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Jon B. Dubrow assists clients across a host of inter-related antitrust issues, including mergers and acquisitions (M&A) transactions / merger clearance, counseling and litigation. Jon leads the defense of mergers, acquisitions and joint ventures before the Department of Justice, the Federal Trade Commission and foreign competition authorities. He also regularly assists third parties whose interests are adversely affected by proposed transactions. Jon also is experienced in antitrust litigation. He provides counseling on distribution issues, contracting arrangements and a wide variety of other competition-related matters. Read Jon Dubrow's full bio.

Antitrust regulators in the United States and Europe were very active in the final quarter of 2018 closing a large number of cases requiring in-depth investigations. In the United States, regulators continue their focus on the potential need to update their methods of reviewing high-tech transactions with public hearings on the future of antitrust enforcement.

In Europe, recent reviews of Takeda’s acquisition of Shire and the creation of a joint venture between Daimler and BMW show a focus on how transactions will impact innovation for new products.

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The US Department of Justice (DOJ) recently sued former joint venture partners because they allegedly coordinated their competitive activities beyond the legitimate scope of their venture. This case illustrates several important points. First, companies who collaborate through joint ventures and similar arrangements need to be mindful that any legitimate collaborative activity does not “spill over” to restrain competition in other unrelated areas. Second, DOJ discovered the conduct during its review of documents produced in connection with a merger investigation. This is the most recent reminder of how broad ranging discovery in merger investigations can result in wholly unrelated conduct investigations and lawsuits. Third, one of the parties was a portfolio company of a private equity sponsor, highlighting how private investors can be targeted for antitrust violations. Continue Reading Out of Bounds: Sports Agencies Flagged for Anticompetitive Bidding Agreements

As highlighted in a recent lawsuit, aerospace and defense contractors can face various antitrust risks when using certain tactics to prevent other companies from hiring their employees. See Hunter v. Booz Allen Hamilton Holding Corp., No. 2:19-CV-411 (S.D. Ohio). The plaintiff, a former intelligence professional who worked at the US government’s Joint Intelligence Operations Center Europe Analytic Center in Molesworth, England (JAC Molesworth), filed an antitrust suit on behalf of herself and a class of JAC Molesworth employees. She alleges that three military intelligence contractors—Booz Allen, CACI and Mission Essential—entered into illegal agreements not to hire one another’s employees. The complaint alleges that the three contractors each had Indefinite Delivery / Indefinite Quantity (IDIQ) contracts and, prior to the alleged “no-poach” agreement, competed aggressively to hire employees with experience at JAC Molesworth to provide services under contract task orders. According to the complaint, these alleged no-poach agreements had the effect of suppressing the wages and benefits for skilled workers at JAC Molesworth because they stopped a bidding war for talent.

Continue Reading Aerospace & Defense Series: Antitrust Risks for Aerospace and Defense Contractors in Employment Practices

On January 28, the US Federal Trade Commission (FTC) announced that it had accepted a proposed settlement with office supply distributors Staples and Essendant in connection with Staples’ proposed $482.7 million acquisition of Essendant. The settlement suggests that the FTC is currently more willing than the US Department of Justice (DOJ) to accept conduct remedies to resolve competitive issues raised by vertical mergers.

WHAT HAPPENED:

  • The FTC Commissioners voted 3-2 to accept a proposed settlement establishing a firewall to prevent Staples from receiving competitively sensitive customer information from Essendant.
  • Staples is the largest reseller of office products in the US, and one of only two retail office supply superstores in the US. Essendant is one of only two nationwide office product wholesale distributors. In September 2018, Staples agreed to acquire Essendant.
  • Staples competes with various resellers to sell office supplies to mid-sized companies. Many of those resellers rely on Essendant as their wholesale distributor. In that role, resellers have to provide Essendant with detailed information about their end customers’ identities, purchasing history, product preferences and similar data.
  • The FTC alleged in its complaint that the transaction was likely to harm competition by giving Staples access to the commercially sensitive information (CSI) of Essendant’s resellers and those resellers’ end customers. The FTC contended that access to that information could allow Staples to offer higher prices than it otherwise would when bidding against a reseller for an end customer’s business.
  • To address this competitive concern, the FTC imposed a conduct remedy. Specifically, the FTC required the parties to establish a firewall limiting Staples’ access to the CSI of Essendant’s resellers and the end customers of those resellers.
  • Two FTC Commissioners issued dissenting statements, arguing that the settlement does not fully remedy the transaction’s likely anticompetitive effects. In the dissenters’ view, the evidence suggests that the integrated firm could implement a strategy of raising costs for Staples’ reseller rivals.

