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Companies that complete mergers in violation of U.S. antitrust law may have more to worry about than simply seeing their deal unwound. The five members of the Federal Trade Commission have voted unanimously to seek in certain instances the forfeiture of profits for antitrust violations, the clearest signal yet that the agency plans to add this potent remedy to its merger enforcement arsenal. The FTC has long used this power, known as “disgorgement,” in consumer protection cases. But it has rarely applied to antitrust matters, with some even questioning whether the agency has the authority to seek disgorgement in competition cases. It sought to resolve that question Thursday, issuing a policy statement that affirms disgorgement as a viable option in antitrust prosecutions when the violation is clear, the remedial payment can be calculated and the use of the power will aid consumers. “This is principally an effort to respond to questions that have been raised in the last five years about when the commission will use this tool,” said FTC General Counsel William Kovacic. Corporate executives should not expect to see disgorgement demands in every prosecution. The commissioners said the agency would continue to rely primarily on other enforcement tools, such as monetary penalties and conduct restrictions, and turn to disgorgement only in exceptional cases. Yet it also did not limit the type of violation that could qualify for profit forfeiture. That means not only Hart-Scott-Rodino Act violations could draw the penalty, but also illegal consummated mergers could be subject to disgorgement. “They are raising the stakes here,” said Janet L. McDavid, a partner at law firm Hogan & Hartson in Washington. “If you worry about antitrust risks, they are making it clear that they are prepared to bring down the hammer. It is not enough to say you’d go away and sin no more.” Albert Foer, president of the American Antitrust Institute, said the FTC’s limited use of the remedy makes sense because it is a new tool for the enforcer. “It is a good prescription for moving ahead cautiously and using it as a remedy of last resort,” he said. In explaining the three conditions required to trigger disgorgement, the FTC said a clear violation occurs when a “reasonable” party would expect the conduct to be illegal at the time it occurs. Conduct that only appears illegal in hindsight is insufficient. “One key purpose of the disgorgement remedy is to remove the incentive to commit violations by demonstrating to the potential violator that unlawful conduct will not be profitable,” the FTC said. “This purpose can best be served when the violator can determine in advance that its conduct would probably be considered illegal.” In calculating the amount of ill-gotten profits arising from an anti-competitive merger, the FTC said it needs a reasonable gauge to justify its demand to the courts. But the agency also said it will not require so much precision in calculating such profits that it effectively forecloses using disgorgement. Disgorgement is appropriate when private litigation is unlikely to fully compensate victims or that leaves companies with at least a portion of their illegal gains, the FTC said. Also, some cases involve injuries to individual consumers that are too small to justify private lawsuits. “Disgorgement can also be particularly valuable when the advantages a violator reaps from the violation greatly outweigh the specific penalties prescribed in applicable laws,” the FTC said. Responding to concerns that disgorgement forces companies to compensate victims twice, the FTC said any forfeiture would be offset by payments made in response to class actions on behalf of consumers. But it said civil monetary penalties are intended to punish a company and thus would not offset a disgorgement award. Copyright �2003 TDD, LLC. All rights reserved.

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