The Commission’s EUR 110 million fine on Facebook for breach of its procedural obligations under the EU merger control rules underscores the need to submit full, accurate and reliable information during the Commission’s merger control review process. An intentional or negligent failure to do so will lead to draconian fines—even where the provision of incorrect or misleading information does not have an impact on the ultimate outcome of the Commission’s decision.
The Federal Trade Commission (FTC) is composed of five Commissioners each with terms of seven years. The Commissioners are appointed by the President with the advice and consent of the Senate. At any given time, no more than three Commissioners may be members of the same political party. Currently, Acting Chairman Ohlhausen (R) and Commissioner McSweeny (D) are the only FTC Commissioners. President Trump, therefore, can nominate two republican Commissioners and a democrat or independent commissioner. On May 9, United States Senate Minority Leader Charles Schumer (D-NY) formally recommended to President Donald Trump that Rohit Chopra fill the empty Democratic FTC Commissioner position. It is not clear how President Trump will proceed following the recommendation. Prior presidents have typically relied on recommendations from opposition leaders when deciding on a nominee for a minority commissioner.
WHO IS ROHIT CHOPRA?
- Chopra is a Harvard University (BA) and Wharton School (MBA) graduate who has focused his career on consumer protection; specifically, advocacy for student loan forgiveness and better student loan servicing, and criticism of for-profit universities.
- Chopra was one of the initial employees of the Consumer Financial Protection Bureau (CFPB), founded in July 2010 and proposed in 2007 by Elizabeth Warren (D-MA) in response to the Great Recession. There, Chopra served as Assistant Director and Student Loan Ombudsman, where he worked to improve student loan servicing and sued ITT Tech and Corinthian Colleges Inc. for consumer fraud.
- In 2015, Chopra became a Senior Fellow at progressive think tank the Center for American Progress.
- He then joined the Obama Administration as Special Advisor to the Secretary of Education, after having been critical of the Obama Administration’s work on student loan issues while at the CFPB. In particular, he encouraged the Secretary of Education to combat data showing that student loan debt doubled under the Obama Administration and the amount of student loans in default continued to increase.
- Currently, Chopra serves as a Senior Fellow of the Consumer Federation of America, a non-profit consumer protection organization founded in 1968.
WHAT THIS MEANS?
- If appointed, Chopra would be a non-lawyer FTC Commissioner without significant experience in antitrust issues, having worked solely in the consumer protection arena.
- Chopra would replace former FTC Chairman Edith Ramirez, another progressive, who resigned her position effective February 10, 2017.
On 6 December 2016, the European Commission cleared the acquisition of LinkedIn by Microsoft, subject to Microsoft granting LinkedIn’s competitors access to certain LinkedIn tools.
“BIG DATA” CONCERNS ANALYSED AND DISMISSED
The acquisition of LinkedIn’s “data” was one of the most anticipated issues in the case. Following Facebook/WhatsApp and Google/Doubleclick, Competition Commissioner Vestager highlighted the problem of “big data” in a 2016 speech, noting that “The problem for competition isn’t just that one company holds a lot of data. The problem comes if that data is really unique, and can’t be duplicated by anyone else.” As an overall matter, Microsoft’s and LinkedIn’s activities only overlapped in the provision of non-search online advertising services.
The Commission considered two ways in which combining the parties’ respective datasets relating to online advertising could harm competition. First, combining datasets can increase the parties’ market power in the supply of data, or increase barriers to entry for actual or potential competitors that need the data to compete, thus reducing competition. Second, even if the parties do not intend to combine their datasets post-merger, concerns can still arise if the datasets were the basis for competition between them pre-merger, and the transaction removed this competitive dynamic. The Commission dismissed these concerns, noting that Microsoft and LinkedIn had a limited presence in online advertising, did not compete closely and did not make their data available to third parties for advertising purposes. Continue Reading
On 10 May 2017, the European Commission published its final report on the e-commerce sector inquiry. The report is divided into two sections, covering e-commerce issues in relation to consumer goods and digital content. It also identifies business practices that might restrict competition and limit consumer choice. It would be advisable for e-commerce businesses to review their commercial practices and revise them as necessary in light of the Commission’s stated aim of targeting e-commerce business practices that may negatively impact the functioning of the Digital Single Market.
The FTC’s recent consent agreement addressing concerns regarding Emerson Electric Co.’s (Emerson) acquisition of Pentair Plc (Pentair) demonstrates a continued focus on whether transactions will reduce the incentive for merging parties to develop new, innovative products in the future. This is the latest in a string of cases which show that when the antitrust regulators raise innovation concerns, the merging parties need to propose a remedy that will involve the necessary research and development resources for the products at issue.
- The FTC alleged that the acquisition combines the two largest suppliers of switchboxes, which monitor and control certain valves that regulate the follow of liquids through pipes in industrial applications.
- The FTC found that switchbox customers have a distinct preference for Pentair’s and Emerson’s switchbox brands, which account for approximately 60 percent of the switchbox market in the United States.
- The FTC was concerned that the transaction would reduce innovation in the switchbox industry.
- The parties reached a consent agreement whereby Emerson would divest Pentair’s switchbox manufacturer subsidiary, including all facilities, personnel, and intellectual property associated with Pentair’s design and manufacturing of switchboxes.
WHAT THIS MEANS:
- The Emerson/Pentair transaction is the latest in a string of transactions where regulators in the US and the EU have raised concerns that a transaction would lead to less innovation in the relevant market.