WHAT THIS MEANS:

  • The settlement indicates that the FTC remains willing to cure competitive issues raised by vertical mergers with conduct remedies, such as firewalls, instead of imposing a divestiture or seeking to block the deal.
  • Under Makan Delrahim’s leadership, the DOJ’s Antitrust Division has been less receptive of conduct remedies, even in vertical merger cases. Delrahim has stated that conduct remedies are fundamentally regulatory and are inconsistent with the DOJ’s role as a law enforcement agency.
  • The DOJ refused to accept conduct remedies to resolve the competitive issues arising from AT&T’s acquisition of Time Warner. DOJ challenged the transaction in federal court. In June 2018, a DC district court judge ruled against the DOJ, and the case is currently on appeal to the DC Circuit.
  • One of the FTC Commissioners, Rebecca Kelly Slaughter, argued in her dissenting statement that the FTC should be more willing to challenge, and seek to block vertical mergers when it identifies competitive concerns. That position is more aligned with the DOJ’s currently stated policy, but overall the FTC appears more willing to accept conduct remedies than the DOJ.

The Premerger Notification Office (PNO) of the Federal Trade Commission (FTC) recently formalized a new position on Hart-Scott-Rodino Act (HSR Act) reporting obligations for certain not-for-profit, non-stock transactions. The change is currently in effect and applies to transactions that have not yet closed. The change in position will require reporting of many hospital transactions that have not traditionally been treated as reportable events. The biggest area of change relates to affiliation transactions where hospitals or health systems affiliate under a new parent entity.

Under its previous position, the PNO focused on whether a transaction results in a change of “control” of the board of directors of one or more of the combining entities. Under its new position, the PNO will focus on beneficial ownership–whether one party receives beneficial ownership over the assets of another party as a result of the transaction. Now, a potentially reportable acquisition can occur even when there is no change in the control of the board of directors of one of the combining entities because formal board control is not the exclusive method of obtaining beneficial ownership.

In a recently published Tip Sheet, the PNO provided analysis of reportability for three types of not-for-profit combinations that it regularly sees, which we summarize below. The first two examples involve traditional application of the rules to hospital transactions, while the third example represents the PNO’s newly formed position on affiliations. Note that in all of the examples below, we focus on the nature of the transaction structure to evaluate whether a potentially reportable acquisition of assets has occurred. In any specific transaction, the parties would also need to evaluate whether the statutory thresholds are met (e.g., the $84.4 million size-of-transaction test), as well as whether any exemption applies.

1. A simple acquisition in which an existing acquiring person (g., a not-for-profit hospital) is deemed to hold the assets of the acquired entity (e.g., another not-for-profit hospital) as a result of the acquisition. This can happen in a variety of ways, such as a straight asset acquisition or a transaction in which one not-for-profit becomes the sole corporate member of another. If one not-for-profit obtains the right to manage and operate another through a corporate transaction, that is likely a reportable structure.

a. PNO conclusion: This structure is reportable as an asset acquisition.

2. A transaction in which the existing not-for-profit entities remain independent but form a new joint venture entity as a jointly owned subsidiary or affiliate. The pre-existing entities remain separate persons for HSR Act purposes.

a.  PNO conclusion: This structure is reportable. However, the 16 C.F.R. § 802.40 exemption for the formation of a not-for-profit joint venture is likely to apply.
b. The illustration below depicts this structure:

3. A transaction in which the existing not-for-profit entities consolidate under a new not-for-profit entity. The existing entities lose their separate pre-acquisition identities or become wholly owned subsidiaries of the new entity. The exact structure of board appointment for the members of the not-for-profit entities does not drive the reportability assessment.

a. PNO conclusion: Under the PNO’s new position, the transaction is reportable as a consolidation.
b. The illustration below depicts this structure:

