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The FTC Explains How It Determines Whether a Transaction Is Structured for the Purpose of Avoiding the Hart-Scott-Rodino Antitrust Improvements Act

How a transaction gets structured raises a multitude of issues, including whether the transaction might be reportable under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR”). Structuring a transaction for the purpose of trying to avoid compliance with HSR can violate HSR and result in an enforcement action with significant penalties. 

The relevant regulation states that “any transaction or other device entered into or employed for the purpose of avoiding the obligation to comply with the requirements of the act shall be disregarded, and the obligation to comply shall be determined by applying the act … to the substance of the transaction.” 16 C.F.R. § 801.90. Citing to the Statement of Basis and Purpose for Rule 801.90, the Federal Trade Commission recently elaborated on how the agency determines whether a device was employed for the purpose of avoidance:

“For purposes of determining whether transactions or devices for avoidance have been employed, of obvious relevance will be the existence of reasons other than avoidance for the manner in which a particular transaction is consummated.” Some have argued that so long as there is a legitimate purpose for the overall structure of the transaction, then there is not a purpose to avoid. This is not correct. Rule 801.90 is not a normative provision, nor is it even focused on the competitive effects of transactions. Rather, it poses a simple question: does the benefit that is the motive behind the transaction’s structure result from avoiding or delaying filing? If the answer is yes, the structure is an avoidance device under the Rule. … In contrast, if a transaction’s structure creates a benefit entirely unrelated to HSR filing—such as a tax benefit from a proposed structure that has nothing to do with filing—but the filing is delayed or avoided as an incidental consequence of the structure, there is no avoidance device.

In structuring a transaction, the parties’ focus should first be on the corporate implications, tax benefits, or operational requirements for structure, and then on determining whether the transaction will be subject to an HSR filing.

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About this Author

John Steren, Epstein Becker Law Firm, Health Care Litigation Attorney
Member

E. John Steren is a Member of the Firm in the Health Care & Life Sciences and Litigation & Business Disputes practices, in the Washington, DC, office of Epstein Becker Green. Mr. Steren devotes a significant portion of his practice to helping health care organizations manage the antitrust risks of joint ventures and other business arrangements. He also focuses his practice on other complex commercial and civil litigation matters.

202-861-1825
Patricia M. Wagner, Epstein becker green, health care, life sciences
Member

PATRICIA M. WAGNER is a Member of the Firm in the Health Care and Life Sciences and Litigation practices, in the firm's Washington, DC, office. In 2014, Ms. Wagner was selected to the Washington DC Super Lawyers list in the area of Health Care.

Ms. Wagner's experience includes the following:

Advising clients on a variety of matters related to federal and state antitrust issues 

Representing clients in antitrust matters in front of the Federal Trade Commission and the United States Department of Justice, and state antitrust authorities 

Advising clients on issues related HIPAA Privacy and security

Advising clients on issues related to state licensure and regulatory requirements

202-861-4182