Antitrust

In line with its previous decision-making practice (see our previous sustainability blog posts here and here), on 8 May 2024, the German Federal Cartel Office (“FCO”) declared the implementation of a new European industry standard for reusable pot plant trays compatible with competition law.

Since 2021, companies and associations from the European Green Sector

The Northern District of Illinois recently denied certification to several proposed classes of purchasers of a seizure drug called Acthar in City of Rockford v. Mallinckrodt ARD, Inc., No. 3:17-cv-50107, 2024 WL 1363544 (Mar. 29, 2024).  Class plaintiffs had alleged that defendant Express Scripts, a drug distributor, conspired with Mallinckrodt, a drug manufacturer, to

Last summer, the antitrust agencies proposed sweeping changes to the Hart-Scott-Rodino (“HSR”) Act premerger notification form and associated rules. Covered in detail here, the proposed changes would significantly increase the time, burden, and costs on merging parties to prepare an HSR filing. The public comment period ended on September 27, 2023. Since then, the

On October 17, 2023, the U.S. Government Accountability Office (“GAO”) published a report on mergers and acquisitions (“M&A”) in the defense industrial base. The report details the current M&A review process of the Department of Defense (“DOD”) and provides recommendations to proactively assess M&A competition risks.

Currently, DOD’s Industrial Base Policy (“IBP”) office, with input

October 17, 2023, Covington Alert

What You Need to Know

  • On October 4, 2023, Deputy Attorney General Lisa Monaco provided new and expanded policy guidance on corporate criminal enforcement, announcing a new Mergers and Acquisitions Safe Harbor Policy (“Safe Harbor Policy”).
  • The Safe Harbor Policy provides acquiring companies an opportunity to avoid criminal charges if they voluntarily self-disclose misconduct at acquired companies within six months of a merger or acquisition (“M&A”), fully cooperate in any DOJ investigation, engage in timely and appropriate remediation within one year of the transaction closing date, and pay restitution or disgorgement, as appropriate.
  • The Safe Harbor Policy—which we expect will be formalized in writing and incorporated into the Justice Manual—appears to draw heavily on policies and guidance from the Criminal Division dating back to 2008, but that will now be formalized, clarified, and applied across the Department, with different parts of the Department “tailor[ing] its application . . . to fit their specific enforcement regime.”
  • As with all of the Department’s recent policy announcements concerning the benefits of voluntary disclosure, significant questions remain. We discuss some of those below, and we will be watching to see how DOJ applies the Safe Harbor Policy in practice. At a minimum, however, companies should ensure that their pre- and post-closing diligence and integration processes are designed to quickly identify legacy or ongoing misconduct at acquired companies so that they may have an opportunity to consider the expected benefits and burdens associated with a voluntary disclosure under the Safe Harbor Policy.
  • In addition to announcing the Safe Harbor Policy, Deputy Attorney General Monaco noted a “dramatic” expansion in national security enforcement, new enforcement tools that the Department is deploying, continued focus on incentivizing companies to seek compensation clawbacks from individual wrongdoers, and even more policy changes to come. Deputy Attorney General Monaco’s announcement follows recent shifts in enforcement remedies sought by the Department, such as divestiture in certain criminal antitrust cases—an unprecedented remedial measure.

Continue Reading DOJ Provides Further Voluntary Disclosure Incentives, This Time Linked to M&A Transactions, and Signals Other Areas of Focus

In recent years, there has been increasing antitrust scrutiny around the world of large technology companies. The increased attention on competition in the digital economy started outside of the United States. Since 2019, however, the U.S. antitrust enforcers—the U.S. Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) as well as numerous state attorneys general—have closely scrutinized and brought enforcement actions against some of the largest tech companies. This client alert provides an overview of the recent competition enforcement trends, specifically: (1) key topics at issue in many tech investigations; (2) the increased focus on competition in labor markets; and (3) the U.S. FTC’s new, expansive interpretation of Section 5 of the FTC Act. In view of this uncertain landscape, tech companies should stay on top of these enforcement trends and potential risks they face.

