise known as “disgorgement.” The vote marked the first time the agency required the forfeiture of profits for a Hart-Scott-Rodino Act violation and only the second time it invoked the power in an antitrust case. The other instance involved illegal restraint of trade. The chairman, who did not issue a statement explaining his vote, joined Sheila Anthony and Mozelle Thompson in supporting the decree. Orson Swindle issued a concurring opinion objecting to the disgorgement, though he did not formally oppose it. Thomas Leary supported the settlement but dissented from the section requiring disgorgement. The decree stems from a 1998 deal by First DataBank Inc., a subsidiary of New York media company Hearst, to acquire Medi-Span Inc., an Indianapolis supplier of drug product information, for an undisclosed price. Antitrust lawyers said the vote indicates that the FTC will seek disgorgement in future merger cases. “The fact that Muris was silent is telling,” said Robert Doyle Jr., a partner at Powell, Goldstein, Frazer & Murphy in Washington, D.C. “It shows his unqualified support for the theory.” Doyle said the FTC is most likely to bring forfeiture cases against companies that flagrantly flout the agency’s rules, adding that Muris believes he must ensure respect for FTC procedures. John Nannes, a partner at Skadden, Arps, Slate, Meagher & Flom in Washington, D.C., called the vote noteworthy. “Disgorgement was a new and controversial aspect of the Pitofsky tenure,” Nannes said. “The fact that Chairman Muris supported the disgorgement settlement is significant.” Several lawyers noted that the vote in April to sue Hearst was 3-2, with then-FTC Chairman Robert Pitofsky siding with Thompson and Anthony. With Muris replacing Pitofsky, he became the deciding vote. That makes the Muris vote even more significant because he passed on an opportunity to alter a Pitofsky-era FTC policy. The FTC released the decree for public comment Nov. 20. Besides the forfeiture of profits, it requires Hearst to divest its Medi-Span business to Facts and Comparisons, a St. Louis unit of Wolters Kluwer NV, a Dutch corporation. The deal resolves an FTC charge that Hearst failed to turn over several documents as part of its Hart-Scott-Rodino Act filing that would have alerted the agency that the transaction was anti-competitive. The $19 million in forfeited profits will go into a fund to reimburse customers that paid higher prices because of the illegal merger. Muris is widely credited with pioneering the FTC’s use of disgorgement when he was director of the bureau of consumer protection. Many lawyers assumed he would support use of the penalty in antitrust cases, though this is the first instance where he has confronted the issue. While Muris did not explain his vote, the other four commissioners released statements clarifying their stance on disgorgement. In a joint statement, Thompson and Anthony said disgorgement should be reserved for “exceptional circumstances” such as those presented in this case. “Absent disgorgement, the divestiture of the Medi-Span assets alone might have allowed Hearst to profit from its unlawful behavior,” they wrote. “Such a result would be untenable.” In his dissent on the disgorgement issue, Leary said use of the remedy was unwarranted in the Medi-Span deal. “This case could probably have been settled by the commission with payment of civil penalties substantially larger than those that have been paid in this situation,” said Leary, who added that private class action suits filed shortly after the FTC brought its case ensured that customers would be compensated. Swindle said the FTC has the authority to seek disgorgement, but he questioned its application in the Hearst case. “There is a statutory basis for the commission’s effort to obtain disgorgement in appropriate competition matters,” Swindle wrote. “In the present case, however, I continue to think that the decision to seek disgorgement was incorrect and that the remedy that the commission has obtained may not be the most that we could have achieved.” Copyright (c)2001 TDD, LLC. All rights reserved.

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