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Heard on Day One of 2022 Antitrust Law Spring Meeting

This week, the American Bar Association’s Antitrust Law Section kicked off its annual Spring Meeting in Washington, DC, which features updates from the antitrust enforcers and substantive discussions on today’s most pressing antitrust issues. In this post, we share key takeaways from the first day of the Spring Meeting.

Agencies Continue to Be Hostile to M&A: Republican Federal Trade Commission (FTC) Commissioners Noah Phillips and Christine Wilson emphasized that the prevailing view under Democratic leadership at the antitrust agencies is that mergers provide no value and only carry costs.

  • Progressive leadership wants to “throw sand in the gears” to prevent deals from being proposed altogether. Recent policy changes are aimed at creating uncertainty, heightening risk and raising the transaction costs of doing deals to slow the pace of M&A activity.
  • Despite this, there was a precipitous drop in the number of FTC merger enforcement actions in the final year of the Trump administration (31) compared to the first year of the Biden administration (12).
  • There is no indication that early termination for Hart-Scott-Rodino (HSR) pre-merger notification filings will be reinstated.
  • “Close At Your Peril” letters are another tactic the agencies are using to heighten deal risk and deter parties from pursuing or consummating transactions, even though the antitrust agencies have always had the authority to investigate and challenge consummated transactions.
  • Many panelists commented on the lack of transparency between agency staff and merging parties on recent transactions. If the lack of transparency persists, it may create due process issues and problems for timing agreements that merging parties typically negotiate with staff.
  • The antitrust agencies are increasingly skeptical of the efficacy of structural and behavioral remedies to resolve competition concerns regarding a transaction. The Department of Justice (DOJ) Antitrust Division’s Principal Deputy Assistant Attorney General Doha Mekki said merging parties should expect the DOJ to reject “risky settlements” more often and instead seek to block transactions outright. Mekki said literature has shown that many merger settlements failed to protect competition.

Increased Antitrust Litigation Is on the Horizon: DOJ officials said companies should expect an increase in antitrust litigation on both civil and criminal matters.

  • The DOJ Antitrust Division has more cases in active litigation than it has had at any time in recent history. It currently has six active litigations involving civil matters and 21 ongoing litigations involving criminal matters.
  • The Antitrust Division is not considering cost as a gating factor for bringing new cases. Instead, it is bringing cases where it deems necessary to uphold the law and preserve competition. The DOJ is hiring more attorneys and using shared DOJ resources to support the increased rate of litigation.
  • The DOJ is also seeking faster access to the courts. Mekki indicated that in cases where potential anticompetitive harm resulting from a transaction is clear, the agency may file suit while an investigation remains pending and before merging parties have certified substantial compliance.

Updated Merger Guidelines Are Coming: Officials from both the FTC and [...]

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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.

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Kanter Signals DOJ to Follow FTC Lockstep, Calls for Substantial Change to Competition Enforcement Approach

In remarks delivered on January 18, 2022, and January 24, 2022, Jonathan Kanter, the Assistant Attorney General (AAG) for the US Department of Justice (DOJ) Antitrust Division, laid out the areas where he perceives shortcomings in antitrust enforcement. These speeches signaled that the Division, under Kanter’s direction, will take a more aggressive stance toward perceived anticompetitive conduct, echoing the changes in enforcement priorities at the Federal Trade Commission (FTC).

Overview of AAG Kanter’s Remarks

  • Kanter intends to shape the regulatory landscape to better reflect dynamic markets. Both speeches featured a cohesive overarching message: Kanter believes that the regulatory and jurisprudential antitrust regime does not reflect and cannot address the market realities that exist today. Kanter believes that the Supreme Court of the United States’ 1992 opinion in Eastman Kodak v. Image Technology Services supports a change in approach because “[l]egal presumptions that rest on formalistic distinctions rather than actual market realities are generally disfavored in antitrust law.”[1] To address widespread increases in market concentration as well as “the economic and transformational technological changes” that define today’s economy, Kanter intends to revise the Division’s approach for analyzing mergers and conduct.[2]
  • Kanter seeks to revive dormant areas of antitrust enforcement, in particular monopolization cases with a focus on tech “platform” companies. Kanter stated that the Division has failed to adequately address certain areas of antitrust enforcement. He noted that it has been almost 20 years since the Division’s last major monopolization case.[3] Dominant tech platforms have “extracted private data” and “have few, if any, realistic alternatives,” he said.[4] Shortly after Kanter’s comments about prioritizing monopolization cases, Richard Powers, the deputy for criminal enforcement, stated that the Division will now evaluate Section 2 conduct for criminal charges.[5] Powers’s comments signal a dramatic change in enforcement, reversing decades of policy in which Section 2 charges were only brought in the civil context. These statements from Division leadership mirror those of FTC Chair Lina Khan, who has repeatedly called for more robust antitrust enforcement, and indicate that Kanter intends to reshape the Division, both in terms of resource allocation and approach to anticompetitive conduct, from a civil and criminal perspective.
  • Kanter laid out the Division’s overarching priorities clearly in his remarks. The Division intends to take a more aggressive stance on vertical merger enforcement, reformulate the Horizontal and Vertical Merger Guidelines to better reflect market realities (in the government’s view), enter into fewer consent decrees and instead litigate cases to generate judicial opinions and advance the relevant case law, and bring more civil and criminal conduct cases.

