Welcome to the Sidley Antitrust Bulletin — thoughts on topics that are top of mind for Sidley’s Antitrust team and why they matter to you. The U.S. Federal Trade Commission (FTC) recently reached a broad settlement with a healthcare technology company that included not only cessation of some allegedly exclusionary conduct but also a prohibition on the company’s using noncompete agreements between employers and workers. At the end of July, U.S. Sens. Elizabeth Warren, D-Mass., and Lindsey Graham, R-S.C., proposed that a new U.S. regulatory body be established to regulate big tech and artificial intelligence. The FTC joined the Department of Justice (DOJ) in enforcing restrictions against interlocking directorates, including the FTC using its powers on this issue in a merger investigation for the first time in 40 years. The public comment period on the proposed changes to the Hart-Scott Rodino (HSR) form were extended in early August. In Europe, the UK Financial Conduct Authority (FCA) published a feedback statement on the potential competition effects of Big Tech in retail financial services, and the Court of Justice of the European Union (CJEU) confirmed that the standard of proof under the EU Merger Regulation is the balance of probabilities. Interested? Keep reading.…
Our Take on Top-of-Mind Global Antitrust Issues
Surescripts ordered to cease allegedly exclusionary conduct: The FTC recently resolved a rare monopolization case involving the health information company Surescripts. The FTC had alleged that Surescripts enacted illegal vertical and horizontal restraints to maintain monopolies over markets for electronic prescription routing and eligibility. The FTC’s 2019 complaint alleged that Surescripts maintained its monopoly through long-term exclusivity agreements with customers that foreclosed other firms from becoming viable competitors as well as through tactics such as threatening customers who attempted to work with competitors and using noncompete agreements with potential competitors to prevent entry into the market. The Stipulated Order for Permanent Injunction and Equitable Relief, entered by the District Court for the District of Columbia on August 14, 2023, prohibits Surescripts from engaging in such exclusionary conduct or enforcing noncompete agreements with current and former employees.
Why it matters: The order goes beyond the relevant markets related to the alleged exclusionary conduct and extends the prohibitions to Surescripts’ other business areas (medication history services and on-demand formulary services). The order also prohibits conduct that goes beyond Surescripts’ actions outlined in the FTC’s complaint. Surescripts is prohibited from entering into or enforcing noncompete agreements with current and former employees, even though the noncompete at issue in the complaint was between Surescripts and a potential competitor. The order also contains a prior notice clause for the dissolution of Surescripts or any acquisition, merger, or consolidation of Surescripts despite the complaint alleging violations of Section 2 of the Sherman Act (monopolization), not Section 7 of the Clayton Act (mergers). The order also has a 20-year term. With this case the FTC is testing the limits of its authority, and, this time, the district court acceded.
Proposal for new U.S. competition agency to regulate Big Tech: On July 27, Sens. Graham and Warren unveiled a proposal for a new piece of bipartisan legislation: the Digital Consumer Protection Commission Act. This act would amend the Clayton Act to create an independent, bipartisan agency tasked with creating new rules and policies to further regulate the conduct of large companies in the technology industry. In an op-ed announcing the legislation, the senators focused heavily on how this new agency would supplement the FTC and DOJ’s mandate to enforce antitrust laws and would have the authority to police large tech firms for such harms as self-preferencing, monopolization, and breaches of data privacy. This new regulatory commission would consist of five commissioners appointed by the President and confirmed by the Senate.
Why it matters: This proposed legislation is another indication of the considerable appetite on Capitol Hill for additional regulation to combat perceived anticompetitive behavior in the tech industry. This bill’s bipartisan support is notable, especially as Sens. Warren and Graham are at opposite ends of the ideological spectrum on most other issues. While this bill’s ultimate passage is uncertain, the fact that it was proposed shows how regulation of large technology firms remains a rare area of agreement across the aisle. This bill would give significant power to the proposed agency, including the ability to force asset sales. Should even a watered-down version of this bill pass, it would constitute a large step up from the powers that regulators currently possess.
