Code of Federal Regulations (Last Updated: November 8, 2024) |
Title 16 - Commercial Practices |
Chapter I - Federal Trade Commission |
SubChapter H - Rules, Regulations, Statements and Interpretations Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 |
Part 802 - Exemption Rules |
§ 802.1 - Acquisitions of goods in the ordinary course of business.
-
§ 802.1 Acquisitions of goods and realty in the ordinary course of business.
Pursuant to section 7A(c)(1) of the Clayton Act (the “Act”), acquisitions of goods and realty transferred in the ordinary course of business are exempt from the notification requirements of the actAct. This section identifies certain acquisitions of goods that are exempt as transfers in the ordinary course of business. This section also identifies certain acquisitions of goods and realty that are not in the ordinary course of business and, therefore, do not qualify for the exemption.
(a) Operating unit. An acquisition of all or substantially all the assets of an operating unit is not an acquisition in the ordinary course of business. Operating unit means assets that are operated by the acquired person as a business undertaking in a particular location or for particular products or services, even though those assets may not be organized as a separate legal entity.
(b) New goods. An acquisition of new goods is in the ordinary course of business, except when the goods are acquired as part of an acquisition described in paragraph (a) of this section.
(c) Current supplies. An acquisition of current supplies is in the ordinary course of business, except when acquired as part of an acquisition described in paragraph (a) of this section. The term “current supplies” includes the following kinds of new or used assets:
(1) Goods acquired and held solely for the purpose of resale or leasing to an entity not within the acquiring person (e.g., inventory),
(2) Goods acquired for consumption in the acquiring person's business (e.g., office supplies, maintenance supplies or electricity), and
(3) Goods acquired to be incorporated in the final product (e.g., raw materials and components).
(d) Used durable goods. A good is “durable” if it is designed to be used repeatedly and has a useful life greater than one year. An acquisition of used durable goods is an acquisition in the ordinary course of business if the goods are not acquired as part of an acquisition described in paragraph (a) of this section and any of the following criteria are met:
(1) The goods are acquired and held solely for the purpose of resale or leasing to an entity not within the acquiring person; or
(2) The goods are acquired from an acquired person who acquired and has held the goods solely for resale or leasing to an entity not within the acquired person; or
(3) The acquired person has replaced, by acquisition or lease, all or substantially all of the productive capacity of the goods being sold within six months of that sale, or the acquired person has in good faith executed a contract to replace within six months after the sale, by acquisition or lease, all or substantially all of the productive capacity of the goods being sold; or
(4) The goods have been used by the acquired person solely to provide management and administrative support services for its business operations, and the acquired person has in good faith executed a contract to obtain substantially similar services as were provided by the goods being sold. Management and administrative support services include services such as accounting, legal, purchasing, payroll, billing and repair and maintenance of the acquired person's own equipment. Manufacturing, research and development, testing and distribution (i.e., warehousing and transportation) are not considered management and administrative support services.
Examples:
1. Greengrocer Inc. intends to sell to “A” all of the assets of one of the 12 grocery stores that it owns and operates throughout the metropolitan area of City X. Each of Greengrocer's stores constitutes an operating unit, i.e., a business undertaking in a particular location. Thus “A's” acquisition is not exempt as an acquisition in the ordinary course of business. However, the acquisition will not be subject to the notification requirements if the acquisition price or fair market value of the store's assets does not exceed $50 million (as adjusted).
2. “A,” a manufacturer of airplane engines, agrees to pay in excess of $50 million (as adjusted) to “B,” a manufacturer of airplane parts, for certain new engine components to be used in the manufacture of airplane engines. The acquisition is exempt under § 802.1(b) as new goods as well as under § 802.1(c)(3) as current supplies.
3. “A,” a power generation company, proposes to purchase from “B,” a coal company, in excess of $50 million (as adjusted) of coal under a long-term contract for use in its facilities to supply electric power to a regional public utility and steam to several industrial sites. This transaction is exempt under § 802.1(c)(2) as an acquisition of current supplies. However, if “A” proposed to purchase coal reserves rather than enter into a contract to acquire output of a coal mine, the acquisition would not be exempt as an acquisition of goods in the ordinary course of business. The acquisition may still be exempt pursuant to § 802.3(b) as an acquisition of reserves of coal if the requirements of that section are met.
4. “A,” a national producer of canned fruit, preserves, jams and jellies, agrees to purchase from “B” for in excess of $50 million (as adjusted) a total of 20,000 acres of orchards and vineyards in several locations throughout the U.S. “A” plans to harvest the fruit from the acreage for use in its canning operations. The acquisition is not exempt under § 802.1 this section because orchards and vineyards are real property, not “goods.” If, on the other hand, “A” had contracted to acquire from “B” the fruit and grapes harvested from the orchards and vineyards, the acquisition would qualify for the exemption as an acquisition of current supplies under § 802.1paragraph (c)(3) of this section. Although the transfer of orchards and vineyards is not exempt under § 802.1this section, the acquisition would could be exempt under § 802.2(g) as an acquisition of agricultural property.
