The Biden administration has made promoting competition a top priority, as reflected in President Biden’s July executive order on competition. (For a complete description of the executive order and developments in its implementation, please visit Steptoe’s Executive Order on Competition Tracker). This priority is reflected in appointments that President Biden has made to the Federal Trade Commission (FTC) and the Department of Justice (DOJ), as well as in policies announced by those appointees.
Although the FTC has been announcing a plethora of changes (some described below), the DOJ Antitrust Division has been significantly quieter, perhaps due to not yet having a permanent head confirmed. President Biden’s nominee, Jonathan Kanter, had his Senate Judiciary Committee confirmation hearing on October 6, although it may be weeks before the Committee and the full Senate vote on his nomination. He appeared to have more support than FTC Chair Lina Khan received during her hearing, with lawmakers from both parties indicating support for his nomination. He answered questions ranging from his views on the consumer welfare standard and whether environmental, social, and labor factors should be considered in the context of an antitrust review. Throughout, while his views may contrast to an extent with the principles announced by Chair Khan in her memo described below, Kanter emphasized his commitment to strong antitrust enforcement.
President Biden has also nominated Alvaro Bedoya to the FTC Commissioner position left vacant by Commissioner Rohit Chopra’s confirmation to lead the Consumer Financial Protection Bureau. Bedoya is a privacy expert who has focused his research on the harms of artificial intelligence, such as the potentially discriminatory aspects of facial recognition. He has also worked in the Senate, serving as chief counsel to the Senate Judiciary Subcommittee on Privacy, Technology, and the Law. Before their nominations to the FTC, both Khan and Bedoya had established themselves as critics of Big Tech and, in light of their backgrounds, it is likely that the FTC will continue its focus on Big Tech and privacy issues.
Consistent with that prediction, Chair Khan appointed Olivier Sylvain as an advisor on rulemaking and emerging technology. Sylvain, a professor of communications and administrative law at Fordham Law, is an expert on Section 230, artificial intelligence, and content moderation issues. His writings opining that content moderation can lead to systemic racial and gender inequalities, among other issues, may indicate that the FTC intends to tackle these issues, perhaps asserting jurisdiction pursuant to their unfair and deceptive practices responsibility. This may lead to inter-agency conflict, as the Federal Communications Commission staked its claim to Section 230 in a blog post last year.
Merger Review Developments
Parties considering Hart-Scott-Rodino-reportable transactions find themselves in the midst of considerable change, with less transparency in some areas. In particular due to several policy shifts by the FTC, previously well-established practices and guidance are no longer being followed, leaving merging parties to contend with less direction and greater agency involvement.
Vision and Priorities for the FTC. A September 22 memo from FTC Chair Khan to the FTC’s staff directed staff to take “a holistic approach” to identifying antitrust and consumer protection harms, to orient its enforcement efforts around targeting root causes rather than looking at one-off effects, to invest in a more rigorous and empiricism-driven interdisciplinary approach to understanding market conduct, to be forward-looking in anticipating problems and taking swift action, and, finally, to further democratize the FTC. She identified as enforcement priorities merger enforcement, dominant intermediaries, and restrictive contract terms.
Vertical Merger Guidelines. Also in September, the FTC withdrew the vertical merger guidelines that it issued in 2020 (which was the first major revision since 1984) due to “unsound economic theories that are unsupported by the law or market realities.” In particular, the FTC critiqued “the 2020 VMG’s flawed discussion of the purported procompetitive benefits (i.e., efficiencies) of vertical mergers, especially its treatment of the elimination of double marginalization.” The FTC’s statement has been criticized by leading antitrust scholars, including Carl Shapiro and Herbert Hovenkamp.
These Vertical Merger Guidelines remain in effect at the DOJ, although Acting Assistant Attorney General Richard Powers of the Antitrust Division issued a statement announcing that the DOJ believes that there are “several aspects of the guidelines that deserve close scrutiny,” and that it is working with the FTC to update the guidelines, which will be subject to a public comment period.
