Welcome to this month’s edition of the Sidley Antitrust Bulletin — thoughts on topics that are top of mind for Sidley’s Global Antitrust team and why they may matter to you. In the U.S., the Federal Trade Commission (FTC) and the U.S. Department of Justice Antitrust Division (DOJ) finalized and issued revised merger guidelines. Also, the FTC sued 7-Eleven for violating a consent order and separately wrote to the New York governor to support proposed legislation that would ban noncompetes in New York. Also, a California jury ruled in favor of Epic Games in its monopolization suit against Google related to the restrictions associated with Google Play. In Europe, the European Commission (EC) imposed fines for a cartel in the pharmaceutical sector, the Court of Justice of the European Union (CJEU) confirmed two large gun-jumping fines, and the UK’s Competition and Markets Authority (CMA) launched a review of aspects of its merger procedure. Interested? Keep reading.…
Our Take on Top-of-Mind Global Antitrust Issues
FTC and DOJ issued 2023 Merger Guidelines: On December 18, 2023, the FTC and DOJ issued the finalized 2023 Merger Guidelines, which describe the “factors and frameworks the agencies use when reviewing mergers and acquisitions,” including both vertical and horizontal transactions. While the FTC and DOJ have restructured and rephrased the guidelines after receiving over 30,000 comments from academics, industry groups, and other interested parties, the content of the issued guidelines remains largely unchanged from the draft issued in July and described in detail in our July 20, 2023, Update. Highlights include:
- Transactions may raise presumptive concerns at lower thresholds than they did under the 2010 Horizontal Merger Guidelines. Under the 2023 Merger Guidelines, transactions are presumptively anticompetitive where (i) the merging parties’ combined market share exceeds 30% or where the industry Herfindahl-Hirschman Index (HHI) exceeds 1,800 and (ii) the HHI for the overall market increases by over 100.
- Agencies may evaluate competition for inputs, specifically including competition for workers with respect to employee wages, benefits, and working conditions.
- Vertical mergers (where firms operate at different levels in the same supply chain) may raise serious concerns where the merging parties have the ability and incentive to foreclose rivals from important products, services, or customers that are necessary to compete effectively.
- Even where parties do not have a specific horizontal or vertical overlap, the agencies may investigate whether a transaction “entrenches” or extends a dominant position.
- Agencies may review a series of multiple acquisitions, either as part of an industry trend or as a pattern of serial acquisitions by the acquiring firm.
A few points previously raised do not appear to be present in the finalized 2023 Merger Guidelines, including these:
- There is no specific presumption that a vertical transaction raises foreclosure concerns if one of the merging parties has a 50% or greater share of a particular input.
- The guidelines no longer explicitly state that mergers in highly concentrated markets can be presumptively anticompetitive even where one of the parties has a very small share of a relevant market, though this may still be implicit by the way the thresholds for presumptive concerns continue to be structured.
Why it matters: The 2023 Merger Guidelines reflect the way the agencies are reviewing transactions today. While they are informative of agency practice, the guidelines are not binding on the courts.
FTC sued 7-Eleven for violating a 2018 consent order: On December 4, the FTC sued 7-Eleven, alleging 7-Eleven violated the prior notice requirements in a 2018 consent order with the FTC when it acquired a retail fuel outlet in St. Petersburg without notifying the FTC in advance. The 2018 consent order required 7-Eleven to provide notice to the FTC 30 days before acquiring certain named locations, including that particular St. Petersburg location. 7-Eleven subsequently made numerous compliance reports to the FTC, certifying that it had not made any of the prohibited acquisitions without notice before it sold the St. Petersburg retail fuel outlet in three years later. The FTC complaint states that it is seeking remedies including civil penalties (with a potential maximum of $77,535,640), injunctive relief, and the costs of the suit.
Why it matters: This case serves as a reminder that consent order obligations are not merely lip service. Compliance requires the implementation of comprehensive and clear monitoring and reporting procedures. These procedures must be designed to ensure ongoing compliance with the rigors of the consent order, which often require the submission of certified compliance reports for a decade or more. Failure to follow such protocols can have costly consequences — continuing violations of FTC orders may incur civil penalties up to $50,120 a day. Moreover, prior to entering into consent decrees, parties should meaningfully consider the burden of compliance, the potential liability for noncompliance, and the potential alternatives.
FTC provided data supporting ban on noncompetes to New York Governor: Democratic Gov, Kathy Hochul is considering a bill that would ban noncompetes in New York state, following comparable legislation in California, Oklahoma, North Dakota, and Minnesota. The bill has already passed the state House and Senate and is awaiting her signature or veto. The FTC provided the Governor with a letter summarizing its findings related to the impact of noncompete clauses. The letter contends that noncompete clauses negatively affect competition, particularly among low- and middle-wage workers. The bill’s sponsors have pointed to the letter as an additional reason why Gov. Hochul should sign the bill and ban noncompete clauses.
