A recent announcement by multiple federal agencies has highlighted their intention to enforce their separate regulations against developers, deployers and users of AI systems. Federal Trade Commission (FTC) Chair Lina Khan and officials from the US Department of Justice (DOJ), the Consumer Financial Protection Bureau (CFPB) and the US Equal Employment Opportunity Commission (EEOC) each reinforced their worries about automated systems, citing civil rights, fair competition, consumer protection and equal opportunity concerns. Their serious language, joint public commitment and previous enforcement actions in this area make this statement no simple theater.
GPM Investments (GPM) acquired 60 gas stations from Corrigan Oil (Corrigan).
As part of the acquisition agreement, Corrigan agreed not to compete for a period of time with the gas stations purchased from Corrigan. In addition, Corrigan agreed not to compete with GPM for another 190 gas stations that GPM already owned.
Few of the 190 existing GPM locations were “anywhere near an acquired Corrigan” gas station.
Because the transaction would reduce the number of competitors from 3-to-2 or fewer in five areas, the Federal Trade Commission (FTC) required divestitures in those areas.
Additionally, the FTC determined that the non-compete was overbroad, noting that the non-compete was “untethered to protecting goodwill acquired in the acquisition” because it affected gas stations in “areas geographically distinct from the acquired” gas stations. For this reason, the non-compete was highly suspect and warranted FTC scrutiny.
The FTC required the parties to revise the transaction agreement non-compete such that it was no longer in duration than 3 years and impacted an area no greater than 3 miles from each acquired gas station.
WHAT’S NEXT
FTC Chairwoman Lina Khan confirmed that some non-compete agreements that are part of a transaction agreement are “necessary to protect a legitimate business interest in connection with the sale of a business, such as the goodwill acquired in a transaction.”
Here, the non-compete terms were determined, however, to be “facially” overbroad in scope and unrelated to protecting any goodwill GPM was acquiring with the Corrigan stations.
The FTC’s action suggests that it is on the lookout for overbroad non-competes that are not reasonably related to a legitimate purpose even if part of a legitimate transaction agreement.
The action by the FTC provides sellers with an example to argue that onerous non-competes demanded by buyers have the potential to raise antitrust issues that could slow deal timelines, particularly if a non-compete is overbroad in relation to the products impacted, the duration of the non-compete, and/or the breadth of the geography covered.
Alex Grayson, a summer associate in the Washington, DC, office, also contributed to this article.
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 [...]
In remarks delivered on January 18, 2022, and January 24, 2022, Jonathan Kanter, the Assistant Attorney General (AAG) for the US Department of Justice (DOJ) Antitrust Division, laid out the areas where he perceives shortcomings in antitrust enforcement. These speeches signaled that the Division, under Kanter’s direction, will take a more aggressive stance toward perceived anticompetitive conduct, echoing the changes in enforcement priorities at the Federal Trade Commission (FTC).
Overview of AAG Kanter’s Remarks
Kanter intends to shape the regulatory landscape to better reflect dynamic markets. Both speeches featured a cohesive overarching message: Kanter believes that the regulatory and jurisprudential antitrust regime does not reflect and cannot address the market realities that exist today. Kanter believes that the Supreme Court of the United States’ 1992 opinion in Eastman Kodak v. Image Technology Services supports a change in approach because “[l]egal presumptions that rest on formalistic distinctions rather than actual market realities are generally disfavored in antitrust law.”[1] To address widespread increases in market concentration as well as “the economic and transformational technological changes” that define today’s economy, Kanter intends to revise the Division’s approach for analyzing mergers and conduct.[2]
Kanter seeks to revive dormant areas of antitrust enforcement, in particular monopolization cases with a focus on tech “platform” companies. Kanter stated that the Division has failed to adequately address certain areas of antitrust enforcement. He noted that it has been almost 20 years since the Division’s last major monopolization case.[3] Dominant tech platforms have “extracted private data” and “have few, if any, realistic alternatives,” he said.[4] Shortly after Kanter’s comments about prioritizing monopolization cases, Richard Powers, the deputy for criminal enforcement, stated that the Division will now evaluate Section 2 conduct for criminal charges.[5] Powers’s comments signal a dramatic change in enforcement, reversing decades of policy in which Section 2 charges were only brought in the civil context. These statements from Division leadership mirror those of FTC Chair Lina Khan, who has repeatedly called for more robust antitrust enforcement, and indicate that Kanter intends to reshape the Division, both in terms of resource allocation and approach to anticompetitive conduct, from a civil and criminal perspective.