The withdrawal of these guidelines creates at least two problems. First, it creates an apparent asymmetry between review at the FTC compared to the review at the DOJ, which could result in different standards being applied by the FTC and the DOJ. Second, parties with transactions pending before the FTC may have decreased transparency into how the Commission will evaluate a vertical merger.
Suspension of Early Terminations. On February 4, 2021, the FTC and DOJ halted the practice of granting early termination requests. Ever since August 1982, when the FTC dropped the requirement that parties provide “special business reasons” for requesting early termination, parties to transactions that were identified as not posing a risk to competition had been granted early termination before the expiration of the applicable HSR waiting period. The agencies cited an unprecedented number of mergers and acquisitions that have been filed in the past year, which has put tremendous strain on the agencies. Although the agencies announced that the temporary suspension would be brief, they have yet to lift the suspension, more than eight months later.
Assumption of debt. In August, the FTC announced that it would treat the assumption of liabilities as part of the acquisition price for purposes of the HSR Act thresholds. Prior to this announcement, informal interpretations from the staff at the FTC’s Premerger Notification Office (PNO) had advised that the retirement of debt should never be included in the consideration calculation. The FTC has now reversed that informal interpretation, resulting in the likelihood that additional HSR filings will be required.
Moreover, the blog post publicizing the change portends further changes to existing informal interpretations. The blog post said that “some of these informal interpretations may not reflect modern market realities or the policy position of the Commission,” and that the agencies “are currently in the process of reviewing the voluminous log of informal interpretations to determine the best path forward.” Although PNO informal interpretations do not have legal force, they have created a body of precedent on which merging parties have relied for decades. Again, the FTC action creates additional uncertainty in the merger review process.
Prior Notice. In July, the FTC voted to rescind a 1995 policy statement on prior approval. Until the 1995 policy statement, the FTC had required companies entering consent decrees to resolve merger investigations to agree to provide prior notice and/or obtain prior approval for subsequent acquisitions in the relevant product and geographic markets that were the subject of the consent. In 1995, the FTC voted to remove that requirement, essentially because the HSR process had rendered it superfluous. Although the ultimate effect of the withdrawal of this policy remains uncertain, it is likely another obstacle to parties proposing deals that raise antitrust issues and it will create another issue for negotiation between merging companies.
Close at your own peril letters. In August, the FTC announced another policy shift that is also likely intended to deter merger activity. The HSR Act generally sets forth a 30-day waiting period to enable premerger review by the FTC or the DOJ, which can be extended by the issuance of a Second Request or if the parties decide to “pull-and-refile” their notifications. After the expiration of the waiting period, the parties are free to close their deal. Although the FTC technically retains the authority to continue to investigate – or even to seek to unwind the deal – after a transaction has been consummated, it has rarely sought to use that power. Accordingly, the recent FTC announcement that it will issue form letters to parties informing them that the FTC’s investigation is continuing and that any consummation of the transaction would be at the parties’ own risk represents a distinct departure from prior procedure. While parties previously could have a high level of confidence that their transaction could be consummated without consequence if the FTC did not issue a Second Request, this confidence may now be subject to question. As with the FTC’s policy shift on prior notice provisions in consent decrees, this change represents another hurdle for merging parties to overcome.
Second Requests – “More Streamlined” and “More Rigorous”. On September 28, the FTC announced new processes for Second Requests that it claims will make the process both more streamlined and more rigorous – although it appears that the process likely will make the process more streamlined for the FTC and more rigorous for parties facing Second Requests. The changes include: efforts to better identify facets of market competition that may be affected by the merger (likely through broader inquiries into issues such as competition for labor), postponing requests for modification of the requests until after a company provides initial foundational information, requiring companies to provide information at the outset of the investigation on how it will use e-discovery, aligning privilege log practices with the practices of DOJ, and allowing secure internal access to second requests information to all Commissioners and relevant offices at the FTC.