EQT and Quantum; Analysis of Agreement Containing Consent Order To Aid Public Comment, 58269-58275 [2023-18272]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 88, Number 164 (Friday, August 25, 2023)]
[Notices]
[Pages 58269-58275]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-18272]


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FEDERAL TRADE COMMISSION

[File No. 221 0212]


EQT and Quantum; Analysis of Agreement Containing Consent Order 
To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement; request for comment.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of Federal law prohibiting unfair methods of competition. 
The attached Analysis of Proposed Consent Orders to Aid Public Comment 
describes both the allegations in the complaint and the terms of the 
consent orders--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before September 25, 2023.

ADDRESSES: Interested parties may file comments online or on paper by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Please write: ``EQT and 
Quantum; File No. 221 0212'' on your comment and file your comment 
online at https://www.regulations.gov by following the instructions on 
the web-based form. If you prefer to file your comment on paper, please 
mail your comment to the following address: Federal Trade Commission, 
Office of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 
(Annex N), Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Greta Burkholder (202-326-3225), 
Bureau of Competition, Federal Trade Commission, 400 7th Street SW, 
Washington, DC 20024.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule Sec.  2.34, 16 CFR 
2.34, notice is hereby given that the above-captioned consent agreement 
containing a consent order to cease and desist, having been filed with 
and accepted, subject to final approval, by the Commission, has been 
placed on the public record for a period of 30 days. The following 
Analysis of Agreement Containing Consent Order to Aid Public Comment 
describes the terms of the consent agreement and the allegations in the 
complaint. An electronic copy of the full text of the consent agreement 
package can be obtained from the FTC website at this web address: 
https://www.ftc.gov/news-events/commission-actions.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before September 25, 
2023. Write ``EQT and Quantum; File No. 221 0212'' on your comment. 
Your comment--including your name and your state--will be placed on the 
public record of this proceeding, including, to the extent practicable, 
on the https://www.regulations.gov website.
    Because of the agency's heightened security screening, postal mail 
addressed to the Commission will be delayed. We strongly encourage you 
to submit your comments online through the https://www.regulations.gov 
website. If you prefer to file your comment on paper, write ``EQT and 
Quantum; File No. 221 0212'' on your comment and on the envelope, and 
mail your comment to the following address: Federal Trade Commission, 
Office of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 
(Annex N), Washington, DC 20580.
    Because your comment will be placed on the publicly accessible 
website at https://www.regulations.gov, you are solely responsible for 
making sure your comment does not include any sensitive or confidential 
information. In particular, your comment should not include sensitive 
personal information, such as your or anyone else's Social Security 
number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. You are also 
solely responsible for making sure your comment does not include 
sensitive health information, such as medical records or other 
individually identifiable health information. In addition, your comment 
should not include any ``trade secret or any commercial or financial 
information which . . . is privileged or confidential''--as provided by 
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule Sec.  
4.10(a)(2), 16 CFR 4.10(a)(2)--including competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.

[[Page 58270]]

    Comments containing material for which confidential treatment is 
requested must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with FTC Rule Sec.  4.9(c). In 
particular, the written request for confidential treatment that 
accompanies the comment must include the factual and legal basis for 
the request and must identify the specific portions of the comment to 
be withheld from the public record. See FTC Rule Sec.  4.9(c). Your 
comment will be kept confidential only if the General Counsel grants 
your request in accordance with the law and the public interest. Once 
your comment has been posted on https://www.regulations.gov--as legally 
required by FTC Rule Sec.  4.9(b)--we cannot redact or remove your 
comment from that website, unless you submit a confidentiality request 
that meets the requirements for such treatment under FTC Rule Sec.  
4.9(c), and the General Counsel grants that request.
    Visit the FTC website at https://www.ftc.gov to read this document 
and the news release describing this matter. The FTC Act and other laws 
the Commission administers permit the collection of public comments to 
consider and use in this proceeding, as appropriate. The Commission 
will consider all timely and responsive public comments it receives on 
or before September 25, 2023. For information on the Commission's 
privacy policy, including routine uses permitted by the Privacy Act, 
see https://www.ftc.gov/site-information/privacy-policy.

