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Antitrust M&A Snapshot | Q2 2022

In the United States, parties continue to be cautious in litigating challenged transactions. Since January 2021, the US Federal Trade Commission (FTC) and Department of Justice (DOJ) filed lawsuits (or threatened to sue) to block 16 transactions. Of those transactions, 12 were abandoned and six are in various stages of litigation. The data suggest that the FTC’s and DOJ’s aggressive merger enforcement policy is raising the stakes for parties to potential mergers and acquisitions, including an increased willingness by the agencies to litigate potentially problematic transactions.

Between May 6 and June 3, 2022, the European Commission (Commission) held a public consultation to seek views on the draft revised Merger Implementing Regulation (Implementing Regulation) and the Notice on Simplified Procedure. This consultation was launched in the context of the Commission’s review process of the procedural and jurisdictional aspects of EU merger control.

On April 20, 2022, the UK government proposed new measures to boost consumer protection rights and competition rules. In particular, the UK government’s reforms aim to strengthen the Competition & Markets Authority’s (CMA) powers and alleviate burdens on smaller companies.

Access the full issue.




International News Spotlight on Competition Law

In line with the evolution of the economy and the ongoing growth of online business and global trade, we’re seeing a corresponding increase in competition regulation and a rise in enforcement across all authorities. In our latest International News, we take a deep dive into the issues at play.

The growth of the online economy has triggered the US Federal Trade Commission’s (FTC) update of its 20 year old .com Disclosures: How to Make Effective Disclosures in Digital Advertising guide, and the development of an analytical framework for all digital distribution across the European Union. In just one seismic shift under the new EU Vertical Block Exemption Regulation 2022/720, dual-pricing, i.e., setting different wholesale prices for online/offline sales by the same distributor, is no longer considered a hardcore restriction unless its purpose is to prevent the effective use of the internet to sell the goods or services.

In the United States, there is an increased focus on anticompetitive mergers and acquisitions (M&A). The Biden Administration, the Department of Justice Antitrust Division, and the FTC have all stated that the regulatory landscape needs to be reshaped to better reflect dynamic markets, and their priority is the aggressive pursuit of litigation against offending parties rather than the granting of consent decrees. The tendency to “sin first and beg forgiveness later” will emphatically no longer work, as a recent French gun-jumping case demonstrates.

Both the United States and the European Union have also turned their attention to investigating wage fixing and no-poach labour market violations that are not connected with M&A or business collaborations. It’s clear that competition/antitrust authorities are determined to expand their remit.

Read our full Spotlight on Competition Law here.




FTC Flexes Its Muscle in Suit against Kochava (But May Not Like the Results)

On August 29, 2022, the Federal Trade Commission (FTC) filed a lawsuit against Kochava, Inc. alleging that Kochava engaged in unfair and deceptive practices by selling the “precise location information” of consumers. This suit comes on the heels of the FTC’s announcement earlier this month that it would “crack down” on “commercial surveillance practices” and July’s warning that the agency would be exercising its enforcement authority against the “illegal” use and sharing of sensitive consumer data.

IN DEPTH

The FTC alleges that Kochava amassed a large amount of sensitive data by tracking the mobile advertising IDs from hundreds of millions of mobile phones, and that such data could be used to track people visiting abortion clinics, domestic abuse shelters, places of worship and other sensitive locations. The FTC then said that Kochava sold that data without first anonymizing it, allowing anyone who purchased the data to use it to track the movements of the mobile device users. The FTC wants to not only block Kochava from selling such data, but also require them to delete and destroy it. In its complaint, the FTC relied on the FTC Act’s general prohibition against “unfair and deceptive acts or practices” and alleged that the company unfairly sold the sensitive data.

