Both the United States and EC have signaled intent to increasingly focus antitrust policy on the protection of nascent competitors and the development of nascent markets. In the U.S., both agency statements and certain cases have cast some light on a shift in antitrust policy to more aggressively protect nascent competitors from domination or elimination by larger and more established rivals. European regulators have indicated that even major blockbuster mergers may be challenged should they result in a loss of competitive innovation, potential future competition and the suppression of research and development (R&D).


The U.S. agencies have been increasingly aggressive in attempting to protect nascent competitors on the basis of preserving future competition. Recent statements by leaders at the Department of Justice (DOJ) and the Federal Trade Commission (FTC) suggest that this approach will be more actively employed in the future across an array of industries. ≠≠The theory of harm here is well expressed by the Director of the FTC’s Bureau of Competition — D. Bruce Hoffman — when he explained at a recent speech that while merger review has traditionally focused on pricing effects, the agencies will also focus on “other likely effects of mergers. The Horizontal Merger Guidelines spell out in some detail not only price effects but also how to address potential quality, output, and innovation effects made possible by a merger.” Hoffman suggests that the FTC will be more aggressive “with regards to the technology industry — the acquisition of nascent competitors. The idea here is that large technology firms have developed a tendency to buy startups, and by so doing, are foreclosing the development of emerging rivals that might ultimately unseat them.” 

More recently, FTC Chairman Joseph Simons has echoed these sentiments in stating that “[o]ne of our interests in this area will be with mergers of high-tech platforms and nascent competitors. These types of transactions are particularly difficult for antitrust enforcers to deal with because the acquired firm is by definition not a full-fledged competitor, and the likely level of future competition with the acquiring firm often is not apparent. But the harm to competition can nonetheless be significant.” 

In addition to public statements, the agencies have recently pursued cases that could serve as a blueprint for a method to protect nascent competitors from more dominant and established players. The FTC has a long history of challenging pharmaceutical mergers and acquisitions on the basis of preventing the loss of likely future competition. Recent challenges include Lupin Ltd.’s acquisition of Gavis Pharmaceuticals LLC and Mylan N.V.’s acquisition of Perrigo Company PLC. In both cases, the acquisitions included generic drugs that had not yet entered the U.S. market but were likely to be future competitors in concentrated markets. Historically, the FTC has typically limited its divestitures to drugs in at least phase III development — where approval is much more likely than drugs reaching only phases I or II. The FTC has recently demonstrated a willingness to push that boundary. For instance, In the Matter of Mallinckrodt, Inc., Case No. 17-cv-120 (D.D.C. Jan. 25, 2017), the FTC brought a monopolization case claiming that Mallinckrodt’s acquisition of the only competing foreign drug used to treat infantile spasms (a drug which had never even entered U.S. clinical trials) allowed Mallinckrodt to raise prices on its drug from US$40 per vial to over US$34,000 per vial and “extinguish a nascent competitive threat to its monopoly.” The case was ultimately settled with a fine and Mallinckrodt’s promise to license the drug to a competitor. The departure from the FTC’s normal protocol shows a willingness to pursue more difficult cases. 

In 2015, the FTC sought a preliminary injunction to prevent the acquisition of Synergy Health plc by Steris Corporation. The FTC’s Complaint alleged that the merger would result in the “elimination of the likely future competition” in the U.S. market for gamma sterilization facilities — one of three methods of sterilizing health products in medical facilities. The two merging parties were the second- and third-largest sterilization companies in the world; however, Synergy Health had not yet entered the U.S. market for sterilization. This forced the FTC to lay out significant evidence showing Synergy Health’s consideration and plans to build facilities and expand into the U.S. in the near future. A U.S. District Court in the Northern District of Ohio, however, rejected the FTC’s evidence that Synergy Health “probably would have entered” the U.S. market finding that despite significant consideration of U.S. entry, Synergy Health had abandoned those plans and was unlikely to receive required U.S. approvals. While the FTC was unsuccessful in this instance, the case shows how aggressively the FTC will fight to protect a nascent or potential competitor to safeguard even the possibility of future competition.

In March 2018, the FTC challenged CDK Global’s proposed acquisition of Auto/ Mate, Inc., an acquisition in the Dealer Management System software market that provides integrated software for new car dealerships. CDK, one of two major players in the market, sought to acquire Auto/Mate — a nascent competitor in the The DOJ has also taken actions tailored to preserve future competition. In the blockbuster merger of Monsanto and Bayer AG, the DOJ secured the largest ever negotiated divestiture in the U.S., including assets totaling over US$9 billion. The divestitures focused on Bayer’s directly competitive and overlapping business segments with Monsanto. However, the required divestitures — all sold to Germany’s BASF — were notably broader than the assets related to the relevant products. The DOJ explained in its Competitive Impact Statement that in order to create a viable and innovative competitor capable of challenging the merged entity currently and in the future, the U.S. “is also requiring the divestiture of assets that are complementary to the competitive products or that use shared resources.” In addition, to ensure “the future competitive significance of the divested businesses” the DOJ required  that Bayer divest pipeline research projects, intellectual property related to new or planned products, research data related to any R&D efforts and the related global R&D facilities. This approach is an indication that the DOJ recognizes that competition in competitive markets is not static and that in order to preserve future competition the DOJ will readily seek to ensure that the divested businesses have all assets required to remain relevant, including R&D resources to allow for technological innovation. 

