You have succeeded in getting antitrust approval of a deal from U.S. regulatory authorities, so now the deal is exempt from later antitrust challenge, right?

Not necessarily. The following explains:

• How deals cleared by U.S. regulatory authorities can be challenged by these same authorities or by private plaintiffs;
• Why deal counsel in certain transactions that raise antitrust concerns should alert their clients to possible future challenge from unhappy customers; and
• How the possibility of future challenge can be mitigated by carefully monitoring customer reactions to price increases or market restraints.

Over the years, both of the U.S. antitrust enforcement agencies—the Department of Justice (DOJ) and Federal Trade Commission (FTC)—have made clear that the expiration of the Hart-Scott-Rodino (HSR) waiting period does not necessarily clear a transaction from antitrust review by these agencies at some time in the future. Recently, the DOJ filed a complaint in the U.S. District Court for the District of Delaware challenging a consummated acquisition that had previously received clearance under the HSR Act.

The complaint alleged that the acquisition of CLARCOR by Parker-Hannifan Corporation threatened to harm competition between two direct competitors in the market for aviation fuel filtration systems in the U.S. The HSR waiting period expired on Jan. 17, 2017 and the deal closed on Feb. 28, 2017, presumably without a second request, given the timing involved. After the deal closed, the DOJ apparently received complaints and decided to open an investigation, which resulted in a complaint where the DOJ alleged that Parker was aware of the transaction's potential antitrust risk and did not disclose it fully. Ultimately, the parties entered into a settlement agreement where Parker was ordered to divest certain filtration assets that it had acquired from CLARCOR.

It is not uncommon for the U.S. antitrust enforcement agencies to investigate consummated mergers. Such investigations, however, have typically concerned transactions that were not reportable under the HSR rules. The DOJ lawsuit in the Parker/CLARCOR case provides a reminder that the consummation of a deal does not signal the conclusion of the antitrust enforcement agencies' review.

Similarly, as evidenced in a recent case, it is also possible for private  antitrust plaintiffs to challenge a consummated transaction that had previously cleared HSR review. Just this month, the U.S. District Court for the Eastern District of Virginia ordered a defendant in a private antitrust case to divest a manufacturing plant following a competitor's challenge. That case involved a 2012 acquisition by Jeld-Wen—one of the world's largest manufacturers of windows and doors—of Craftmaster, a competing manufacturer of household door components. Although the DOJ investigated this transaction for possible anticompetitive effects, it declined to challenge the acquisition. Just before the four-year statute of limitations had run, Steves & Sons (S&S) sued Jeld-Wen alleging that the acquisition of Craftmaster violated Section 7 of the Clayton Act. S&S sought treble damages and equitable relief.

S&S was successful in its litigation. The court ordered Jeld-Wen to sell a plant under a special master's supervision, and pay significant antitrust and contract damages. This is probably the first time a private plaintiff has been successful in trying a merger challenge after the government had conducted an HSR investigation and then declined to challenge the transaction. The decision will likely be appealed. Jeld-Wen has stated that it believes the court's decision is incorrect due to multiple flawed rulings during the trial process. These rulings, according to Jeld-Wen, improperly limited the company's defenses, in part by excluding evidence including the presentation of evidence of prior DOJ review.

Whatever the final outcome of a Jeld-Wen appeal, though, it is likely that this case, along with the Parker-Hannifan case and other similar cases, are likely to undermine whatever comfort merging parties have that the HSR premerger clearance process provides a safe harbor for their transaction going forward. These cases can also be read to mean that in transactions raising potential antitrust issues, acquiring parties need to be especially sensitive to their customers as well as customers of the acquired person.

Most post-merger investigations are the result of complaints to the DOJ or FTC from customers who believe they have been competitively disadvantaged by the merger. Often the acquiring company in the merger raises prices or limits availability of a product that had been sold by the acquired company. It is important to understand that a disadvantaged customer can complain to the government or challenge the consummated transaction itself. In order to avoid the cost, inconvenience and possible damages from a government investigation or private litigation, it is critical for the acquiring company in a merger transaction to be especially sensitive to customer needs. In this regard, we would suggest for a period of a few years after the acquisition, that price increases be tied to cost and that those price increases be explained patiently to customers. Also, we suggest that planned vertical restrictions as well as reduced product sales be deferred if possible, and if not possible, carefully explained to customers.

Sophisticated customers who complain to the antitrust enforcement authorities about competitive injury following a business combination are likely to get traction from their complaints with DOJ or FTC staff. Credible information about anticompetitive behavior, provided to government lawyers from multiple customers in an industry, is likely to generate interest from the enforcement agencies, and could result in the issuance of a civil investigative demand. Customer relations, while always important, are even more important following a transaction that could raise antitrust issues. Avoiding potential antitrust issues related to a deal that has already been cleared or is non-reportable (including private litigation or government investigation) requires careful market monitoring and sensitivity by the officers and senior sales personnel of the acquiring company. Experience also indicates that lawyer involvement can be critical in avoiding antitrust concerns even after a deal closes.

Barry A. Pupkin is a partner with Squire Patton Boggs, representing clients in domestic and international business combinations. He practices primarily before the Antitrust Division of the Department of Justice and the Federal Trade Commission, as well as other regulatory and legislative bodies in the United States, Europe and Asia.