Kanter laid out the Division’s overarching priorities clearly in his remarks. The Division intends to take a more aggressive stance on vertical merger enforcement, reformulate the Horizontal and Vertical Merger Guidelines to better reflect market realities (in the government’s view), enter into fewer consent decrees and instead litigate cases to generate judicial opinions and advance the relevant case law, and bring more civil and criminal conduct cases.
Vertical Merger Enforcement to Become a Focal Point for Regulators
Kanter stated that agency enforcement of vertical mergers has been lacking. Kanter believes that the Division has placed too much value on the potential efficiencies of vertical mergers without identifying the relevant theories of harm presented by such transactions.
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.
In the United States, antitrust agencies have now filled senior leadership positions, although the Federal Trade Commission (FTC) awaits the appointment of a fifth commissioner. Challenges to mergers continue apace at both the FTC and the Department of Justice (DOJ). The agencies challenged two mergers in the fourth quarter and a third transaction was abandoned. Additionally, nine consent orders were approved. The FTC is also including prior approval provisions in consent orders across industries, requiring parties seeking to settle merger disputes to agree to provide the FTC with greater rights to reject potential future deals.
The European Commission (Commission) imposed interim measures for the first time in the context of the Commission’s determination that Illumina’s acquisition of GRAIL was premature. The Commission conditionally cleared, in Phase I, Veolia’s acquisition of Suez—a transaction involving two French incumbents in the water and waste sectors—following comprehensive commitments. IAG withdrew from its proposed acquisition of Air Europa following the Commission’s decision not to approve the transaction absent further concessions.
In the United Kingdom, the Competition & Markets Authority (CMA) imposed a record fine of £50.5 million on Facebook for breaching an initial enforcement order related to its acquisition of Giphy, and ultimately required Facebook to sell Giphy. The CMA also updated its merger guidance in parallel with the entry into force of the UK National Security and Investment Act, published a new template for initial enforcement orders and updated its guidance on interim measures.
In the United States, the US Department of Justice’s (DOJ) challenge of American Airlines and JetBlue’s “Northeast Alliance” after the joint venture’s approval by the US Department of Transportation earlier this year demonstrates the Biden administration’s commitment to aggressive antitrust enforcement. US President Joe Biden issued an Executive Order calling for tougher antitrust enforcement, including “encouraging” the DOJ and Federal Trade Commission (FTC) to modify the horizontal and vertical merger guidelines to address increasing consolidation. At the same time, the FTC, under Chair Lina Khan, continues its rapid pace of change to the merger review process.
Under a new interpretation of Article 22 of the EU Merger Regulation (EUMR), the European Commission (Commission) asserted jurisdiction over Illumina’s acquisition of GRAIL and Facebook’s acquisition of Kustomer, even though the transactions did not meet the Commission or Member State filing thresholds. The EU General Court confirmed a significant gun-jumping fine imposed on Altice for breach of the EUMR notification and standstill obligations.
In the United Kingdom, the UK government published plans to update antitrust rules, including revising its jurisdictional thresholds and expanding the “share of supply” test to allow the CMA to more easily capture vertical and conglomerate mergers, as well as acquisitions of startups. And the Competition & Markets Authority’s (CMA) handling of the Veolia/Suez transaction demonstrates the CMA’s willingness to engage with parties to seek practical interim solutions while it is investigating a consummated transaction for potential antitrust concerns.
