FTC-Vertical-Merger-Guidelines-300x225

Authors: Steven Cernak and Luis Blanquez

FTC Chairwoman Lina Khan keeps up her frenetic crusade to change the practice of antitrust enforcement. The new––and surely not last––change: the vertical merger guidelines.

On Wednesday, September 15, 2021, the FTC held an open virtual meeting to discuss the following:

Here, we will only discuss the first two items. For more background on these and other recent changes at the FTC, see our previous articles:

The FTC Continues the HSR Antitrust Process’s “Death of a Thousand Cuts”

FTC Guts Major Benefit of Antitrust HSR Process for Merging Parties

FTC Withdraws Vertical Merger Guidelines and Commentary

As expected, the FTC on a 3-2 vote decided to withdraw its approval of the Vertical Merger Guidelines, issued jointly just last year with the Department of Justice Antitrust Division (DOJ), and the FTC’s Vertical Merger Commentary.

According to the FTC’s press release, the guidance documents include unsound economic theories that are unsupported by the law or market realities. The FTC is withdrawing its approval to prevent industry or judicial reliance on this allegedly flawed approach. The FTC reaffirmed its commitment to working closely with the DOJ to review and update the agencies’ merger guidance.

The statements by the various Commissioners show the deep divisions within the FTC since Khan joined the Commission, not just about these Guidelines but more generally about how to enforce the antitrust laws and how to run the FTC.  The statement by the FTC majority asserts that the 2020 Vertical Merger Guidelines had improperly contravened the Clayton Act’s language with its approach to efficiencies. The statement explains the majority’s concerns with the Guidelines’ treatment of the purported pro-competitive benefits of vertical mergers, especially its treatment of the elimination of double marginalization.

The dissenting Statement of Commissioners Phillips and Wilson starts with a bang: “Today the FTC leadership continues the disturbing trend of pulling the rug out under from honest businesses and the lawyers who advise them, with no explanation and no sound basis of which we are aware.” The statement goes on to not only lament the confusion the withdrawal will generate but contrast the process used when the Guidelines were issued — months of public input and debate — with the process used for their withdrawal — no public input and, seemingly, no discussion even at the FTC outside the offices of three Commissioners.

The FTC pledged to work with DOJ to update vertical merger guidance to better reflect how the agencies will review such transactions in the future. Just an hour later, DOJ issued a statement explaining that they are reviewing both the Horizontal Merger Guidelines and the Vertical Merger Guidelines and, as to the latter, have already identified several aspects of the guidelines, such as the treatment of and burdens for the elimination of double marginalization, that deserve close scrutiny.  (We raised those issues when the Guidelines went through public debate last year.)  DOJ expects to work closely with the FTC to update the Guidelines so, perhaps, we will have new Guidance at some point in the future.

FTC Staff Presents Report on Nearly a Decade of Unreported Acquisitions by the Biggest Technology Companies

During the same meeting, FTC presented findings from its inquiry into the hundreds of past acquisitions by the largest technology companies that did not require reporting to antitrust authorities at the FTC and DOJ, generally because they were below HSR thresholds. Launched in February 2020, the inquiry analyzed the terms, scope, structure, and purpose of these transactions by Alphabet Inc., Amazon.com, Inc., Apple Inc., Facebook, Inc., and Microsoft Corp. between Jan. 1, 2010 and Dec. 31, 2019.

“While the Commission’s enforcement actions have already focused on how digital platforms can buy their way out of competing, this study highlights the systemic nature of their acquisition strategies,” said Chair Khan. “It captures the extent to which these firms have devoted tremendous resources to acquiring start-ups, patent portfolios, and entire teams of technologists—and how they were able to do so largely outside of our purview.”

The Commission voted 5-0 to make the report public. Chair Khan and Commissioners Chopra and Slaughter each issued separate statements. While the report did not recommend any changes to the merger review process, we expect that the FTC may utilize the report’s findings to recommend changes in the HSR process.

Continue reading →

Facebook-FTC-Antitrust-300x134

Authors:  Steven J. Cernak and Luis Blanquez

In late 2020, the Federal Trade Commission (FTC) and the attorneys-general (AGs) from 48 states filed nearly identical antitrust lawsuits against Facebook for stifling competition by acquiring potential competitors, mainly Instagram in 2012 and WhatsApp in 2014, and for enforcing policies that blocked rival apps from interconnecting their product with Facebook. The alleged effect of this conduct was to (i) blunt the growth of potential competitors that might have used that interoperability to attract new users, and (ii) deter other developers from building new apps or features or functionalities that might compete with Facebook.

This week, the judge hearing the cases agreed to dismiss the claims from the FTC––without prejudice––stating that the lawsuit failed to plead enough facts to plausibly establish that Facebook has monopoly power in the personal social networking services market. Likewise, the Court also dismissed ––with prejudice––a similar case pursued by a group of 48 states on the basis that any alleged violations took place too long ago.

While by no means the final decision on these matters, the motion to dismiss opinion will significantly narrow the FTC case for now. It also highlights some of the difficulties that enforcers will face using the current antitrust laws against Big Tech companies.

