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A Global Resource for Compliance Officers & Legal Advisors
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DOJ Signals Heightened Scrutiny on Information Exchanges and Competitor Collaborations

by , , and | Feb 15, 2023 | ,

WHAT HAPPENED

On February 3, 2023, the US Department of Justice’s (DOJ) Antitrust Division announced the withdrawal of three policy statements related to antitrust enforcement in healthcare. Although the withdrawn statements focus on healthcare, DOJ’s decision to withdraw these statements will have broad impacts across industries.

The three policy statements, issued in 1993, 1996, and 2011, relate to competitor collaboration and information sharing, and established “safety zones” of activities shielded from antitrust scrutiny. The 1996 Statements of Antitrust Enforcement in Health Care (1996 Statements) were revised and expanded upon the 1993 Statements. Though ostensibly related to healthcare, the guidance has been relied upon by all industries and understood to cover all manner of competitively sensitive information. Two of the safety zones most often relied on by companies relate to competitor exchanges of price and cost information, and competitor joint purchasing arrangements.

Information Exchanges

The safety zone on information exchanges (Statement 6 of the 1996 Statements) stated that, in general, the agencies would not challenge an exchange of price or cost information (e.g., employee compensation) if the following three conditions were met:

  1. The exchange is managed by a third party (e.g., a trade association or consultant).
  2. The information is more than three months old.
  3. The exchange has five or more participants contributing data, and no individual participant’s data represents more than 25% of any statistic; and no individual participant’s data can be identified.

Companies have relied on this safety zone in conducting surveys and benchmarking related to pricing, supply costs, and salaries. These surveys have served as critical compliance tools. Organizations exempt from federal income tax often use surveys to demonstrate fair market value compensation to safeguard against claims of private inurement and private benefit. Similarly, healthcare companies routinely use benchmarking studies to demonstrate fair market value compensation for compliance with fraud and abuse laws.

Group Purchasing Organizations

The safety zone on joint purchasing arrangements (Statement 7 of the 1996 Statements) stated that, in general, the agencies would not challenge joint purchasing arrangements (e.g., group purchasing organizations (GPOs)) if the following two conditions were met:

  1. The purchases account for less than 35% of the total sales of the purchased product or service.
  2. The cost of the products or services purchased jointly accounts for less than 20% of the participants’ revenues.

DOJ cited changes in the healthcare landscape as the rationale for withdrawing these policy statements, specifically indicating that the statements were “overly permissive” on information sharing. In a speech the day before DOJ’s announcement, Principal Deputy Assistant Attorney General (DAAG) Doha Mekki stated that the safety zone factors “do not consider the realities of a transformed industry” and “understate the antitrust risks of competitors sharing competitively sensitive information.” DAAG Mekki explained that:

  • Information exchanges managed by third parties can have the same anticompetitive effects—and the use of a third party enhances anticompetitive effects.
  • New algorithms and AI learning increase the competitive value of historical information (more [...]

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Merger Notification Thresholds and Filing Fees to Increase

by , and | Jan 24, 2023 | , , ,

The Federal Trade Commission (FTC) announced on January 23, 2023, the implementation of increased thresholds for merger notifications under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) as well as increased filing fees for reportable transactions.

Notification Threshold Increases

Pursuant to the HSR Act, all transactions which meet or exceed the jurisdictional thresholds, and which do not satisfy an exemption, must be notified to the FTC and US Department of Justice (DOJ) through an HSR filing. The newly announced thresholds will apply to all transactions that close on or after the effective date. The effective date is 30 days after the notice is published in the Federal Register; the notice is currently scheduled to be published on January 26, 2023, making the effective date February 27, 2023.

The threshold changes are tied to changes in the gross national product (GNP).

  • The base statutory size-of-transaction threshold, the lowest threshold requiring notification, will increase to $111.4 million.
  • The upper statutory size-of-transaction test, encompassing all transactions valued above a certain size (regardless of the size-of-person test being met), will increase to $445.5 million.
  • The statutory size-of-person lower and upper thresholds (which apply to deals valued above $111.4 million but not above $445.5) will increase to $22.3 million and $222.7 million, respectively.