Kochava, which beat the FTC to the courthouse and preemptively filed a lawsuit against the FTC prior to the FTC’s complaint, asserted that all of the location data came from third-party data brokers who obtained the information from consenting consumers. Despite the alleged consent, Kochava says it is in the process of implementing steps to remove health services location data from its database. Kochava argued that the litigation was the outcome of the FTC’s failed attempt to implement a vague settlement that had no clear terms and made the problem a moving target.

The Kochava suit brings to the forefront several competing policy considerations, the determination of which could shape the scope of the FTC’s enforcement authority for years to come. The first and foremost issue that the Kochava suit raises is whether the FTC has the authority to effectively impose a consent-based regime for the sale of sensitive consumer information when no federal law enforced by the FTC (other than the Children’s Online Privacy Protect Act (COPPA), which applies to data collected about children under 13) expressly provides for that requirement. While it is not uncommon for the FTC to take expansive views of its enforcement authority, that authority has been successfully challenged in recent years. (See AMG Capital Management, LLC v. FTC, which held that the FTC does not have the statutory authority to seek equitable monetary relief under Section 13(b) of the FTC Act).) Now, Kochava will test the FTC’s authority to regulate in the privacy space—and the FTC may not like the result.

In the unlikely event that Kochava were to litigate against the FTC all the way to the Supreme Court of the [...]

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Cartel Corner | August 2022

Without question, 2022 has been a remarkably busy time for the US Department of Justice’s (DOJ’s) Antitrust Division (Division). Over just a few months, the Division rolled out meaningful revisions to its leniency policy aimed at encouraging prompt reporting of criminal violations, announced that it will (for the first time in nearly  50 years) bring criminal monopolization cases under Section 2 of the Sherman Act, continued to increase enforcement resources, and brought a number of new cases and obtained multiple guilty pleas.

However, activity does not always mean success. If there is any theme that defines the Division’s efforts over the last quarter, it is this: If at first you don’t succeed, try, try again. That is exactly what the Division has done. It tried two labor markets cases, ultimately losing both on a new and untested legal theory. And, over strong objections from a district court, the Division pursued an unprecedented third trial against those in the broiler chicken industry, resulting in a full acquittal for all defendants. None of this, however, has deterred the Division from continuing to pursue new investigations and bring new cases under novel legal theories.

In this installment of Cartel Corner, we examine recent and significant developments in antitrust criminal enforcement and profile what the Division has highlighted as its key enforcement priorities. If the past is prologue, we are bound to see more aggressive antitrust enforcement in the months to come, testing the boundaries of current antitrust law. Whether the Division can ultimately shift those boundaries, however, remains to be seen.

Access the full report.




Heard on Day Two and Three of 2022 Antitrust Law Spring Meeting

On April 7 and 8, 2022, the American Bar Association’s Antitrust Law Section wrapped up its annual Spring Meeting. The event featured updates and remarks from several antitrust enforcers, including FTC Chair Lina Khan and US Assistant Attorney General for the Antitrust Division Jonathan Kanter. In this post, we share key takeaways from the final two days of the Spring Meeting.

FTC and DOJ Will Stay Focused on Litigation: Top officials at both US antitrust agencies highlighted the agencies’ full dockets and noted that litigation to enforce the antitrust laws will remain a top priority.

  • Three Directors from the Federal Trade Commission (FTC)—Holly Vedova, the Director of the Bureau of Competition; Samuel A.A. Levine, Director of Bureau of Consumer Protection; and Elizabeth Wilkins, Director of Office of Policy Planning—all emphasized that the FTC will work as one team and will not hesitate to initiate litigation.
  • Vedova noted the FTC’s recent success in several transactions being abandoned after the FTC initiated litigation. She expressed that the Bureau of Competition’s main focus will be litigation, where she believes her bureau will be most effective. Khan echoed these sentiments while speaking on a separate panel, emphasizing that two recently abandoned transactions were in the context of challenges to vertical transactions and that such challenges will continue to be a priority at the FTC.
  • Likewise, Kanter noted that the Department of Justice (DOJ) is not afraid to take on big cases or big companies and will not be afraid to litigate. He said the DOJ is just getting started and reiterated that the DOJ has more active cases than it has had in recent years.