Online platforms have been––and continue to be––scrutinized by antitrust enforcers around the world. In the U.S. the Antitrust Subcommittee of the House Judiciary Committee issued last year its long-anticipated Majority Report of its Investigation of Competition in Digital Markets. The Report detailed its findings from its investigation of Google, Apple, Facebook, and Amazon along with recommendations for actions for Congress to consider regarding those firms. In addition, the Report included recommendations for some general legislative changes to the antitrust laws. Since then, online platforms have been involved in high-profile antitrust litigation in the U.S. So even though Facebook has won the first round of this litigation, the war is far from over.

Chinese Translation: Thank you to our friends at the Beijing Fairsky Law Firm for preparing a translation in Chinese of this article.

Update: Please see an important update about the FTC’s amended complaint at the end of the article.

The FTC and State AGs Parallel Antitrust Complaints against Facebook

Both suits focused on the same Facebook categories of conduct. First were the acquisitions of Instagram and WhatsApp, both of which occurred more than five years ago. These deals allegedly increased Facebook’s power over social media networks, facilitating data integration and its sharing among some of the largest social media platforms. Next was Facebook’s requirement that any applications connecting to Facebook may not compete with Facebook or promote any of Facebook’s competitors. The complaint alleged that Facebook enforced these policies by cutting off access to the Application Programming Interface (“API”), the software that allows applications to talk to one another to allow communication with rival personal social networking services, mobile messaging apps, and any other apps with social functionalities.

Both the FTC and AG suits claimed that Facebook’s actions amounted to illegal monopolization in violation of Sherman Act Section 2. The states’ suit also claimed that the two acquisitions violated Clayton Act Section 7, the statutory prohibition of anticompetitive mergers.

In March Facebook Fired Back in its Motion to Dismiss

In March 2021, Facebook moved to dismiss the suits on several grounds.

First, the company claimed that the complaints did not properly allege a relevant market or that Facebook had monopoly power in any market.

Second, Facebook asserted that the FTC could not claim that the two acquisitions were illegal monopolization because the agency had cleared both transactions earlier under the Hart-Scott-Rodino premerger notification system. Even if the agency could make such a claim, the company claimed that the FTC failed to properly allege that such acquisitions were anticompetitive.  (We discussed the concept of post-HSR review both prior to and immediately after the FTC complaint was filed.)

Finally, Facebook claimed that the complaint did not properly allege that the company’s decision not to deal with all potential app developers who were potential competitors was subject  to an exception to antitrust law’s usual rule that even monopolists can choose their own partners. Basically, under U.S. antitrust laws if you are a monopolist, you can still refuse to deal with your competitors, unless: (i) you have already been doing business with them, and (ii) by stopping you are giving up short-term profits for the long-term end of knocking them out of the market.

The District Court’s Opinions Dismissing Both Cases

The judge hearing both cases granted Facebook’s motions to dismiss. The Court dismissed the FTC complaint without prejudice. This means that the FTC is allowed to amend its complaint and refile the case, and now has 30 days to do so. The AGs were not that lucky, and the judge dismissed their complaint with prejudice. The Court applied the doctrine of laches to conclude that AGs waited too long to challenge Facebook’s purchases of Instagram in 2012 and WhatsApp in 2014.

The Opinion against the FTC

In the decision re the FTC, the Court found that the complaint fails plausibly to allege how Facebook has a monopoly over personal social networking (“PSN”) services.

As with all monopolization plaintiffs, the FTC must plausibly allege that Facebook has monopoly power in some properly defined market. As do most plaintiffs, the FTC chose to allege this power indirectly by alleging that Facebook has a high share of the market, here for PSN services.  Despite some misgivings, the court found that the complaint’s allegations make out a plausible market for PSN services.

But that hardly ends the analysis. The FTC must also explain why Facebook enjoys a high share of that market and, therefore, monopoly power.  Here, the court found that the FTC’s allegations were inadequate for two reasons.

First because that “PSN services are free to use, and the exact metes and bounds of what even constitutes a PSN service — i.e., which features of a company’s mobile app or website are included in that definition and which are excluded — are hardly crystal clear.” In other words, the FTC must further explain whether and why other, non-PSN services available to the public either are or are not reasonably interchangeable substitutes with PSN services.

Second, even if the FTC better defines the market(s) of social networking, it must better explain how it developed the allegation that Facebook enjoys a market share of at least 60%: “[T]he FTC’s inability to offer any indication of the metric(s) or method(s) it used to calculate Facebook’s market share renders its vague ‘60%-plus’ assertion too speculative and conclusory to go forward.” Thus, the FTC has also fallen short to plausibly establish the existence of monopoly power by Facebook in the relevant market.

That finding alone was enough to support the court’s granting the motion to dismiss; however, it helpfully went on to discuss Facebook’s other grounds for dismissal.

The court explained that even if the FTC had sufficiently pleaded market power, its challenge to Facebook’s policy of refusing interoperability permissions with competing apps also failed to state a claim for injunctive relief. The Court held in both decisions that there is nothing unlawful about having such a policy in general. While implementation of such a policy can be illegal monopolization in certain limited circumstances, the FTC did not allege such facts.  Finally, all such denials of access occurred in 2013, seven years ago. Thus, the FTC lacks statutory authority to seek an injunction from a court for such past conduct.