Analysis of Agreement Containing Consent Order To Aid Public Comment

    The Federal Trade Commission (``Commission'') has accepted for 
public comment, subject to final approval, an Agreement Containing 
Consent Order (``Consent Agreement'') from QEP Partners, LP, by itself 
and through the entities under its control (including Quantum Energy 
Partners VI, LP; Q-TH Appalachia (VI) Investment Partners, LLC) 
(collectively, ``Quantum''), and EQT Corporation (``EQT,'' and together 
with Quantum, ``Respondents''). EQT has proposed acquiring THQ 
Appalachia I, LLC (``Tug Hill'') and THQ-XcL Holdings I, LLC (``XcL 
Midstream'') from Quantum for approximately $5.2 billion: $2.6 billion 
in cash and up to 55 million shares of EQT stock (``Proposed 
Transaction''). In addition to this consideration, and in connection 
with Quantum's anticipated status as one of EQT's largest shareholders, 
EQT agreed to facilitate the appointment of Quantum's CEO, or another 
Quantum-designated individual, to the EQT Board of Directors.
    The Proposed Transaction raises several concerns. Specifically, 
both Quantum's anticipated position as one of EQT's largest 
shareholders and EQT's obligation to facilitate the appointment of a 
Quantum designee to the EQT board raise concerns that Quantum or EQT 
could have access to each other's competitively significant, non-public 
information and could participate in, or have influence over, 
competitive decision-making at each firm. Under Section 8 of the 
Clayton Act, it is per se illegal for directors and officers to serve 
simultaneously on the boards of competitors (subject to limited 
exceptions), as would occur here absent the Consent Agreement with the 
appointment of Quantum's designee to the board of its competitor, EQT. 
In addition to these concerns, a pre-existing joint venture between EQT 
and Quantum, The Mineral Company (``TMC''), raises concerns with 
respect to the exchange of competitively sensitive business information 
regarding the acquisition of mineral rights within the Appalachian 
Basin.
    The Consent Agreement is designed to remedy allegations in the 
Commission's Complaint that: (1) Quantum's proposed acquisition of up 
to 55 million shares of EQT stock, together with or separately from 
assurances that a Quantum-designee will be nominated for a seat on the 
EQT Board of Directors, would result in an illegal interlocking 
directorate in violation of Section 8 of the Clayton Act, 15 U.S.C. 19, 
and an unfair method of competition in violation of Section 5 of the 
Federal Trade Commission Act, 15 U.S.C. 45 due to potential exchange of 
confidential, competitively sensitive information, and that (2) TMC, 
the pre-existing Quantum/EQT joint venture, is an unfair method of 
competition in violation of section 5 of the FTC Act, 15 U.S.C. 45.
    The proposed settlement presents significant relief for these 
concerns. The Consent Agreement and proposed Decision and Order 
(``D&O'') prohibit Quantum from occupying an EQT Board seat and require 
Quantum to divest its EQT shares by a non-public date certain, 
effectively imposing a structural fix to concerns about the influence 
and information access that arise from Quantum's sizable EQT 
shareholder position. The D&O contains provisions that incentivize 
Quantum's rapid sale of the EQT shares, coupled with provisions 
effectively rendering Quantum's ownership passive pending the sale of 
its EQT shares. The D&O also reduces opportunities for exchanging 
confidential and competitively significant information between the 
firms beyond Quantum's EQT share ownership, notably by requiring EQT 
and Quantum to unwind the TMC mineral rights acquisition joint venture. 
The D&O contemplates the appointment of a monitor to ensure compliance 
with the terms of the ten-year order.
    The proposed D&O imposes effective and administrable relief, while 
setting important Commission precedent on the application of Section 8 
of the Clayton Act, Section 5 of the FTC Act, and the use of structural 
remedies to address these theories of harm. By restricting future 
opportunities for the parties to engage in conduct that would result in 
Section 8 violations and other unfair methods of competition involving 
natural gas activities in the Appalachian Basin, the proposed D&O 
signals the antitrust risks of excessive influence and anticompetitive 
information exchange.
    The Commission has placed the Consent Agreement on the public 
record for thirty days to solicit comments from interested persons. 
Comments received during this period will become part of the public 
record. After thirty days, the Commission will review the comments 
received and decide whether it should withdraw, modify, or make the 
proposed Order final.

I. The Respondents

    Respondent QEP Partners, LP is a limited partnership organized, 
existing, and doing business under, and by virtue of, the laws of the 
State of Delaware, with its office and principal place of business 
located in Houston, Texas. Respondent QEP Partners, LP controls 
Respondents Quantum Energy Partners VI, LP and Q-TH Appalachia (VI) 
Investment Partners, LLC. Through its private equity, investment, and 
structured finance funds, Quantum owns, controls, or has influence over 
entities producing natural gas in the Appalachian Basin and throughout 
the country. Quantum-owned entities include Tug Hill, a natural gas 
producer in the Appalachian Basin, and XcL Midstream, a natural gas 
gatherer and processor in the Appalachian Basin, two entities sought 
for purchase by Respondent EQT.
    Respondent EQT is a corporation organized, existing, and doing 
business under, and by virtue of, the laws of the Commonwealth of 
Pennsylvania, with its office and principal place of business located 
in Pittsburgh, Pennsylvania. EQT is the nation's largest producer of 
natural gas. EQT acquires mineral rights and produces natural gas and 
natural gas liquids primarily in the Appalachian

[[Page 58271]]

Basin, including areas close to Quantum's Tug Hill/XcL Midstream 
operations. EQT markets natural gas within and outside the Appalachian 
Basin.

II. The Agreements

    On September 6, 2022, EQT and Quantum entered into a Purchase 
Agreement, under which EQT sought to acquire Tug Hill and XcL Midstream 
from Quantum for a total purchase price of approximately $5.2 billion. 
Roughly half of the consideration to Quantum would take the form of up 
to 55 million shares of EQT stock.\1\ The Proposed Transaction would 
make Quantum one of EQT's largest shareholders. As additional 
consideration, EQT agreed to ``take all necessary action to 
facilitate'' the appointment of Quantum CEO Wil VanLoh, or another 
Quantum designee, ``to be included in a slate of director nominees 
recommended by the [EQT] Board'' for election as an EQT director.
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    \1\ The number of shares ultimately due to Quantum is subject to 
customary purchase price adjustments, including adjustments for 
business proceeds and costs incurred during the interim period 
between signing and closing of the Proposed Transaction.
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    The Commission's Complaint alleges that the Proposed Transaction, 
as structured, would violate Section 8 of the Clayton Act, 15 U.S.C. 
19, as an illegal interlocking directorate, and that the Proposed 
Transaction--the acquisition of up to 55 million EQT shares or EQT's 
obligation to use best efforts to nominate a Quantum director--also 
constitutes an unfair method of competition in violation of Section 5 
of the Federal Trade Commission Act, 15 U.S.C. 45 due to risks of the 
exchange of competitively sensitive, non-public information.
    In October 2020, EQT and a Quantum affiliate entered an agreement 
forming a joint venture, TMC. TMC served as a vehicle for EQT to 
purchase mineral rights in the Appalachian Basin, with funding largely 
supplied by Quantum. The TMC agreement requires EQT to offer a right of 
first refusal to TMC before EQT can purchase mineral rights within a 
specified geography. TMC receives forward-looking and competitively 
sensitive, non-public information about EQT's mineral rights 
acquisition plans, drilling plans, strategies, and operations. 
Quantum's participation in TMC management provided it with access to 
this information as well.
    The Commission's Complaint alleges that the TMC joint venture is an 
unfair method of competition in violation of Section 5 of the Federal 
Trade Commission Act, 15 U.S.C. 45.

