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States Want in on the Merger Review Fun

by , and | Aug 8, 2024 | , , , ,

WHAT HAPPENED

While they have long taken a back seat to federal merger reviews, US states are becoming increasingly involved in merger reviews, including potentially requiring premerger notifications on a broad scale. On July 24, 2024, the Uniform Law Commission adopted its Uniform Antitrust Pre-Merger Notification Act (Model Act) as model legislation for states to use to implement premerger filing regimes.

  • The Act functions as a template for states to adopt their own premerger notification legislation and provides uniform suggested guidance to states that are considering their own premerger notification regimes.
  • The Model Act requires parallel filing of the Hart-Scott-Rodino (HSR) form in a state when:
    • The filing person has its principal place of business in the state; or
    • The person “directly or indirectly had annual net sales in [the] state . . . of at least 20 percent” of the threshold mandated under the HSR Act. §3(a)(1)-(2). Under the current HSR thresholds, that means sales of approximately $24 million in a state would satisfy the state-level filing requirement.
  • The Model Act also provides for automatic confidential treatment of materials submitted to the state.
    • Additionally, the attorneys general may communicate with the federal agencies about filing materials.
    • This can avoid the current practice of having to negotiate individual confidentiality agreements with any state interested in reviewing a transaction.
  • The Model Act does not impose any waiting or suspension period for notified transactions.
  • This continues a trend of government agencies obtaining more notice of M&A transactions. At the end of last year, Congress inserted Section 857 into the National Defense Authorization Act, which requires parties to provide their HSR materials to the US Department of Defense (DoD) for any proposed merger or acquisition that will require DoD review.

BACKGROUND

State attorneys general have broad investigatory and enforcement powers with respect to transactions implicating local competition concerns. States generally have the authority to issue investigative subpoenas, compelling production of documents and information to parties who merely sell products in a state without any further physical connection to the state.

  • Typically, states focus their efforts on transactions that have a particular impact on the state’s consumers or an industry important to the state’s economy.
    • For example, transactions involving hospitals or retail locations are traditionally more likely to draw the attention of a state’s attorney general than transactions involving national markets or consumer goods.
  • However, state enforcers have increasingly initiated their own efforts to challenge transactions.
    • This trend is illustrated by the Colorado attorney general’s lawsuit that seeks to block the Kroger-Albertsons merger.
      • Colorado is seeking a nationwide injunction and not merely an injunction on the acquisition in the state, raising a novel question with potentially significant impact on antitrust enforcement by the states.
      • Colorado is [...]

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Labor Markets in the Focus of European Competition Law

by and | Jul 25, 2024 | , , ,

In May 2024, the European Commission published a Competition Policy Brief classifying certain agreements related to labor markets as serious antitrust infringements. According to the Commission, so-called wage-fixing and no-poach agreements can only be justified in exceptional cases. The Brief follows the first unannounced inspections by the Commission concerning labor market agreements in Germany and Spain in the online meal ordering and delivery industry. It is vital that companies operating in Europe focus on educating their recruiting and human resources departments on antitrust rules to avoid severe fines.

LABOR MARKETS ON THE AGENDA

The Commission’s Competition Policy Brief could be interpreted as a warning for companies exposed to tight labor markets: Restrictive labor market agreements between competitors will be taken as seriously as price-related cartels. Companies must also bear in mind that competitors for labor are not limited to those companies with which they compete to sell products or services. It is sufficient that they compete for the same employees.

Given that restrictions on competition in labor markets mainly affect national markets, the main investigators will be (and already are) national competition authorities.

WHAT AGREEMENTS ARE CAUGHT

The following types of labor market agreements are considered potentially problematic:

  • No-poach agreements: In some cases, employers (in writing or orally) agree not to steal employees from each other. Such agreements can take different forms: In the case of nonsolicitation or no-cold-calling agreements, companies agree not to actively approach the other companies’ employees with a job opportunity. More far-reaching are no-hire agreements, i.e., companies agree not to hire (actively or passively) employees of other parties to the agreement. As a matter of principle, all forms of no-poach agreements in the Commission’s view constitute market sharing (supply-source sharing) within the meaning of Article 101(1)(c) of the Treaty on the Functioning of the European Union (TFEU) and therefore form a competition risk to be sanctioned.
  • Wage-fixing agreements: Sometimes, employers agree to fix wages or other types of compensation or benefits for their respective employees. The Commission considers these agreements akin to price fixing within the meaning of Article 101(1)(a) of the TFEU.

The Commission does acknowledge that no-poach agreements may pursue a legitimate objective by incentivizing companies to invest in training their own employees without fearing that they would be later lured away by competitors, and by preventing employees from taking non-patent intellectual property rights (such as trade secrets) to competitors. However, both types of agreements “reveal a sufficient degree of harm to competition” such that the Commission does not see a need to examine their effects. Due to their alleged negative impact on employees’ wages, firm productivity and innovation, they are regarded “by their very nature” as harmful.

The above does not apply, however, to collective bargaining agreements between organizations representing employers and employees, which are explicitly outside the scope of the Commission’s Competition Policy Brief. The Court of Justice of the European Union (CJEU) recognized that certain restrictions of competition are inherent in collective agreements, which [...]