Agencies Will Closely Scrutinize Potential Remedies in M&A: Both FTC and DOJ officials emphasized they will continue to examine the effectiveness of remedies and will only pursue strong remedies.

  • Kanter said that divestiture remedies will be the rare exception and will no longer be the norm. He further cautioned merging parties to avoid engaging in “regulatory arbitrage” and trying to leverage investigation outcomes in one jurisdiction against another because global cooperation among antitrust enforcers is high.
  • Vedova also indicated that the Bureau of Competition has no appetite for weak or uncertain settlements, especially those involving behavioral remedies, which have proven ineffective. The FTC will require meaningful structural relief to resolve competition concerns regarding a transaction.
  • Parties should also not expect the FTC to engage in long settlement discussions due to the unprecedented volume of merger reviews. Vedova noted that staff’s time is valuable and is much better spent preparing for litigation rather than negotiating remedies. She further indicated that the FTC will not engage in remedy discussions unless the Hart-Scott-Rodino (HSR) clock is stopped and timing agreements are tolled.
  • State attorneys general will similarly evaluate remedies and, if necessary, pursue additional remedies than those sought by federal antitrust enforcers. For example, in a recent dialysis acquisition, the state of Utah sought divestiture of a fourth clinic above the three divestitures required to [...]

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Cartel Corner | March 2022

The US Department of Justice’s (DOJ) Antitrust Division (Division) has continued to actively investigate and pursue alleged criminal violations of antitrust laws and collusive activity in government procurement. US Attorney General Merrick Garland noted in a March 2022 speech at the ABA Institute on White Collar Crime that the Division ended last fiscal year “with 146 open grand jury investigations—the most in 30 years.” As we near the end of the first quarter of 2022, the Division has a record number of criminal cases either in trial or awaiting trial.

In this installment of Cartel Corner, we examine and review recent and significant developments in antitrust criminal enforcement and profile what the Division has highlighted as its key priorities for enforcement. For 2022 and beyond, those priorities are—and likely will remain—identifying and aggressively pursuing alleged violations involving the labor markets, consumer products, government procurement, and the generic pharmaceutical industry.

Access the full report.




FTC Announces 2022 Reviews of Key Guides and Rules

The US Federal Trade Commission (FTC) has announced a series of new reviews scheduled for 2022 regarding key FTC guides and rules. Consumer-facing businesses should pay close attention to these reviews. While FTC reviews are periodic and can be routine, they can also result in fundamental changes to how the FTC approaches enforcement of key issues. Review periods can also provide an opportunity for impacted businesses to submit public comment and opinion to the FTC for consideration.

The FTC’s ongoing and upcoming reviews were highlighted in the Biden administration’s recently released Fall 2021 Unified Agenda of Regulatory and Deregulatory Actions; this publication highlights federal agencies’ regulatory action plans for the coming year. The FTC’s Statement on Regulatory Priorities announced that the agency will undertake a thorough review and examination of the guidance provided in, and the enforcement of, the following key guides and rules:

  • Guides Against Deceptive Pricing: These Guides address types of pricing representations, such as marketer representations that a price is a “sale” or “discount,” comparisons to others’ prices or manufacturers’ retail prices and representations about special prices based on the purchase of other goods or services (e.g., “buy-one-get-one” offers).
  • Guide Concerning Use of the Word ‘Free’ and Similar Representations: This Guide sets forth requirements when using the promotional device of offering “free” merchandise or services. When making such offers, the Guide requires all terms and conditions be set forth clearly and conspicuously at the outset of the offer to avoid any reasonable probability that the terms might be misunderstood.
  • Guides for the Use of Environmental Claims (Green Guides): The Green Guides provide the general principles applying to all environmental marketing claims; how consumers will likely interpret certain claims and how marketers can substantiate such claims; and how marketers can qualify such claims to prevent deception of consumers.
  • Business Opportunity Rule: This Rule requires business opportunity sellers to give prospective buyers particular information to aid in their evaluation of a business opportunity. The FTC intends to initiate review of this Rule by late 2021.
  • Amplifier Rule: This Rule creates uniform test standards and disclosures for consumers to make more meaningful comparisons of amplifier equipment performance attributes. The FTC plans to submit a recommendation for further Commission action on review of this Rule by February 2022.