In the Tip Sheet, the PNO described several factors that it has considered relevant to the analysis of beneficial ownership in the context of hospitals affiliating under a new entity:

  • The new entity becomes the corporate member of the affiliating hospital entities
  • The new entity has the right to authorize and/or approve the articles, bylaws, and other governance documents of the affiliating hospital entities
  • The new entity has the right to authorize and/or approve the sale or lease of the affiliating hospital assets
  • The new entity has the right to appoint and/or approve the senior officers of the affiliating hospital entities
  • The new entity has the right to devise and/or approve the strategic plans, capital budgets and expenditures, and significant contracting of the affiliating hospitals

Overall, not-for-profit hospital systems need to plan for HSR Act filings being required for many transactions that, under prior PNO analysis, would not have required notification. While the FTC would routinely investigate hospital affiliations that did not require HSR Act filings, the FTC will have additional procedural leverage when there is a mandatory filing, which creates the statutory waiting periods and Second Request mechanisms.

United States: July – September 2018 Update

Both US antitrust agencies marked the third quarter of 2018 with significant policy announcements regarding the merger review process. The announced reforms seek to expedite the review process through cooperation between the agencies and the merging parties. Moving first, the Federal Trade Commission (FTC) revealed a Model Timing Agreement that provides the FTC Staff with earlier notice of the parties’ intent to substantially comply with a Second Request. Earlier notice allows the FTC Staff to create a more effective timeline for meetings with division management, front office staff and the Commissioners. Less than two months after the FTC revealed its Model Timing Agreement, the Antitrust Division of the US Department of Justice (DOJ) announced procedural reforms aimed at resolving merger investigations within six months of filing. The DOJ will commit to fewer custodians and depositions in exchange for the merging parties providing key information earlier in the investigation. Overall, these reforms appear to be a positive step forward for parties considering future transactions, but their effectiveness remains uncertain as the agencies start a difficult implementation period. While the FTC timing agreement may provide more certainty around the process, it does not reduce the review timing and actually extends it.

EU: July – September 2018 Update

The European Commission (EC) remained quite active clearing mergers in the third quarter of 2018. Most notably, the EC cleared Apple’s acquisition of Shazam without imposing conditions despite the EC’s stated concerns about access to data as a competitive concern. The EC opened a Phase II investigation into the transaction to investigate the potential for Apple to obtain a competitive advantage over competing music streaming services by accessing Shazam’s consumer data obtained through its music recognition services. In this case, the EC did not find evidence that the access to Shazam’s data would provide Apple a competitive advantage. In addition, the EC found that there were no concerns about Apple potentially restricting Shazam as referral source for Apple’s competitors. Going forward, it is clear that access to data is an issue that the EC will continue to investigate, but it is also clear that the EC is taking a careful approach in assessing when that access will truly lead to a competitive harm.  Continue Reading Antitrust M&A Snapshot

Today, Assistant Attorney General Makan Delrahim announced a series of reforms with the express goal to resolve most merger investigations within six months of filing. The reforms seek to place the burden of faster reviews not only on the Antitrust Division of the Department of Justice (DOJ), but also on the merging parties.

The DOJ will require fewer custodians, take fewer depositions, and commit to shorter time-periods in exchange for merging parties providing detailed information to the DOJ early in the investigation in some cases before a Hart-Scott-Rodino (HSR) filing is made. AAG Delrahim believes that merging parties need to avoid “hid[ing] the eight ball” and work with the DOJ in good faith to remedy transactions that raise competitive concerns.

By announcing these reforms, the DOJ acknowledges that merger reviews are taking longer in recent years. AAG Delrahim cited a recent report noting that the length of merger reviews has increased 65 percent since 2013 and that the average length of a significant merger review is now roughly 11 months. AAG Delrahim believes an assortment of factors contribute to the increasing length of reviews including larger quantities of documents produced during a Second Request, increasing numbers of transactions with international implications, and the DOJ’s insistence on an upfront buyer for most consent orders. Continue Reading DOJ Announces Procedural Reforms Seeking to Resolve Merger Investigations within 6 Months of Filing

WHAT HAPPENED:

