How Antitrust Compliance Programs Can Lessen “Gun Jumping” Risk

An August 2024 civil enforcement action from the U.S. Department of Justice’s Antitrust Division underscores why it is important for antitrust compliance programs to address risks related to “gun jumping.”  The Proposed Final Judgment filed in that case also provides guidance on and an opportunity to further consider how compliance measures might be implemented to mitigate those risks.

The DOJ brought its enforcement action against Legends Hospitality Parent Holdings, LLC alleging that Legends violated the Hart-Scott-Rodino Act’s (HSR) waiting period requirements by taking “beneficial ownership” of and otherwise exerting operational control over an acquired entity before the expiration of the HSR waiting period.  This conduct is commonly referred to as “gun jumping.”  After Legends filed its HSR notice in November 2023, the waiting period was subsequently extended until May 2024.  The DOJ alleges that during the waiting period Legends “assumed unlawful control” of the target company.  For example, the DOJ alleged the companies: (1) coordinated which company would service a potential customer; (2) discussed competitive bidding strategies; and (3) exchanged competitively sensitive information.  Several days after the Complaint was filed, the U.S. District Court for the Southern District of New York entered a stipulated order that will likely resolve the allegations, after the completion of a statutory waiting period under the Antitrust Procedures and Penalties Act (also known as the Tunney Act).  Legends agreed to pay $3.5 million to resolve the allegations and also to comply with certain conduct provisions.

As the DOJ has previously explained, “an effective compliance program should be able to detect and address potential antitrust violations.”  The August 2024 enforcement action underscores why compliance programs should “be able to detect and address” potential gun jumping violations in particular.  But how exactly should a compliance program detect and address, or more importantly prevent, potential gun jumping violations and related conduct? 

The conduct provisions of the Proposed Final Judgment filed in the August 2024 enforcement action provide a starting point.  The Proposed Final Judgment requires Legends to take certain actions that are relevant to antitrust compliance programs, including appointing an antitrust compliance officer, maintaining a whistleblower protection policy covering disclosure of potential antitrust violations, and providing annual antitrust compliance training to employees in specified roles and the Board of Directors.  The training is required to cover the application of the antitrust laws to: (1) the sharing of competitively sensitive information with competitors, (2) communications with competitors concerning competitively sensitive information relating to bidding, (3) agreements with competitors to participate in joint bids, and (4) agreements with competitors not to participate in bids or other opportunities.

The Proposed Final Judgment’s mandates for Legends’ compliance program are consistent with the DOJ’s other guidance on designing effective compliance programs and provide a useful starting point as companies think about how to design effective compliance programs that are able to prevent, detect, and address gun jumping violations.  For example, the Proposed Final Judgment’s requirement that Legends appoint an antitrust compliance officer is consistent with the DOJ’s prior guidance that corporate compliance programs should be “adequately resourced and empowered to function effectively.”  Likewise, the Proposed Final Judgment’s provisions on whistleblower protections are consistent with the DOJ’s recent emphasis on whistleblowers.  The Proposed Final Judgment also rightly tailored the required training to those risks that are most relevant during transactions—e.g., sharing of competitively sensitive information.

While the Proposed Final Judgment’s requirements provide a starting point, there are additional actions that companies should consider when attempting to mitigate gun jumping risk.  For example, the U.S. Sentencing Guidelines further provide that there should be periodic evaluations of a compliance program’s effectiveness—including through monitoring or auditing—and that companies should adopt appropriate incentives to encourage compliance. 

As most relevant with respect to gun jumping risks, companies building effective antitrust compliance programs should consider:

• Developing a training course targeted at business development, strategy, and other employees involved in M&A, as these employees will have the context to better understand a detailed description of the whole HSR process (including the gun jumping rules);
• Providing these business development, strategy, and other employees reminders to engage in business as usual and to use independent business judgment before and during contemplated transactions;
• Using a clean team to evaluate competitively sensitive information exchanged during due diligence; and
• Ensuring integration planning does not result in the buyer taking operation control of or otherwise integrating with the target.

These topics should be discussed with antitrust compliance counsel, whether in-house or external, to ensure the companies continue to operate independently before any HSR waiting period ends and the transaction is consummated.  Importantly, certain forms of pre-consummation planning are lawful, including plans for the new company to begin competing effectively on Day One and exchanges of non-sensitive information related to the transaction (e.g., IT architectures that will be merged).  These topics should also be discussed with antitrust compliance counsel.

The August 2024 enforcement action provides a timely reminder of the risks related to gun jumping and a good reason to re-evaluate your antitrust compliance program and the elements of that program on which you provide advice.