On March 20, 2018, the U.S. Federal Trade Commission (FTC) issued updated guidance regarding compliance with antitrust laws for companies considering acquisitions, mergers, or joint ventures. While the FTC recognizes that such companies “typically have a legitimate need to access detailed information about the other party’s business in order to negotiate the deal and implement the merger,” information regarding current and future price information, strategic plans, operations and performance may be competitively sensitive.

Sharing of certain sensitive information with a competitor before and during M&A negotiations and the due diligence process may subject companies to liability under the Sherman Antitrust, Clayton Antitrust, and Hart-Scott-Rodino Acts (Antitrust Laws) even if the FTC declines to take any action regarding the proposed transaction. Specifically, pre-merger information sharing may, among other things, contribute to unlawful “gun jumping” in violation of the Hart-Scott-Rodino Act if it involves actual coordination of business activities, and “the buyer effectively gain[s] beneficial ownership of the seller prior to the close of the transaction.” Recently, the FTC has charged merging parties with dissemination and misuse of competitively sensitive information for anticompetitive purposes after reviewing and determining that the parties improperly exchanged information that endangered competition by reducing uncertainty about each others’ product offerings, prices, and strategic plans. [1] Potential consequences of an FTC action can range from delayed approval of the merger to an antitrust suit to civil damages.

Improper sharing of information and premature coordination remain concerns until an M&A transaction closes because until consummation, the parties are still independent enterprises with sensitive information. In the event that the transaction is delayed, modified, or abandoned, the improper information sharing could cause long-lasting competitive harm similar to the harm caused by an anticompetitive merger. Examples of long-lasting competitive harm include higher prices, reduced quality or service, and less innovation within an industry. Therefore, until consummation, merging parties must continue to operate independently and safeguard competitively sensitive information should the merger not take place. In its updated guidance, the FTC sets forth three main steps for companies to take to minimize antitrust risks in sharing sensitive information:

1. Implement a plan to monitor and control the flow of information to outside parties, including procedural safeguards designed to prevent misuse of competitively sensitive information.
2. Legal counsel should ensure that merging parties follow established protocols and closely monitor and identify potentially problematic information sharing practices.
3. If improper information sharing or premature coordination occurs, the parties should halt the activity immediately and self-report to the FTC to prevent additional investigation, delay, and cost.

Additionally, the FTC provides specific recommendations for both the disclosing party and the receiving party during due diligence. While the particular means of safeguarding competitive information depend on the facts and circumstances of a deal, these recommendations can help merging parties establish a compliance plan to avoid potential antitrust liability. The FTC recommends that the disclosing party do the following:

1. Share the least amount of information needed for effective due diligence, narrowly tailored and reasonably related to a specific due diligence or pre-merger integration planning issue. Consider tailoring the amount of information shared to the stage of the deal process.
2. Mask customer identities and aggregate all competitive information.
3. Redact documents to shield customer identities and other information.
4. Examine all materials made available to bidders that may raise competitive concerns.
5. Prohibit individuals with data room access from downloading or emailing confidential information in the data room.
6. Implement and monitor document destruction instructions at the end of the due diligence process.

   For receiving parties, the FTC recommends the following:

1. Ensure all employees with access to confidential information understand all confidentiality and non-disclosure agreements.
2. Establish “clean teams,” select individuals who can access competitively sensitive information in data rooms, and employ third-party consultants for such information that must be exchanged.
3. Engage outside counsel to vet clean team members.
4. Ensure that employees do not save confidential information in locations that others within the company can access.
5. If reports from consultants and the clean team must be provided to other business personnel, those reports should contain blinded, aggregated versions of any competitively sensitive information and be subject to review by counsel before dissemination.

To avoid antitrust liability during pre-merger negotiations and the due diligence process, companies should consider the risks of exchanging competitively sensitive information and establish and enforce appropriate protocols.

[1] See, e.g., Bosley, Inc., Aderans America Holdings, Inc. and Aderans Co., Ltd. (2013), in which the FTC alleged that Bosley, Inc., the largest operator of hair replacement procedures, illegally exchanged competitively sensitive nonpublic information about its business, including details about future product offerings, surgical hair transplantation price floors and discounts, plans for business expansion and contraction, and current business operations and performance with HC (USA), Inc., or the Hair Club, in advance of and throughout talks regarding a possible transaction. While the FTC declined to challenge the merger, it concluded that the exchange endangered competition in violation of the Antitrust Laws, whether or not the transaction was consummated.