Key Topics at Issue in Investigations of Tech Companies

Investigations of technology companies follow similar principles to investigations in other industries, but there are some concepts that the antitrust authorities have been considering more closely in the context of the tech industry. First is the concept of “gatekeepers,” which the government agencies have used to describe any entity that sits between users and suppliers/merchants. The agencies have shown a particular interest in large intermediaries and have expressed concern that certain intermediaries may be able use their position to increase fees, obtain restrictive terms, and extend their position in the marketplace. At the same time, intermediaries in the tech industry have generated significant benefits, including by lowering transaction costs, helping sellers and customers to more easily find each other, and enabling new business models and innovations.

Another concept that sometimes arises in tech investigations related to intermediaries is “zero-price” products, where a company makes its products or services free to certain users and makes money either through different products, different consumers (like advertisers), or at a different point in time. The notion of “free” products is not unique to the tech industry. Ad-supported media – including radio, broadcast television, and newspapers – existed long before the rise of the digital economy. Nevertheless, the agencies are currently grappling with how to define relevant markets and measure competitive harm in the absence of price competition. For example, the traditional test applied by enforces to define relevant markets that looks at a small but significant and non-transitory increase in price (or “SSNIP”) does not directly translate to zero-priced goods. Similarly, alleged non-price harms to consumers are often harder to prove than an increase in price.Continue Reading Antitrust Enforcement Trends in the Digital Economy

On January 5, 2023, the Federal Trade Commission (“FTC”) issued a groundbreaking proposed rule that would, if finalized:

  • prohibit most employers from entering into non-compete clauses with workers, including employees and individual independent contractors;
  • prohibit such employers from maintaining non-compete clauses with workers or representing to a worker that the worker is subject to a non-compete clause; and
  • require employers to rescind any existing non-compete clause with workers by the compliance date of the rule and notify the affected workers that their non-compete clause is no longer in effect.

The FTC’s notice of proposed rulemaking explains that the FTC considered possible limitations on the rule—such as excluding senior executives or highly paid employees from the ban—but it ultimately proposed a categorical ban on non-competes.  The only exception is for non-competes related to the sale of a business.  However, even this exception is unusually narrow: it would only apply to selling business owners who own at least 25% percent of the business being sold.  (The proposal also would not apply to most non-profits, certain financial institutions, common carriers, and others who are also outside the scope of FTC regulation.)

As discussed in Covington’s January 5 client alert, the FTC explained that it issued the proposed rule due to its belief that non-competes reduce wages, stifle innovation and business, and are exploitative and unnecessary. Continue Reading FTC Proposes Rule to Ban Most Non-Competes

On Monday, November 7, the Supreme Court heard argument in Axon Enterprise, Inc. v. FTC and SEC v. Cochran to decide whether a party subject to an FTC or SEC administrative proceeding can simultaneously challenge the constitutionality of an administrative proceeding, or even of the agency itself, in federal district court rather than waiting for final agency action.  At least five Justices expressed some measure of support for the private parties’ arguments, which indicates that the Court may permit certain kinds of collateral constitutional attacks (e.g., due process and appointments clause claims) at the outset of administrative proceedings.

Although predicting the outcome of any case from the oral argument is extremely difficult, three Justices – Neil Gorsuch, Samuel Alito, and Clarence Thomas – expressed strong support for finding in Axon’s and Cochran’s favor. Through their questions, they implied that 28 U.S.C. Section 1331, which grants federal district courts “original jurisdiction of all civil actions arising under the Constitution of the United States,” provides a clear grant of jurisdiction over constitutional claims and neither the FTC Act nor the Securities Exchange Act of 1934 (“the Exchange Act”) could strip district courts of that jurisdiction. They also suggested that Free Enterprise Fund v. PCAOB requires a finding for the companies. In PCAOB, the Court held that a district court had jurisdiction to hear an appointments clause challenge to PCAOB’s structure despite the fact that the SEC had not yet issued a final order against Free Enterprise Fund.