On the other hand, the court did find that the FTC might be able to seek injunctive relief relating to Facebook’s past acquisitions of Instagram and WhatsApp. While those acquisitions took place years ago, the court found that Facebook’s continued ownership of the companies could be considered a continuing violation of Section 2. While the doctrine of laches does not apply to the US government, including the FTC, the court did note but did not decide several issues, including remedial ones, with such a long-delayed allegation.

The Opinion Against State Enforcers (AGs)

The judge also dismissed the parallel case brought by the AGs. The court explained that unlike the federal government, the states are bound by the doctrine of laches, in which those who “sleep on their rights” and wait too long to file a case cannot seek court relief. As a result, the allegations regarding the Instagram and WhatsApp acquisitions were insufficient to state a claim under either Sherman Act Section 2 or Clayton Act Section 7.

Using an analysis identical to the one used with the FTC complaint, the judge further rejected the AG’s claims that Facebook’s refusal to allow interoperability with competing apps constituted illegal monopolization. Because all of the claims of the AG’s were rejected in ways that cannot be rectified by the AG’s, the judge dismissed the complaint without any chance for the AG’s to modify the complaint and refile.

Final Remarks

At the time of this writing, the FTC is considering possible next steps. It could beef up its allegations regarding the market definition and Facebook’s share of that market and file an amended complaint regarding Facebook’s prior acquisitions. It could also appeal the dismissal of its current complaint.

Continue reading →

Antitrust-advice-in-house-counsel-300x200

Author: Pat Pascarella

The press is awash in reports on proposed amendments to the antitrust laws and heightened, and in some instances targeted, enforcement agendas at the DOJ, FTC, and state AGs’ offices. While the specifics of each may be fascinating to antitrust attorneys and law professors, the sole question on most general counsels’ minds is whether there is “anything I need to do right now to better protect my client?”  The answer is an unequivocal “not really, but…”

To start, proposed legislation, presidential orders, and enforcement agency  guidelines and statements of interest are not the law. That does not mean however that one should entirely ignore this current antitrust craze. Plaintiff attorneys and certain government enforcers certainly won’t. And I expect an uptick in lawsuits and investigations based on, to be polite, creative interpretations of the antitrust laws.

What it does counsel is that, at present, the most important focus should be on ensuring that internal antitrust guidelines and procedures target not only actual violations, but also conduct that could create the appearance of a potential violation. Price increases, production slow-downs, announcements about future business plans, communications or information exchanges with competitors, and dealer or supplier terminations, are the usual suspects. But care should be taken in any instance in which an action or strategy might appear to be inconsistent with unilateral self-interested behavior in the absence of a conspiracy—or where it will have a significant impact on competitors, suppliers, or downstream market participants (a/k/a plaintiffs).

This of course is not to say that businesses should forego legal strategies or actions for fear of a frivolous antitrust investigation or complaint. But it does mean that in the case of certain activities, there likely will be steps that enable the company to avoid, or at least extract itself more quickly from, lawsuits and investigations based on overly aggressive interpretations of the antitrust laws. Sometimes the solution will be as simple as documenting the business rational for a particular activity, while at other times it could involve active and ongoing oversight by antitrust counsel.

That of course raises its own set of problems for in-house attorneys—i.e., convincing their clients to come to them before taking certain actions. Having been an in-house antitrust attorney myself for many years, I can offer a few suggestions. First, get loud and clear officer-level signoff on any new guidelines or procedures. While you may be the clients’ lawyer, those clients are far more inclined to pay attention to a directive from someone who controls their advancement and salary. Second, market yourselves. Communicate to your clients that you understand their needs both in terms of your substantive guidance as well as in the timing of that guidance.  Your clients have targets and goals they are trying to achieve. They need to believe that engaging with Legal will not delay the achievement of those goals and will only result in a “no go” opinion after every viable option has been exhausted.

Plus, as I often told my clients, some day you are going to be called up to the general counsel’s office and asked, “who approved this?” How the rest of your day goes will be significantly determined by whether your answer is “me” or “our antitrust counsel.”

Continue reading →

HSR-Antitrust-FTC-300x200

Authors: Steve Cernak and Luis Blanquez

New management at the FTC keeps reviewing all aspects of the Hart-Scott-Rodino (HSR) premerger notification process.  On August 26, the current head of the Bureau of Competition posted a change to a long-standing FTC informal interpretation about how potential HSR filers should view debt repayments when determining if the transaction is large enough to warrant a filing.  That particular change could affect many transactions; however, perhaps more importantly, the announcement also described potential larger changes in how the FTC develops and promulgates interpretations of the complicated HSR process.  Any such changes could be more examples of the “death of a thousand cuts” for the current HSR process that at least one commissioner has decried and that we discussed recently.

As we have explained, the Hart-Scott-Rodino Act requires companies to file notice of mergers and similar transactions over a certain size before they can close the deal. The first step in complying with HSR’s notification requirements is to determine whether the transaction satisfies the size of transaction test.  Because that determination can be difficult, given HSR’s complicated rules that cannot anticipate every potential deal structure, merging parties have often sought informal interpretations from FTC Premerger Notification Office (PNO) staff.