III. Line of Commerce

    The production and sale of natural gas is a relevant line of 
commerce. Natural gas is a critical fuel source with highly varied uses 
in the United States and worldwide. Natural gas purchasers generally 
cannot switch to alternative fuels without substantial costs and delay.
    The acquisition of mineral rights is also a relevant line of 
commerce. To produce natural gas, a firm must first purchase or lease 
mineral rights from landowners. The mineral rights held by a producer 
can indicate key aspects of the producer's future production plans, 
including the areas the producer may drill and the amount of drilling 
activity the producer anticipates within a reasonable timeframe.
    The Appalachian Basin, consisting of the portions of West Virginia, 
Pennsylvania, Ohio, Maryland, Kentucky, and Virginia that lie in the 
Appalachian Mountains, is widely recognized as a major natural gas 
producing area in the United States, and one of the largest in the 
world. A current shortage of available pipeline capacity to transport 
natural gas from the Appalachian Basin to demand centers outside of the 
Basin is a distinguishing characteristic of the region. Stranded excess 
gas supply in the Basin has artificially depressed local prices 
relative to pricing locations outside the Basin. Given current pipeline 
constraints, customers located within the Appalachian Basin cannot 
economically purchase gas from outside the Basin.

IV. Effects of the Agreements

    The Commission's Complaint addresses two theories of harm. First, 
Quantum's acquisition of up to 55 million EQT shares would make 
Quantum--an EQT rival in the production and sale of natural gas in the 
Appalachian Basin--one of the largest shareholders of EQT. This 
shareholder position would provide Quantum with the ability to sway or 
influence EQT's competitive decision-making and to access EQT's 
competitively sensitive information. As one of EQT's largest 
shareholders, Quantum would have the opportunity to communicate 
directly with EQT and could discuss confidential business information 
or direct or otherwise influence EQT's competitive actions or 
strategies. Knowledge gained via its relationship with EQT could also 
influence Quantum's own competitive decisions or development of new 
businesses involved in the production and sale of natural gas. The 
Commission's Complaint alleges these opportunities are particularly 
problematic given certain actions by the Respondents, including the TMC 
joint venture and other activities involving providing nonpublic 
information that restricted competition, the natural gas industry's 
history of encouraging the exchange of competitively sensitive 
information, and competitors publicly signaling their strategic moves 
to other competitors.
    Moreover, the Proposed Transaction explicitly contemplated Quantum 
CEO Wil VanLoh's appointment to EQT's Board of Directors. In addition 
to his role as CEO, Mr. VanLoh is the Chair of the Investment Committee 
for Quantum Energy Partners, Quantum's private equity subsidiary and 
the entity that oversees the investment decisions of Respondent Quantum 
Energy Partners VI, LP and its subsidiaries. Mr. VanLoh was previously 
a member of the Tug Hill Board of Directors and also sits on the Board 
of Directors of another natural gas company in which Quantum invests. 
As a result, Mr. VanLoh's appointment to EQT's Board of Directors while 
simultaneously serving as CEO of Quantum and Chair of Quantum's 
Investment Committee would create an illegal interlocking directorate 
between EQT and Quantum. Any other director appointed by Quantum would 
be, by virtue of the appointment, an agent of Quantum and under its 
control. Thus, appointing a Quantum-designated director (other than Mr. 
VanLoh) to EQT's Board of Directors would similarly create an illegal 
interlock between EQT and Quantum. The Complaint alleges that the above 
concerns violate both section 8 of the Clayton Act and section 5 of the 
Federal Trade Commission Act.
    The Complaint's second theory of harm addresses the TMC joint 
venture specifically, as well as information exchange more generally. 
The TMC joint venture creates additional opportunities for sharing 
competitively sensitive business information. Respondents already may 
use TMC as a vehicle for information exchange, either with respect to 
competition for the purchase of mineral rights or in connection with 
EQT's future drilling plans. Via the TMC joint venture, EQT and Quantum 
(through portfolio companies involved in the acquisition of mineral 
rights and production and sale of natural gas in the Appalachian Basin) 
each can inform the other where it intends to procure mineral rights 
for future productions and how much it plans to bid. This information 
is forward-looking, non-public, and competitively sensitive, and its 
exchange among rivals, coupled with the non-compete agreements in place

[[Page 58272]]

within the joint venture, harms competition in the acquisition of 
mineral rights. The Complaint also alleges that the TMC joint venture 
violates section 5 of the Federal Trade Commission Act.

