Topics covered in this edition:
Vertical mergers are inherently more difficult for the government to litigate than horizonal mergers. After not litigating a vertical merger case since the 1970s, the Federal Trade Commission and the US Department of Justice have recently tried several matters.
In this Westlaw Today article, Jon Dubrow, Stephen Wu, Matt Evola and Bailey Sanders discuss key insights from these cases and provide useful guidance for companies contemplating such transactions.
On January 22, 2024, the Federal Trade Commission (FTC) announced increased jurisdictional thresholds, increased filing fee thresholds and filing fee amounts for merger notifications made pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act).
Merger Notification Threshold Changes
The HSR Act compels transacting parties to notify the FTC and US Department of Justice (DOJ) of their intent to consummate a transaction if such a transaction meets or exceeds certain jurisdictional thresholds, barring an exemption. The adjusted thresholds apply to all transactions that close on or after the effective date, which will be 30 days after the notice is published in the Federal Register.
The FTC amends the merger notification jurisdictional thresholds on an annual basis based on changes in the gross national product (GNP).
Merger Filing Fee Increases
Following the passage of the Merger Filing Fee Modernization Act, the FTC is required to revise filing fee thresholds and filing fee amounts each year. Filing fee threshold changes are based on the percentage change in GNP, and filing fee amounts are based on the percentage increase, if any, in the Consumer Price Index (CPI). As with the merger notification thresholds, the filing fee threshold and filing fee amount adjustments take effect 30 days after publication of the notice in the Federal Register.
The revised filing fee thresholds and filing fee amounts are provided in the table below.
The US Federal Trade Commission (FTC) and US Department of Justice Antitrust Division (DOJ) issued their updated Merger Guidelines on December 18, 2023. These guidelines represent a significantly more enforcement-oriented approach than the prior guidelines, and they largely follow the contours of draft guidelines released in July 2023. Companies should be aware of the Merger Guidelines and their implications as they formulate strategies for assessing potential merger and acquisition options.
In the first half of 2023, antitrust enforcers remained remarkably busy both in the United States (US) and across the European Union (EU). The US Department of Justice’s (DOJ’s) Antitrust Division (Division) and the Federal Trade Commission (FTC) have continued their aggressive and novel effort to drag antitrust enforcement into the labor markets. The DOJ Procurement Collusion Strike Force (PCSF) has pursued its crackdown on antitrust and fraud involving government procurement with a number of recent cases. And DOJ has pushed the boundaries under Section 2 of the Sherman Act—both by revitalizing the criminal provisions of the law and by pursuing “attempts” to monopolize criminally. The European Union has also kept the pressure on those doing business overseas, imposing significant fines in recent matters and upgrading its online leniency program to make it easier for companies to report wrongdoing.
In this installment of Cartel Corner, we examine this continued aggressiveness toward antitrust enforcement. While these government enforcement efforts have not always been successful, they have nonetheless reframed the landscape for many companies and individuals. What was once thought of as a civil antitrust violation at worst—or no violation at all—is now often pursued criminally. And antitrust enforcers are speaking in more strident tones as they attempt to remake, in certain ways, the way companies do business in the United States and abroad.
Whether antitrust enforcers are ultimately successful remains to be seen. Nonetheless, the trend is real, and it is one that all companies should be prepared to address in the weeks and months to come.
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).
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.
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.
On January 5, 2023, the Federal Trade Commission (FTC) issued a proposed rule that would prohibit employers from using noncompete agreements with their employees or independent contractors. This proposal arises from a preliminary finding by the FTC that noncompetes constitute an unfair method of competition in violation of Section 5 of the Federal Trade Commission Act (FTC Act). It comes on the heels of the FTC’s November policy statement asserting its intention to rigorously enforce and expand the scope of Section 5 of the FTC Act’s ban on unfair methods of competition.
If adopted, this rule would make it illegal for an employer to enter into a noncompete agreement with a worker, maintain a noncompete with a worker or represent to a worker that the worker is subject to a noncompete. Employers would also be required to rescind existing noncompetes and inform workers that they are no longer enforceable.
The proposed rule would apply to noncompetes with either employees or independent contractors. Other restrictive covenants such as non-disclosure agreements would not be affected by the FTC’s proposed rule unless they are so broad in scope that they essentially function as a noncompete agreement.
The FTC is inviting public comment on its proposed rule. The full text of the proposed rule and information on the public comment period is available here. In particular, the FTC seeks comment on whether senior executives or franchisees should be covered by the rule, as well as whether low- and high-wage workers should be treated differently under the rule. Comments are due 60 days after the Federal Register publishes this proposed rule, after which the FTC is likely to issue a final rule. Should the rule become final, companies should be prepared for it to go into effect 180 days after the date of publication.
The proposed rule arrives with the FTC’s concurrent announcement of settlements in complaints it issued against three employers’ use of noncompetes. These settlements ban those employers from enforcing, threatening to enforce or imposing noncompetes against specified groups of employees and require that the companies notify all affected employees.
Historically, noncompetes were a matter of state law. With this new involvement from the FTC attempting to set a national ban on noncompetes, employers need to be aware of this latest attempt to regulate the use of noncompete agreements and restrictive covenants.
Whether the FTC will succeed remains an open question. Republican Commissioner Christine S. Wilson, in a dissenting statement, cautioned that the proposed rule is open to meritorious challenges that (1) the Commission lacks authority to engage in “unfair methods of competition” rulemaking and (2) the Supreme Court of the United States’ “major questions” doctrine suggests that the federal courts may preclude the FTC from venturing into this novel area of regulation absent legislative amendments to its enabling statute. Plus, interested parties may persuade the FTC to scale back its proposed regulation.
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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:
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.
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