Merger Filing Fee Increases

The passage of the Merger Filing Fee Modernization Act on December 29, 2022, altered the filing fee thresholds as well as significantly increased the fees imposed on transacting parties when making an HSR filing in excess of $1 billion. Like the notification threshold increase, these filing fee adjustments will also take effect 30 days after publication in the Federal Register, meaning the increased fees will also go into effect on February 27, 2023.

The new transaction thresholds and accompanying fees are provided in the table below:

As with the notification thresholds, the filing fee thresholds and fee amounts will now be subject to annual adjustment at the start of each year based on GNP for thresholds and consumer price index (CPI) for fee amounts.



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Antitrust M&A Snapshot | Q4 2022

by , , and | Jan 19, 2023 | , , , ,

Topics covered in this edition:

• DOJ Sees First Merger Win After String of Losses
• FTC Brings Suit Against Microsoft/Activision
• Updated Merger Guidelines Expected Soon
• Merger Fees Changing
• The EC Launches a Consultation on Its Draft Revised Market Definition Notice
• UK Orders a Chinese Firm to Divest Its 83% Controlling Stake in a Welsh Semiconductor Wafer Factory Based on National Security Concerns

Access the full issue.

McDermott Will & Emery Juriste Nabil Lakhal contributed to this newsletter. 



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2023 Regulatory Forecast: Antitrust & Competition

by , and | Jan 10, 2023 | , , ,

The Federal Trade Commission (FTC) and the US Department of Justice (DOJ) pursued aggressive antitrust and competition enforcement agendas this past year and show no signs of slowing down in 2023. Prepare for the year ahead by reviewing our 2023 Regulatory Forecast for the antitrust and competition space.

Click the links below to download a one-pager of takeaways for each area.

Antitrust & Competition | Merger Control: The Biden administration prioritized aggressive antitrust merger enforcement in 2022, especially in the healthcare, labor, consumer and technology sectors. Learn how this trend will continue in 2023 as the FTC and DOJ expand their toolbox to challenge transactions.

Antitrust Litigation: In 2022, the DOJ and FTC took boundary-shifting antitrust enforcement positions and proved they are not afraid to pursue novel legal theories. The DOJ alone has more open grand jury investigations and charged more cases in 2022 than it has in decades. The DOJ and the FTC also requested historic budget increases to support their aggressive agendas. Additional resources mean more regulators are available to investigate and litigate alleged anticompetitive conduct. Find out more about the aggressive enforcement by the antitrust agencies and private plaintiffs that is expected to continue in 2023.

Consumer Protection: Enforcement by the FTC, among other consumer protection regulators, was particularly vigorous in 2022 and the trend is expected to continue in 2023. In light of the increased regulatory focus on social media, marketing and advertising, businesses should be aware of the ever-evolving guidance in this realm. Read about the proposed rulemaking and revisions on the horizon this year.



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Congress Overhauls Merger Filing Fees and Thresholds

by , , and | Dec 23, 2022 | , , ,

Congress has passed—and President Biden is expected to sign into law today—the Merger Filing Fee Modernization Act, which will significantly change antitrust merger notification regulations under the Hart-Scott-Rodino Act (HSR Act), 15 U.S.C. § 18a.

Included in the changes is language substantially altering the framework for the filing fee amounts and the deal value thresholds triggering those HSR filing fees.

Per a press release from Senator Amy Klobuchar (D-MN), the changes will go into effect in 2023. We will update when we have more clarity on timing.

In addition to the filing fee changes, the legislation imposes a new obligation to report with an HSR filing information on foreign subsidies from certain foreign governments, noted as “adversaries.” We will have to see how the Federal Trade Commission (FTC) and the US Department of Justice implement this requirement in a revision to the HSR form and instructions.

Notably and perhaps more significantly, while not part of this legislation, FTC Chair Lina Khan has indicated that the agencies also are working on revisions to the HSR rules that will require more substantive disclosures of information to assist in the agency review process. Overall, the legislation and expected proposed changes to the HSR form, as well as the anticipated new Merger Guidelines, likely will significantly change HSR practice moving forward.

DETAILS REGARDING FILING FEES AND THRESHOLDS

The new deal value thresholds and filing fee amounts are as follows:

The new thresholds and fees will be adjusted annually at the beginning of each year.

