Despite the rule coming from Democrats and being opposed by business, the FTC takes an adverse ruling to the Fifth Circuit.
The Federal Trade Commission is pressing its case in favor of a Biden-Khan era overhaul of the Hart‑Scott‑Rodino (HSR) premerger notification rules, which included a dramatic expansion of the information and documentary material that merging parties must submit with an HSR filing. The rule went into effect just over a year ago on Feb. 10, 2025.
A court in the Eastern District of Texas concluded on Feb. 12, 2026, however, that the agency exceeded its statutory authority and engaged in arbitrary and capricious rulemaking. The FTC has appealed to the Fifth Circuit, which granted a temporary stay and directed the parties to brief the matter this week. The case is noteworthy because it pits the business community against the typically business friendly Trump-Ferguson administration, which has been hostile toward the policies of the previous administration. Chamber of Commerce of the United States of America, et al. v. Federal Trade Commission, et al., E.D. Texas, Tyler Div., No. 6:25‑cv‑00009‑JDK.
Who was behind the new, more demanding HSR rule?
The push to overhaul the HSR pre-merger filing rules originated in June 2023, when then-FTC Chair Lina Khan issued a sweeping Notice of Proposed Rulemaking calling for a “top‑to‑bottom” revision of the HSR form, the first in more than four decades. Khan argued that the old form no longer reflected modern dealmaking, particularly private‑equity structures, minority interests, vertical integration, and serial acquisitions. These gaps impaired the agencies’ ability to assess competitive risk within the statutory 30‑day review window, the argument went.
The proposal drew criticism from business groups and some antitrust practitioners, but it was formally adopted on Oct. 10, 2024, with the FTC voting unanimously, 5–0, in favor of the change. The final rule was scaled back from the 2023 proposal after internal negotiations, but it retained a substantial expansion of required disclosures. The final rule added 20 new categories of required information. According to the FTC’s own estimates, compliance time would nearly triple, from an average of 37 hours per filing to 105 hours.
FTC Chair Andrew N. Ferguson publicly defended the final rule as the product of “intense negotiations” and a bipartisan consensus, distinguishing it from other Biden‑era FTC initiatives (such as the non‑compete ban) that he viewed as legally indefensible. In a concurring statement issued at adoption, Ferguson said Congress authorized HSR rulemaking. The new rule was a lawful update, not regulatory overreach, he said.
Court: The rule is a limitation, not a blank check.
The statute permits the FTC to require documentary material and information “as is necessary and appropriate” to enable the agencies to determine whether a proposed transaction may violate the antitrust laws. U.S. Judge Jeremy Kernodle found that this language is a limitation, not a blank check.
Relying on Supreme Court and Fifth Circuit precedent, Judge Kernodle held that “necessary and appropriate” requires the agency to show, at a minimum, that the benefits of a rule reasonably outweigh its costs. The FTC failed to do so, he determined, saying the agency exceeded its authority. He further rejected the FTC’s argument that it could demand expansive disclosures without conducting a meaningful cost‑benefit analysis, concluding that no regulation is “appropriate” if it “does significantly more harm than good.”
Was the rule an expensive solution in search of a rare problem?
The agency argued that the new requirements were necessary to detect harmful mergers that would otherwise evade scrutiny. But the court found that the FTC could not identify a single illegal merger — over the 46‑year history of the prior HSR form — that the new rule would have prevented.
Judge Kernodle held that studies cited by the FTC showed that allegedly problematic mergers were, in fact, reviewed under the existing HSR framework, including through Second Requests, undercutting the claim that deficiencies in the old form were responsible for enforcement failures.
The court contrasted these speculative benefits with concrete, quantified costs. Using the FTC’s own estimates, the judge explained that the Final Rule would impose approximately $139 million per year in additional compliance costs across more than 3,500 annual HSR filings. Crucially, those costs would be borne by all filers, even though roughly 92% of transactions never receive any additional investigation.
As the court observed, the rule imposed heavy burdens on thousands of transactions that pose no competitive concern to marginally assist agency review in a small minority of cases. Judge Kernodle concluded that the agency’s reasoning relied too heavily on “unsupported conclusions” and “sheer faith” in the agency’s “expertise,” which is insufficient.
This is a significant procedural rebuke to the FTC’s recent approach to pre-merger regulation, but it does not signal a retreat from merger enforcement itself. The HSR Act remains fully operative, the agencies retain their authority to issue Second Requests. Substantive merger challenges under Section 7 of the Clayton Act are unaffected. What the decision curtails is the FTC’s effort to front‑load expansive discovery obligations onto every reportable transaction without demonstrating that the benefits justify the cost.
What have critics said about the HSR evidentiary expansion?
Critics grounded in administrative law and empirical antitrust economics questioned whether front‑loading extensive disclosures across all reportable transactions would improve merger enforcement outcomes. The district court’s opinion echoed work by economists Logan Billman and Steven C. Salop, whose analysis in the Antitrust Law Journal showed that only a small fraction of HSR filings historically triggered Second Requests — suggesting that the legacy form effectively screened transactions for deeper review.
Related scholarship on retrospective merger enforcement, including studies co‑authored by FTC Bureau of Economics economists Keith Brand and colleagues, has been cited to show that problematic mergers were often identified under the existing HSR framework, with enforcement failures more plausibly attributable to litigation risk or resource constraints than to informational gaps at the filing stage.
What have supporters of the new rule had to say?
Support for the expanded HSR requirements came from scholars associated with a more structural approach to antitrust enforcement. Commentators aligned with the so‑called Neo‑Brandeisian school of thought, founded on the belief that U.S. competition law should focus less narrowly on prices and short‑term consumer welfare and more broadly on economic concentration and private power.
Prominent figures such as Lina Khan (prior to her tenure as FTC Chair) and other academics writing in law reviews and policy journals argued that modern dealmaking involving private equity structures, minority interests, and vertical integration strains disclosure regimes designed for an earlier era. These scholars contended that earlier access to transaction rationales, internal strategy documents, and ownership information could improve agencies’ ability to detect threats to nascent competition and innovation.
Judge Kernodle adopted the empirical and administrative‑law critique that expansive front‑end disclosure requirements must be justified by demonstrable enforcement gains, not by abstract claims about modern market complexity. The rule remains in effect pending the outcome of the government’s appeal.
Is there a middle way?
A narrower, evidence‑driven expansion of HSR disclosures could better balance the FTC’s need for effective screening with legitimate business concerns by concentrating on information most likely to reveal competitive risk. Rather than imposing sweeping document demands on every transaction, the agency could require targeted upfront disclosures tied to objective risk indicators—such as repeat acquisitions in concentrated markets or prior deals in the same product or labor markets—thereby addressing perceived enforcement blind spots without turning routine filings into de facto second requests. By cabining enhanced requirements to clearly defined risk factors, the FTC would improve early detection of genuinely problematic mergers while preserving the efficiency and proportionality that the HSR regime was designed to provide.
Edited by Tom Hagy, Editor-in-Chief, Mogin Law Blog.
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