October 17, 2007

FAILURE TO SUBMIT PREMERGER NOTIFICATION DOCUMENTS

BRINGS $550,000 CIVIL PENALTY

Iconix Brand Group, Inc. has agreed to pay a $550,000 civil penalty to settle charges by the Antitrust Division of the US Department of Justice (the DOJ) that, in connection with a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act), Iconix failed to submit documents responsive to Item 4(c) of the HSR Form.

The DOJ pursued the charges despite the fact that the federal antitrust agencies had no objection to the acquisition from a substantive antitrust standpoint. The omitted documents included an internal e-mail directed to several Iconix directors and officers, a presentation to an executive vice president of Iconix, and materials prepared for a meeting of Iconix’s board of directors.

This development underscores the need for filers under the HSR Act to preserve, and to conduct a thorough search for, all documents that may be responsive to Item 4(c) of the HSR Form.

Iconix’s Response to Item 4(c)

According to a complaint filed on October 15 by the DOJ in the US District Court for the District of Columbia, in early March 2007 Iconix agreed to acquire certain assets of Rocawear Licensing LLC for approximately $204 million. On March 14, Iconix and Rocawear filed the requisite Notification and Report Forms with the federal antitrust agencies under the HSR Act.

Item 4(c) of the HSR Form required the filers to submit

…all studies, surveys, analyses and reports which were prepared by or for any officer(s) or director(s) (or, in the case of unincorporated entities, individuals exercising similar functions) for the purpose of evaluating or analyzing the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets…

Neither Iconix nor Rocawear submitted any documents in response to this request. According to the DOJ, when a Federal Trade Commission staff attorney questioned Iconix’s counsel on the matter, counsel stated that the company had duly searched for documents responsive to Item 4(c) and that no such documents existed.

DOJ Opens Item 4(c) Investigation Independent of Antitrust Analysis

In late March 2007, the federal agencies notified Iconix that neither agency intended to investigate or challenge the acquisition on antitrust grounds and, accordingly, the filers’ request for early termination of the waiting period under the HSR Act was granted. Iconix consummated the acquisition on March 30, 2007.

Despite the absence of competitive concerns about the acquisition, the DOJ opened an investigation into Iconix’s failure to submit any “4(c)” documents and, on May 1, 2007, issued to Iconix a civil investigative demand seeking documents concerning the Rocawear acquisition. According to the DOJ complaint, in response to that demand Iconix produced, among other things:

  1. An email addressed “To the Iconix directors,” and also sent to several of Iconix’s officers, evaluating and analyzing the proposed acquisition of the Rocawear Assets with respect to expansion into product and geographic markets. This email described Rocawear as a “leader in the urban lifestyle category” and specifically states that this acquisition is “a great opportunity to expand into this market segment…. As well, we see upside opportunities in new categories …, plus international tie-ins”;
  2. A presentation sent to the Executive Vice President of Iconix describing “Rocawear’s presence in the urban lifestyle market,” charting the increase in the Rocawear Assets’ share of that market over the past three years, and comparing the market share of the Rocawear Assets with that of various other competitors; and
  3. Materials prepared for the February 27, 2007 meeting of the board
    of directors of Iconix and sent to all of the members of that board; the materials included the same market share charts described above
    in (B).

The DOJ complaint alleged that these documents were responsive to Item 4(c) of the HSR Form and that, by failing to submit them, Iconix violated the HSR Act.

Civil Penalties by Consent Judgment

Civil penalties of up to $11,000 per day may be imposed for violations of the HSR Act. Following the DOJ’s investigation, Iconix recertified a revised version of its HSR Form and filed it on May 23, 2007. The waiting period on that filing expired on June 22, 2007. Thus, according to the DOJ, Iconix was in violation of the HSR Act from March 30, when the acquisition closed, until June 22, 2007 – a total of 84 days, for a maximum potential penalty of $924,000.

Rather than responding to DOJ’s complaint in court, on October 15, 2007 Iconix consented to judgment being entered against it in the amount of $550,000.

Antitrust Agencies Take Item 4(c) Requirement Seriously

This development confirms the well-known fact that the antitrust agencies take Item 4(c) very seriously, and underscores the need for filers to conduct a thorough search to ensure that all potentially responsive materials are captured and reviewed.

The DOJ’s willingness to undertake a separate investigation of a possible violation of the HSR Act, in the context of a transaction that did not raise substantive antitrust issues under Section 7 of the Clayton Act, indicates that even parties to competitively unproblematic transactions cannot let down their guard when it comes to Item 4(c).

The inclusion of an internal e-mail among the documents enumerated in the DOJ’s complaint emphasizes the fact that the Item 4(c) requirement is not limited to the production of formal studies or analyses, but rather extends to materials kept in virtually any form, including electronic media and handwritten notes. Moreover, the Item 4(c) requirement is not limited to documents in existence at the time of the filing, but rather also requires filers to identify responsive documents that may have been in a filer’s possession at one time and have since been lost or destroyed.

For these reasons, parties to transactions that are potentially reportable under the HSR Act should take early measures to implement careful document retention procedures and ensure that all materials potentially responsive to Item 4(c) are collected and submitted to counsel for review.