For an understanding of how this legislation changes the prior threshold and fee framework, the following table shows the impact of the legislation on prior HSR filing fees:

 



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DOJ Publishing Win May Mean More Labor, Salary Challenges

by and | Nov 30, 2022 | , ,

US District Judge Florence Pan’s decision to block Penguin Random House LLC’s planned $2.2 billion acquisition of Simon & Schuster represented the US Department of Justice (DOJ) Antitrust Division’s first major merger win following a string of losses this fall. Judge Pan’s decision is significant because she accepted the DOJ’s theory that the merger would lead to lower compensation for best-selling authors. This decision may embolden the DOJ and Federal Trade Commission (FTC) to challenge more transactions based on the impact on labor and salaries rather than the impact on consumer prices.

In this Law360 article, McDermott’s Alexandra Lewis, Glenna Siegel and Joel Grosberg discuss the implications of the ruling and what it might mean for other industries.

Access the article.



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Antitrust M&A Snapshot | Q3 2022

by , , , and | Nov 18, 2022 | , , , , ,

In the United States, the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) lost four merger challenges (Illumina/GRAIL, UnitedHealth/Change Healthcare, U.S. Sugar/Imperial Sugar and Booz Allen/EverWatch) in September. The losses demonstrate that parties willing to litigate can have success in court. The absence of “smoking gun” documents and lack of a presumption of anticompetitive effects (based on market shares and concentration) made these cases very difficult for the government. The judges in these cases tended to credit structural and behavioral remedies that the government felt were insufficient and were persuaded by real-world testimony from executives and third parties contradicting the government’s theories of changed economic incentives from the transactions.

In July 2022, the European Parliament published the final text of the European Union’s upcoming instrument to address distortive foreign subsidies, following a provisional political agreement reached between the EU lawmakers in June (Foreign Subsidies Regulation). The Foreign Subsidies Regulation introduces a new mandatory screening mechanism including notification obligations and the European Commission’s right of ex officio investigations, which will have a considerable impact on M&A transactions and procurement procedures.

The Foreign Subsidies Regulation will enter into force once it is formally adopted by EU lawmakers and published in the Official Journal. It will become directly applicable across the European Union six months after entry into force. The notification obligations will start to apply nine months after entry into force. The Commission also is currently drafting procedural rules on how to notify transactions, how to calculate time limits, and the process for preliminary reviews and in-depth probes when there is a suspicion of distortive foreign subsidies.

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DOJ Prosecutes Attempted Collusion among Business Competitors for First Time in Decades

by , and | Nov 1, 2022 | ,

On October 31, 2022, the US Department of Justice’s (DOJ) Antitrust Division (Division) made good on its intention earlier this year to revitalize efforts surrounding criminal enforcement of Section 2 of the Sherman Act when the president of a paving and asphalt contractor in Montana pleaded guilty to one count of attempting to monopolize the market for certain construction services in Montana and Wyoming. This is the Division’s first criminal prosecution of a Section 2 case in approximately 50 years. While criminal enforcement of antitrust laws has traditionally focused on per se anticompetitive agreements between two or more horizontal competitors, Section 2 primarily focuses on conduct by one firm or company with significant market power. This announcement—and subsequent criminal resolution—marks a significant departure from long-standing DOJ antitrust enforcement of monopolization claims and is a landmark result for the Division’s continued expansion of its criminal enforcement efforts.

Most notably, seemingly unilateral conduct that “attempts” to collude is now subject to criminal prosecution under Section 2, even if such an attempt did not result in any agreement. In contrast, there is no “attempt” component of a Sherman Act Section 1 charge, where the Division has traditionally investigated and prosecuted per se criminal price fixing, bid rigging and market allocation conduct requiring an agreement or “meeting of the minds” between horizontal competitors.

According to court documents, the DOJ alleged that Nathan Nephi Zito attempted to monopolize the markets for highway crack sealing services administered by Montana and Wyoming by proposing that his company and its competitor allocate regional markets. Zito approached a competitor about a “strategic partnership” and proposed that his company would stop competing for projects administered by South Dakota and Nebraska and the competitor would stop competing for projects administered by Montana and Wyoming. Zito allegedly offered a $100,000 payment as additional compensation for lost business in Montana and Wyoming and proposed that they enter into a transaction to “disguise their collusion.” The competitor company then approached the government and cooperated in its investigation, including by recording phone calls with Zito.

