Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Merger Control volume discussing topics including enforcement priorities, evidence review and notable cases within key jurisdictions worldwide.

1 What are the key developments in the past year in merger control in your jurisdiction?

Since the inauguration of President Biden in January 2021, there have been notable changes in antitrust policies and enforcement priorities in the United States. President Biden appointed progressive Democrats, who are proponents of ‘big is bad’, to leadership positions, including Lina Khan as Chair of the Federal Trade Commission (FTC), and Jonathan Kanter to lead the Department of Justice’s (DOJ) Antitrust Division. Since her confirmation in June 2021, Chair Khan has made significant changes to the FTC’s policies and practices, discussed below in more detail.

In July 2021, President Biden issued the Executive Order on Promoting Competition in the American Economy (Executive Order), which instructs a number of agencies to adopt rules and regulations ‘to promptly tackle some of the most pressing competition problems’, as further evidence of the importance of antitrust policy under the Biden administration. The Executive Order raises the importance of labour, healthcare, transportation, agriculture, and internet services and technology markets. For the first time ever, there is even a Special Assistant to the President for Technology and Competition Policy in the White House, a role filled by Columbia law professor Timothy Wu. The new leadership and wide-scale changes in antitrust policies have signalled greater antitrust scrutiny and created significant uncertainty for private parties, particularly (at least in 2021) for transactions reviewed by the FTC.

To support a more activist approach, US antitrust regulators are advocating a move away from the consumer welfare standard, which has prevailed for the past 50 years, to a public welfare standard. The consumer welfare standard focuses the antitrust analysis on protecting consumers from unfairly high prices, while the public welfare standard (often referred to as ‘big is bad’) focuses on a multitude of social goals, including protecting small businesses, reducing income inequality and promoting fairness in economic dealings. This dramatic shift has left open a clear standard under which the antitrust agencies will review mergers and has created antitrust risk for private parties, who at a minimum need to prepare for longer timelines and broad requests for information during a merger investigation.

As discussed in greater detail below, the new administration and surge in merger filings have led to other significant policy changes for merger control (mostly at the FTC, as of publication). For example, in 2021, the FTC withdrew the recently published 2020 Vertical Merger Guidelines, which are still in place at DOJ at the time of this chapter.

In 2021, the FTC brought a challenge against the Illumina/Grail merger – only the second time in the past 40 years that a challenge to a vertical merger has been litigated. This came after a busy 2020, when the US agencies filed complaints seeking to block mergers at a record pace, with eight resulting in litigation – the most in the past decade. The agencies filed two ground-breaking lawsuits against large technology firms, Facebook and Google. Antitrust leadership in the Biden administration has continued this focus on technology, digital and data markets in 2021.

In addition, the new FTC is also ramping up its enforcement tools. In July 2021, the FTC announced it will pursue standalone enforcement actions under section 5 of the FTC Act by withdrawing its 2015 policy that favoured enforcement of section 5 combined with the Sherman Act or the Clayton Act, or both. Section 5 of the FTC Act broadly prohibits ‘unfair methods of competition’, which does not provide as clear a standard of enforcement as the case law developed under the Sherman Act and the Clayton Act. Further, the 2015 policy explicitly detailed that the consumer welfare standard would apply in section 5 cases; with the withdrawal of the section 5 policy, it is not clear what standard will now apply in an FTC section 5 investigation. This development is widely viewed as confirming that the FTC will seek aggressively to expand the scope of its enforcement efforts.

2 Have there been any developments that impact how you advise clients about merger clearance?

The US antitrust agencies have continued to receive a record number of merger filings under the Hart-Scott-Rodino Act (HSR). The FTC reported that merger filings have doubled from 2010 to 2020, with 2021 projected to break records. The change in administration and the unprecedented number of merger filings have fuelled significant policy changes, most notably the suspension of early termination; the FTC’s issuance of pre-consummation warning letters; and the rescission of the 1995 agency policy limiting prior notice and approval provisions in divestiture orders.

On 4 February 2021, the FTC announced the suspension of early termination, which previously served to shorten the HSR statutorily imposed waiting period for deals that did not present competitive considerations, allowing the parties to close early. Although the FTC initially indicated that the ‘temporary suspension will be brief’, nearly nine months later (at the time of writing), the grant of early termination has not resumed. As a result, parties must observe the full initial 30-day waiting period for all reportable deals, an important commercial consideration and material delay for parties seeking to close quickly.