For at least 15 years, PNO staff has interpreted HSR rules to exclude from the size of the transaction calculation of the payoff of a target’s debt by the acquiring person in transactions involving the acquisitions of voting securities and noncorporate interests (though not of assets). The rationale was that the purchaser of a majority of an issuer’s stock automatically acquires the issuer’s preexisting liabilities and so that fact presumably is reflected in the stock’s acquisition price.

Effective September 27, the FTC will withdraw that informal interpretation. According to the FTC blog post, it appears that some merging parties have structured their deals to take advantage of this interpretation and avoid an HSR filing. Target companies may take on debt shortly before the merger and then have the acquiring person retire it as part of the transaction, thus reducing the size of the transaction, perhaps to a level whereby the parties can avoid a filing.

At the margin, this change likely will result in more HSR filings. It will affect those transactions where the size of the transaction matters, such as transactions of private equity firms focused on the “middle market” near the current HSR threshold of $92M.

If the main reason for the change is that the FTC is seeing transactions structured as described in the blog post, it is not clear why application of 801.90 is insufficient. That regulation allows the FTC to disregard any device used for the purpose of avoiding the HSR filing obligation.  Indeed, the PNO staff pointed to 801.90 last September as it modified a bright-line rule regarding extraordinary dividends into a more “holistic review” to determine reportability. A similar change could have been made here, suggesting that the more important reason for the change simply is an FTC change in policy about the interpretation.

Such changes in informal interpretations happen often, but a few aspects of last week’s post hint at potential larger future changes.

Last week’s post states that the FTC is in the process of reviewing “the voluminous log of informal interpretations [by PNO staff] to determine the best path forward.”  Implicit in that statement and the rest of the post is that one “path forward” would be to eliminate the informal interpretations and rely only on the formal rules and interpretations approved by commissioners and created with assistance from the Department of Justice.  Any such move would be unfortunate.

While the informal rules do not have the force of law (as the post correctly notes), they do represent the best current thinking of the PNO staff, who reviews the thousands of filings and related questions each year. The formal rules regulating the HSR process are already very complicated and it seems foolhardy at best to think any set of humans, especially if they do not regularly deal with HSR intricacies, will be able to anticipate all potential HSR questions in devising new rules.

Continue reading →

Teaching-an-antitrust-course-300x133

Author:  Steven J. Cernak

In addition to being a full-time antitrust attorney at Bona Law PC, I have taught at least one antitrust course every year since 2009 at three different Michigan law schools. As I prepare for another semester, I had reason to return to an article I wrote six years ago. There, I captured my thoughts on the practical benefits to all future lawyers, not just members of the antitrust community, from taking a well-taught antitrust course. In that article — Antitrust Courses Can Teach Valuable Practical Skills – If Taught Well — I made the case for using hypothetical materials to teach both the law and practical counseling and advocacy skills that any new lawyer can use.

In the intervening six years, I have continued that practice in many seminar and survey courses, always using my Antitrust Simulations book and its hypothetical materials based on some of my past antitrust matters. I still think my original conclusions in the article are valid; however, other aspects of teaching antitrust law have changed, as I explain below.

Six years ago, one of my premises was that law schools, under pressure from employers and accreditation bodies to graduate students more “practice-ready,” would be incorporating experiential learning in many more of their classes. Based on comments from my admittedly small sample of students, that trend seems to have slowed. At least at schools where the majority of the faculty are not current or former practitioners, students have commented that my class is the most practical one they have taken. It appears that experiential learning is still being outsourced exclusively to legal practice classes and clinics. If so, that is too bad, for the reasons explained in my original article — after all, most graduates even from top schools will spend their careers counseling clients and meeting with regulators, not writing law review articles and clerking for justices.

One unfortunate trend among some students is what I call “the Google-ization of legal thinking.”  I refer to the idea that all legal matters can be easily solved by simple application of rules or black letter law or that a perfectly formed query will spit back “the” answer. Such an attitude is especially troublesome in antitrust where more than a century of shifting caselaw based on short statutes turns most questions outside of naked price fixing into grey areas requiring extended consideration.

I try to counter this tendency in two ways. First, I quote Prof. Daniel Crane and his reaction to students who complain he did not teach enough antitrust black letter law: “This is the marker of the student who has not ‘gotten it.’ There is relatively little black letter law in antitrust law.  (Some would say there is relatively little law in antitrust law.)”

Second, discussion of the hypothetical material allows the students to see that changing the facts slightly can lead to a different conclusion. For instance, all my classes end up discussing a hypothetical set of facts and whether it adds up to an “agreement” under the antitrust laws. After the students have reviewed the facts, I “poll the jury” and ask a few students which fact was the one that convinced them. I then ask if their opinion would change if that fact were absent or changed. The students then begin to understand that answers to some questions require gathering and evaluating various bits of evidence, not searching for the one right answer.

Another unfortunate trend among still a minority of students is the “Twitter-ization of legal thinking.” Here, some students will start from a strongly held premise that can be described in under 280 characters (“all government intervention is bad”; “I don’t like that unfair result so antitrust law should change it”) and then reason backwards so that all matters are consistent with that premise. This development seems to be correlated with, and perhaps caused by, the increased amount of questionable “anti-trust” coverage in the general media in the last six years.  Here, discussion of the hypothetical material and a polling of the class (in-person or virtually) can at least show that other students have different opinions and good reasons for them.

