Companies are getting sloppy--and it's costing them. Take Qualcomm's merger agreement with Flarion Technologies. As originally drafted, the agreement required Flarion to obtain Qualcomm's written consent before presenting business proposals to any customer or prospective customer. The parties subsequently amended this provision of their agreement, but, as it turned out, the damage was done.
The parties had already reported their deal to the federal antitrust agencies pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act). The Justice Department investigated the transaction, cleared it, and then prosecuted Qualcomm and Flarion for gun jumping.
Gun jumping occurs when merging parties effectively close a reportable transaction before expiration of the statutory waiting period. There are many ways companies can get into trouble for gun jumping. Requiring a merger partner to get permission just to sell its products is one of the really, really obvious ones.
According to the government's complaint, the merger agreement itself was just the tip of the iceberg. The complaint alleges that Flarion regularly requested permission from Qualcomm to do what one Qualcomm executive called "pretty routine things." It asked Qualcomm for consent to market products and services; indeed, Qualcomm once denied Flarion's request for consent to offer a discount to a customer.
Included with the complaint was a settlement agreement. As the Justice Department announced, the settlement agreement requires Qualcomm and Flarion to pay a civil penalty of $1.8 million for their alleged gun jumping activities.