In addition to those newly announced reviews, the report also discussed the following ongoing FTC reviews:

  • Children’s Online Privacy Protection Rule (COPPA): COPPA imposes requirements on operators of websites or online services directed to children under age 13 as well as on operators of websites or online services that have actual knowledge that they are collecting personal information online from a child under age 13. FTC staff is continuing to analyze and review the public comments; however, the period for comment on COPPA ended in late 2019.
  • Guides Concerning the Use of Endorsements and Testimonials in Advertising (Endorsement Guides): These guidelines are designed to help businesses and other advertisers of TV, print, radio, blogs, [...]

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FTC Looks to Fix Repair Restrictions

A newly announced change in Federal Trade Commission (FTC) policy could have dramatic implications for the ways manufacturers of everything from cell phones to cars draft warranties, design products, and distribute replacement parts. Specifically, the FTC has set its sights on repair restrictions.

On July 21, the Commission unanimously voted to approve a policy statement announcing increased antitrust and consumer protection enforcement against business practices that make it difficult for consumers to repair their own products, or use independent repair shops. Manufacturers should take note of this import change in enforcement policy, and promptly evaluate their exposure.

Notably, the FTC’s announcement comes on the heels of President Biden’s executive order “Promoting Competition in the American Economy,” which encouraged the FTC to address “anticompetitive restrictions on third-party repair or self-repair of items…” It also follows a recent report by the FTC to Congress addressing repair restrictions, and a July 2019 FTC workshop examining the issue.

One area of particular concern for the FTC is product warranties that require the use of specific service providers or parts. Section 102(c) of a 1975 federal law known as the Magnuson-Moss Warranty Act (MMWA) prohibits companies from conditioning warranty coverage, expressly or impliedly, on a consumer’s use of an article or service identified by brand, trade, or corporate name, unless the company provides that article or service without charge or the company has received a waiver from the FTC.

Recent reports, including empirical analyses cited by the FTC in its report to Congress, suggest that violations of Section 102(c) are widespread. Indeed, one recent analysis by a prominent public interest group alleged that 45 out of 50 companies whose warranties the group examined appeared to violate the provision. Accordingly, Section 102(c) enforcement is likely to play a prominent role in the FTC’s crackdown.

It also appears that the FTC intends to use its broad authority under Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices,” to challenge a wide range repair restrictions. In its report to Congress, the FTC highlighted the following practices in particular as “restricting independent repair or repair by consumers:”

  • “Physical restrictions” and “product designs that complicate or prevent repair”;
  • Purposely making parts, repair manuals, and diagnostic software and tools unavailable;
  • Designs that make independent repairs less safe, such as the use of glue to fasten lithium ion cells into mobile phones and other devices;
  • Steering consumers to preferred repair networks using telematics;
  • “Policies or statements that steer consumers to manufacturer repair networks”;
  • “Application of patent rights and enforcement of trademarks;
  • Disparagement of non-OEM parts and independent repair”;
  • “Software locks, Digital Rights Management and Technical Protection Measures”; and
  • “End User License Agreements.”

The diverse range of practices that the FTC has identified make this shift in enforcement an important issue for a wide range of companies. Still, there are clues to how the FTC may deploy its scarce resources in this area, at least initially.

First, its prior enforcement may provide an indication. In 2015, [...]