Interlocking directorate enforcement continues: On August 16, the FTC announced a broad settlement related to an acquisition of shares. To resolve interlocking directorate issues, the settlement included a provision prohibiting a private equity firm from seating anyone on the board of a defendant natural gas company or its top seven competitors in a particular basin. The state of Pennsylvania entered into its own settlement agreement, which largely incorporates the FTC settlement, including with respect to the interlocking directorate issue. On the same day, the DOJ issued a press release announcing that its separate ongoing director interlock investigations led to an additional two resignations, bringing the number of resignations due to this recent enforcement initiative to 15.
Why it matters: The FTC settlement marked the FTC’s first enforcement action applying Section 8 of the Clayton Act — which prohibits interlocking directorates — in 40 years. It also serves as a reminder that agencies examine interlocking directorates in the ordinary course of transaction reviews, in addition to the separate ongoing interlocking directorate investigation initiative being run by the DOJ. Moreover, the Pennsylvania decree shows that the states are getting involved in interlocking directorate enforcement. While DOJ and FTC enforcement in this space generally leads only to the resignation of directors, the separate state settlement required the defendants to provide for attorney’s fees.
FTC and DOJ extend the comment period on the potential changes to the HSR form: On August 4, the FTC and DOJ extended the deadline for public comment on the potential changes of the HSR form, previously discussed in our July 10, 2023 update, by 30 days. The new deadline for public comment is September 27, 2023.
Why it matters: This extension gives interested parties more time to submit views and information related to the proposed changes to the HSR form. If enacted as drafted, the revised HSR form would impose significant additional burdens on all filing parties. This extension also makes it less likely that the revised HSR form will come into effect in 2023.
FCA examines competition effects of Big Tech in UK financial services: The UK FCA is working to identify the potential competition benefits and harms arising from the entry and expansion of Big Tech in retail financial services. The FCA published a Discussion Paper in October 2022, focusing on competition effects in payments, deposits, consumer credit, and insurance. The FCA summarized responses from stakeholders in its Feedback Statement published last month.
Why it matters: This work forms part of the FCA’s wider program relating to Big Tech firms and digital markets more generally. In its Feedback Statement, the FCA proposes by the end of 2023 to launch a call for input on Big Tech firms as “gatekeepers” considering key drivers such as the role of data asymmetry between Big Tech and financial services firms. In addition, given that Big Tech firms are active both inside and outside the FCA’s regulatory perimeter, the FCA intends to review its supervisory approach to these firms. The FCA will also continue to collaborate on the Digital Markets, Competition and Consumers Bill, including preparing of a memorandum of understanding on regulatory coordination with the CMA’s Digital Markets Unit.
CJEU overturns General Court’s annulment of the European Commission’s prohibition of CK Hutchison’s proposed acquisition of O2: CK Hutchison sought to buy O2 in 2016, but the deal was blocked by the European Commission (EC). CK Hutchinson successfully appealed, with the EU General Court finding in 2020 that a “strong probability” of a significant impediment to effective competition (SIEC) was required to justify a prohibition but hadn’t been shown. The EC in turn appealed, and the higher court (the CJEU) has now clarified that to block a merger the EC needs only to demonstrate that it is “more likely than not” that a merger leads to a SIEC. The Court explained that the inherent uncertainty of merger review makes it unreasonable to require the EC to meet a “strong probability” threshold. The case is now returned to the lower court for second review.
Why it matters: In a statement following the judgment, Executive Vice-President Margrethe Vestager explained that “The importance of this judgment goes far beyond the specific circumstances and mobile communications sector affected by the Commission's decision.” The judgment endorses the EC’s traditional approach to “gap” cases (i.e., cases where the merger does not lead to the creation or strengthening of a dominant position but rather amounts to a SIEC) with a lower standard of proof based on the balance of probabilities (whether mergers are “more likely than not” to give risk to a SIEC). In short, the EC retains a broader ability to block deals on a balance of probabilities basis, without needing to show a strong probability of negative outcomes.
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