The American Bar Association’s Antitrust Law Section held its annual Spring Meeting in Washington, DC, on March 29–31, 2023. The Spring Meeting sessions featured updates from federal, state, and international antitrust enforcers and thought-invoking discussions on leading antitrust issues facing the business community today. Following Part 1, this post summarizes key takeaways from the second portion of the Spring Meeting, including updates regarding premerger notification filings, labor markets, state antitrust enforcement, compliance programs, national security, consumer protection, interlocking directorates, and remedies.
FTC Zeros in on Missing Material in HSR Filings
- Federal Trade Commission (FTC) Bureau of Competition Director Holly Vedova underscored the consequences of failing to submit Item 4 material in HSR filings. She noted the FTC will bounce filings found to have missing Item 4 documents. If the waiting period has not expired and newly surfaced documents change the scope of the request, the FTC may issue a Second Request. If the waiting period has expired when consequential missing material is realized, the FTC will require a corrective filing for the original transaction and may impose “significant” civil penalties.
- Vedova also reminded practitioners that changes in a merger agreement can require an additional HSR filing. If material changes are made before the waiting period expires, parties should proactively reach out to the FTC to inquire as to whether further action is needed. Parties may need to amend their original filing or submit a new one entirely.
Labor Markets Remain High Priority
- The antitrust enforcement agencies have promised continued, fervent action in labor markets. In keeping with this promise, this January, the FTC issued a proposed rule that would make it illegal to enter into or maintain noncompete agreements with employees or independent contractors.
- FTC Chair Lina Khan emphasized that noncompetes impede business dynamism, innovation, and entry, and eliminating noncompetes is estimated to return $300 billion back into the pockets of American workers.
- FTC Commissioner Rebecca Kelly Slaughter pointed to California as an innovator in labor market enforcement, citing its prohibition on noncompetes. FTC enforcers encouraged the continued submission of public comments on the proposed rule. The comment period is set to close on April 19, 2023.
- Wisconsin Assistant Attorney General Gwendolyn Cooley also noted that enforcing noncompetes has been a hallmark of state enforcement, especially in New York and Washington, and additional states are considering legislation that would ban noncompetes.
- The Department of Justice (DOJ) Antitrust Division’s Acting Director of Criminal Enforcement Emma Burnham and the Chief of DOJ’s Criminal II Section James Fredericks noted practitioners should expect an uptick in criminal cases in the labor and employment space. DOJ Antitrust Division’s Deputy Assistant Attorney General Jonathan Kanter stressed that antitrust crimes focused on workers are just as important as those focused on consumers.
- New York’s antitrust chief, Elinor Hoffman, indicated that New York is focused on labor issues, including no-poach agreements and noncompete clauses that may arise during merger reviews. She highlighted recent investigations and settlements in the nursing, home care, and title insurance industries. Hoffman added that it is “quite possible” New York could insist on merging parties dropping such agreements as a condition of merger clearance and noted that merger clearance investigations can themselves spur standalone investigations into merging parties’ labor practices. Hoffman also emphasized that the state antitrust regulators work closely with other state regulators, including but not limited to the Labor Bureau, to investigate violations of state law.
State Antitrust Enforcement Ascendant
- State merger enforcement remains robust and active and is likely to involve other state regulators besides antitrust enforcers, particularly in industries such as insurance, public utilities, and healthcare.
- Washington’s antitrust chief Jonathan Mark highlighted that many states have premerger notification laws covering certain industries (such as healthcare) or party types (such as utility companies, charitable trusts, and conversions from for-profit to nonprofit entities), and a growing number of states, including Washington, Nevada, Massachusetts, Oregon, and California, have passed broader premerger notification laws that look like “mini-HSRs.” These state laws are meant to fill gaps in the federal HSR Act, which does not require notification to requisite state enforcers and has resulted in delays in or the failure to notify state enforcers of a transaction.
- Healthcare transactions remain of particular interest to state regulators. Washington’s antitrust chief noted that many states are going beyond premerger notification laws to require public interest determinations as an element of a healthcare merger clearance investigation.
- Mark highlighted Oregon, which passed legislation in 2021 requiring Oregon healthcare regulators to conduct a public interest and competition review for all healthcare transactions. The law specifically requires regulators to conclude that the transaction will reduce growth in patient costs and permits the agency to set and enforce the cost growth targets it considers.
- Other states active in healthcare-specific premerger reviews include Massachusetts and California.
- Washington is actively considering its own such law, which Mark opined was not likely to pass during the current legislative session but advised interested parties to “stay tuned” for the next legislative session.
- State officials reminded merging parties that state enforcers are not limited to pre-consummation merger challenges. New York’s antitrust chief pointed to a recent state case against a ski operator that had purchased its nearest competitor and shut down its ski hill. New York, which does not have a premerger filing or approval requirement, found out about the transaction through consumer complaints and news reports and filed suit post-closing.