In addition, on 3 August 2021, the FTC announced that it had started issuing pre-consummation ‘warning letters’ for transactions the agency was not able to investigate fully within the statutory HSR waiting period. According to the terms of these letters (a model is available on the FTC website), while merging parties technically are permitted to close after the expiration of the waiting period, they do so at their own peril, as the agency’s investigation is still ongoing. Consequently, if private parties receive a pre-consummation warning letter, the parties have less certainty that their deal will close without a later challenge. For deals that raise potential competitive issues, the parties should consider how to account for FTC warning letters in the HSR closing condition, where the waiting period has expired but the parties have received such a warning letter.

Another recent development impacting mergers is the FTC’s 3–2 vote to rescind its 1995 Policy Statement on Prior Approval and Prior Notice Provisions. This policy had limited the instances for FTC pre-approval to situations where a ‘credible risk’ of an anticompetitive merger existed. By rescinding this policy, when a party reaches a negotiated settlement with the FTC the agency will require that party to seek the FTC’s prior approval before consummating any future transaction involving the same or similar relevant products, even where no ‘credible risk’ of an anticompetitive merger exists.

Holding true on its promise to ‘return to the standard use of prior approval’, on 25 October 2021, the FTC issued a proposed order imposing strict limits on future mergers by DaVita, Inc (discussed further below). On the same day, by another 3–2 vote, the FTC also issued the new Prior Approval Policy Statement, in which the agency noted that it was officially ‘restoring its long-established practice of routinely restricting future acquisitions for merging parties that pursue anticompetitive mergers’. Any party settling what the FTC deems to be an anticompetitive deal with a consent order will need the Commission’s permission to close additional acquisitions in an affected market, and sometimes in broader markets, for at least 10 years. The rescission of the 1995 Policy and the implementation of the Prior Approval Policy Statement alter the antitrust risk assessment for certain deals, particularly where the buyer agrees to divestitures for obtaining regulatory clearance. Antitrust risk provisions in merger agreements should account for this new requirement where applicable.

Internationally, cross-jurisdictional enforcement cooperation has remained a focus, and merging parties should continue to be cognisant of cross-border antitrust strategy. One sector – pharmaceuticals – is a target of coordinated international focus. On 16 March 2021, the then-acting Chair of the FTC announced a working group focused on addressing allegedly anticompetitive transactions in the pharmaceutical space. Acting Chair Slaughter noted that this working group was formed, in part, out of a response to three cases that she alleged were emblematic of the FTC’s failure to properly investigate pharmaceutical mergers. The working group includes the DOJ, Offices of State Attorneys General, British CMA, the European Commission, and the Canadian Competition Bureau. As at early November 2021, the working group has yet to publish any findings or recommendations.

3 Do recent cases or settlements suggest any changes in merger enforcement priorities in your jurisdiction?

Technology, digital and data sectors continue to be an area of significant interest for the US antitrust agencies, with no signs of slowing down anytime soon. President Biden has signalled an aggressive enforcement agenda for these markets, via his July 2021 Executive Order and his leadership appointments at the agencies. As discussed above, both Lina Khan (Chair of the FTC) and Jonathan Kanter (head of the DOJ’s Antitrust Division) are outspoken critics of ‘big tech’.

Even prior to President Biden’s nominations, the antitrust agencies were ramping up review and challenges of acquisitions by technology firms of nascent competitors. For example, in December 2020, the FTC alleged in federal court that Facebook illegally maintained a monopoly, specifically portraying Facebook’s 2012 acquisition of Instagram and 2014 acquisition of WhatsApp as attempts to eliminate competitive threats. The FTC is seeking divestitures of these assets, among other relief. In June 2021, the District Court dismissed the FTC’s complaint, but gave the FTC a second bite at the apple, allowing it to file an amended complaint on 19 August 2021.

The DOJ has also been actively investigating and challenging cases involving nascent competitors. In November 2020, the DOJ challenged Visa’s US$5.3 billion acquisition of Plaid, alleging that Visa had a monopoly in online debit services and that Plaid was developing a competing payments platform that had the potential to disrupt Visa’s monopoly. The parties abandoned the transaction in January 2021. Earlier in 2020, the DOJ (along with 11 state Attorneys General) filed a lawsuit against Google for allegedly maintaining monopolies in digital advertising markets unlawfully. While not a case purely about Google’s previous acquisitions, the DOJ specifically alleged that Google was increasing barriers to entry and excluding competition at emerging search access points from nascent competitors.