 
Vertical Merger Enforcement to Become a Focal Point for Regulators

  • Kanter stated that agency enforcement of vertical mergers has been lacking. Kanter believes that the Division has placed too much value on the potential efficiencies of vertical mergers without identifying the relevant theories of harm presented by such transactions.
  • The Division intends to [...]

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DOJ Antitrust Division Signals Impending Criminal Monopolization Cases

WHAT HAPPENED

On March 2, 2022, the US Department of Justice (DOJ) Antitrust Division Deputy Assistant Attorney General Richard Powers revealed that the DOJ intends to investigate and pursue alleged criminal violations against individuals or companies who violate Section 2 of the Sherman Act. For more than 40 years, criminal enforcement of antitrust laws have focused nearly exclusively on hardcore, per se anticompetitive agreements (i.e., price fixing, output restriction or market allocation) among two or more horizontal competitors. Section 2 of the Sherman Act, on the other hand, primarily focuses on conduct by one firm or company with significant market power and, typically, is a means to bring a civil case for monopolization or anticompetitive use of the existing monopoly power.

LEGAL BACKGROUND

This marks a radical departure from longstanding DOJ antitrust enforcement of monopolization claims. In general, the DOJ has refrained from Section 2 criminal prosecutions.

Section 2 makes it illegal to acquire or maintain monopoly power through anticompetitive means and focuses primarily on unilateral or one-sided anticompetitive behavior. Courts (including the Supreme Court of the United States) generally have analyzed Section 2 cases under the “rule of reason,” which weighs both procompetitive and anticompetitive effects of conduct.

Because the rule of reason imposes a balancing test that is akin to the preponderance of evidence standard, the higher criminal burden of proof could clash with existing jurisprudence and agency guidelines on Section 2 enforcement standards. In contrast, Section 1 of the Sherman Act prohibits anticompetitive agreements—where courts have automatically deemed certain types of agreements, such as agreements to fix prices, allocate markets or rig bids—as illegal “per se,” because they (through ample judicial and economic experience) have been deemed to produce little or no procompetitive effects.

DOJ’s HISTORY WITH SECTION 2

In the last 50 years, the vast majority of criminal cases that the Antitrust Division has brought involved per se illegal agreements under Section 1. The Antitrust Division appears to have initiated very few criminal Section 2 cases during that same period with mixed success. For instance, in United States v. Cuisinarts, the DOJ prosecuted the defendant under Section 2 for per se resale price maintenance agreements.[1] The defendant agreed to pay a $250,000 fine for a plea of nolo contendere. However, today, the per se criminal treatment of resale price maintenance is in serious doubt as the long line of Supreme Court decisions from GTE Sylvania to Leegin have firmly placed most vertical resale price restraints for Section 2 under the rule of reason standard.

WHAT’S NEXT

In 2016, the Federal Trade Commission and the DOJ released a joint publication called the “Antitrust Guidance for Human Resource Professionals” when announcing expanded criminal enforcement in labor markets for wage fixing and no-poaching agreements.[2] We expect the DOJ to release similar guidance with respect to criminal prosecution of Section 2 claims.

The policy shift raises a host of additional questions, such as what types of conduct under Section 2 the Division intends to focus [...]

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Mitigating Antitrust Risk in Defense Deals Amid Scrutiny

As the Biden administration calls for tougher antitrust enforcement, the aerospace and defense (A&D) industry faces increased antitrust scrutiny. In this Law360 article, McDermott’s Jon Dubrow, Lisa Rumin and Anthony Ferrara explain how policy changes by the Federal Trade Commission, the Antitrust Division of the US Department of Justice and the US Department of Defense may affect A&D industry participants in various aspects of their businesses, including mergers and acquisitions, teaming agreements and labor practices. The authors also offer suggestions to help these companies mitigate antitrust risk arising from heightened antitrust scrutiny of the industry.

Read more here.




Treasury Responds to Biden Administration Executive Order with Report, Recommendations to Increase Alcohol Industry Competition



On February 9, 2022, the US Treasury Department (Treasury) released a report with recommendations for how the Tobacco Tax and Trade Bureau (TTB), Federal Trade Commission (FTC) and Department of Justice (DOJ) can help drive competition in the beer, wine and spirits markets by stepping up conduct enforcement, adopting creative and nuanced theories of harm in merger reviews and implementing new regulations to decrease the burden on smaller industry participants. Treasury’s report is based, in part, on hundreds of comments received from industry participants and paints a detailed picture of the current landscape for alcohol beverage distribution and sale across the United States.