- In 2015, Applied Materials abandoned its acquisition of Tokyo Electron after the DOJ raised concerns that the transaction would lessen competition for products in the merging parties’ pipelines and decrease the incentive for innovation generally.
- The DOJ’s 2016 complaint to block the Halliburton/Baker Hughes transaction emphasized that the merging parties “possess unrivaled product portfolios, research and innovation capabilities, and the scope and scale necessary to address the most difficult technological challenges facing the oil and gas industry they serve.”
- In March of this year, the European Commission cleared the merger of Dow and DuPont on the condition that the merging parties would divest DuPont’s global pesticide research and development division due to concerns that the transaction would have reduced the number of players that “are globally active throughout the entire research and development (R&D) process.”
- These cases show two significant trends:
- First, the agencies are likely to investigate not only reductions in competition among existing products, but also whether potential transactions combine competing innovation sources in an industry.
- Second, regulators with innovation concerns will seek remedies that divest stand-alone business units that deal with the products at issue, including any necessary research and development resources. Merging parties that are structured with separate research and development departments that address multiple product lines may need to develop a creative solution that alleviates a regulator’s concerns about future innovation.
- Rolls-Royce and SENER have a 47 percent/53 percent joint-venture in Industrial de Turbo Propulsores (ITP)–an aircraft engine components manufacturer.
- Rolls-Royce supplies the engine for Lockheed Martin’s C-130J (turboprop military transport aircraft).
- Rolls-Royce, together with ITP, MTU and Safran, are members of a military engine consortium–Europrop International (EPI)–that supplies the engine to the Airbus’ A400M, the primary competitor to the Lockheed Martin C-130J.
- The European Commission (EC) had concerns that Rolls-Royce’s full ownership of ITP would increase its influence in EPI such that Rolls-Royce could undercut the competitiveness of the EPI engine, and consequently subvert Airbus’ competitiveness vis-à-vis Lockheed Martin.
- The EC and Rolls-Royce agreed to a behavioral remedy focused on EPI’s governance rules that would eliminate the potential conflict of interest and maintain EPI’s competitiveness. While the EC press release does not provide details, the agreement likely allows MTU and Safran to control the consortium’s decision making.
WHAT THIS MEANS:
- Antitrust enforcers continue to investigate competitive impacts from vertical transactions.
- While antitrust enforcers have a strong preference for structural remedies, when addressing vertical competition issues, there is greater potential that enforcers will accept a behavioral fix.
- Antitrust enforcers continue to focus on antitrust impacts in narrow markets. Here, the remedy is designed to maintain competition between the Airbus A400M and Lockheed Martin’s C-130J – military turboprop transport aircraft.
McDermott’s Antitrust M&A Snapshot is a resource for in-house counsel and others who deal with antitrust M&A issues but are not faced with these issues on a daily basis. In each quarterly issue, we will provide concise summaries of Federal Trade Commission (FTC), Department of Justice (DOJ) and European Commission (EC) news and events related to M&A, including significant ongoing investigations, trials and consent orders, as well as analysis on the trends we see developing in the antitrust review process.
Companies are increasingly facing parallel proceedings involving government investigations and follow-on private litigation. These complex cases often involve competing interests between the parties that can influence a judge’s determination on discovery timing and process.
- Private plaintiffs are incentivized to obtain as much information about the case as early as possible to support their allegations and avoid having the case dismissed on summary judgment.
- Defendants hope to delay, or save altogether, the expenditure of potentially millions in discovery costs.
- The government has a strong interest in preserving the confidentiality and integrity of their investigation without interference from civil plaintiffs. Continue Reading
In the past couple of years, the European Commission has decided to review and evaluate the functioning of different aspects of the EU merger control regime regulated by EU Regulation No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EU Merger Regulation), its implementing regulation and related notices and guidelines.
The process started in 2014 when the Commission adopted a White Paper titled “Towards More Effective EU Merger Control” (the White Paper), which presented the Commission’s view that EU merger control worked well and that no fundamental overhaul of the system was needed. The Commission did, however, identify specific amendments to the EU Merger Regulation to make it more effective.
In the wake of the positive feedback it received during the consultation it organised following the publication of the White Paper, the Commission launched another public consultation in October 2016 on the “Evaluation of procedural and jurisdictional aspects of EU merger control”, through which it is seeking feedback from stakeholders on the effectiveness of certain additional procedural and jurisdictional aspects of EU merger control. Stakeholders have until 13 January 2017 to respond.
On July 6, 2016, Danone S.A. (Danone) agreed to acquire The WhiteWave Foods Company (WhiteWave) for $12.5 billion.
WhiteWave is the leading manufacturer of fluid organic milk in the United States and one of the top purchasers of raw organic milk. Danone is the leading US manufacturer of organic yogurt (Stonyfield). Nearly 90 percent of the raw organic milk used by Danone to manufacture organic yogurt is supplied via a strategic agreement by CROPP Cooperative (CROPP). As of 2009, the strategic supply agreement between Danone and CROPP also includes Danone providing CROPP with an exclusive license for the production and sale of Stonyfield branded fluid organic milk.
WhiteWave and CROPP are the two largest purchasers and top competitors for purchasing raw organic milk from farmers in the Northeast US. Additionally, WhiteWave, CROPP and Danone-CROPP are the only nationwide competitors for the sale of fluid organic milk to retailers and have a 91 percent share of nationwide branded fluid organic milk: Horizon (WhiteWave), Organic Valley (CROPP) and Stonyfield (Danone-CROPP). Continue Reading