Another major enforcement action is the FTC’s ongoing administrative litigation to unwind life science firm Illumina Inc’s US$7.1 billion acquisition of Grail Inc. The case is unique because Illumina and Grail are not horizontal competitors – Illumina provides a next-generation sequencing (NGS) platform that is a critical input for Grail’s early-cancer detection product – and the agencies rarely challenge a merger that is purely vertical in nature. In fact, Illumina/Grail is only the second litigated vertical merger challenge in the past 40 years. To demonstrate harm to competition, the FTC focused on the potential for the merged firm to raise Grail’s rivals’ costs and the potential harm to innovation in a nascent market for multi-cancer early detection. Notably, Grail has not yet received FDA approval for its early-cancer detection product and there is no such cancer test approved by the FDA today. Rather, Grail is in a race with other developers. The FTC’s theory is that the merger will harm competitive dynamics for Grail’s competitors who are also developing the tests. At the time of writing, the case is still pending in administrative court. Illumina/Grail may be an indication that, especially with pharma and related products, the agencies are focused on investigating and challenging transactions, even where the market share of one of the parties is minimal (or even non-existent in this case), so long as the agencies can articulate a theory of harm to competitive dynamics.

President Biden’s antitrust agenda appears to focus also on the agriculture sector. President Biden’s recent Executive Order (discussed further below) noted that ‘[c]onsolidation in the agricultural industry is making it too hard for small family farms to survive’. The DOJ has initiated a government-wide approach to address President Biden’s concerns, including working more closely with the US Department of Agriculture and other agencies, to fight allegedly ‘excessive concentration’ in agriculture markets such as meat and poultry processing, seeds, fertiliser, feed, pesticides and equipment. This statement comes on the heels of the DOJ’s challenge of a US$300 million deal in the agriculture sector between Zen-Noh Grain Corp and Bunge North America, Inc, where the DOJ reached a divestiture agreement.

4 Are there any trends in merger challenges, settlements or remedies that have emerged over the past year? Any notable deals that have been blocked or cleared subject to conditions?

This year has witnessed several notable developments with respect to remedies, including a federal appellate court upholding a divestiture order in support of a private plaintiff challenge; increased agency scrutiny of private equity firms as divestiture buyers; and the FTC’s return to its pre-1995 practice of broadly imposing prior approval provisions in consent orders.

First, in Steves & Sons, Inc v JELD-WEN, Inc, a private plaintiff prevailed in the US Court of Appeals for the Fourth Circuit in an appeal of a post-consummation challenge. This case demonstrates to private plaintiffs that a viable path exists to unwinding consummated deals, even where an agency declined to challenge the deal.

In 2011, JELD-WEN, one of three manufacturers of doorskins in the United States, sought to acquire one of its competitors, CMI. Although the DOJ investigated twice, once in 2012 and once in 2015, it did not challenge the transaction. The DOJ closed its first investigation after hearing from Steves & Sons, Inc (Steves), a competitor and customer of JELD-WEN, that it did not oppose the merger. However, after consummation of the merger, Steves, which had an exclusive supply agreement with JELD-WEN, alleged that JELD-WEN began raising its prices anticompetitively. The DOJ opened another investigation, but closed it in May 2016. Nearly four years after the merger closed, Steves sued for equitable relief. The District Court ultimately agreed with Steves and ordered JELD-WEN to divest one manufacturing facility. In February 2021, the Fourth Circuit held that the District Court properly determined equitable relief was appropriate and upheld the divestiture.

Previously, private plaintiffs’ typical recourse was to direct merger complaints to the FTC or DOJ for investigation. This precedent validates an additional forum for private plaintiffs to oppose a merger, including post-consummation.