V. The Proposed Order

    The proposed Order imposes several terms to remedy these concerns. 
First, the Order requires Quantum to forego its right to a seat on 
EQT's Board. Quantum shall not, directly or indirectly, appoint any 
persons to EQT's Board, seek or obtain representation on EQT's Board, 
or have any of its agents or representatives serve simultaneously as an 
officer or director of EQT or in a decision-making capacity of any EQT 
entity. EQT, conversely, shall not, directly or indirectly, have any of 
its representatives serve simultaneously in any management capacity 
within Quantum, any operating entity controlled by Quantum, or any 
investment fund managed by Quantum. This Order provision makes it clear 
that Quantum is subject to the prohibition on interlocking directors 
and officers under section 8 of the Clayton Act, despite Quantum's 
limited liability and limited partnership corporate structure.
    Second, absent prior Commission approval, the proposed Order 
prohibits Quantum from serving on the Board of any of the top seven 
Appalachian Basin natural gas producers, accounting for a substantial 
majority of the market.
    Third, Quantum shall sell its EQT shares by a non-public date 
certain. Failure to sell by that date will result in the transfer of 
the shares to a trustee empowered to liquidate the shares unilaterally. 
Quantum cannot knowingly divest these shares to an entity that is one 
of the top seven natural gas producers in the Appalachian Basin without 
prior Commission approval. Quantum is also prohibited from sharing with 
EQT any non-public information regarding its stock position or intent 
to sell or hold any of the EQT shares.
    Fourth, during the period when Quantum owns EQT shares, the shares 
will be held in a voting trust, and any votes will be carried out by 
the trustee pro rata with all other EQT shareholders. The proposed 
Order prohibits Quantum from engaging in the solicitation of proxies in 
connection with its EQT shareholder position, and further prohibits 
Quantum from directly or indirectly influencing EQT's Board of 
Directors, management, or operations. Together, these provisions 
effectively render Quantum's shares a passive investment until the 
shares are sold.
    Fifth, for the duration of the proposed ten-year Order, Quantum is 
prohibited from acquiring additional EQT shares absent prior Commission 
approval. During the period when Quantum owns EQT shares, however, 
prior approval is not needed for shares acquired indirectly as 
consideration for EQT's acquisition of a Quantum business that is 
subject to a premerger notification under the Hart-Scott-Rodino Act. 
Prior approval is also not required during a period when Quantum no 
longer owns EQT shares for shares acquired indirectly as consideration 
for EQT's acquisition of a Quantum business.
    Sixth, the proposed Order also requires Quantum and EQT to unwind 
TMC, including any noncompete provisions.
    Seventh, the proposed Order imposes further limitations on future 
entanglements between EQT and Quantum. For example, as noted above, the 
proposed Order prohibits any of EQT's directors, officers, agents, or 
representatives from serving simultaneously in any management capacity 
within Quantum, any operating entity controlled by Quantum, or any 
investment fund managed by Quantum. The proposed Order also prohibits 
Quantum and EQT from entering into any noncompete agreements other than 
those in connection with and ancillary to the sale of a business, 
assets, or company.
    Eighth, the proposed Order contains additional provisions designed 
to ensure the effectiveness of the relief. A monitor will be appointed 
to track compliance, and both Respondents must provide regular 
compliance reports. Provisions of the proposed Order that do not end 
upon the sale of EQT shares will last up to ten years.
    And finally, the proposed Order requires EQT and Quantum to 
distribute the Order to each of their respective board members, 
officers, and directors, and to design, maintain, and operate an 
antitrust compliance program.
    The purpose of this analysis is to facilitate public comment on the 
Consent Agreement, and the Commission does not intend this analysis to 
constitute an official interpretation of the proposed Order or to 
modify its terms in any way.

    By direction of the Commission.
April J. Tabor,
Secretary.

Statement of Chair Lina M. Khan Joined by Commissioner Rebecca Kelly 
Slaughter and Commissioner Alvaro Bedoya

    In September 2022, the nation's largest natural gas producer, EQT 
Corporation (``EQT''), proposed to acquire certain natural gas assets 
from private equity firm, Quantum Energy Partners, LP (``Quantum''). 
EQT agreed to offer $2.6 billion in cash, up to 55 million shares of 
EQT stock, and a seat on EQT's Board of Directors. Quantum has a host 
of investments and operations across the oil and gas industry, and both 
companies and their affiliates compete head-to-head in the production 
of natural gas in the Appalachian Basin. The proposed transaction would 
make Quantum one of EQT's largest shareholders and secure Quantum a 
seat on the board of its direct competitor. After conducting a thorough 
investigation, the Commission determined it had reason to believe this 
deal was illegal.
    Today, the Commission announces a settlement of charges that the 
proposed transaction would result in an illegal interlocking 
directorate in violation of Section 8 of the Clayton Act and an unfair 
method of competition in violation of Section 5 of FTC Act due to the 
potential for exchange of confidential and competitively significant 
information. Specifically, Quantum's anticipated position as one of 
EQT's largest shareholders and EQT's obligation to facilitate the 
appointment of a Quantum designee to the EQT board raise concerns that 
the firms could exchange non-public sensitive business information and 
participate in or influence each other's strategic decisions.
    The potential risks to competition posed by this transaction are 
particularly concerning given the dense and tangled web of co-
investments, joint operations, and other methods of coordination 
between and among natural gas producers and investors in the 
Appalachian Basin. The sector is characterized by a tight-knit set of 
players rife with entanglements and a history of suspicious ventures 
and information exchange. Along these lines, the Commission's complaint 
separately charges that a pre-existing joint venture between EQT and 
Quantum relating to mineral rights acquisitions constitutes an 
additional unfair method of competition in violation of the FTC Act.