This case, the first Section 2 criminal resolution in decades, was prosecuted in coordination with the Procurement Collusion Strike Force (PCSF), which remains a top priority for the DOJ. The PCSF has been quite active in recent months, obtaining several convictions and bringing new indictments.

Although Section 2 is regularly associated with unilateral monopolist conduct, it also makes it a crime to attempt to monopolize or to conspire to monopolize. The “attempt” provision is what the Division relied on to obtain a conviction in this case, which is essentially an attempted but unconsummated Section 1 market allocation case where one of the potential conspirators cooperated with the government rather than entering into a potentially collusive agreement.

Key takeaways from this case include the following:

  • Now companies need to consider potentially collusive agreements with competitors—or attempts to do the same—that may exclude other competitors from a market in their antitrust risk evaluations. In practice, this could significantly broaden the scope of any compliance [...]

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Why Courts Are Rejecting Agencies’ Merger Challenges

by , and | Oct 24, 2022 | , ,

The US Department of Justice’s and the Federal Trade Commission’s losses in three merger challenges in September and a fourth in October demonstrate that merging parties can close difficult transactions if willing to fight the agencies in court. In this Law360 article, McDermott’s Jon B. Dubrow, Joel R. Grosberg and Matt Evola discuss these four cases and what they mean for merging parties.

Access the article.



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Seven Corporate Directors Resign: DOJ Ramps Enforcement Against Board Members Serving on Competitors’ Boards

by , and | Oct 21, 2022 |

WHAT HAPPENED

  • Seven directors resigned from corporate boards following promises of enforcement of Clayton Act Section 8 (15 U.S.C. § 19) by the US Department of Justice (DOJ), Antitrust Division (the Division), the Division announced Wednesday.
  • The directors served on the boards of corporations that the DOJ asserted competed in a variety of sectors, including information technology, software, and manufacturing.

WHAT’S THE LEGAL CONCERN

  • Section 8 prohibits “interlocking directorates” (per se violation), which occur when the same individual serves simultaneously as an officer or director of two competing companies (direct interlocks) or when different individuals on boards of competing companies act on behalf of and at the direction of a single firm (indirect interlocks through deputization). In its press release, the DOJ noted that some of the interlocks arose because a private equity firm appointed different personnel to the boards of competing companies.
  • The goal of Section 8 and the DOJ action is to decrease potential opportunities for the exchange of sensitive information between competitors and the risk of anticompetitive conduct more generally.
  • Exemptions might apply. There are de minimis exemptions if a) the competing sales are less than $4.1 million (threshold updated annually); b) the competing sales of either corporation represent less than 2% of its total sales; or c) the competing sales of each corporation are less than 4% of its total sales. A careful analysis (similar to that done in merger analysis) is necessary to determine whether an exemption might apply.
  • Not just corporations? While the plain language of Section 8 refers to interlocks involving “corporations,” the DOJ has stated its view that Section 8 also covers interlocks between non-corporate entities, such as LLCs (this is an open area of law).
  • Not just the same person? While the plain language of Section 8 states that it applies when the same “person” sits on the board or acts as an officer of two competitors, the DOJ interprets Section 8 broadly to mean that two different individuals appointed by a common entity cannot serve on boards of competitors because the entity is a “person” and is serving on the boards through its designees.

WHAT ARE THE RISKS

  • Interlocks can create significant antitrust risk. While the DOJ’s concerns with interlocks seem to be assuaged with the quick removal of the Corporate Director identified, interlocks have served as the factual underpinning for antitrust conspiracy claims. Therefore, companies should be proactive in eliminating problematic interlocks, as the interlock combined with parallel action by competitors in an industry could serve as the factual basis for long and costly conspiracy investigations or litigation and could support complaint allegations to defeat a Twombly-based motion to dismiss.

ANTICIPATE CONTINUED ENFORCEMENT

  • While the resignations are not novel, they represent a major amplification of corporate responses to what Assistant Attorney General Jonathan Kanter has described as “an extensive review of interlocking directorates across the entire economy” and [...]

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