Second, there is a growing chorus of statements by the antitrust agencies signalling that private equity firms may face increased scrutiny when seeking to purchase divestiture assets, even when there are no competitive overlaps. Commissioner Slaughter and former FTC Commissioner Chopra have both publicly expressed concerns in the past year regarding the short-term incentives of private equity buyers potentially to engage in an opportunistic sale quickly after purchasing FTC-mandated divested assets. Their view has been that private equity purchasers fail to maintain the competition lost through the original transaction. DOJ officials have also expressed similar concerns. In May 2021, leadership at the DOJ’s Antitrust Division explained publicly that the DOJ rarely approved private equity divestiture buyers as they often have a difficult time (as opposed to strategic buyers) demonstrating the experience and industry expertise to compete effectively in the long term. The agencies have also explained that they are likely to examine whether a private equity buyer has restrictive debt or financing arrangements for purchasing the asset to ensure that the buyer can viably maintain competition post-purchase.

Finally, following through on its promise to seek prior approval notices in settlements, on 25 October 2021, the FTC issued a proposed order imposing strict limits on future deals by DaVita, Inc in response to DaVita’s acquisition of dialysis clinics in Utah. Under the proposed order, DaVita is required to divest three dialysis clinics, is prohibited from entering into non-compete agreements and other employee restrictions and is required to receive prior approval from the FTC before acquiring any new ownership interest in a dialysis clinic for a period of 10 years. The FTC press release noted that because DaVita had a ‘history of fuelling consolidation’, the proposed order extends the coverage of prior approval to the entire state of Utah, beyond the markets directly impacted by the transaction.

5 Have the authorities released any key studies or guidelines or announced other significant changes that impact merger control in your jurisdiction in the past year?

The release of the 2020 Vertical Merger Guidelines (VMGs) by the DOJ and FTC was not without some controversy, but in September 2021 the FTC voted 3–2 to withdraw them. When announcing the decision, the FTC cited ‘unsound economic theories that are unsupported by the law or market realities’ and committed to ‘working closely with the DOJ to review and update the agencies’ merger guidance’. While the DOJ has not made a similar formal withdrawal, the DOJ also issued a statement on the same day as the FTC, noting that it would review and update the VMGs where necessary. The disparity in the application of the VMGs by the FTC and DOJ has caused even more deal uncertainty for parties. For example, while the DOJ may rely on the VMGs in its analysis to recognise potential efficiencies from a vertical merger, including the elimination of double marginalisation, the FTC may not recognise this as a defence for a merger deemed otherwise anticompetitive.

In addition to the policy changes discussed in question 2, in September 2021 the FTC also announced significant changes to agency review of mergers, with the aim of ‘better enabl[ing] [the FTC] to scrutinise, detect, and challenge illegal deals’. Moving forward, parties should expect the following changes at the FTC, including broader investigations and extensive additional requests for information and documents (Second Requests) after the initial waiting period, with less flexibility for narrowing the scope.

  • The FTC is seeking to expand Second Request investigations to take into account ‘additional facets of market competition that may be impacted’, including the effect of a merger on labour markets, the cross-market effects of a transaction, and how the involvement of investment firms may affect market incentives to compete.
  • Staff will now only consider Second Request modifications after the companies have provided certain foundational information.
  • Before applying e-discovery tools to identify responsive materials, each company under investigation will need to provide information about how it intends to use these tools (this is now similar to the DOJ’s model second request).
  • The FTC also is aligning its privilege log requirements more closely with the DOJ’s by discontinuing its allowance of ‘partial privilege logs’, but has noted it will remain open to modifications in appropriate circumstances.

Interestingly, the FTC adopted a new internal practice to make Second Requests and other requests for information securely accessible to all commissioners and relevant agency offices. Previously, Second Requests were provided only at the FTC chair’s discretion and direction and were generally not accessible to other commissioners.

These policy changes, along with those outlined in question 2, will undoubtedly result in longer merger investigations, particularly at the FTC. In fact, we have seen longer review periods over the past couple of years, and this year was no exception. The FTC itself has noted that it is facing ‘a tidal wave of merger filings that is straining the agency’s capacity to rigorously investigate deals’. Given the volume of mergers and announced changes from the FTC, practitioners can expect that merger clearances will continue to take longer.

6 Do you expect any significant changes to merger control rules? How could that change your client advocacy before the authorities? What changes would you like to see implemented in your jurisdiction?

A number of executive and legislative actions this year propose changes to US merger control. The Biden Administration has ramped up efforts to strengthen and coordinate antitrust enforcement across the federal government with the 9 July 2021 Executive Order. The Executive Order directs a number of government agencies – beyond the DOJ and the FTC – to adopt rules and regulations to accomplish the competition-enhancing goals set forth in the Executive Order.