Both U.S. agencies have stated their intent publicly and taken concrete steps in the form of enforcement actions to effectuate stronger protections for nascent competitors. Accordingly, in mergers and conduct cases, counselors should be aware that the FTC and the DOJ will consider more than just static market shares in assessing competitive risk. It is advisable to consider any case’s effect on future entry and the suppression of nascent competition.  


As in the U.S., nascent competition is a topic that continues to attract the attention of the European Commission (EC). The EC has increasingly been looking beyond existing horizontal product overlaps with future competition taking more prominence in a number of large transactions.

Innovation has always been within the scope of EU merger control. The EC’s 2008 horizontal merger guidelines provide that “effective competition may be significantly impeded by a merger between two important innovators.” However, this was rarely applied beyond products in late-stage development and most commonly used in the pharmaceutical sector until recently. Within the pharmaceutical sector, an increased focus on innovation can be seen where the EC has started to look beyond phase III pipeline products (those closest to market) and required divestments of phase II and phase I pipeline products (see, for example, M.7275 Novartis/GSK, M.7559 Pfizer/ Hospira and M.8401 J&J/Actelion). This is despite significant uncertainty as to whether these products would ever develop to market. 

Innovation as a distinct theory of harm has been in sharp focus since the EC’s 2017 decision in M.7932 Dow/ DuPont where extensive divestments of DuPont’s R&D business were required in addition to divestitures of actual product overlaps. This decision is significant because the EC looked at both individual  product markets but also the possible effects of the merger on innovation at the industry level. The EC found that the merging parties were competing closely on innovation in certain narrow segments. Most significantly, the EC found that the merging parties were two of only five companies with sufficient R&D capabilities worldwide, and therefore, concerns on innovation exist at an industry-wide level, irrespective of particular product markets. The competitive rivalry between them was an important driver of innovation across the industry.

In 2018, the EC applied a similar theory of harm in M.8084 Bayer/Monsanto. The EC identified concerns in relation to various markets in seeds and traits, pesticides and digital agriculture, and concluded “the transaction as notified would have significantly reduced competition on price and innovation in Europe and globally on a number of different markets.” A remedy package in excess of €6 billion was agreed. This included divestments to address specific product concerns as well as the concentration of global R&D activities at a wider, industry level. For example, the parties agreed to divest Bayer’s entire vegetable seed business, including R&D, to ensure the number of global vegetable seed R&D players remained the same.

One uncertainty is how robust the evidence needs to be for the EC to justify intervention. Merger control reviews are by their nature forward-looking, but future innovation is manifestly uncertain. In pharmaceuticals, billions of dollars are spent each year on products that don’t make it to market. It is crucial for regulators to determine at what point an innovation theory or pipeline product is sufficiently certain to reach the downstream market. Even the prospect of success of third-stage pipeline pharmaceutical products is far from guaranteed.

In Dow/DuPont and again in Bayer/ Monsanto, the EC took the view that the concentration of two significant innovators could ultimately have a negative impact on R&D and therefore impede future competition even without identifying concern regarding a particular product in development. To date, the EC has applied these theories primarily in markets characterized by high barriers to entry, and a relatively small number of firms pursuing innovation in a particular space; however, it is reasonable to expect the EC to push this theory beyond the agrochemical and pharmaceutical sectors to wherever the EC thinks innovation is an important competitive parameter and could be affected by the proposed merger. The EC will pay particular attention to industries where innovation is concentrated and will be prepared to look at innovation across the industry as a whole, not just in relation to particular product markets in which the merging parties overlap. 

The EC has slightly more room to maneuver in this regard since its decisions are automatically binding. Parties must appeal to the European courts in order to test the EC’s standard of proof. By contrast, in the U.S. the DOJ/ FTC must justify intervention in court at the outset, which is likely to make them more reluctant to intervene on an innovation theory of harm.


Increasingly, the mere analysis of price effects based on traditional antitrust metrics may be insufficient to gauge competitive risk in merger and conduct cases. Particularly in the U.S., merging parties should consider the likelihood of future entry and the possibility for smaller players to innovate and disrupt markets. The agencies are seeking to more aggressively protect upstart nascent competitors even with marginal market shares where a reasonable probability of expansion and serious future competition is possible. 

In Europe, the EC has shown a willingness to challenge mergers on the basis of a loss of potential future competition towards the goal of preserving innovation and continued research and development in high-technology markets. On the pharmaceutical side, the EC has made clear that it will challenge mergers or require strategic divestitures to cure acquisitions even if the drug competition it is protecting has a low probability of ever coming to fruition.