The Hearst Corporation Settles Charges of Filing Incomplete Pre-merger Report

The Federal Trade Commission today announced that The Hearst Trust and its wholly owned subsidiary, The Hearst Corporation (Hearst), have agreed to settle charges that it failed to include required documents in its premerger notification report concerning its 1998 acquisition of Medi-Span, Inc. and Medi-Span International, Inc. In accordance with the federal court judgment, Hearst will pay $4 million in civil penalties, the largest amount ever by a single company for a violation of the premerger notification law.

The complaint alleged that the "failure to submit documents ... hindered the ability of the federal antitrust authorities to analyze the competitive effects" of the merger. The filings were required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), which is designed to allow the government to review certain reportable acquisitions and mergers before consummation to determine whether they would violate federal antitrust laws. Hearst subsidiary First DataBank and competitor Medi-Span were the only firms selling software and data detailing such information as pharmaceuticals prices, descriptions, dosages, and interactions when the latter was acquired by Hearst, allowing it to achieve a monopoly after the merger was completed.

"Twenty-five years ago Congress established the HSR pre-merger notification process so that companies could be stopped by the Commission or the Department of Justice prior to harming competition and consumers," said Susan Creighton, Deputy Director of the FTC's Bureau of Competition. "To be effective, this review process requires companies filing HSR notices to fulfill their obligations with candor and completeness. The Commission will continue to enforce the HSR Act when companies fail to do so."

Daniel P. Ducore, Assistant Director in the Compliance Division of the Bureau of Competition added, "This case highlights the importance of companies creating sufficient safeguards to assure that complete and accurate notifications are filed. This is not the Commission's first 4(c) case, but it appears that some companies are still not taking their obligation to do an effective and careful search for required documents seriously."

At the request of the Commission, the Department of Justice filed a final judgment in the U.S. District Court for the District of Columbia providing for the payment of the civil penalty. The civil penalty action was filed as a related case to the Federal Trade Commission's pending federal court permanent injunction case against Hearst and its subsidiary First DataBank. In that complaint, the Commission alleges that Hearst illegally created a monopoly through its acquisition of Medi-Span. The Commission is seeking disgorgement of profits and a divestiture of assets. (See news release dated April 5, 2001; Federal Trade Commission v. The Hearst Trust et al., Civil Action No. 1:01CV00734).

The civil penalty complaint allegations stem from the January 1998 acquisition of Medi-Span, based in Indianapolis, by Hearst, headquartered in New York City, and First DataBank, Hearst's San Bruno, California, subsidiary. The Hart-Scott-Rodino Act required Hearst to file a premerger notification and report form with the FTC and Department of Justice, and observe a waiting period while one of the agencies reviewed the merger to assure that it did not violate the antitrust laws.

According to the complaint, on December 12, 1997, Hearst filed a Notification and Report Form with the agencies. Item (4c) of the form requires that parties submit "all studies, surveys, analyses and reports" prepared by or for analyzing or evaluating "the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets ... " Hearst failed to submit all such documents, including the documents recommending the acquisition of Medi-Span that went to the Board of Directors in September 1997 for their review. The complaint also notes that "Hearst failed to submit a list of documents responsive to Item 4(c) being withheld on grounds of privilege."

The FTC discovered the omitted documents during its investigation of the consummated merger after consumers complained about dramatic price increases for integrated drug information database products. After the Commission staff advised Hearst that its original December 1997 notification was deficient, Hearst amended its notification in August 2001 and included documents that were not submitted in its original notification.

The Complaint, Stipulation and Final Judgment were filed in U.S. District Court for the District of Columbia on October 11, 2001 by FTC attorneys acting as special attorneys to the United States Attorney General

NOTE: A stipulated final judgment and order are for settlement purposes only and do not constitute an admission by the defendants of a law violation.

Copies of the stipulated final judgment and order are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at www.ftc.gov. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC File No. 991-0323, Civ. Act.# 1:01CV02119)