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.
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.
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.
WHAT HAPPENED
During a conference last week, Ryan Danks, Director of Civil Enforcement at the US Department of Justice’s Antitrust Division (DOJ), suggested that merging parties—not the antitrust enforcement agencies—should devise fixes for allegedly anticompetitive transactions.
Danks stated “that something is broken about the way that the antitrust community talks about remedies in the context of mergers, where parties will bring in a three-to-two or four-to-three or even a two-to-one [transactions] and say ‘now we want you, government, to work with us to figure out how to fix this’ . . . that’s not our job. Our job is to maintain competition.”
Danks added that merging parties bear the responsibility for remedying their anticompetitive transactions and have more information on the businesses, allowing them to formulate strong solutions. Such “fix-it-first” approaches may allow merging parties to complete their transactions quicker, avoiding lengthy merger reviews and consent decree negotiations.
Danks also suggested that “the simplest remedy . . . is to just stop an anticompetitive transaction from occurring,” strongly hinting that today’s DOJ would rather challenge an entire transaction than work with the parties on devising a remedy to address specific competitive concerns in limited product or geographic markets.
Jonathan Kanter, Assistant Attorney General for the Antitrust Division, conveyed similar views in two speeches last week, making it clear that merger enforcement at the DOJ will become even more vigorous.
On September 13, 2022, Kanter:
On September 16, 2022, Kanter said that antitrust enforcers “can no longer be so cautious to avoid overenforcement that [they] intentionally underenforce the law.”
Moving away from negotiating settlements that allow transactions to proceed while resolving anticompetitive issues is part of a trend of dramatic policy and procedural changes at both the DOJ and Federal Trade Commission (FTC) designed to discourage mergers and acquisitions (M&A), such as:
WHAT THIS MEANS FOR MERGING PARTIES
Merging parties should increasingly consider resolving likely competitive issues with their transaction before the antitrust [...]
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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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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.
WHAT HAPPENED
WHAT’S NEXT
Alex Grayson, a summer associate in the Washington, DC, office, also contributed to this article.
US antitrust enforcers have signaled that private equity firms are the prime targets for upcoming aggressive antitrust merger enforcement. In a recent interview, US Assistant Attorney General Jonathan Kanter stated that the motive of a private equity firm may be “designed to hollow out or roll up an industry and essentially cash out,” which “is often very much at odds with the law, and very much at odds with the competition we’re trying to protect.”[1] His comment comes after Lina Khan, the current Federal Trade Commission (FTC) Chairwoman, stated that private equity roll-ups would be a focal point for the FTC.[2] It is not entirely unsurprising that progressive antitrust enforcers are focusing on private equity after the industry announced a record 14,730 deals last year globally worth $1.2 trillion, which was nearly double the previous high in 2007.[3] The above comments provide several key takeaways for stakeholders going forward:
While the degree to which agencies will more closely scrutinize private equity transactions remains unclear, it is crucial for private equity firms to engage antitrust counsel early in the transaction process both to evaluate the transaction at hand, as well as any future transactions that may, together, bring about enhanced regulatory scrutiny.
[1] Stefania Palma and James Fontanella-Khan, “Crackdown on buyout deals coming, warns [...]
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In the United States, antitrust agencies continue with their aggressive merger enforcement posture. The agencies challenged four transactions this quarter, including multiple vertical mergers. The agencies are increasingly skeptical of merger remedies, including behavioral remedies and divestitures. The Federal Trade Commission (FTC) and the Department of Justice (DOJ) are working together to update the current Horizontal Merger Guidelines. The updated guidelines will likely signal a more aggressive enforcement posture.
The European Commission (Commission) blocked one transaction in Phase II and cleared two transactions. Three transactions were abandoned after the Commission initiated a Phase II investigation. The Commission made use of partial referrals to member state national competition authorities in two cases. It also ordered Hungary to withdraw its decision to prohibit Vienna Insurance Group’s (VIG) acquisition of AEGON Group’s Hungarian subsidiaries on foreign direct investment grounds, holding that Hungary’s prohibition decision infringed Article 21 of the EU Merger Regulation.
In the United Kingdom, the first quarter of 2022 also saw a number of Phase II investigations. Specifically, the Competition and Markets Authority (CMA) cleared one transaction in Phase II and blocked two other transactions in Phase II. One transaction was abandoned after the CMA initiated a Phase II investigation. The CMA blocked the merger of Cargotec and Konecranes just one month after the EC cleared the transaction subject to commitments in Phase II. The parties abandoned the transaction following the CMA’s decision.
WHAT HAPPENED
WHAT’S NEXT
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