Continue reading →

 

Blockchain-Bitcoin-Cash-and-Antitrust-300x180

Author: Luis Blanquez

Following DOJ’s remarks on blockchain, it was only a matter of time until antitrust law and the unstoppable blockchain world would meet in court. And it finally happened some months ago in the complex Bitmain case.

In this case a cryptocurrency developer and mining company sued Bitcoin Cash miners, developers, and exchange operators for violating of Section 1 of the Sherman Act and Section 4 of the Clayton Act. It accused them of manipulating a network upgrade to take control of the Bitcoin Cash blockchain. The Court dismissed the Amended Complaint twice (the last one with prejudice), for failing to plausibly show a conspiracy to hijack the network and centralize the market, an unreasonable restriction of trade, and antitrust injury.

  1. Blockchain and cryptocurrencies

Blockchain is such a complicated technology that just the simple task of defining it would require a much longer article. But the Southern District Court of Florida did a great job explaining in very simple terms what these two concepts––blockchain and cryptocurrencies–– are:

Cryptocurrency is a form of digital currency that trades in currency markets. The Satoshi Nakamoto whitepaper, published in October 2008, launched the idea of this “peer-to-peer” version of electronic cash that allows online payments from one party to another, independent of any financial institution. The Whitepaper coined the term “Bitcoin”, and today Bitcoin and Bitcoin Cash are different forms of cryptocurrency.

Cryptocurrencies are a “permissionless” system that rely on a network of decentralized encrypted public ledgers that document all digital transactions, known as a “blockchain”. The blockchain is a series of blocks, which are units of accounting that record new transactions in cryptocurrency. Confidence and trust in the accuracy of the transactions in the blockchain is possible because the decentralized ledgers are identical and continuously updated and compared.

The system has mechanisms that allow for consensus on the validity of the blockchain. One is “Proof-of-Work”, which is designed to eliminate the insertion of fraudulent transactions in the blockchain. Also, the “main chain” (normally, the longest chain) at any given time, is whichever valid chain of blocks has the most cumulative “Proofs-of-Work” associated with it. A consensus being reached on the longest blockchain is essential to the integrity of the network.

New cryptocurrency is created through a process called “mining”. Miners compete to “mine” virtual currencies by using computing power that solves complex math puzzles. The computer servers that first solve the puzzles are rewarded with new cryptocurrency, and the solutions to those puzzles are used to encrypt and secure the currency. The awarded currency is then stored in a digital wallet associated with the computing device that solved the puzzle.

  1. The Bitmain case

In a nutshell, this case is about how certain mining pools, protocol developers and crypto-exchange defendants allegedly colluded to manipulate a network upgrade by creating a new hard fork, taking control of the Bitcoin Cash cryptocurrency. In the end, however, the court concluded that the plaintiff ––a protocol developer of blockchain transactions and mining cryptocurrencies––, failed to (i) show a plausible conspiracy, (ii) define any relevant product market to prove an unreasonable restriction of trade, and (iii) show any antitrust injury.

The Parties

As Konstantinos Stylianou effectively explains in his article What can the first blockchain antitrust case teach us about the crypto economy?, in the cryptocurrency world it is important to understand what the different players are and how they are connected in the market: investors, mining pools (groups of miners that combine their mining resources), crypto-exchanges, and protocol developers. We highly recommend his article.

The plaintiff, United American Corporation (UAC), is a developer of technologies for both the execution of blockchain transactions and mining cryptocurrencies. One of them is called BlockNum, a distributed and decentralized ledger technology that allows the execution of blockchain transactions between any two telephone numbers regardless of their location, eliminating the need for cryptocurrency wallets. The other one is called BlockchainDome, which provides a low-cost energy-efficient solution for mining cryptocurrency. UAC built four domes in total that operate over 5,000 Bitcoin Cash-based miners, investing more than $4 million in technology.

On the flip side, there are three different categories of defendants:

  • The mining pools: (i) Bitmain Technologies operate two of the largest Bitcoin Core and Bitcoin Cash mining pools in the world: Antpool and BTC.com. It is also the largest designer of Application Specific Integrated Circuits (“ASIC”), which are chips that power the Antminer series of mining servers––the dominant servers mining on a number of cryptocurrency networks, including Bitcoin and Bitcoin derivatives; (ii) Wu, CEO of Bitmain Technologies and one of its founders; and (iii) Ver, founder of Bitcoin.com, which provides Bitcoin and Bitcoin Cash services.
  • The crypto exchanges––Kraken and its CEO Jesse Powell––which operate exchanges on which Bitcoin, Bitcoin Cash and other cryptocurrencies are traded.
  • The protocol developers Shammah Chancellor, Amaury Sechet and Jason Cox who––similarly to UAC––, work on the development of the software to execute blockchain transactions and mining of cryptocurrencies.