Read more here.




Antitrust M&A Snapshot | Q4 2021

In the United States, antitrust agencies have now filled senior leadership positions, although the Federal Trade Commission (FTC) awaits the appointment of a fifth commissioner. Challenges to mergers continue apace at both the FTC and the Department of Justice (DOJ). The agencies challenged two mergers in the fourth quarter and a third transaction was abandoned. Additionally, nine consent orders were approved. The FTC is also including prior approval provisions in consent orders across industries, requiring parties seeking to settle merger disputes to agree to provide the FTC with greater rights to reject potential future deals.

The European Commission (Commission) imposed interim measures for the first time in the context of the Commission’s determination that Illumina’s acquisition of GRAIL was premature. The Commission conditionally cleared, in Phase I, Veolia’s acquisition of Suez—a transaction involving two French incumbents in the water and waste sectors—following comprehensive commitments. IAG withdrew from its proposed acquisition of Air Europa following the Commission’s decision not to approve the transaction absent further concessions.

In the United Kingdom, the Competition & Markets Authority (CMA) imposed a record fine of £50.5 million on Facebook for breaching an initial enforcement order related to its acquisition of Giphy, and ultimately required Facebook to sell Giphy. The CMA also updated its merger guidance in parallel with the entry into force of the UK National Security and Investment Act, published a new template for initial enforcement orders and updated its guidance on interim measures.

Access the full issue.




Notification Threshold Under the Hart-Scott-Rodino Act Increased to $101 Million

On January 21, 2022, the US Federal Trade Commission (FTC) announced increased thresholds for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR). The thresholds are indexed to changes in the gross national product (GNP).

NOTIFICATION THRESHOLD ADJUSTMENTS

These increased thresholds are scheduled to be published in the Federal Register on January 24, 2022, which would make them become effective on February 23, 2022. These new thresholds apply to any transaction that closes on or after the effective date:

  • The base filing threshold, which frequently determines whether a transaction requires the filing of an HSR notification, will increase to $101 million.
  • The alternative statutory size-of-transaction test, which captures all transactions valued above a certain size (even if the “size-of-person” threshold is not met), will be adjusted to $403.9 million.
  • The statutory size-of-person thresholds will increase to $20.2 million and $202 million.

 

The adjustments will affect parties contemplating HSR notifications in various ways. Transactions that meet the current “size-of-transaction” threshold (but not the adjusted $101 million threshold) will only need to be filed if they will close before the new thresholds take effect on February 23, 2022.

Parties may also realize a benefit of lower notification filing fees for certain transactions. Under the rules, the acquiring person must pay a filing fee, although the parties may allocate that fee among themselves. Filing fees for HSR-reportable transactions will remain unchanged; however, the size of transactions subject to the filing fee tiers will shift upward because of the GNP-indexing adjustments:

Filing Fee Size of Transaction $45,000 $101 million, but less than $202 million $125,000 $202 million, but less than $1.0098 billion $280,000 $1.0098 billion or more



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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Antitrust M&A Snapshot | Q3 2021

In the United States, the US Department of Justice’s (DOJ) challenge of American Airlines and JetBlue’s “Northeast Alliance” after the joint venture’s approval by the US Department of Transportation earlier this year demonstrates the Biden administration’s commitment to aggressive antitrust enforcement. US President Joe Biden issued an Executive Order calling for tougher antitrust enforcement, including “encouraging” the DOJ and Federal Trade Commission (FTC) to modify the horizontal and vertical merger guidelines to address increasing consolidation. At the same time, the FTC, under Chair Lina Khan, continues its rapid pace of change to the merger review process.

Under a new interpretation of Article 22 of the EU Merger Regulation (EUMR), the European Commission (Commission) asserted jurisdiction over Illumina’s acquisition of GRAIL and Facebook’s acquisition of Kustomer, even though the transactions did not meet the Commission or Member State filing thresholds. The EU General Court confirmed a significant gun-jumping fine imposed on Altice for breach of the EUMR notification and standstill obligations.

In the United Kingdom, the UK government published plans to update antitrust rules, including revising its jurisdictional thresholds and expanding the “share of supply” test to allow the CMA to more easily capture vertical and conglomerate mergers, as well as acquisitions of startups. And the Competition & Markets Authority’s (CMA) handling of the Veolia/Suez transaction demonstrates the CMA’s willingness to engage with parties to seek practical interim solutions while it is investigating a consummated transaction for potential antitrust concerns.

Access the full issue.




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