[[Page 58273]]

    The proposed consent order lays out several terms to remedy these 
concerns. The order prohibits Quantum from occupying an EQT Board seat 
and requires it to divest the EQT shares, imposing a structural remedy 
to address concerns about the influence and information access that 
arise from Quantum's sizable EQT shareholder position. The order 
additionally limits both current and future entanglements between the 
firms and reduces opportunities for exchanging confidential and 
competitively significant information between the firms, including by 
requiring EQT and Quantum to unwind their existing joint venture and 
any noncompete provisions.

I. Revitalizing Section 8

    Section 8 of the Clayton Act states that ``no person shall, at the 
same time, serve as a director or officer in any two corporations . . . 
that are (a) engaged in whole or in part in commerce; and (b) by virtue 
of their business and location of operation, competitors, so that the 
elimination of competition by agreement between them would constitute a 
violation of any of the antitrust laws[.]'' \1\ It was designed to 
prevent ``control of great aggregations of money, capital, and property 
through the medium of common directors.'' \2\ Lawmakers recognized that 
interlocking directorates could facilitate undue coordination, 
influence, or other means of dampening competition. Congress adopted an 
incipiency approach, seeking to eliminate the very structure that would 
facilitate these violations by ``removing the opportunity or temptation 
to such violations through interlocking directorates.'' \3\ 
Interlocking directorates that violate Section 8 are per se illegal.\4\ 
Beyond requiring that the interlocked companies be ``competitors'' 
whereby the ``elimination of competition'' between them would violate 
the antitrust laws, Section 8 does not require any type of showing of 
harm to competition.\5\
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    \1\ 15 U.S.C. 19.
    \2\ Interlocks in Corporate Management, 1965 Staff Report to 
Antitrust Subcomm., 89th Cong., 1st Sess., 12 (1965).
    \3\ See U.S. v. Sears, Roebuck & Co., 111 F. Supp. 614, 616 
(S.D.N.Y. 1953) (``[W]hat Congress intended by Sec.  8 was to nip in 
the bud incipient violations of the antitrust laws by removing the 
opportunity or temptation to such violations through interlocking 
directorates.'').
    \4\ Michael Blaisdell, Fed. Trade. Comm'n, Interlocking 
Mindfulness (June 26, 2019), https://www.ftc.gov/enforcement/competition-matters/2019/06/interlocking-mindfulness.
    \5\ In re Borg-Warner Corp., et al. 101 F.T.C. 863, 925 (1983) 
(The ``role of competition analysis in Section 8 is not to measure 
market power or to assess competitive effects; it is to establish a 
nexus of competitive interests between corporations sufficient to 
warrant concern over collusion or other outright market division 
should interlocked directors seek to share or exchange 
information.'').
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    Legislative efforts to address corporate interlocks were catalyzed 
by congressional reports in 1887, 1912, and 1913 that showed firms had 
used interlocks to win personal favors or exclusive treatment of 
suppliers or customers.\6\ One of the most vocal opponents of board 
interlocks was Louis Brandeis. Shortly before his appointment to the 
Supreme Court in 1916, Brandeis authored several books and articles 
that highlighted the need for addressing interlocking directorates.\7\ 
He believed that having influential individuals serve on the same 
corporate boards intrinsically and inevitably created a host of risks, 
including conflicts of interest, collusion, and improper exchange of 
competitively sensitive information. In his view, the prohibition on 
interlocking directorates ``merely g[a]ve full legal sanction to the 
fundamental law of morals and of human nature: that `No man can serve 
two masters.''' \8\
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    \6\ See Pacific Railway Commission, S. Exec. Doc. No. 51, 50th 
Cong., 1st Sess. (1887); Investigation of United States Steel Corp., 
H.R. Rep. No. 1127, 62d Cong., 1st Sess. (1912); House Comm. on 
Banking and Currency, Investigation of Concentration of Control of 
Money and Credit, H.R. Rep. No. 1593, 62d Cong., 3rd Sess. (1913). 
Congress recognized that the concentration of control via 
interlocking directorships ``tended to suppress competition or to 
foster joint action against third party competitors'' and concluded 
that because of ``such [joint] control, the healthy competition of 
the free enterprise system had been stifled or eliminated.'' Sears, 
111 F. Supp. at 616.
    \7\ See L. Brandeis, Breaking the Money Trusts, Harper's Weekly, 
Nov. 22, 1913, at 10; id, Nov. 29, 1913, at 9; id, Dec. 6, 1913, at 
13; id, Dec. 13, 1913, at 10; id, Dec. 20, 1913, at 10; id, Dec. 27, 
1913, at 18; id, Jan. 3, 1914, at 11; id, Jan. 10, 1914, at 18; id, 
Jan. 17, 1914, at 18.
    \8\ L. Brandeis, Other People's Money and How the Bankers Use It 
(1914). As Brandeis observed: ``The practice of interlocking 
directorates is the root of many evils. It offends laws human and 
divine. Applied to rival corporations, it tends to the suppression 
of competition and to violation of the Sherman law. Applied to 
corporations which deal with each other, it tends to disloyalty and 
to violation of the fundamental law that no man can serve two 
masters. In either event it tends to inefficiency; for it removes 
incentive and destroys soundness of judgment. It is undemocratic, 
for it rejects the platform: `A fair field and no favors,'--
substituting the pull of privilege for the push of manhood.'' Id.
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    Though Section 8 has a clear purpose, it has rarely been enforced 
in the over 100 years since its passage, and even less so in the past 
four decades.\9\ Historically, the antitrust agencies addressed Section 
8 violations by dismissing actions or closing investigations after 
firms ended the offending interlock.\10\ However, the Commission 
eventually recognized that ``informal settlements [we]re not producing 
an adequate level of compliance'' and that ``this policy did not 
accomplish what Congress set out to do.'' \11\ Throughout the 1970s and 
80s, the FTC challenged interlocking directorates under Section 8 on 
multiple occasions and entered consent orders in every one of those 
cases, even where the interlocks had been terminated.\12\ In the wake 
of these actions, the defense bar and industry groups began lobbying 
Congress for Section 8 reform, resulting in the Antitrust Amendments 
Act of 1990.\13\ This law narrowed the types of interlocks that would 
be covered under Section 8. The years since have seen an overall 
decline in Section 8 enforcement.\14\ We worry that this has