The Alleged Antitrust Conspiracy

Summarized from the briefing:

Bitcoin Cash (or “BCH”) emerged as a cryptocurrency from the original Bitcoin Core (or “BTC”) on August 1, 2017, as a result of a “hard fork”. A hard fork is a change to the protocol of a blockchain network whereby nodes that mine the newest version of the blockchain follow a new set of rules, while nodes that mine the older version continue to follow the previous rules. Because the two rule-sets are incompatible, two different blockchains are formed, with the new version branching off.

The 2017 hard fork resulted from a dispute over Bitcoin’s utility: whether it should primarily be used to store value or conduct transactions.

(Note: BTC’s resistance to this significant attempt to fork it further strengthened it by demonstrating that it can overcome an attack of this type. If BTC were subject to significant forks that change its nature, it would not have the trust it has now as a store of value. This and other attacks on BTC actually strengthen it—Bitcoin is Antifragile in this way).

Continue reading →

Leniency-Applications-and-Limited-Liability-Under-ACPERA-300x225
Author: Jon Cieslak

I recently wrote about the DOJ Antitrust Division’s Leniency Program, and the benefits it can provide to a company engaged in criminal antitrust conduct. Those benefits can extend beyond a company’s immunity agreement with the DOJ to the civil litigation that frequently follows a DOJ investigation. The civil law benefits of a successful leniency application are provided by the Antitrust Criminal Penalty Enhancement and Reform Act, Pub. L. No. 108-237, § 213(a)-(b), 118 Stat. 665, 66-67 (2004), commonly referred to by its acronym, ACPERA.

Originally passed in 2004, and made permanent by Congress in 2020, ACPERA provides additional incentives for companies engaged in criminal antitrust conduct to participate in the Leniency Program. ACPERA does so by altering the damages that can be recovered from a successful leniency applicant in two ways:

FTC-HSR-Changes-300x193

Authors:  Steven J. Cernak and Luis Blanquez

On August 3, 2021, the Federal Trade Commission Bureau of Competition announced what might seem like a small technical change to the Hart-Scott-Rodino merger review process: Some proposed mergers would receive form letters at the end of the 30-day initial review period saying that an antitrust investigation remains open and that the FTC might challenge the transaction if the parties close it. The FTC blamed the recent surge in HSR filings for the change. While seemingly small, the new process is another step by the FTC that reduces a major benefit of the HSR process—likely closure.

As this website has discussed frequently, the US was the pioneer among global competition law regimes in requiring parties to most large mergers and similar transactions to obtain approval from the jurisdiction’s enforcer before closing. Under HSR’s latest thresholds, both the buyer and seller for most transactions with values exceeding $92M must submit a form and certain documents and then wait for 30 days before closing the transaction.

Until recently, the reviewing agency, either the FTC or DOJ, would use that time to take one of three steps. If the agencies saw no competitive issues with the transaction and the parties requested it, the agencies would issue an “early termination” of the 30-day waiting period, post that information on the FTC website, and allow the parties to close the transaction. Second, the agencies could forego all communication with the parties and simply allow the 30-day period to expire. This “no news is good news” result also allowed the parties to close the transaction.

Third, the reviewing agency could determine that the transaction might be anti-competitive and so issue a “second request” for information to make a better determination. The prohibition on closing would continue until the parties submitted the requested information, usually months later, and waited again. (The agency usually would have expressed some interest in the transaction before issuing a second request, giving the parties one final shot at heading off the burdensome second request, as we discussed here.)

While the agencies saw the number of HSR filings significantly decline at the beginning of the pandemic, the number has been up sharply the last twelve months, often a multiple of year ago levels. To smooth the process and accommodate staffs working from home, the agencies moved to electronic submissions. Once the kinks were worked out of the system, filing parties also benefited from the streamlined process. Other actions the FTC has taken since the pandemic’s onset, however, have slowed the process and reduced the benefits parties receive from HSR.

First, the agencies suspended the early termination program early in 2021 to conserve resources.  That temporary suspension continues with no end in sight. Unfortunately, because most parties request early termination and receive it, the change in policy means that hundreds of transactions that posed no competitive issues have been delayed ten days or more for an unclear benefit from a shift in agency resources.

Second, in late 2020, the FTC sued Facebook for illegal monopolization through, among other actions, its acquisitions of Instagram and WhatsApp years earlier. Those two transactions had gone through the HSR process and the FTC did not try to block them.  As we have discussed and as the FTC has explicitly stated in its HSR guidance, successfully navigating the HSR process does not preclude either agency from later challenging the transaction.  But in that same Introductory Guide, the FTC also recognized that “the fact that [the agencies rarely challenge reviewed mergers post-consummation] has led many members of the private bar to view [HSR] as a helpful tool in advising their clients.”  HSR will be much less “helpful” if post-HSR challenges become more common and legal uncertainty increases.

That uncertainty will increase further with the August 2021 announcement from the FTC. In a new blog post, FTC Bureau of Competition Director Holly Vedova notes, “for deals that we cannot fully investigate within the requisite timelines [under the Hart Scott Rodino Act], we have begun to send standard form letters alerting companies that the FTC’s investigation remains open and reminding companies that the agency may subsequently determine that the deal was unlawful. Companies that choose to proceed with transactions that have not been fully investigated are doing so at their own risk.”

