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 new year started with Tim Wu stepping down from his position as an antitrust adviser to the Biden White House and the U.S. Federal Trade Commission (FTC) proposing a rule change prohibiting noncompete clauses. Mergers in the United States will face new filing fees following the Consolidated Appropriations Act of 2023 becoming law. Meanwhile, the European Commission (EC) continued reviewing and revising its competition policy instruments. It extended the duration of two current horizontal block exemption agreements, with revised versions now expected before June 30 2023, and broadened the scope of allegations that can be brought to its attention under its whistleblower reporting system. Interested? Keep reading…
Our Take on Top-of-Mind Global Antitrust Issues
FTC proposes rule prohibiting noncompete agreements: On January 5, 2023, one day after announcing three enforcement actions against companies that used noncompete restrictions in employment contracts, the FTC voted 3–1 to publish a Notice of Proposed Rulemaking (NPRM) to ban employers from entering into noncompete clauses with workers, which the proposed rule defines broadly also to cover contractors, gig economy workers, externs, interns, volunteers, apprentices, and sole proprietors who provide a service to a client or customer. It also contains a rescission requirement that would require employers to void all existing noncompete agreements within 180 days of publication of the final rule and notify employees. The proposed rule would treat worker noncompetes as an unfair method of competition for labor because they suppress wages, prevent new firms from hiring workers, and contribute to racial and gender wage gaps. The proposed rule would apply to actual and de facto noncompete clauses (i.e., clauses that might not be explicit but have the effect of an actual noncomplete clause). Significantly, the proposed rule exempts noncompete clauses related to the sale of a business, including noncompetes related to persons who own 25% or more of the business, from the prohibition. The FTC is seeking public comment on the rule through March 10, 2023. More information on the NPRM can be found in the Sidley Antitrust/Competition Update from January 10.
Why it matters: If the final rule remains this broad, litigation is likely to follow relating to how the ban might apply to highly skilled versus wage workers and whether business justifications may exempt certain employers from the ban. To avoid an enforcement action, companies may choose to revisit their noncompete policies and rescind existing noncompete clauses once the rule is finalized. Companies purchasing owner-run businesses will also need to think creatively about how to manage risks associated with purchasing a business if important owners that fall below the 25% ownership threshold cannot be bound by noncompetes.
EC includes merger and State aid infringements in anonymous whistleblower tool: On January 9, 2023, the EC extended the scope of its anonymous whistleblower tool to include infringements in all areas of EU Competition Law, now including mergers and State aid. Previously, the tool welcomed only the reporting of cartels and abusive behaviour by undertakings in a dominant position. Since its inception in 2017, approximately 100 messages per year have reached the EC via the tool.
Why it matters: Whistleblowers have an important role to play in detection of competition law infringements. In the space of mergers, the extension of the tool is particularly relevant for detection of gun-jumping infringements. Gun jumping occurs when the parties to a transaction seek to influence one another’s commercial or management decisions prior to clearance. In those cases, those involved in the relevant entities may be the only actors aware of a potential infringement. However, they may be reluctant to file an official complaint in the company’s name, fearing retaliation. The EC has limited resources it can designate to the detection of unlawful practices, so the anonymous whistleblower tool has the potential to uncover meaningful blind spots.
Congress updates merger filing Fees and expands state enforcement: On December 22, 2022, Congress passed the Consolidated Appropriations Act of 2023. The $1.7 trillion omnibus government spending bill signed into law by President Joe Biden on December 29, 2022, not only modifies the current structure of merger filing fees established by the Hart-Scott-Rodino (HSR) Act but also provides state attorneys general authority to select the jurisdiction in which to bring antitrust lawsuits. The new legislation imposes significant increases for mergers valued at over $1 billion and general decreases in fees for transactions valued at less than $500 million. It also modifies the current law, exempting states from having their cases consolidated into multidistrict litigation or transferred to a different venue. For more information on the bill, see Sidley’s Antitrust/Competition Update from January 4, 2023. Following the updated legislation, the FTC published its increased 2023 merger filing thresholds, alongside its increased thresholds for interlocking directorate exemptions, as described in Sidley’s Antitrust/Competition Update from January 26, 2023.
Why it matters: The structure of merger filing fees under the HSR Act has not been updated since 2001. The increase in fees for large transactions is expected raise additional revenue that Congress can use to fund the FTC and Department of Justice enforcement agendas while reducing the burden on parties engaged in smaller transactions. The venue update eliminates the risk that state attorneys general filing suits will end up litigating outside of their home district, at additional cost to their constituents, so may spur more state-led enforcement actions. It will also likely increase the financial burden on large companies that face multiple lawsuits in different courts who can no longer expect multidistrict consolidation for cases that share common questions of law or fact.
Tim Wu leaves the White House: On January 4, 2023, Tim Wu stepped down from his role on the National Economic Council as antitrust adviser to the Biden White House. Wu had served as a special assistant to the President on technology and competition law. In this role, Wu was notably a driving force behind the administration’s aggressive approach to increasing competition. He was an author of Executive Order 14036, instructing federal agencies to increase competition across the economy, and promoted aggressive presidential leadership to reign in big business.
Why it matters: Wu is not being directly replaced in the near term, which means that the White House may be satisfied with the wheels it has put in motion for antitrust enforcement and rely instead on the federal agencies’ implementation of the executive order mandates. Elizabeth Kelly will add technology to her responsibilities on digital asset policy, while Hannah Garden-Monheit will continue in her role as a special assistant on competition. The presence of Lina Khan at the Federal Trade Commission and Jonathan Kanter at DOJ will mitigate the effects of Wu’s absence.
EC extends validity of two horizontal block exemption regulations: On December 8, 2022, the EC adopted two regulations to extend the duration of two horizontal block exemption regulations (HBERs) on certain categories of research and development and certain categories of specialization agreements. Agreements falling within scope are deemed to be more beneficial than harmful and so are presumed allowed under competition rules. The HBERs were set to expire on December 31, 2022, but their validity is now prolonged until June 30, 2023.
Why it matters: The EC is reviewing the HBERs (and the accompanying guidelines for the assessment of horizontal cooperation agreements (Horizontal Guidelines)). To that end, the EC published the two draft revised HBERs and the draft revised Horizontal Guidelines on March 1, 2022. The period of public consultation in which the EC asked for feedback on the revised texts ended on November 14, 2022. To allow time for the responses to be considered, the EC extended the period of validity of the HBERs by six months.
Read more Antitrust Bulletins here.