What to Expect in 2020 Merger Enforcement: Trends and Developments From 2019
The authorities have already signaled that aggressive antitrust enforcement is likely to continue in 2020, with a number of challenges already within the first few weeks of the new year. In the face of public questioning of whether there has been sufficient enforcement in technology transactions involving nascent competitors, FTC announced an industry-wide study under the FTC's study authority into the acquisition strategies of some of the largest technology companies. In this enforcement climate, it is even more critical to understand enforcement priorities and key issues being considered by the antitrust authorities in order to position a transaction for the best possible chance at success. This past year in antitrust merger enforcement offers a number of key insights:
1. Increased Activity of State Attorneys General in Merger Review. State attorneys general may—and do—challenge transactions. Although it is not uncommon for state AGs to challenge transactions alongside federal antitrust authorities, the states have become increasingly active. As they demonstrated in Sprint/T-Mobile and United Health/DaVita, they are not afraid to challenge a transaction that has already been cleared by the federal antitrust authorities.
2. FTC Commissioners Rethinking Certain Traditional Views. Substantively, a number of FTC Commissioners appear to be questioning certain aspects of traditional merger analysis. For example, Commissioner Chopra, in Staples/Essendant and United Health/DaVita, continued to express concerns with the effectiveness of divestitures involving private equity buyers. Similarly, in Bristol Myers/Celgene, Commissioners Slaughter and Chopra argued for a more expansive view of the merger's competitive effects to focus on industry-wide competitive dynamics and innovation incentives, and critiqued the traditional analysis of focusing on individual product overlaps. And, in Nexus/Generation Pipeline, although all the Commissioners agreed on the decision, Commissioners Wilson, Chopra, and Slaughter each filed separate statements to debate the general competitive threat of non-compete clauses.
3. FTC's Continued Preference for Administrative Proceedings Over Federal Court Where Available. Under the Federal Trade Commission Act, FTC has the ability to challenge a transaction in an administrative proceeding, and to go to federal court either to obtain a preliminary injunction pending that administrative proceeding or a permanent injunction. Typically, FTC files simultaneously in both fora. This year, when there was no need to seek a preliminary injunction because there was no imminent threat that the parties would consummate the transaction, FTC filed first (and in one case only) in the administrative forum. In Otto Bock/Freedom Innovations, FTC challenged a consummated transaction, and in Tronox/Cristal it did not file a simultaneous federal action where EU merger approval was pending. However, early in 2020, one defendant in an FTC administrative action has challenged the forum itself on constitutional grounds, and we will continue to monitor this case.
4. Potential for More Active Involvement By Courts in DOJ Consent Decrees. Settlements with DOJ to resolve concerns related to transactions are subject to the Tunney Act, which empowers courts to review DOJ consent decrees to ensure that the settlement is in the public interest. Historically, courts have approved consent decrees without significant scrutiny. This year, however, in CVS/Aetna, Judge Leon in the U.S. District Court for the District of Columbia stated "no court should rubberstamp a consent decree" just because the government has requested it, and held an evidentiary hearing where the merging parties, government, and third-party amicus filers were permitted to make arguments. Although Judge Leon eventually approved the settlement, Judge Leon's handling of the CVS/Aetna consent decree may lead some judges to take more active roles in the Tunney Act process.
5. DOJ's Process Changes. In 2018, DOJ announced that it was attempting to streamline and speed the merger review process by concluding investigations within six months of an Hart-Scott-Rodino (HSR) filing. Assistant Attorney General Delrahim has stated that DOJ is meeting its goal of completing investigations within six months, with the average time from an HSR filing to DOJ notifying the parties of its position being only 5.4 months. However, because the timeline ends when DOJ notifies parties of its position, the actual time to conclusion of a matter is much longer. In another process change, for the first time, DOJ employed the Administrative Dispute Resolution Act of 1996, referring the core issue of market definition to arbitration where the parties agreed the result would be dispositive in the case. While DOJ has not used this procedure previously and has not employed it since, parties should consider whether their case might be appropriate for such treatment.
6. Continued Monitoring and Enforcement of HSR Reporting Requirements. DOJ and FTC continue to take HSR compliance very seriously. HSR rules require that companies file a notification with the antitrust authorities and wait a statutory period before closing certain transactions. Failures to report reportable transactions and observe the statutory waiting period can be costly. The enforcement actions brought against Canon and Toshiba this past year serve as an important reminder that FTC and DOJ are monitoring transactions for both substance and reportability.
7. DOJ Reaffirmed Its Commitment to Enforcing Consent Decrees. Assistant Attorney General Makan Delrahim's statements in 2018 emphasized the enforcement of existing consent decrees and DOJ made changes to consent decree language to reduce the difficulty of enforcing the decrees. In 2019, DOJ brought an action against Live Nation alleging it violated the 2010 consent decree regarding the Ticketmaster acquisition, which resulted in a new settlement that clarified the conditions that apply, extended the consent decree for an additional five years, and included an automatic fine mechanism going forward.
8. Potential for Private Litigation. While it likely will remain rare, private plaintiffs can and occasionally do bring their own challenges to transactions. In one such private case, JELD-WEN/Craftmaster, DOJ filed an amicus brief defending the position that private challenges to a consummated merger should not be uniformly prohibited. This case is still on appeal at the Fourth Circuit.
9. Focus on Nascent Competition and Start-Up Acquisitions in Technology Sector. Jeffrey Wilder, DOJ's Acting DAAG for Economics, indicated that concerns related to nascent competition and acquisitions of a start-ups, by an incumbent platform company may be a particular focus of scrutiny in the technology sector. This statement parallels a year of increased enforcement attention focused on the technology sector. DOJ, FTC, and a bipartisan group of state AGs have opened broad investigations into digital and technology companies' conduct and acquisitions. FTC in particular has initiated a retrospective review of transactions by five large technology companies. Moreover, enforcers are also suggesting that the agencies may increasingly use Section 2 of the Sherman Act to investigate and challenge serial acquisitions of nascent competitors in platform industries—i.e., analyze mergers as part of a broader pattern of conduct, as opposed to reviewing each transaction in isolation.
10. Proposals for Merger Enforcement Reform. As the 2020 election approaches, politicians have taken aim at antitrust policy and in particular have suggested reforms to merger enforcement. In addition to rhetoric from a number of candidates, such as Senators Elizabeth Warren and Bernie Sanders, Democratic candidate and Senator Amy Klobuchar, who is currently the Ranking Member of the Antitrust Subcommittee, submitted legislation to modify the Clayton Act to allow transactions to be blocked if they "materially lessen competition," which is intended to be a lower requirement than the current "substantially lessen competition" standard. Senator Klobuchar's proposal would also shift the burden of proof for what she calls "mega-mergers" to require that the merging parties prove their transactions do not harm competition. The proposed legislation also would modify the Clayton Act to prohibit transactions that tend to create a monopsony in a specific line of commerce. Senator Klobuchar has introduced another bill to authorize civil monetary penalties for Section 2 violations. The penalties could be as high as 15% of the defendant's total US revenues or 30% of their revenues in the relevant markets.
© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.