The Executive Order also aims to address the Administration’s concerns about increased consolidation and abuse of market power. Among other initiatives, the Executive Order reaffirms the authority of the DOJ and the FTC to challenge consummated mergers.

Further, the Executive Order’s directive to challenge consummated mergers may now come into action at the FTC with respect to technology and digital platform mergers. On 15 September 2021, the agency presented its report on nearly a decade of unreported acquisitions by the biggest technology companies. Originally launched in February 2020, the FTC’s investigation issued Special Orders to Google’s parent (Alphabet), Amazon, Apple, Facebook and Microsoft to inquire about all HSR-exempt transactions made by the firms between 1 January 2010 and 31 December 2019. In her remarks about the findings, FTC Chair Khan highlighted policy priorities moving forward, namely the need to address loopholes in the HSR Act to allow some deals to unjustifiably fly under the radar; the importance of close collaboration with international counterparts with expertise in digital markets; and the need for further scrutiny of non-compete agreements in tech acquisitions that lock up talent.

The Executive Order also encourages agencies to focus enforcement on lack of competition in the labour markets, agricultural markets, healthcare markets and technology sectors. While the Order is ambitious, practitioners are starting to see its impact. For example, Second Requests now may contain questions about the effects of a transaction on labour markets. It will be important to monitor how implementation evolves across other federal agencies and whether other agencies follow suit to implement the actions directed in the Executive Order.

In addition to executive action, there are numerous potential new bills that address merger review. There is a bipartisan desire to reform US merger laws. For example, Senator Klobuchar’s (D-MN) bill would seek to prevent courts and the antitrust agencies from requiring market definition in certain situations, such as where the record shows an actual, likely or appreciable risk of harm to competition from a transaction. Senator Klobuchar (along with Senator Grassley (R-IA)) has also introduced legislation that seeks to increase HSR filing fees to US$2.25 million per filing for deals greater than US$5 billion, as well as significantly increase antitrust agency budgets for the 2022 financial year. Further, Senator Hawley (R-MO) also has a bill that proposes, among other provisions, that acquisitions by ‘dominant digital firms’ (ie, those with a ‘dominant market power’) be made presumptively illegal – short-circuiting the established presumption that the antitrust agencies must first prove that an action is illegal under the antitrust laws.

There also is legislation at the state level that, if enacted, would increase merger review complexity and timing. In the State of New York, a bill that would create the first ever broadly applicable state premerger filing obligation was passed by the New York State Senate on 7 June 2021. The bill has yet to pass the New York State Assembly, which is required for it to become law. As the 2021 New York legislative session has adjourned, the bill must wait until 2022 for further consideration.

The Inside Track

What should a prospective client consider when contemplating a complex, multi-jurisdictional transaction?

Early planning and coordination with our clients and colleagues worldwide has enabled us to obtain timely clearance for complex, multi-jurisdictional transactions. Anticipating and planning for a clear process for lawyers to review and advocate across jurisdictions with different agency procedures also helps to minimise the burden on our clients, who often face multiple similar, yet distinct, RFIs from competition authorities. We have seen upwards of two dozen worldwide merger filings and RFIs from competition authorities across the globe.

In your experience, what makes a difference in obtaining clearance quickly?

Thorough pre-filing analysis can make all the difference in obtaining clearance quickly. In our experience, by front-loading the process and having a deep understanding of all aspects of our client’s business before making the HSR filing, we can engage quickly with the FTC or DOJ. It is important to pre-collect and prepare key documents and other information normally requested through a voluntary access letter, to enable the reviewing agency to focus their area of investigation earlier. A deep dive early in merger discussions also enables the parties to anticipate and mitigate deal risk, and plan for potential divestitures or other remedies, if necessary.

What merger control issues did you observe in the past year that surprised you?

The US antitrust landscape has shifted dramatically over the past year. For example, the FTC has started issuing ‘warning letters’ at the end of the waiting period that caution parties that they close at their own risk. The FTC has always had the option to review a merger at any time, but in practice rarely reviews transactions after the statutory waiting period. It remains to be seen if the FTC will act on such letters. Another example is the FTC’s decision to rescind its policy on prior approval. Parties should be more cautious as these actions indicate that the FTC has become increasingly aggressive in its approach to enforcement, and should plan to address increased uncertainty in merger negotiations and provisions as the FTC works to implement its new changes.