- Merging parties should “come early and often” when interacting with state regulators in a merger investigation. New York’s antitrust chief emphasized that state enforcers expect that parties present the same facts, evidence, and advocacy to state enforcers at the same time they present it to federal authorities. Some state enforcers, however, cautioned that parties should be mindful of their audience at the state level and tailor their advocacy to the issues that state enforcers are most interested in. DC’s antitrust chief Adam Gitlin’s added that often the attorney general receives regular briefings on antitrust enforcement, “including whether parties are being cooperative or not.”
Regulators Are Asking More of Compliance Programs
- With an increasingly aggressive approach to compliance, the antitrust agencies are holding corporate compliance programs to a higher standard. DOJ’s Criminal II Section Chief James Fredericks underscored regulators’ high expectations for compliance programs, boiling them down to three questions: (1) is the compliance program well-designed; (2) is it applied in good faith; and (3) does it work in practice?
- To determine whether a compliance program is effective, DOJ officials are honing in on corporate messaging platforms, compensation structures that punish rule-breaking and reward adherence to company policies, and training of employees at all levels of reporting chains.
National Security Is Top of Mind
- FTC Commissioner Slaughter characterized monopoly power as a threat to national security and underscored that the FTC takes national security very seriously.
- The Committee on Foreign Investment in the United States (CFIUS), a federal committee composed of various federal agencies with national security interests, has broadened its view on what may pose a risk to national security with special attention on US citizens’ data.
- Historically, national security concerns mostly arose in the defense industry and critical infrastructure transactions. With the rapidly changing global economy, however, transactions that involve technology and critical supply chains have received increased CFIUS attention.
- Companies and investors should be aware of the CFIUS review process, especially if the closing date is important to a transaction. Although CFIUS offers a 30-day review in certain short-form situations, parties should expect the standard 45-day review followed by a potential 45-day investigation when consummating a deal.
Collaboration Among Consumer Protection Officials to Continue
- Enforcers expect digital marketplaces will take center stage in consumer protection enforcement efforts. Practitioners predicted increased regulatory activity in the coming year around drip pricing in digital marketplaces, green claims, and deceptive reviews, endorsements, and testimonials.
- Additionally, federal agencies are increasingly focused on data surveillance and security and the misuse of data. Director of the Consumer Financial Protection Bureau and former FTC Commissioner Rohit Chopra described the “creep of big tech” in attempting to tie services across markets.
- FTC Consumer Protection Bureau Senior Attorney Lesley Fair and DOJ Civil Division’s Deputy Assistant Attorney General for Consumer Protection Arun Rao described increased cross-agency collaboration in the consumer protection space, including with the Drug Enforcement Agency, Food and Drug Administration, and state enforcers.
- Following the Supreme Court’s 2021 AMG decision in AMG, which held that the FTC Act does not allow the Commission to collect equitable monetary relief, DOJ has increasingly partnered with the FTC to secure those funds through other avenues.
Interlocking Directorates Remain a Hot Topic
- DOJ’s Kanter stated that practitioners should expect interlocking directorates to remain a high priority in the coming year and noted that enforcers see Section 8 of the Clayton Act as one of the most effective ways to deconcentrate the US economy.
- Kanter noted that recent enforcement actions resulted in 15 interlocking directors stepping down from their directorships and DOJ has approximately 20 open Section 8 investigations.
Reflections on Remedies
- Technology, healthcare, and pharmaceutical deals are increasingly less likely to fit neatly into the vertical or horizontal transaction boxes. Many transactions have vertical merger characteristics in some products or markets while maintaining horizontal elements in others.
- Federal enforcement agencies may be less likely to consider structural or behavioral remedies as effective safeguards for competition in these cases because of the extensive resources required to monitor and enforce the reach of perceived harm.
- FTC Commissioner Slaughter specifically noted that remedies in complicated digital markets may be too difficult to administer and, even if applied, may not effectively preserve competition.
- State enforcers, however, may be more willing to agree to remedies that require ongoing monitoring given the greater degree of specialized state oversight in many industries. Washington’s antitrust chief highlighted that challenged transactions often occur in industries that are already subject to substantial state regulatory oversight, which he opined reduced the burden on state regulators of monitoring ongoing compliance with merger control conditions relative to federal enforcers.
- Representatives from Attorneys General Offices, including Florida, New York, Massachusetts, Washington, and DC, highlighted how state enforcers often have broader remedy options and are not limited to the same remedies as federal enforcers.
- New York’s antitrust chief opined that even where federal antitrust enforcers agree to a transaction where the merging parties divest certain specific assets, there is nothing that bars state regulators from requiring additional divestitures in order to secure state approval of the merger.
- State enforcers cited the remedies New York required in the 2013 merger between two hospitals, where the state approved the transaction with several behavioral conditions, including rate protection requirements.
- D.C.’s antitrust chief added that, when determining whether to impose conditions on a merger, especially in healthcare transactions, many states are actively pursuing behavioral remedies such as price caps and prohibitions on all-or-nothing contracting.