Hearst Faces Wrath of the FTC

Hearst Corp.’s run-in with the Federal Trade Commission (FTC) over a 1998 database acquisition underscores the importance of what legal experts consider a cardinal tenet in seeking antitrust clearance – let it all hang out. The agency, in a split decision, voted in early April to throw the book at Hearst on charges that its First DataBank subsidiary illegally obtained a monopoly on drug data sold to the health care profession by acquiring its primary competitor, Medi-Span. Especially infuriating the FTC, according to its statement, was that the deal cleared its antitrust screen because Hearst and First DataBank held back “several high-level corporate documents” that the agency needed for a complete evaluation when the deal was filed for review. The FTC says that Hearst “belatedly” coughed up the papers when it began an investigation of “extraordinary” price increases levied by First DataBank. In a vigorous counterattack, the FTC, by a 3-2 margin, voted to file suit to force Hearst to carve out a new firm to replace Medi-Span and to surrender its profits from the “anticompetitive price increases.” A Hearst spokesman says that he could not go beyond a terse statement issued in early April through First DataBank, that says it “disagrees” with the decision and that “the company will continue to cooperate with the agency in reaching a resolution. We are surprised and disappointed that, despite our earnest efforts to settle the matter, the agency has initiated litigation.” Antitrust lawyers say that they consider document production to be one of the most critical aspects of filing for FTC or Justice Department reviews required by the Hart-Scott-Rodino Act (HSR) but that getting the right papers to the agencies sometimes requires Solomonic wisdom. They say that the document search should be spearheaded by experienced antitrust counsel and that executives must be made aware of the risks, including fines and disgorgements, of sitting on important papers. Shirley Johnson, chair of the national antitrust and trade regulation practice at Greenberg Traurig in Washington, points out that section 4C of the HSR Act requires filing of key documents generated by corporate officers and directors including information on competition, competitors, market share, and growth and expansion in products lines and markets. Although that seems to leave little wiggle room, Johnson says that “there clearly are gray areas” or marginal documents that may not have to be divulged. She suggests that in these cases, it is a good idea to get the regulators’ opinions before reaching a decision. Harry Davis of Schulte Roth & Zabel in New York calls the decision on what papers to produce within 4C requirements “really a balancing act.” Giving the agencies documents not within the 4C ambit actually “can complicate the HSR process,” he points out, but failure to produce needed papers is worse. “The risks and remedies for failure to disclose can be draconian,” he says. Approving the actions against Hearst were outgoing FTC Chairman Robert Pitofsky and Commissioners Sheila F. Anthony and Mozelle W. Thompson. Republican Commissioners Orson Swindle and Thomas B. Leary, although calling the defendants’ action, “particularly egregious violations,” favored administrative proceedings and penalties as opposed to a lawsuit and profit disgorgement.