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FTC Announces Annual Merger Notification Threshold and Filing Fee Adjustments

by , and | Jan 23, 2024 | , , ,

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).

  • The base statutory size-of-transaction threshold, the lowest threshold requiring notification, will increase to $119.5 million.
  • The upper statutory size-of-transaction test, requiring notification for all transactions that exceed the threshold (regardless of the size-of-person test being satisfied), will increase to $478 million.
  • The statutory size-of-person lower and upper thresholds (which apply to deals valued above $119.5 million but not above $478 million) will increase to $23.9 million and $239 million, respectively.

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.



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Fourth Circuit Holds Per-Se Rule Does Not Apply in Bid-Rigging Case

by and | Jan 10, 2024 | , , ,

WHAT HAPPENED

A three-judge panel from the US Court of Appeals for the Fourth Circuit overturned an executive’s bid-rigging antitrust conviction, holding that the district court erred in applying the per se standard to the executive’s alleged bid-rigging conduct.

The executive, Brent Brewbaker, rigged bids between his former employer, Contech, and its distributor, Pomona Pipe Products. The Fourth Circuit found that while Contech and Pomona both submitted competing bids for North Carolina Department of Transportation (NCDOT) projects, and Contech coordinated with Pomona to make Contech’s bids slightly higher priced, this conduct could not be deemed inherently unlawful under prior precedent because the entities had a manufacturer-distributor arrangement and were not simply direct competitors. In particular, the Fourth Circuit noted that manufacturer-distributor relationships such as the one between Contech and Pomona do not inherently lead to anticompetitive harm and may enhance competition.

Therefore, given the kind of relationship Contech and Pomona had, the Fourth Circuit held that the district court should have analyzed the conduct under the rule of reason to weigh the competitive implications of the parties’ agreement and conduct.

BACKGROUND

  • Contech manufactured and sold aluminum products.
  • Pomona distributed Contech’s aluminum products and was Contech’s exclusive dealer in North Carolina.
  • NCDOT used a bidding process for aluminum structure projects throughout the state. These projects required both the aluminum product and the services to install the aluminum structures.
  • Contech, Pomona and a third company were the consistent bidders for the NCDOT projects.
  • When either Contech or Pomona won a bid for a project, each would fulfill its contract using the other’s supply or services. Pomona, therefore, served as Contech’s “dealer” with Contech supplying Pomona the aluminum it needed to use in the projects Pomona eventually won; vice versa, Pomona provided necessary services to Contech when Contech won a bid. Neither Contech nor Pomona could win a bid without the products or services of the other.
  • In 2019, Brewbaker took charge of Contech’s bidding for these NCDOT projects and began intentionally submitting losing bids to enable Pomona to win by first asking for Pomona’s total bid price and then adding a markup to Contech’s bid price before submitting the bid to NCDOT.
  • DOJ alleged that Contech and Pomona engaged in bid rigging because they directly competed against each other’s separate bids. Brewbaker and Contech were indicted for violating Section 1 of the Sherman Act and conspiracy to commit mail and wire fraud.
  • Contech pleaded guilty to bid rigging and one fraud count.
  • Brewbaker proceeded to trial, and the district court convicted him of bid rigging and five other fraud-related counts (which were not overturned by the Fourth Circuit), upon concluding that Contech and Pomona’s conduct fell squarely within the definition of antitrust “bid rigging” under Section 1 of the Sherman Act.

HOW THE DECISION WAS REACHED

  • The Fourth Circuit explained that the rule of reason standard is the default framework used to scrutinize most business practices under the antitrust laws. It weighs [...]

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Merger Notification Thresholds and Filing Fees to Increase

by , and | Jan 24, 2023 | , , ,

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).

  • The base statutory size-of-transaction threshold, the lowest threshold requiring notification, will increase to $111.4 million.
  • The upper statutory size-of-transaction test, encompassing all transactions valued above a certain size (regardless of the size-of-person test being met), will increase to $445.5 million.
  • The statutory size-of-person lower and upper thresholds (which apply to deals valued above $111.4 million but not above $445.5) will increase to $22.3 million and $222.7 million, respectively.

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.



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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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Heard on Day Two and Three of 2022 Antitrust Law Spring Meeting

by , , , , and | Apr 12, 2022 | , , , , , , ,

On April 7 and 8, 2022, the American Bar Association’s Antitrust Law Section wrapped up its annual Spring Meeting. The event featured updates and remarks from several antitrust enforcers, including FTC Chair Lina Khan and US Assistant Attorney General for the Antitrust Division Jonathan Kanter. In this post, we share key takeaways from the final two days of the Spring Meeting.

FTC and DOJ Will Stay Focused on Litigation: Top officials at both US antitrust agencies highlighted the agencies’ full dockets and noted that litigation to enforce the antitrust laws will remain a top priority.