5. “A,” a railcar leasing company, will purchase in excess of $50 million (as adjusted) of new railcars from a railcar manufacturer in order to expand its existing fleet of cars available for lease. The transaction is exempt under § 802.1(b) as an acquisition of new goods and § 802.1(c), as an acquisition of current supplies. If “A” subsequently sells the railcars to “C,” a commercial railroad company, that acquisition would be exempt under § 802.1(d)(2), provided that “A” acquired and held the railcars solely for resale or leasing to an entity not within itself.
6. “A,” a major oil company, proposes to sell two of its used oil tankers for in excess of $50 million (as adjusted) to “B,” a dealer who purchases oil tankers from the major U.S. oil companies. “B's” acquisition of the used oil tankers is exempt under § 802.1(d)(1) provided that “B” is actually acquiring beneficial ownership of the used tankers and is not acting as an agent of the seller or purchaser.
7. “A,” a cruise ship operator, plans to sell for in excess of $50 million (as adjusted) one of its cruise ships to “B,” another cruise ship operator. “A” has, in good faith, executed a contract to acquire a new cruise ship with substantially the same capacity from a manufacturer. The contract specifies that “A” will receive the new cruise ship within one month after the scheduled date of the sale of its used cruise ship to “B.” Since “B” is acquiring a used durable good that “A” has contracted to replace within six months of the sale, the acquisition is exempt under § 802.1(d)(3).
8. “A,” a luxury cruise ship operator, proposes to sell to “B,” a credit company engaged in the ordinary course of its business in lease financing transactions, its fleet of six passenger ships under a 10-year sale/leaseback arrangement. That acquisition is exempt pursuant to § 802.1(d)(1), used durable goods acquired for leasing purposes. The acquisition is also exempt under § 802.63(a) as a bona fide credit transaction entered into in the ordinary course of “B's” business. “B” now proposes to sell the ships, subject to the current lease financing arrangement, to “C,” another lease financing company. This transaction is exempt under §§ 802.1(d)(1) and 802.1(d)(2).
9. Three months ago “A,” a manufacturing company, acquired several new machines that will replace equipment on one of its production lines. “A's” capacity to produce the same products increased modestly when the integration of the new equipment was completed. “B,” a manufacturing company that produces products similar to those produced by “A,” has entered into a contract to acquire for in excess of $50 million (as adjusted) the machinery that “A” replaced. Delivery of the equipment by “A” to “B” is scheduled to occur within thirty days. Since “A” purchased new machinery to replace the productive capacity of the used equipment, which it sold within six months of the purchase of the new equipment, the acquisition by “B” is exempt under § 802.1(d)(3).
10. “A” will sell to “B” for in excess of $50 million (as adjusted) all of the equipment “A” uses exclusively to perform its billing requirements. “B” will use the equipment to provide “A's” billing needs pursuant to a contract which “A” and “B” executed 30 days ago in conjunction with the equipment purchase agreement. Although the assets “B” will acquire make up essentially all of the assets of one of “A's” management and administrative support services divisions, the acquisition qualifies for the exemption under § 802.1(d)(4) because a company's internal management and administrative support services, however organized, are not an operating unit as defined by § 802.1(a). Management and administrative support services are not a “business undertaking” as that term is used in § 802.1(a). Rather, they provide support and benefit to the company's operating units and support the company's business operations. However, if the assets being sold also derived revenues from providing billing services for third parties, then the transfer of these assets would not be exempt under § 802.1(d)(4), since the equipment is not being used solely to provide management and administrative support services to “A”.
11. “A,” a manufacturer of pharmaceutical products, and “B” have entered into a contract under which “B” will provide all of “A's” research and development needs. Pursuant to the contract, “B” will also purchase all of the equipment that “A” formerly used to perform its own research and development activities. The sale of the equipment is not an exempt transaction under § 802.1(d)(3) because “A” is not replacing the productive capacity of the equipment being sold. The sale is also not exempt under § 802.1(d)(4), because functions such as research and development and testing are not management and administrative support services of a company but are integral to the design, development or production of the company's products.
12. “A,” an automobile manufacturer, is discontinuing its manufacture of metal seat frames for its cars. “A” enters into a contract with “B,” a manufacturer of various fabricated metal products, to sell its seat frame production lines and to purchase from “B” all of its metal seat frame needs for the next five years. This transfer of productive capacity by “A” is not exempt pursuant to § 802.1(d)(3), since “A” is not replacing the productive capacity of the equipment being sold. The acquisition is also not exempt under § 802.1(d)(4). “A's” sale of production lines is not the transfer of goods that provide management and administrative services to support the business operations of”A”; this manufacturing equipment is an integral part of “A's” production operations.
[61 FR 13684, Mar. 28, 1996, as amended at 66 FR 8691, Feb. 1, 2001; 70 FR 4993, Jan. 31, 2005; 83 FR 32770, July 16, 2018]