In the United States, aggressive antitrust enforcement is likely to continue with the appointment of Lina Khan as Federal Trade Commission (FTC) Chair and the nomination of Jonathan Kanter to lead the Department of Justice’s (DOJ) Antitrust Division. The premerger notification landscape continues to shift as filings reach another record high. Technology companies remain in the “hot seat” as legislators in the US House of Representatives introduced five antitrust reform bills that would change the enforcement landscape for digital platforms, including seeking to preclude large digital platform companies from acquiring smaller, nascent competitors. And the US Department of Justice is making good on President Biden’s pledge to regulate “Big Ag” by challenging Zen-Noh Grain Corporation’s proposed acquisition of 38 grain elevators from Bunge North America, Inc.
Meanwhile, in Q1 2021, the European Commission (Commission) published its Guidance on Article 22 of the EU Merger Regulation. The Guidance encourages the EU Member States to refer certain transactions to the Commission even if the transaction is not notifiable under the laws of the referring Member State(s). In Q2, not long after the issuance of the Guidance, the Commission received its first referral request to assess the proposed acquisition of GRAIL by Illumina. In light of the growing global debate on the need for more effective merger control, EU Competition Commissioner Margrethe Vestager confirmed that the Commission will not soften EU merger policy going forward. The Commission’s statement was made despite the fact no deals have been blocked by the Commission in about the last two years.
The US Federal Trade Commission (FTC) voted July 21, 2021, to repeal a 1995 policy statement that eliminated prior approval and prior notice provisions from most merger settlements. In repealing this longstanding policy—and likely insisting on the inclusion of such provisions in future settlements—the FTC will have significantly greater authority to review and block future transactions of companies who enter into consent orders with the FTC. This policy change will have significant implications for the negotiation of antitrust risk provisions in transaction agreements.
WHAT HAPPENED:
In its 1995 Policy Statement Concerning Prior Approval and Prior Notice Provisions in Merger Cases, the FTC announced that it would no longer routinely require prior approval of certain future acquisitions in consent orders entered in merger cases.
Prior to this statement, FTC consent orders to settle merger reviews routinely required parties to seek and receive the FTC’s prior approval for future acquisitions in the relevant product and geographic markets at issue in the first challenge/consent order for a 10-year period. In some cases, the FTC also included a prior notice provision obligating companies to notify the FTC of any intended transactions that were not subject to the premerger notification and waiting period of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act).
On July 21, 2021, the FTC voted 3-2 to rescind its 1995 policy statement, opening the door to requiring prior approval and prior notice provisions in future merger consent orders.
WHAT THIS MEANS:
This policy change substantially increases the FTC’s merger enforcement authority for companies that settle investigations with a consent order and become subject to prior approval requirements.
Prior approval provisions place the burden on companies to demonstrate that their transactions are not anticompetitive.
The FTC can deny approval for these future transactions with very little—if any—limits on its discretion.
This differs significantly from the enforcement regime under Section 7 of the Clayton Act, where the FTC has the burden of proving that a transaction will substantially lessen competition or tend to create a monopoly.
Prior notice provisions require companies to provide the FTC with advanced notice of certain transactions—even smaller transactions that typically would fall under the HSR threshold (e.g., transactions valued below $92 million). The notification requirement increases the likelihood of FTC investigation for these transactions.
By rescinding the 1995 policy statement, the FTC may seek to impose such provisions in its orders as a routine matter. It remains to be seen under what circumstances the FTC will insist on prior approval or prior notice (or how broad they will be crafted). In supporting the repeal, FTC Chair Lina Khan stated that the FTC will employ these provisions based on “facts and circumstances of the proposed transaction.”
These prior approval and/or notice provisions, when previously employed, generally lasted for the term of the order—typically 10 years.
Generally, the scope of these provisions was limited to the geographic and product market in which the FTC determined that the [...]
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