[[Page 58274]]

over time led to under-deterrence and that corporate actors are not 
sufficiently appreciative of Section 8's prohibitions.
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    \9\ According to one commentary, Section 8 enforcement has been 
``punctuated by a few bursts of mild activity and then followed by 
long periods of benign neglect.'' J. Randolph Wilson, Unlocking 
Interlocks: The On-Again Off-Again Saga of Section 8 of the Clayton 
Act, 45 Antitrust L.J. 317, 317 (1976); see ABA Section of Antitrust 
Law, Interlocking Directorates: Handbook on Section 8 of the Clayton 
Act 4 (2011) (``This sleepy enforcement effort has been noted by the 
courts. . . .'') (citing Bankamerica Corp. v. U.S., 462 U.S. 122, 
130-31 (1983)).
    \10\ From the effective date of the Clayton Act through 1965, 
when the Senate Judiciary Committee issued a report on corporate 
interlocks, the Commission filed only thirteen complaints 
challenging interlocking directorates. Of those cases, twelve were 
dismissed when the directors involved resigned on the directorships, 
and only one resulted in a consent order. During the same period, 
the Department of Justice brought only ten cases to enforce Section 
8. A. H. Travers Jr., Interlocks in Corporate Management and the 
Antitrust Laws, 46 Tex L. Rev. 819, 821 n.8 (1968) (citing Staff of 
House Comm. On the Judiciary, 89th Cong., 1st Sess., Report on 
Interlocks in Corporate Management 227 (1965)); see Vern Countryman, 
The Federal Trade Commission and the Courts, 17 Wash. L. Rev. 1, 30 
(1942); G.H. Montague, The Commission's Jurisdiction Over Practice 
in Restraint of Trade, 8 Geo. Wash. L. Rev. 365, 375 (1940).
    \11\ In re Kraftco Corp., 89 F.T.C. 46 (1977).
    \12\ See In re Kraftco Corp., 88 F.T.C. 362 (1976); In re 
Kraftco Corp., 89 F.T.C. 46 (1977); In re TRW Inc., et al., 90 
F.T.C. 144 (1977); In re Int'l Bus. Machines Corp., 89 F.T.C. 91 
(1977); In re Midland-Ross Corp., 96 F.T.C. 863 (1980); In re Borg-
Warner Corp., 101 F.T.C. 863 (1983); In re Hughes Tool Co., 103 
F.T.C. 17 (1984); In re Big Three Indus., Inc., 103 F.T.C. 24 
(1984).
    \13\ Pub. L. 101-588, 104 Stat. 2879, Sec.  2 (1990) (increasing 
the statute's jurisdictional threshold and creating three de minimis 
exceptions in cases of relatively insignificant competitive 
overlap).
    \14\ See Robert F. Booth Tr. v. Crowley, 687 F.3d 314, 319-20 
(7th Cir. 2012) (``Actually, the chance of suit by the United States 
or the FTC is not even 1%. The national government rarely sues under 
Sec.  8. Borg-Warner Corp. v. FTC, 746 F.2d 108 (2d Cir.1984), which 
began in 1978, may be the most recent contested case. When the 
Antitrust Division or the FTC concludes that directorships 
improperly overlap, it notifies the firm and gives it a chance to 
avoid litigation (or to convince the enforcers that the interlock is 
lawful).''); Debbie Feinstein, Director, Bureau of Competition, Fed. 
Trade Comm'n, Have a Plan to Comply with the Bar on Horizontal 
Interlocks (Jan. 23, 2017), https://www.ftc.gov/enforcement/competition-matters/2017/01/have-plan-comply-bar-horizontal-interlocks (``The Commission has generally relied on self-policing 
to prevent Section 8 violations, and as a result, litigated Section 
8 cases are rare (with none construing the 1990 amendments). In 
recent Section 8 investigations, once staff raised concerns, an 
individual agreed to step down from one company in order to 
eliminate the interlock.''); cf. Press Release, U.S. Dep't of 
Justice, Tullett Prebon and ICAP Restructure Transaction after 
Justice Department Expresses Concerns about Interlocking 
Directorates (Jul. 14, 2016), https://www.justice.gov/opa/pr/tullett-prebon-and-icap-restructure-transaction-after-justice-department-expresses-concerns; Press Release, U.S. Dep't of Justice, 
Justice Department Requires Divestitures in Commscope's Acquisition 
of Andrew Corporation (Dec. 6, 2007), https://www.justice.gov/archive/atr/public/press_releases/2007/228330.htm.
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    Over the past year, our colleagues at the Antitrust Division have 
sought to reactivate Section 8 and effectively put market participants 
back on notice.\15\ Today's complaint and consent order build on that 
effort, marking the Commission's first formal Section 8 enforcement in 
nearly 40 years.\16\ This action is notable not just because it signals 
a return to the Commission's prior approach of seeking binding 
prospective relief through consent orders, but also because it expands 
upon the remedies previously sought. Notably, the proposed order 
includes a prior approval provision that prohibits Quantum from taking 
a seat on the boards of any of the top seven natural gas producers in 
the Appalachian Basin, accounting for a substantial majority of the 
market.
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    \15\ See, e.g., Press Release, U.S. Dep't of Justice, Justice 
Department's Ongoing Section 8 Enforcement Prevents More Potentially 
Illegal Interlocking Directorates (Mar. 9, 2023), https://www.justice.gov/opa/pr/justice-department-s-ongoing-section-8-enforcement-prevents-more-potentially-illegal; Press Release, U.S. 
Dep't of Justice, Directors Resign from the Boards of Five Companies 
in Response to Justice Department Concerns About Potentially Illegal 
Interlocking Directorates (Oct. 19, 2022), https://www.justice.gov/opa/pr/directors-resign-boards-five-companies-response-justice-department-concerns-about-potentially.
    \16\ See In re Hughes Tool Co., 130 F.T.C. 17 (1984); In re Big 
Three Indus., Inc., 103 F.T.C. 24 (1984).
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    The proposed order also puts industry actors on notice that they 
must follow Section 8 no matter what specific corporate form their 
business takes. Firms in the modern economy utilize a variety of 
corporate forms and structures to engage in commerce, and industry 
actors have become increasingly sophisticated at corporate organization 
and venture formation. This is especially true in the private equity 
and financial sectors, with various limited liability vehicles, limited 
partnerships, and structured funds intricately entangled through a web 
of corporate and fiduciary relationships. Indeed, Quantum uses a 
limited liability structure when setting up its portfolio companies, 
and Quantum itself is a limited partnership. Section 8's specific 
prohibition of interlocks among competitor ``corporations'' pre-dates 
the development of other commonly used corporate structures, such as 
limited liability companies.\17\ Accordingly, we must update our 
application of the law to match the realities of how firms do business 
in the modern economy.\18\ Today's action makes clear that Section 8 
applies to businesses even if they are structured as limited 
partnerships or limited liability corporations.
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    \17\ Holian et al, 21st Century Section 8 Enforcement: 
Legislative Origins and the 1990 Amendments, American Bar 
Association, Antitrust Magazine Online (April 2023).
    \18\ See Makan Delrahim, AAG., Antitrust Div., U.S. Dep't of 
Justice, Remarks at Fordham University School of Law (May 1, 2019), 
https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-fordham-university-school-law (``Moreover, 
whether one LLC competes against another, whether two corporations 
compete against each other, or whether an LLC competes against a 
corporation, the competition analysis is the same. We and the FTC 
review mergers in this way, and we investigate our conduct matters 
this way too.'').
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II. Standalone Section 5 Enforcement