Why it matters: Banning noncompete clauses across all industries and salaries would have a significant impact on the New York business climate, and it would preview the impact the FTC’s own proposed rule banning employee noncompetes might have should it become effective. In several interviews, Gov. Hochul has proposed a compromise position: banning noncompete clauses only for employees earning below $250,000 per year. New York, as a hub for such high-paying industries as finance, tech, and entertainment, would be particularly constrained by a total ban on noncompete clauses. While the business community has come out against the bill, the FTC’s position and support show that there is growing national momentum to ban any restrictions on worker movement. Whether Gov. Hochul signs the bill, negotiates a compromise, or vetoes it entirely will indicate the strength of that momentum.
California jury found that Google monopolized markets associated with Google Play: On December 11, a jury in the Northern District of California returned a verdict against Google in In re Google Play Store Antitrust Litigation. The jury found that Epic suffered antitrust injury from Google’s willful acquisition of maintenance of monopoly power by engaging in anticompetitive conduct in the “Android app distribution” market through Google Play and the “Android in-app billing for digital goods and services transactions” market. Specifically, the jury found three different types of agreements to be in violation: (1) the developer distribution agreements, (2) agreements with Google’s alleged competitors or potential competitors under Project Hug or the Games Velocity Program, and (3) agreements with original equipment manufacturers that sell mobile devices.
Why it matters: This verdict addresses only liability and not remedies, which the court will impose in a next stage. Remedies could dramatically reshape the app and app store ecosystems. Additionally, this is the first verdict in a series of trials Google is facing including one brought by the U.S. Department of Justice in which testimony concluded last month.
EC settled cartel fines with pharmaceutical companies: The EC has fined five globally active pharmaceutical companies for price fixing, customer allocation, and the exchange of commercially sensitive information in relation to an active pharmaceutical ingredient for the abdominal antispasmodic drug Buscopan and its generic versions. In total, the cartel involved seven pharmaceutical companies and covered a time span of almost 14 years. One company revealed the existence of the cartel and escaped a fine. Five other participants agreed to settle the amount of the fine, of which two had adduced additional evidence leading to a reduction of the settled fine. One other alleged cartelist did not agree with the accusations by the European regulator and is facing an ongoing investigation. Despite the multilayered nature of the cartel, the total amount of the fine was modest in comparison with many other European cartel fines, at €13.4 million (approx. $14 million).
Why it matters: The Commissioner in charge of antitrust enforcement, Didier Reynders, stated that it was the EC’s “first cartel decision in such an important sector where competition is essential to provide access to affordable medicines.” The settlement fine also shows the persistence by the European antitrust regulator to use the incentives available for companies to uncover cartel behavior. Significant fine reductions are available to those companies that cooperate actively with cartel investigations. Additionally, the authority declared that it had cooperated with the Australian and Swiss authorities, reflecting the increasing coordination between antitrust regulators globally.
The CJEU upheld fine in Altice gun-jumping case: The CJEU recently issued its judgment in Case C-746/21 P, Altice Group Lux v Commission. In 2018, the EC imposed two separate fines totaling €124.5 million on the French telecommunications company Altice for implementing its acquisition of the Portuguese telecommunications operator PT Portugal before both notifying the transaction and receiving clearance from the EC under the European Union Merger Regulation. The CJEU dismissed Altice’s appeal of the EU General Court judgment that largely upheld the EC decision. However, the CJEU slightly reduced the fine for completing the deal before notification to €52.9 million.
Why it matters: The Altice judgment confirms the EC’s wide discretion in enforcing gun-jumping violations and imposing hefty fines on merging companies. In particular, the CJEU judgment underlines the importance of carefully crafting preclosing restrictive covenants, providing reasonable protection to an acquirer without granting vetoes that could confer decisive influence over a target. In addition, adherence to gun-jumping planning guidelines and implementing a clean team protocol can help manage information exchange between parties postsigning.
CMA launched consultation on proposed Phase 2 reforms: The UK CMA has announced a range of nonstatutory proposals to reform its Phase 2 merger review process. The key objective is to enable greater participation from affected parties and to incentivize merger parties to bring forward “credible” remedies as early as practicable. The CMA has invited comments on the proposals in a public consultation that will run until January 8, 2024.
Why it matters: The proposals affect all stages of the Phase 2 process, including evidence gathering, analysis, and refining the substantive assessment. Throughout, the CMA is seeking to streamline and increase opportunities for the merger parties and other affected businesses to engage with the independent Inquiry Group that oversees the investigation. Separately, the CMA has proposed to increase its de minimis exception, which enables the CMA to deprioritize its review of certain deals where the value of the UK market is £15 million or less, to £30 million.
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