The Federal Trade Commission and Department of Justice have continued to roll back established enforcement guidelines and safe harbors in recent months. In their place, the agencies have offered aspirational policy statements that broadly overstate the current reach of established antitrust law. After previously disavowing the use of informal policy tools, the agencies are also increasingly relying on policy speeches and amicus briefs to signal significant policy shifts.
These mechanisms lack the safeguards previously used to ensure that guidelines are carefully considered and provide clear guidance that practitioners can rely on. As a result, companies face significant uncertainty about a range of issues – from information exchange to merger remedy policy, and even what constitutes criminal conduct. As Republican FTC Commissioner Christine Wilson highlighted in her scorching open resignation letter, the agencies’ efforts to create significant discretion in favor of a predetermined outcome with limited transparency arguably undermines the rule of law in the US.
Here are the latest updates on the key issues.
Re-zoning Competitively Sensitive Information: Most recently, the DOJ announced the withdrawal of three “outdated” policy statements on healthcare collaborations dating back to the Obama and Clinton administrations.
- Beyond the sector-specific issues that companies have long relied on, these guidelines were the most comprehensive policy statements on information exchange issues across industries. A central feature was the “safety zone” for industry surveys where information is: (i) collected / managed by an independent third party, (ii) sufficiently historical where it is more than three months old, and (iii) aggregated across at least five participants, so individual participants cannot be identified. These guidelines (particularly the three-month threshold) have also been commonly used as benchmarks for sensitivity in other contexts, including M&A due diligence processes.
- In a speech withdrawing the policy statements, the DOJ highlighted a more “flexible” approach to enforcement. It indicated that the safety zones are no longer supported in the modern economy, including where third parties have been implicated in facilitating coordination and algorithms allow greater opportunity for unpacking aggregated or historical information. While information exchange alone does not violate US antitrust laws, the DOJ suggested it will take a closer look at the exchange of a broader set of information as evidence of an anticompetitive agreement even in unconcentrated markets. The FTC, in parallel, has taken a more aggressive stance on signaling, and other conduct involving information exchange that falls short of an agreement, under its new Section 5 statement.
- The DOJ also announced that it would be considering historical evidence of information exchange as evidence of potential coordinated effects in merger investigations. Where such evidence exists, the DOJ indicated that parties will “face an uphill battle convincing us that post-merger coordination or collusion is unlikely” – even where transactions fall below standard concentration metrics.
(Still) Reassessing the Merger Guidelines:The market continues to watch for signs of the updated substantive merger guidelines targeted for release last year. The agencies withdrew their support for the vertical merger guidelines in 2021 and announced their joint review of the horizontal guidelines in January 2022.
- Current speculation is that these could be released over the next few weeks in the lead up to the ABA Antitrust Section’s Spring Meeting. Based on the initial consultation, we expect that the guidelines will offer tremendous discretion to the agencies. To the extent that there are clear rules, we expect them to impose broad presumptions of illegality against parties that try to circumvent established burdens of proof on the agencies.
- In the meantime, we are seeing some of the potential features of the merger guidelines carrying through into existing enforcement.
- In Meta / Within, for example, the FTC sought to push the bounds of horizontal potential competition theories. While the court found that the FTC had failed to meet its evidentiary burdens at the PI stage, the agencies have claimed a validation of precedent on potential competition theories more generally.
- The agencies also appear to be implementing a broader approach to non-horizontal theories, for example in the FTC’s challenge to Microsoft / Activision. We expect that the guidelines will seek to incorporate broader portfolio or conglomerate effects theories that look at foreclosure incentives beyond established vertical approaches that have predominated in the US.
Revisiting Merger Remedy Practices: While the agencies are working on expanding the issues that companies can face in merger enforcement, they are also making it harder for companies to fix those issues (and agency staff’s willingness to engage on potential fixes). The focus is not only on behavioral remedies, but on the specifics of divestiture remedies.
- While the FTC has agreed to traditional remedies in several deals in recent years, in a recent speech last week the FTC front office set out a new stricter policy for divestiture remedies. While setting the burden on the parties to show sufficiency of the remedy and the buyer, the FTC warned that staff would not be permitted to participate in extended negotiations on divestiture scope. Indicating links to a “heightened risk of failure”, the speech suggested that the FTC would not agree to remedies with standard transitional features, such as product supply arrangements that were traditionally permitted for up to several years where appropriate. Further, the speech suggested that the FTC would start holding parties in contempt for failure to comply with obligations.
- The DOJ has also been taking a strong position on remedies and quietly withdrew its 2020 Merger Remedies Manual in October. It has also sought to litigate the sufficiency of potential divestiture and behavioral fixes in several cases, including the failed challenge to UnitedHealth / Change and in ongoing litigation over proposed remedies in ASSA ABLOY / Spectrum.
Making Merger Reviews Longer, More Frequent, More Burdensome, and More Expensive: While the agencies are providing less information to companies, they will soon expect more from the filing parties.
- Over the past two years, the FTC has been quietly disavowing informal interpretations of reportability rules to expand the net for transactions caught by HSR reportability rules. For example, the FTC has overturned longstanding exemptions applied to certain copyright interests and most recently, royalty streams. In their place, the FTC has left rules open and encouraged parties to file in the event of uncertainty.
- Several initiatives have also sought to expand the information required in the basic merger notification form in recent months. Most recently, the FTC announced that it would be doing a broader revamp of the form in the coming months to better capture information relevant to the competitive assessment. Late last year, Congress also passed legislation that would require the agencies to collect more information on foreign subsidies received from certain countries – most notably China.
- In parallel, the FTC is asking Congress to extend the existing 30 calendar day waiting periods for an unspecified amount of time to give staff more time to review potential theories of harm. The agencies have already suspended their practice of granting early termination for the past two years, even as filing volumes have declined significantly since their peak in 2021.
- To fund these longer and more detailed investigations, Congress also implemented changes to the filing fee structure that go into effect this month which will significantly increase filing fees for larger transactions.
Grappling with Interlocking (Independent) Directorates: The DOJ has reported that it is expanding its crackdown on interlocking directorates under Section 8 of the Clayton Act. The DOJ announced in a recent policy speech a new focus on independent directors – particularly where a strategic investor has participated in the appointment. Independent directorships have been viewed as an area where minority investors could ensure balance in the governance of a board, without a risk of coordination.
Reviving Price Discrimination Enforcement: Last year, FTC Commissioner Bedoya hinted that the FTC was revisiting its longstanding reluctance to challenge efficient price discrimination practices under the Robinson Patman Act. Departing from an established position that price discrimination can improve market efficiency, the move is part of renewed focus on fairness in protecting small businesses. We analyzed this change in more detail in our previous article covering the topic. In addition, news outlets recently reported that Coke and Pepsi were the targets of a new investigation into price discrimination. Given this emphasis, additional investigations may be expected.
For further information, please contact:
Douglas TweenAntitrust, Partner, Linklaters