  • On August 7, the FTC published a new Model Timing Agreement. Timing agreements are agreements between FTC staff and merging parties that outline the FTC’s expected timing for various events in order for it to conduct an orderly investigation during a Second Request.
  • The FTC expects the Model Timing Agreement to be used as drafted (or in a similar form) for all transactions that receive a Second Request. The FTC has used timing agreements frequently in the past, as has the DOJ, but the FTC has now published a model, which means this is likely to become the standard practice moving forward.
  • Parties are not required to enter into a timing agreement. However, in practicality, if parties do not agree to the timing agreement, the agency will proceed as if it must be in court to block the deal within 30 days of compliance. Therefore, it will prepare for litigation and will not consider settlement options or engage with the parties on the issues in the same way it would if the agency had more time under a timing agreement.
  • Some highlights of the new Model Timing Agreement are provided below (Note: All days listed refer to calendar days):
    • Parties must provide 30 days’ notice before certifying substantial compliance, and such notice cannot be provided until at least 10 days after signing the timing agreement.
    • Parties cannot close a proposed transaction until a specified time period after substantial compliance with the Second Request. The model indicates this will be 60 days in less complex matters or 90 days in more complex matters, but could be longer than 90 days in “matters involving particularly complicated industries.”
    • Parties must provide 30 days’ notice before consummating the proposed transaction and cannot provide notice more than 40 days before the date on which they have a good faith basis to believe they will have cleared other closing conditions and will be able to complete the transaction, absent an FTC action to block the transaction.
    • The agreement includes a stipulated Temporary Restraining Order (TRO) which will be entered in the event of a challenge. The TRO prevents the parties from consummating the transaction until after five days following a ruling on a motion for preliminary injunction.
    • The timing agreement contains other timing-related provisions such as for document productions and investigational hearings as part of the FTC’s investigation.

WHAT THIS MEANS:

  • Though the Model Timing Agreement does not affect the statutory expiration of the HSR waiting period, it commits the parties not to consummate the transaction for a much longer period and, therefore, effectively extends the waiting period far longer than the 30 days specified under the HSR Act.
  • The 40-day notice required before the closing date means that if there is another condition in the way of closing, such as an ongoing investigation before the European Commission or in China, the parties cannot provide their notice of the anticipated closing date to the FTC. The FTC will not be forced to litigate until the parties are in a position to complete their transaction in the near term, absent an FTC challenge.
  • The FTC has made clear that parties either have to sign up to a much longer period for the HSR review process than the statute specifies or be in an adversarial posture that is less likely to lead to the agency closing its investigation or settling the matter and more likely to lead to a court challenge.

United States: April – June 2018 Update

The second quarter of 2018 ushered in a trial defeat for the US Department of Justice (DOJ) and the beginning of a new era at the Federal Trade Commission (FTC). In June, Judge Richard J. Leon of the US District Court for the District of Columbia denied the DOJ’s requested injunction of the AT&T/Time Warner acquisition. The case marked the first litigated vertical challenge by the Antitrust Division in nearly 40 years. DOJ filed a notice of appeal of the district court’s decision. At the FTC, four new commissioners were sworn in in May, with a fifth to join upon the approval of current commissioner Maureen Ohlhausen to the US Court of Federal Claims. With the transition nearly complete, new FTC Chairman Joseph Simons announced plans to re-examine and modernize the FTC’s approach to competition and consumer protection laws, possibly charting a new course for FTC antitrust enforcement.

EU: April – June 2018 Update

In this quarter, we saw two significant developments concerning the issue of gun-jumping. First, the Court of Justice of the European Union (CJEU) clarified the scope of the gun-jumping prohibition, ruling that a gun-jumping act can only be regarded as the implementation of a merger if it contributes to a change in control over the target. Second, the European Commission (EC) imposed a €124.5 million fine on Altice for having breached the notification and the standstill obligations enshrined in the EUMR by gun-jumping. The EC also issued two clearance decisions following Phase II investigations in the area of information service activities and the manufacture of basic metals. Continue Reading Antitrust M&A Snapshot

The challenges that the government faces in litigating vertical mergers was illustrated in the DOJ’s recent loss in its challenge of AT&T’s proposed acquisition of Time Warner. The result provides guidance for how companies can improve their odds of obtaining antitrust approval for similar transactions.

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