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Second Circuit Rejects FTC Challenge of 1-800 Contacts, Highlighting Procompetitive Trademark Policy

The US Court of Appeals for the Second Circuit vacated a final order of the Federal Trade Commission (FTC), which had found that agreements to refrain from bidding on keyword search terms for internet advertisements violated Section 5 of the FTC Act. The Court made clear that although trademark agreements are not necessarily immune from antitrust scrutiny, they are entitled to significant deference. 1-800 Contacts, Inc. v. Federal Trade Commission, Case No. 18-3848 (2d Cir. June 11, 2021) (Per Curium). The Second Circuit held that the FTC applied an incorrect analytical framework and incorrectly concluded that the agreements were an unfair method of competition under the FTC Act.

1-800 Contacts and its competitors advertise online through search advertising. They bid on search engine keywords, which help display their websites in response to consumer searches. They also bid on negative keywords, which prevent their ads from being displayed when consumers search for specified terms.

Between 2004 and 2013, 1-800 Contacts entered into a series of settlement agreements to resolve trademark disputes with competitors, as well as one commercial agreement with a competitor, all of which included terms prohibiting the parties from using each other’s trademarks, URLs and similar terms as search advertising keywords. The agreements also required the parties to use negative keywords so that a search including one party’s trademarks would not trigger a display of the other party’s ads. 1-800 Contacts enforced these agreements when it believed them to be breached.

The FTC challenged the agreements, alleging that they “unreasonably restrain truthful, non-misleading advertising as well as price competition in search advertising auctions,” violating Section 5 of the FTC Act, 15 U.S.C. § 45. An administrative law judge (ALJ) subsequently found the agreements to violate Section 5. 1-800 Contacts appealed to the full Commission, which affirmed the ALJ’s decision. 1-800 Contacts appealed.

The Second Circuit vacated the FTC’s decision but noted that the FTC was correct to reject 1-800 Contacts’ argument that trademark settlement agreements are necessarily immune from antitrust scrutiny. Citing the Supreme Court decision in Actavis, the Second Circuit held, “the mere fact that an agreement implicates intellectual property rights does not immunize an agreement from antitrust attack.”

The Second Circuit disagreed with the FTC’s specific antitrust analysis, however. The Court held that the FTC erred by applying an “inherently suspect” analysis—also known as a “quick-look” analysis—rather than the rule of reason. The Court focused on the fact that “the restraints at issue here could plausibly be thought to have a net procompetitive effect because they are derived from trademark settlement agreements,” and the fact that the FTC acknowledged as much by finding that the company’s justifications were “cognizable and, at least, facially plausible.” The Second Circuit also noted that courts have limited experience with these types of agreements. The Court concluded that “[w]hen, as here, not only are there cognizable procompetitive justifications but also the type of restraint has not been widely condemned in our judicial experience . . . . [w]e are bound . . [...]

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Intelligently Evolving Your Corporate Compliance Program

All companies—big and small—are collecting a tsunami of data. The US Department of Justice (DOJ) has now challenged corporate America to harness and analyze that data to improve corporate compliance programs by going beyond the risk profile of what has happened to better understanding the risk profile of what is happening. But where to begin? Artificial intelligence, which is already used to assist in the review and production of documents and other materials in response to government subpoenas and in corporate litigation, is invaluable in proactively reviewing data to identify and address compliance risks.

Key Takeaways

  • DOJ expects compliance programs to be well resourced and to continually evolve.
  • DOJ wants companies to assess whether their compliance program is presently working or whether it is time to pivot.
  • DOJ uses data in its own investigations and it expects the private sector to rise to the occasion and analyze its own data to identify and address compliance risks.
  • The data is there—mountains of it—and the key is to find an efficient way to analyze that data to improve the compliance program.
  • Artificial intelligence is an important tool for solving the challenge of big data and identifying and remediating compliance risks effectively, quickly and regularly, in conjunction with further periodic review.

Click here to read our full alert.




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