Other justices appeared to favor the private parties, but not as overtly. Chief Justice John Roberts’s questions suggested that PCAOB may prove to be an insurmountable barrier to the government’s claims and that the availability of jurisdiction in other forums (i.e., the court of appeals) under the FTC Act and the Exchange Act clearly does not act as an implied removal of jurisdiction from Section 1331. Justice Brett Kavanaugh’s questions indicated that he believes that the issue may be decided solely by reference to the “wholly collateral” factor of the Thunder Basin test, which courts have used to guide determinations about when a party may bring an Article III challenge to agency proceedings before those proceedings have concluded. Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994) (holding that the statutory review scheme of the Federal Mine Safety and Health Amendments Act of 1977 precludes a district court from exercising subject-matter jurisdiction over a pre-enforcement challenge to the Act). He stated that clarity, certainty, and speed counseled in favor of permitting district courts to hear constitutional claims.Continue Reading Supreme Court Considers Whether to Allow Early Constitutional Challenges to FTC and SEC Administrative Proceedings

The U.S. Federal Trade Commission issued a policy statement that dramatically expands the scope of what it considers “unfair methods of competition” under Section 5 of the FTC Act, 15 U.S.C. § 45. This represents an aggressive and unprecedented interpretation of the agency’s authority, and indicates that the Commission plans to use rulemaking and enforcement actions to police a broad set of conduct beyond the scope of the antitrust laws (i.e., the Sherman Act and the Clayton Act).

According to the agency’s press release, the policy statement – issued pursuant to a party-line vote of 3-1 – is intended to “restore the agency’s policy of rigorously enforcing the federal ban on unfair methods of competition” with the stated goal of allowing the agency “to exercise its full statutory authority against companies that use unfair tactics to gain an advantage instead of competing on the merits.” And Chair Lina Khan suggested that the agency will enforce Section 5 to “crack down on unfair methods of competition,” as commanded by Congress when it created the FTC.

The policy statement lays out two elements to a Section 5 violation: (1) the conduct must be a method of competition (2) that is unfair. Most of the action will be around the second prong – unfairness – which the policy statement defines as conduct that goes “beyond competition on the merits.” To determine whether the alleged conduct is fair or unfair, the Commission will evaluate two criteria on a sliding scale (i.e., the more evidence of one, the less the Commission believes that there is need for evidence of the other):Continue Reading The FTC Signals an Unprecedented Expansion in Its Definition of Unfair Methods of Competition

On September 29, 2022, the U.S. House of Representatives passed a package of three antitrust bills (H.R. 3843) by a vote of 242-184. The package includes: (1) the Merger Filing Fee Modernization Act; (2) the Foreign Merger Subsidy Disclosure Act; and (3) the State Antitrust Enforcement Venue Act.

The Merger Filing Fee Modernization Act updates the structure and amounts of premerger filing fees that the Federal Trade Commission (“FTC”) and Department of Justice (“DOJ”) collect pursuant to the Hart-Scott Rodino Antitrust Improvement Act of 1976. The Merger Filing Fee Modernization Act reduces fees for smaller transactions, increases fees for mergers valued at $1 billion or greater, and adjusts the filing fee amounts for each future year based on changes in the Consumer Price Index. Finally, the bill requires the FTC and DOJ to report each year on the total revenue generated from premerger notification filing fees, broken out by tier, and the FTC must also include in the report a list of all actions the agency took or declined to take based on a 3-to-2 vote.

The Foreign Merger Subsidy Disclosure Act requires parties submitting premerger notifications to disclose detailed information on subsidies from a “foreign entity of concern.” A foreign entity of concern is defined under 42 U.S.C. § 18741(a) and includes those designated foreign terrorist organizations, on the Specially Designated and Blocked Persons List, and alleged to be involved in espionage or unauthorized conduct detrimental to the national security or foreign policy of the United States. The definition further covers entities owned by, controlled by, or subject to the direction of the governments of the Democratic People’s Republic of North Korea, the People’s Republic of China, the Russian Federation, or the Islamic Republic of Iran.Continue Reading U.S. House of Representatives Passes Antitrust Legislative Package