ANTITRUST ALERT
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
FTC Developments
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FTC Proposes Rule Banning Noncompete Agreements

by , and | Jan 6, 2023 |

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.

Entities interested in submitting such [...]

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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.

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Navigating the FTC’s Expanded Unfair-Competition Stance

by , and | Nov 21, 2022 |

On November 10, 2022, the Federal Trade Commission (FTC) voted to approve a new policy statement interpreting the FTC’s authority under Section 5 of the Federal Trade Commission Act, which prohibits “unfair methods of competition in or affecting commerce.” The newly adopted policy statement provides a significantly more expansive interpretation of the FTC’s authority and replaces all prior FTC guidance on the scope and meaning of unfair methods of competition under Section 5. The policy statement asserts that the FTC was set up to be an expert body charged with determining what constitutes unfair methods of competition and, accordingly, the FTC is entitled to great weight in its findings.

In this Law360 article, McDermott’s Greg Heltzer, Graham Hyman and Raymond Jacobsen discuss the significance of the new policy interpretation and what it means for Section 5 enforcement actions.

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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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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.

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Antitrust M&A Snapshot | Q2 2022

by , , , , and | Sep 26, 2022 | , , , , , , ,

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.

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International News Spotlight on Competition Law

by | Sep 21, 2022 | , , , , , , , , , ,

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.

Read our full Spotlight on Competition Law here.



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DOJ to Merging Parties: The Time of “Underenforcement” is Over; Fix-It-First or Risk Being Challenged

by , and | Sep 20, 2022 | , ,

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:

  • Warned that “[c]ompanies considering mergers that may harm competition should know that the Antitrust Division will not back down from a fight so long as that threat remains.”
  • Emphasized that the Clayton Act’s “expansive definition of antitrust liability” requires the government only to prove that a transaction’s effect “may be substantially to lessen competition.” According to Kanter, antitrust agencies have, for too long, “underenforced a statute that was meant to be prophylactic” by focusing on concrete evidence of a merger’s effect on prices.

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:

  • Suspending early termination of the Hart-Scott-Rodino Act (HSR) waiting period for transactions that do not raise competitive issues
  • Sending merging parties “close at your own risk” letters, informing the parties that antitrust investigations are ongoing despite expiration of the HSR waiting period
  • Insisting on inclusion of prior approval/prior notice provisions in all merger settlements
  • Including new topics, such as the impact on labor and environment, in Second Requests and adding additional hurdles to modifying Second Requests.

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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FTC Flexes Its Muscle in Suit against Kochava (But May Not Like the Results)

by , and | Sep 1, 2022 | , ,

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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