Question
(redacted)
August 7,1998
Richard B. Smith, Esquire
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
6th and Pennsylvania Avenue
NW, Room 303
Washington, D.C. 20580
Dear Dick:
I am writing to confirm the advice you gave me last Friday, July 31st, that the transaction I described to you then, and which I describe again below in greater detail, falls within the scope of Section 7A(c) (6) of the Clayton Act, 16 U.S.C. 18A(c) (6).
A Corporation (hereinafter "A" and B Corporation ("B") are both foreign persons. A and a wholly-owned subsidiary of B ("B*") have agreed to enter into a joint venture regarding certain of their respective liner shipping businesses. To this end, the have executed a "Framework Agreement", pursuant to which A will form a new foreign corporation (C"). A and B* will each contribute assets to C, and B* will receive 50% of the voting securities of C. A will keep the other 50% of the voting securities of C. A and B* are negotiating a "Shareholders' Agreement", which will regulate their relationship with each other vis-a vis the joint venture. For purposes of this letter, we are assuming that the formation of this joint venture would be reportable under 7A of the Clayton Act unless it is exempt under 7A(c) (6).
Section 5 of the Shipping Act of 1984 (the"Act:), 46 U.S.C. App. 1704, requires that certain agreements among ocean common carriers be filed with the Federal Maritime Commission ("FMC"); and 6(h) of the Act, 46 U.S.C. App. 1705(b), directs the Commission to reject any agreement that does not meet the requirements of 5. The agreements that must be filed are described as 4 of the Act, 46 U.S.C. App. 1703 .
Section 6(a) of the Act, 46 U.S.C. App. 1705 (a), provides that within 7 days after an agreement is filed, the FMC must transmit a notice of the filing to the Federal Register for publication. Section 6(c), 46 U.S.C. App. 1705(c), provides that an agreement filed under 6shall become effective on the 45th day after filing or on the 30th day after notice of the filing is published in the Federal Register, whichever is later, unless the FMC either rejects the agreement or requests additional information or documentary material. If the FMC makes such a request, the agreement becomes effective unless the FMC rejects the agreement within 45 days after it receives all the additional information and documentary material.
Finally, 7 of the Act, 46 U.S.C. App. 1706, provides that the antitrust laws do not apply to any agreement that has been filed under 5 and has become effective under 6.
The staff of the FMC has advised us that an agreement between A and B* with respectto the joint venture must be filed with the FMC pursuant to 5 of the Act; and A and B* intend to do so. Thus, unless the agreement is rejected by the FMC, that agreement will be exempt from the antitrust laws pursuant to 7 of the Act.
As you know, 7A(c) (6) of the Clayton Act provides that a transaction is exempt from the requirements of 7A of the Clayton Act if it is "specifically exempted from the antitrust laws by Federal statute if approved by a Federal agency, if copies of all information and documentary material filed with such agency are contemporaneously filed with the Federal Trade Commission and the Assistant Attorney General." We submit, and you agreed, that (1) the process to be followed at the FMCconcerning the joint venture between A and B* constitutes approval of the transaction by a Federal agency (unless, of course, the FMC rejects the agreement); and (2) therefore, A, B and C do not have to file Hart -Scott-Rodino Notification and Report Forms, but rather need only file with the FTC and the Antitrust Division copies of the information and documentary materials that they file with the FMC.
While this was your final conclusion, and is the position that I am confirming, I also wish to address the concern expressed by Patrick Sharpe of your Office when I talked with him earlier last Friday. As he noted, a leading commentary on Hart-Scott-Rodino states:
"Although FMC approval exempts from the antitrust laws agreements between carriers that create an ongoing arrangement in which the parties undertake continuing responsibilities (and thus require continuous FMC supervisor.), the Supreme Court has held that the FMC does not have the authority to exempt one-time acquisition agreements that result in one of the contracting parties ceasing to exist. Thus, even when a acquisition of acquisition of assets or voting securities, or a merger is subject to the Shipping Act of 1916 and is approved by the FMC, it is not exempt pursuant to Section 7A(c) (6) and thus is subject to the notification and waiting period requirements of Section 7A, unless otherwise exempted by the Act "The Shipping Act of 1984 provides immunity from the antitrust laws for certain agreements filed with the FMC relating to international shipping. The act does not apply to acquisitions of assets or voting securities and does not exempt acquisitions or mergers from Section 7A requirements."
S. Axinn, et al., Acquisitions Under the Hart-Scott-Rodino Antitrust Improvements Act 6.06[3]
[iii] at 6-47-6-48 (1995) (citations omitted). Because of this interpretation of the interplay between 7A of the Clayton Act and the Shipping Act of 1984, Patrick questioned whether the joint venture between A and B* would be exempt under 7A(c) (6).
I note first that perhaps Messrs. Axinn, Fogg, et al. did not intend to include the formation of joint ventures among the "acquisitions of assets or voting securities" tp which, according to them, the Shipping Act of 1984does not apply (and its predecessor, the Shipping Act of 1916, did not apply). If so, their discussion is simply inapplicable here. If, however, they intended to include all joint ventures in their exemption from the Shipping Act of 1984, they were simply mistaken.
The case upon, which they rely, FMC v. Seatrain Lines, Inc., U.S. 726 (1973), involved the acquisition by one ocean shipping company of all the assets of another, leaving the seller "as a shell corporation, wholly without assets." Id. at 730. The question before the Court was "whether a contract which calls for the acquisition of all the assets of one carrier by another carrier and which creates no ongoing obligations is and `agreement' within the meaning of this section: [of the Shipping Act]", and thus subject to filing with the FMC and exempt from the antitrust laws. Id. at 728. The Court ultimately concluded that such contracts are not agreements that must be filed, and thus are not exempt from the antitrust laws.
Pace Messrs. Axinn, Fogg,, et al., the Court did not hold, or even suggest, that there are any agreements subject to filing under the Shipping Act that would not be exempt from the antitrust laws. It held that the agreement before it was not subject to the Shipping Act, and therefore was not exempt from the antitrust laws.
Furthermore, in reaching this conclusion with respect to the agreement before it, the Supreme Court repeatedly stressed the fact that one of the two parties to that agreement would have no ongoing responsibilities under the agreement. Indeed, the Court held that "Congress intended to invest the [Federal Maritime] Commission with jurisdiction over only these agreements or those portions of agreements, which created ongoing rights and responsibilities and which, therefore, necessitated continuous Commission supervision." Id. at 729. The agreement between A and B*, bu contrast, imposes continuing responsibilities upon each party, and provides for continuing responsibilities upon each party, and provides for continuing participation by each party in the management of the joint venture. Moreover, A and B* will continue to exist as independent, operating entities after the formation of their joint venture. Thus Seatrain does not exempt the agreement between A and B* from the Shipping Act of 1984, or in any way even suggest that the agreement between A and B* will not be exempt from the antitrust laws if it is not rejected by the FMC.
Please call me, at (redacted) if you have any questions about what I have written, or about the transaction I have described. In accordance with the standard practice of the Premerger Notification Office, unless I hear otherwise from you within 3 business days after we deliver this letter to you (i.e., by the close of business on Wednesday, August 12th, we will proceed on the basis that the Premerger Notification Office agrees that the joint venture of A and B* falls within the scope of 7A (c) (6) of the Clayton Act; and therefore A, B and C will not file Hart-Scott Rodino Notification and Report Forms, but rather will file with the FTC and the Antitrust Division only the information and documentary material that they file with the FMC.
I again thank you and Patrick for the time you spent discussing this matter with me last Friday.
Best regards.
Sincerely,
(redacted)
cc: (redacted)