The COVID-19 pandemic has placed additional stressors on labor markets, particularly for healthcare workers and essential employees. While recognizing that employers, recruiters and staffing agencies may need—and be allowed to—cooperate in unprecedented ways to address current needs, on April 13, 2020, the US Department of Justice and US Federal Trade Commission issued a joint statement reinforcing their vigilance against collusion or anticompetitive conduct in labor markets and their willingness to pursue criminal and civil actions against violators.
On March 3, 2020, the American Bar Association (ABA) hosted a Q&A with two members of the Procurement Collusion Strike Force (PCSF)—Mark Grundvig, the Assistant Chief of the DOJ Antitrust Division’s Criminal II section, and Marcus Mills, Special Agent, Major Fraud Investigations Division, USPS Office of Inspector General.
During the course of the Q&A, Mr. Grundvig and Mr. Mills provided their perspective on the goals and progress of the PCSF.
Antitrust regulators in the United States and Europe were very active in the final quarter of 2019. The FTC and DOJ continue to investigate and challenge M&A transactions in a variety of industries. Events of this quarter highlight the importance of states in merger enforcement. As well, recent FTC activity highlights the regulators’ focus on preventing monopolists from buying nascent competitors.
In Europe, the UK CMA continues to expand its role as a key jurisdiction in the merger clearance process, which will only accelerate with Brexit. The EC agreed to clear, subject to conditions, acquisitions in the aluminum production and battery industries as well as in the wholesale supply and retail distribution of TV channels after conducting Phase II reviews. Moreover, the EC opened new in-depth investigations into transactions in the copper refining and engineering sectors.
For the first time since the Department of Justice Antitrust Division (DOJ) published non-horizontal merger guidelines in 1984, the DOJ and Federal Trade Commission (FTC) issued updated Vertical Merger Guidelines to explain how the antitrust agencies analyze vertical mergers. The guidelines were published in draft on January 10, 2020, and are now open for a 30-day public comment period.
WHAT HAPPENED:
The DOJ and FTC released draft guidelines outlining the principal analytical techniques, practices and enforcement policies the antitrust agencies will use to analyze vertical mergers and acquisitions. Vertical mergers combine firms or assets that operate at different stages of the same supply chain. For example, vertical mergers or acquisitions could combine companies such as:
a satellite maker and a payload provider;
an automaker and an aluminum supplier;
an automaker and an automotive retailer;
a filmmaker and a cable television company; or
a pharmaceutical company and a chemical company making active pharmaceutical ingredients.
The merging companies do not compete with each other, but rather work with each other through the supply of inputs, distribution or other business services. The draft guidelines are relatively limited in scope and do not significantly expand the theories and issues that US antitrust regulators have been applying to vertical mergers for several years. That said, having these theories on paper will provide helpful guideposts in assessing potential transactions. At the FTC, the two Democratic Commissioners abstained from voting to release the guidelines, issuing Dissenting Statements instead.
The draft guidelines rely on the well-established principles in the Horizontal Merger Guidelines on how to define product markets and measure concentration levels. The guidelines establish a safe harbor if the companies have a share of less than 20% in the relevant market(s), but set no presumption of anticompetitive harm if market shares are higher than that. The focus of these new draft vertical merger guidelines is on the competitive effects analysis and not on shares or any formulaic assessment. The basic concern is whether combining two companies at different levels in a supply chain will enable the combined company to lessen competition at one of the levels.
Unilateral Effects
First, the guidelines discuss potential unilateral anticompetitive effects from vertical mergers under two theories: (1) foreclosure/raising rivals’ costs and (2) access to competitively sensitive information.
Raising rivals costs / foreclosure. The first theory suggests that “[a] vertical merger may diminish competition by allowing the merged firm to profitably weaken . . . one or more of its actual or potential rivals in the relevant market by changing the terms of those rivals’ access to one or more related products.” Alternatively, the merged firm could refuse to supply rivals altogether, foreclosing their access to a necessary product or service. The guidelines lay out the following key conditions for a foreclosure theory:
The foreclosure makes it more difficult for the company that is foreclosed to compete effectively.
The newly merged firm is likely to win more business if it denies or disadvantages the [...]
Three recent antitrust merger reviews involving nascent competition demonstrate enforcers are paying close attention to acquisitions by industry leaders of emerging, but early-stage competitors. The US antitrust agencies have been criticized for allowing leading technology companies to extend their entrenched positions to multiple markets or technologies through acquisitions. We are now seeing regulators increasing their scrutiny of acquisitions of nascent competitors that were positioning themselves to challenge an entrenched, strong rival.