Continue reading →

Executive-Order-on-Competition-Antitrust-300x201

Authors: Luis Blanquez and Steven Cernak

Strong winds of change keep blowing in the antitrust world. In the past weeks we’ve witnessed two new major developments in the U.S.: (i) President Biden’s Executive Order to increase antitrust enforcement, and (ii) six antitrust bills issued by the House Judiciary Committee. That’s a lot to summarize in one article, so we’ve decided to just unwrap them below for you to decide how deep you want to keep digging.

  1. President’s Biden Executive Order on Promoting Competition in the American Economy

This month President Biden issued the Executive Order on Promoting Competition in the American Economy (the “Order”). The Order aims to reduce the trend of corporate consolidation, drive down prices for consumers, increase wages for workers and facilitate innovation. It establishes a Whole-of-Government effort to promote competition in the American economy by including 72 initiatives to enforce existing antitrust laws and other laws that may impact competition to combat what it sees as excessive concentration of industry and abuses of market power, as well as to address challenges posed by new industries and technologies.

The Fact Sheet further explains how the Order (i) encourages the leading antitrust agencies to focus enforcement efforts on problems in key markets and (ii) coordinates other agencies’ ongoing response to corporate consolidation.

Calling the DOJ and FTC to enforce the antitrust laws vigorously

The Order calls on the federal antitrust agencies, the Department of Justice (DOJ) and Federal Trade Commission (FTC), to enforce the antitrust laws vigorously. The Order acknowledges the overlapping jurisdiction of both agencies and encourages them to cooperate fully, both with each other and with other departments and agencies, in the exercise of their oversight authority.

In particular, the Order encourages the Chair of the FTC to exercise the FTC’s statutory rulemaking authority in areas such as (i) unfair data collection and surveillance practices that may damage competition, consumer autonomy, and consumer privacy, (ii) unfair anticompetitive restrictions on third-party repair or self-repair of items, such as the restrictions imposed by powerful manufacturers that prevent farmers from repairing their own equipment; (iii) unfair anticompetitive conduct or agreements in the prescription drug industries, such as agreements to delay the market entry of generic drugs or biosimilar; (iv) unfair competition in major Internet marketplaces; (v) unfair occupational licensing restrictions; (vi) unfair tying practices or exclusionary practices in the brokerage or listing of real estate; and (vii) any other unfair industry-specific practices that substantially inhibit competition.

Also, the Order specifically addresses merger review by (i) encouraging antitrust agencies to revisit and update the Merger Guidelines (both horizonal and vertical) and (ii) challenge bad mergers previously cleared by past Administrations. Immediately after the publication of the Order, FTC and DOJ also issued a joint statement highlighting the fact that the current guidelines deserve a hard look to determine whether they are overly permissive, and how they will jointly launch a review of the merger guidelines with the goal of updating them to reflect a rigorous analytical approach consistent with applicable law.

In parallel, FTC has also passed this month some new resolutions updating its rulemaking procedures to set stage for stronger deterrence of corporate misconduct, and authorizing investigations into key law enforcement priorities for the next decade. As FTC’s chair Lina M. Khan stressed in a recent statement, priority targets include repeat offenders; technology companies and digital platforms; and healthcare businesses such as pharmaceutical companies, pharmacy benefits managers, and hospitals. Last but not least, FTC recently voted to rescind a 1995 policy statement that made it more difficult and burdensome to deter problematic mergers and acquisitions. The 1995 Policy Statement on Prior Approval and Prior Notice Provisions made it less likely that the Commission would require parties that proposed mergers that the Commission had determined would be anticompetitive to obtain prior approval and give prior notice for future transactions. By rescinding this policy statement, the FTC will be more likely to obtain prior notice of future transactions by those parties even beyond HSR notice requirements.

Grab your popcorn. Following President Joe Biden’s recent nomination of Jonathan Kanter as the new AAG for U.S. Department of Justice Antitrust Division, it is likely we will see some important antitrust enforcement action from both agencies very soon aimed at corporate concentration, especially the big tech sector.

New White House Competition Council

The Order establishes a new White House Competition Council, led by the Director of the National Economic Council, to monitor progress on finalizing the initiatives in the Order and to coordinate the federal government’s response to what it sees as the rising power of large corporations in the economy.

The Council will meet on a semi-annual basis––unless the Chair determines that a meeting is unnecessary––and will work across agencies to provide a coordinated response to overconcentration, monopolization, and unfair competition. The FTC and other independent agencies are welcome and expected to participate in this process.

Granted patents and the protection of standard setting processes

To avoid the potential for anticompetitive extension of market power beyond the scope of granted patents, and to protect standard-setting processes from abuse, the Order encourages the Attorney General and the Secretary of Commerce to consider whether to revise their position on the intersection of the intellectual property and antitrust laws, including by considering whether to revise the Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments issued jointly by the Department of Justice, the United States Patent and Trademark Office, and the National Institute of Standards and Technology on December 19, 2019.

Specific Industry Sectors addressed in the Order

Labor Markets

The Order encourages the FTC to: (i) ban or limit non-compete agreements, (ii) ban unnecessary occupational licensing restrictions that impede economic mobility, and (iii) along with DOJ, strengthen antitrust guidance to prevent employers from collaborating to suppress wages or reduce benefits by sharing wage and benefit information with one another.