    The Commission's complaint charges that the proposed transaction 
would facilitate the exchange of confidential, competitively sensitive 
information in violation of Section 5 of the FTC Act. Specifically, 
Quantum's anticipated position as one of EQT's largest shareholders and 
EQT's obligation to facilitate the appointment of a Quantum designee to 
the EQT board raise concerns that Quantum or EQT could have access to 
one another's competitively significant, non-public information and 
could participate in, or have influence over, competitive decision-
making at each firm. In addition to these concerns, a pre-existing 
joint venture between EQT and Quantum, The Mineral Company (``TMC''), 
may also facilitate the improper exchange of competitively sensitive 
business information regarding the acquisition of mineral rights within 
the Appalachian Basin.
    In November 2022, the Commission issued a policy statement 
outlining the scope of Section 5 of the FTC Act.\19\ As the policy 
statement explains, Congress enacted Section 5 to create a new 
prohibition broader than, and different from, the Sherman Act. The text 
of the statute, which prohibits ``unfair methods of competition,'' 
distinguishes the FTC's authority from authority granted in the Sherman 
and Clayton Acts. Lawmakers also made clear that Section 5 was designed 
to extend beyond the reach of the other antitrust laws.\20\ And the 
Supreme Court has repeatedly made clear that Section 5 prohibits not 
just those practices that violate the Sherman Act or Clayton Act.\21\
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    \19\ Fed. Trade Comm'n, Policy Statement Regarding the Scope of 
Unfair Methods of Competition Under Section 5 of The Federal Trade 
Commission Act (Nov. 10, 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/P221202Section5PolicyStatement.pdf.
    \20\ Section 5 of the FTC Act expands these protections to 
encompass ``conduct that violates the spirit of the antitrust 
laws,'' including ``interlocking directors and officers of competing 
firms not covered by the literal language of the Clayton Act.'' 
Section 5 Policy Statement at 13, 15; see In re Borg-Warner Corp. et 
al., 101 F.T.C. 863 (June 23, 1983); In re TRW, Inc., 93 F.T.C. 325 
(1979); In re Perpetual Fed. Sav. & Loan Assoc., 90 F.T.C. 608 
(1977).
    \21\ See, e.g., FTC v. Ind. Fed'n of Dentists, 476 U.S. 447, 454 
(1986) (holding that ``[t]he standard of `unfairness' under the FTC 
Act is, by necessity, an elusive one, encompassing not only 
practices that violate the Sherman Act and the other antitrust 
laws''); FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 242 (1972) 
(holding that ``the Commission has broad powers to declare trade 
practices unfair.''); FTC v. Texaco, Inc., 393 U.S. 223, 262 (1968) 
(holding that ``[i]n large measure the task of defining `unfair 
methods of competition' was left to the [FTC] . . . and that the 
legislative history shows that Congress concluded that the best 
check on unfair competition would be [a practical and expert 
administrative body] . . . [that applies] the rule enacted by 
Congress to particular business situations''); FTC v. Brown Shoe, 
384 U.S. 316, 321 (1966) (holding that the FTC ``has broad powers to 
declare trade practices unfair[,] particularly . . . with regard to 
trade practices which conflict with the basic policies of the 
Sherman and Clayton Acts'').
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    Through the late 1970s, the FTC frequently brought Section 5 cases 
against conduct that would not necessarily run afoul of the Sherman or 
Clayton Acts. We now call these ``standalone'' Section 5 cases. They 
included invitations to collude; \22\ price discrimination claims 
against buyers not covered by the Clayton Act; \23\ de facto bundling; 
\24\ exclusive dealing; \25\ and