There was significant antitrust activity in the third quarter of 2019. In the United States, the Federal Trade Commission (FTC) and Department of Justice (DOJ) continued an active docket challenging M&A transactions. DOJ is resolving antitrust reviews significantly faster than the FTC, following DOJ’s 2018 policy establishing a six-month target. The DOJ also made use, for the first time, of its authority to arbitrate a market definition dispute, potentially opening the door for a new tool the DOJ could employ to resolve challenges more rapidly.
In the European Union, the European Commission (EC) agreed to clear, subject to conditions, the acquisition of broadband and energy networks following lengthy Phase 2 investigations. Meanwhile, the national European regulators opened new in-depth investigations into commercial radio advertising, software as a service for airlines, autonomous sea surface vehicles and the promotion of live music events (all in the UK) and prohibited the merger of two recyclers (Germany).
Government contractors should be aware that the Department of Justice (DOJ) is taking new steps to scrutinize public procurement. The DOJ Antitrust Division’s creation of the Procurement Collusion Strike Force (PCSF) means that government procurement enforcement will be a significant focus for the agency moving forward. Although the new strike force builds on past government-wide efforts to detect illegal conduct in public procurement, recent activity from the Antitrust Division has raised the stakes. In light of this, government contractors should broaden their compliance programs to include antitrust so they can avoid heightened monetary penalties and possible prison terms for implicated employees.
I. What Happened
The DOJ’s Antitrust Division took another step to increase its attention on government procurement by focusing resources on a new task force designed to detect anticompetitive behavior amongst government contractors. On October 24, 2019, the Antitrust Division posted a notice in the Federal Register inviting public comment on its implementation of a “Procurement Collusion Strike Force” complaint form. The complaint form will facilitate “reporting by the public of complaints, concerns, and tips regarding potential antitrust crimes affecting government procurement, grants, and program funding.” While the DOJ’s unveiling of the PCSF is significant in itself, the event is just one of several pieces of activity from the Antitrust Division indicating that government contractors must begin to consider antitrust risk much more seriously.
Today, companies looking to merge with others across jurisdictions would do well to consider antitrust issues at the beginning of the transaction process; regulatory antitrust challenges to M&A are increasing globally. On Corporate Counsel, McDermott partners Jon B. Dubrow and Joel R. Grosberg discuss six risks to deals from antitrust regulators, such as vertical merger enforcement changes at the US DOJ, and ways to manage them.
A Hollywood union’s recent amendments to its union rules has sparked federal antitrust lawsuits by talent agencies. The Writers Guild of America (WGA), a labor union and the exclusive collective bargaining representative for writers in the entertainment industry, recently instituted new rules that prohibit its members from dealing with talent agencies that do not adopt the WGA’s new “Code of Conduct.” The WGA’s new Code prohibits its members from dealing with talent agencies that employ “packaging” arrangements, whereby agents forego individual commissions from their clients in lieu of “packaging fees” from production companies for providing pools of talent (writers, actors, directors, etc.). The Code also prohibits WGA’s members from affiliating with “any entity that produces or distributes content.” If WGA members continue to deal with talent agencies that have not adopted the Code, the members face sanctions, up to and including expulsion from the union.
Last week, the Antitrust Division reported that it has changed its Justice Manual to state that it will consider antitrust compliance at the charging stage in criminal antitrust investigations, instead of waiting for plea negotiation or the sentencing stage.
Previously, the Antitrust Division had granted leniency only to the first whistleblower to come completely clean. Under the Antitrust Division’s policy reversal, this is no longer the only way to gain credit with the Antitrust Division, and the Antitrust Division will now consider if the Company has “robust” compliance programs when determining whether to bring charges.
With the announcement this past Thursday, the Antitrust Division published a guidance document that focuses on evaluating compliance programs in criminal antitrust investigations. This is the first time the Antitrust Division has published guidance on evaluating compliance programs in the context of criminal antitrust violations, and companies can now use this document to determine whether their compliance programs are in line with the Antitrust Division’s standards.
The Antitrust Division lists certain factors that Antitrust Division prosecutors should consider when evaluating the effectiveness of an antitrust compliance program. These are:
The design and comprehensiveness of the program
The culture of compliance within the company
Responsibility for, and resources dedicated to, antitrust compliance
Antitrust risk assessment techniques
Compliance training and communication to employees
Monitoring and auditing techniques, including continued review, evaluation and revision of the antitrust compliance program
Reporting mechanisms
Compliance incentives and discipline
Remediation methods
In general, when analyzing a program, the Antitrust Division will ask whether the compliance program is well designed, whether it is being applied earnestly and in good faith, and whether it works.
Finally, the Antitrust Division also revised sections of its Manual on the processes for recommending indictments, plea agreements and selecting compliance monitors.
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