  • Three Directors from the Federal Trade Commission (FTC)—Holly Vedova, the Director of the Bureau of Competition; Samuel A.A. Levine, Director of Bureau of Consumer Protection; and Elizabeth Wilkins, Director of Office of Policy Planning—all emphasized that the FTC will work as one team and will not hesitate to initiate litigation.
  • Vedova noted the FTC’s recent success in several transactions being abandoned after the FTC initiated litigation. She expressed that the Bureau of Competition’s main focus will be litigation, where she believes her bureau will be most effective. Khan echoed these sentiments while speaking on a separate panel, emphasizing that two recently abandoned transactions were in the context of challenges to vertical transactions and that such challenges will continue to be a priority at the FTC.
  • Likewise, Kanter noted that the Department of Justice (DOJ) is not afraid to take on big cases or big companies and will not be afraid to litigate. He said the DOJ is just getting started and reiterated that the DOJ has more active cases than it has had in recent years.

Agencies Will Closely Scrutinize Potential Remedies in M&A: Both FTC and DOJ officials emphasized they will continue to examine the effectiveness of remedies and will only pursue strong remedies.

  • Kanter said that divestiture remedies will be the rare exception and will no longer be the norm. He further cautioned merging parties to avoid engaging in “regulatory arbitrage” and trying to leverage investigation outcomes in one jurisdiction against another because global cooperation among antitrust enforcers is high.
  • Vedova also indicated that the Bureau of Competition has no appetite for weak or uncertain settlements, especially those involving behavioral remedies, which have proven ineffective. The FTC will require meaningful structural relief to resolve competition concerns regarding a transaction.
  • Parties should also not expect the FTC to engage in long settlement discussions due to the unprecedented volume of merger reviews. Vedova noted that staff’s time is valuable and is much better spent preparing for litigation rather than negotiating remedies. She further indicated that the FTC will not engage in remedy discussions unless the Hart-Scott-Rodino (HSR) clock is stopped and timing agreements are tolled.
  • State attorneys general will similarly evaluate remedies and, if necessary, pursue additional remedies than those sought by federal antitrust enforcers. For example, in a recent dialysis acquisition, the state of Utah sought divestiture of a fourth clinic above the three divestitures required to [...]

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Heard on Day One of 2022 Antitrust Law Spring Meeting

by , , , , , and | Apr 7, 2022 | , , , , , ,

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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Recent Treasury Department Report Emphasizes Fostering Competition in Labor Markets

by and | Mar 15, 2022 | , , , , ,

Continuing the recent string of actions across the Biden administration in response to the July 2021 Executive Order on “Promoting Competition in the American Economy,” on March 7, 2022, the US Treasury Department (Treasury) released a report titled “The State of Labor Market Competition,” and on March 10, 2022, the US Departments of Justice (DOJ) and Labor (DOL) announced a Memorandum of Understanding (MOU) to strengthen and coordinate enforcement efforts in labor markets. These developments highlight the administration’s continuing focus on anticompetitive conduct in the labor markets at both the local and national levels and warrant careful attention by employers of all sizes and in all industries.

Treasury Report In Depth

  • Treasury’s report sets out to “summarize the prevalence and impact of uncompetitive firm behavior in labor markets.”
  • It focuses on both inter-employer conduct—such as the sharing of wage information, entering into no-poach agreements and outright conspiracies to fix wages—and employer-employee conduct—like forcing workers to sign non-compete agreements, mandatory arbitration agreements and class action waivers, misclassification of employees as independent contractors and opacity surrounding employees’ compensation rates—as being potentially anticompetitive and contributing to the imbalance of power between employers and employees in labor markets.
  • The structures of various labor markets, including overall low rates of unionization, “fissuring” of workplaces as a wide variety of job functions (e.g., janitorial or food services) are outsourced from in-house employees to external contractors, and occupational licensing requirements imposed by federal, state, and/or local governments, are highlighted as having overall negative effects on the competitiveness of various labor markets.
  • The report estimates that employers’ market power is responsible for approximately 20% lower wages compared to a fully competitive labor market, and notes that the harms that flow from a lack of labor market competition disproportionately impact lower-income occupations, women and people of color.
  • The report concludes by emphasizing that adverse effects on workers as a result of limited competition in labor markets have broader effects on the labor markets, the firms that participate in them and the economy as a whole.
  • Finally, the report specifically examines the labor markets in the healthcare, agricultural and minor-league baseball industries, and it outlines the Biden administration’s efforts to increase competition and deter and punish anticompetitive conduct in labor markets across the country.

The Memorandum of Understanding (MOU)

  • The DOJ and DOL’s MOU likewise emphasizes the shared “interest in protecting workers who have been harmed or may be at risk of being harmed as a result of anticompetitive conduct,” as Assistant Attorney General Jonathan Kanter noted in the joint press release announcing the MOU, “[p]rotecting the right of workers to earn a fair wage is core to the work of both our agencies, and it will continue to receive extraordinary vigilance from the Antitrust Division.”
  • The MOU states the DOJ’s and DOL’s intent to “share enforcement information, collaborate on new policies, and ensure that workers are protected from collusion and unlawful employer behavior.”
    • [...]

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Mitigating Antitrust Risk in Defense Deals Amid Scrutiny

by , and | Mar 8, 2022 | , , ,

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.

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