The Order directs the Treasury Department to submit a report on the impact of what it sees as the current lack of competition on labor markets within 180 days and encourages the FTC and DOJ to revise the Antitrust Guidance for HR Professionals.

Healthcare

The Order (i) directs the Food and Drug Administration (FDA) to work with states and tribes to safely import prescription drugs from Canada, pursuant to the Medicare Modernization Act of 2003; (ii) directs the Health and Human Services Administration (HHS) to increase support for generic and biosimilar drugs, which can provide low-cost options for patients; (iii) directs HHS to issue a comprehensive plan within 45 days to combat high prescription drug prices and price gouging, (iv) encourages the FTC to ban “pay for delay” and similar agreements by rule; (v) encourages HHS to consider issuing proposed rules within 120 days for allowing hearing aids to be sold over the counter, (vi) underscores that hospital mergers can be harmful to patients and encourages the DOJ and FTC to review and revise their merger guidelines to ensure patients are not harmed by such mergers; (vii) and directs HHS to support existing hospital price transparency rules and to finish implementing bipartisan federal legislation to address surprise hospital billing.

Transportation

The Order directs the Department of Transportation (DOT) to consider (i) issuing clear rules requiring the refund of fees when baggage is delayed or when service isn’t actually provided—like when the plane’s WiFi or in-flight entertainment system is broken and (ii) issuing rules that require baggage, change, and cancellation fees to be clearly disclosed to the customer.

The Order further encourages (i) the Surface Transportation Board to require railroad track owners to provide rights of way to passenger rail and to strengthen their obligations to treat other freight companies fairly, and (ii) the Federal Maritime Commission to ensure vigorous enforcement against shippers charging American exporters exorbitant charges.

Agriculture

The Order expresses a concern on market concentration and helps ensure that the intellectual property system, while incentivizing innovation, does not also unnecessarily reduce competition in seed and other input markets beyond that reasonably contemplated by other laws.

In particular the Order directs the U.S. Department of Education (USDA) to consider issuing (i) new rules under the Packers and Stockyards Act making it easier for farmers to bring and win claims, stopping chicken processors from exploiting and underpaying chicken farmers, and adopting anti-retaliation protections for farmers who speak out about bad practices; (ii) new rules defining when meat can bear “Product of USA” labels, so that consumers have accurate, transparent labels that enable them to choose products made here; and (iii) a plan to increase opportunities for farmers to access markets and receive a fair return, including supporting alternative food distribution systems like farmers’ markets and developing standards and labels so that consumers can choose to buy products that treat farmers fairly.

Continue reading →

exclusive-deailng-300x200

Author: Jarod Bona

Sometimes parties will enter a contract whereby one agrees to buy (or supply) all of its needs (or product) to the other. For example, a supplier and retailer might agree that only the supplier’s product will be sold in the retailer’s stores. This usually isn’t free as the supplier will offer something—better services, better prices, etc.—to obtain the exclusivity.

If you compete with the party that receives the benefit of the exclusive deal, this sort of contract can seem quite aggravating. After all, you have a great product, you offer a competitive price, and you know that your service is better. Then why is the retailer only buying from your competitor? Shouldn’t you deserve at least a chance? Isn’t that what the antitrust and competition laws are for?

Maybe. But most exclusive-dealing agreements are both pro-competitive and legal under the antitrust laws. That doesn’t mean that you can’t ever bring an antitrust action and it doesn’t mean you won’t win. But, percentage-wise, most exclusive-dealing arrangements don’t implicate the antitrust laws and are uncontroversial.

You can read our article about exclusive dealing at the Bona Law website here.

It is important that I deflate your expectations a little bit at the beginning like this because if you are on the outside looking in at an exclusive-dealing agreement, you are probably angry and you may feel helpless. From your perspective, it will certainly seem like an antitrust violation. And your gut feeling about certain conduct is a good first filter about whether you have an antitrust claim. What I am trying to tell you is that with regard to exclusive dealing, your gut may offer some false positives.

Of course, the market is full of exclusive or partial-exclusive dealing agreements and there are relatively few of these that turn into federal antitrust litigation. So if you see an exclusive-dealing claim in federal litigation, it may be one of the rare instances of an exclusive-dealing antitrust violation. We receive a lot of calls about exclusive-dealing agreements that are antitrust violations or close to antitrust violations. And we counsel clients on their own exclusive-dealing agreements. But people don’t call us for most varieties of exclusive dealing, which is perfectly legal under the antitrust laws.

So what is an exclusive dealing agreement?

An exclusive dealing agreement occurs when a seller agrees to sell all or most of its output of a product or service exclusively to a particular buyer. It can also occur in the reverse situation: when a buyer agrees to purchase all or most of its requirements from a particular seller. Importantly, although the term used in the doctrine is “exclusive” dealing, the agreement need not be literally exclusive. Courts will often apply exclusive dealing to partial or de facto exclusive dealing agreements, where the contract involves a substantial portion of the other party’s output or requirements.

Continue reading →

Contact Information