[[Page 58275]]

many other practices.\26\ The Commission also initiated multiple 
actions challenging mergers or series of acquisitions on the basis of 
Section 5 violations, separate and aside from Sherman or Clayton Act 
liability.\27\ In the 1980s, however, the Commission backed away from 
bringing standalone Section 5 cases. In 2015, the Commission 
effectively collapsed the distinction between Section 5 and the other 
antitrust statutes. Today's action represents the first time in decades 
that the Commission has challenged a deal as a standalone violation of 
Section 5. It should remind market participants that transactions that 
might not strictly violate Section 7 can still pose a risk to 
competition that the FTC has a statutory obligation to address.
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    \22\ FTC v. Cement Inst., 333 U.S. 683, 708 (1948) (holding that 
conduct that falls short of violating the Sherman Act may violate 
Section 5).
    \23\ Alterman Foods v. FTC, 497 F.2d 993 (5th Cir. 1974); 
Colonial Stores v. FTC, 450 F.2d 733 (5th Cir. 1971); R.H. Macy & 
Co. v. FTC, 326 F.2d 445 (2d Cir. 1964); Am. News Co. v. FTC, 300 
F.2d 104 (2d Cir. 1962); Grand Union Co. v. FTC, 300 F.2d 92 (2d 
Cir. 1962).
    \24\ Atl. Refin. Co. v. FTC, 381 U.S. 357, 369 (1965) (holding 
that all that is necessary is to discover conduct that runs counter 
to the public policy declared in the Act . . .'' and that ``there 
are many unfair methods of competition that do not assume the 
proportions of antitrust violations'').
    \25\ FTC v. Mot. Picture Advert. Serv. Co., 344 U.S. 392, 394-95 
(1953) (noting that ``Congress advisedly left the concept [of unfair 
methods of competition] flexible . . . [and] designed it to 
supplement and bolster the Sherman Act and the Clayton Act[,] [so 
as] to stop . . . acts and practices [in their incipiency] which, 
when full blown, would violate those Acts[,] . . . as well as to 
condemn as `unfair methods of competition' existing violations of 
them'').
    \26\ Atl. Refin. Co., 381 U.S. 357.
    \27\ See, e.g., Golden Grain Macaroni Co. v. FTC, 472 F.2d 882, 
885 (9th Cir. 1972); In re Dean Foods Co., 70 F.T.C. 1146 (1966); In 
re Nat'l Tea Co., 69 F.T.C. 226 (1966); In re Beatrice Foods Co., 67 
F.T.C. 473 (1965); In re Foremost Dairies, Inc., 52 F.T.C. 1480 
(1956).
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    Quantum's position on EQT's board of directors and its role as one 
of EQT's largest shareholders would provide Quantum with the ability to 
sway or influence EQT's competitive decision-making and to access EQT's 
competitively sensitive information. The Commission's complaint alleges 
these risks are particularly serious given certain past actions by the 
parties, as well as the natural gas industry's history of encouraging 
the exchange of competitively sensitive information and public 
signaling to competitors. The complaint alleges that the two firms' TMC 
joint venture separately violates Section 5 of the FTC Act as it 
creates additional opportunities for sharing competitively sensitive 
business information. Further, there is reason to believe that EQT and 
Quantum already may use TMC as a vehicle for information exchange for 
the purchase of mineral rights and in connection with EQT's future 
drilling plans. This information is forward-looking, non-public, and 
competitively sensitive, and its exchange among rivals, coupled with 
the noncompete agreements in place within the joint venture, harms 
competition.
    The proposed order is designed to remedy these concerns. The order 
prohibits Quantum from occupying an EQT Board seat and requires it to 
divest the EQT shares, which would structurally eliminate key 
mechanisms for undue influence and information exchange. The order also 
limits both current and future entanglements between the firms and 
reduces opportunities for exchanging confidential and competitively 
significant information between the firms, including by requiring EQT 
and Quantum to unwind their existing joint venture and any noncompete 
provisions.

[FR Doc. 2023-18272 Filed 8-24-23; 8:45 am]
BILLING CODE 6750-01-P