Articles Posted in Department of Justice

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DOJ-Antitrust-Merger-Challenges-300x300

Authors:  Steven Cernak and Luis Blanquez

As we have reported numerous times (most recently here), the Federal Trade Commission has been making headlines with some controversial changes to U.S. merger review procedures, disputes over its voting rules, and personnel changes. But while the FTC was making headlines, the other federal antitrust enforcer, the Department of Justice Antitrust Division, was launching the three antitrust enforcement actions we summarize below.  Now that Jonathan Kanter has been confirmed as the Assistant Attorney General in charge of the Division, we expect the pace of actions to only pick up.

American/JetBlue

In July 2020, American Airlines and JetBlue Airways announced the formation of the “Northeast Alliance.” The Alliance is a series of agreements between the two competitors relating to their respective operations at Boston’s and New York City’s four major airports. The agreements commit the two airlines to pool revenues and coordinate on “all aspects” of network planning except pricing at the four airports. The companies sought and, after making a few minor tweaks, received approval from the Trump Administration Department of Transportation in January 2021.  Shortly thereafter, the Alliance began operation.

In September 2021, the Biden Administration, joined by several states, sued the two companies alleging that the Alliance was a civil violation of Sherman Act Section 1 under the rule of reason.  The complaint describes the Alliance as effectively a merger of the two companies’ operations in Boston and New York that will reduce choice for consumers. Because the Alliance is effectively a partial merger, the complaint uses Clayton Act Section 7 analysis, including HHI calculations for various city-pairs that will be affected by the Alliance, to predict the negative effects on consumers.

In November 2021, the parties moved to dismiss the case. Their main argument is that in a Section 1 case, the complaint must allege anticompetitive effects that have already occurred. Predictions of potential anticompetitive effects, while sufficient for a Section 7 merger challenge, are insufficient here. The complaint does not allege any negative competitive effects, such as reduced flights, since the Alliance’s inception. In fact, as the motion and the companies’ monthly press releases since the lawsuit make clear, the capacity of the two airlines in the four airports has only increased. As of this writing, the Division and their state partners have not yet responded to the motion.

Penguin Random House/Simon & Schuster

In November 2021, the Department of Justice Antitrust Division filed a civil antitrust lawsuit to block Penguin Random House’s proposed acquisition of its close competitor, Simon & Schuster.  As alleged in the complaint, this acquisition would enable Penguin Random House, which is already the largest book publisher in the world, to exert outsized influence over which books are published in the United States and how much authors are paid for their work.

As described in the complaint, the publishing industry is already highly concentrated. Publishers compete to acquire manuscripts, which they edit, package, market, distribute and sell as books.  Publishers pay authors advances for the rights to publish their books. In most cases, the advance represents an author’s total compensation for their work. Just five publishers, known as the “Big Five,” are regularly able to offer high advances and extensive marketing and editorial support, making them the best option for authors who want to publish a top-selling book.

While smaller publishers occasionally win the publishing rights to anticipated top-selling books, they lack the financial resources to regularly pay the high advances required and absorb the financial losses if a book does not meet sales expectations. The complaint alleges that Penguin Random House, the world’s largest publisher, and Simon & Schuster, the fourth largest in the United States, compete head-to-head to acquire manuscripts by offering higher advances, better services and more favorable contract terms to authors.

This is a good example of how the Antitrust Division analyzes the existence of monopsony power and the way it sometimes harms competition in input markets.  In this case, the proposed merger would result in lower advances for authors and ultimately fewer books and less variety for consumers. It would also put Penguin Random House in control of close to half the market for acquiring publishing rights to anticipated top-selling books, leaving hundreds of individual authors with fewer options and less leverage.

U.S. Sugar/Imperial Sugar

During the same month of November, the new chief of the Antitrust Division––Jonathan Kanter–– filed his first merger challenge to stop United States Sugar Corporation from acquiring its rival, Imperial Sugar Company. The complaint alleges that the transaction would leave an overwhelming majority of refined sugar sales across the Southeast in the hands of only two producers.  As a result, American businesses and consumers would pay more for refined sugar, a significant input for many foods and beverages.

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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:

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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.

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HSR-Second-Requests-Antitrust-300x200

Author:  Steven J. Cernak

Submitting the form and documents required under the Hart-Scott-Rodino premerger notification system can be complicated. If only the initial submission must be made, however, the pain and expense can be short-lived. If, on the other hand, the parties receive a “second request” for information at the end of the thirty-day waiting period, the parties and their executives are in for months of discovery, questioning, and plenty of quality time with antitrust lawyers instead of  their customers. To give themselves a chance to avoid that fate, parties should consider taking a few basic steps before and immediately after the initial HSR filing.

HSR Basics

As we discussed in prior posts, HSR requires the parties to certain large mergers and similar transactions to submit a form and certain documents to the two U.S. antitrust agencies prior to closing the transaction.  If the antitrust agencies fear the transaction will cause antitrust problems, they can sue to stop it; if not, they allow the transaction to move forward. After the parties complete their submission, the agencies have thirty days to decide if they need more information to make that determination.

HSR was the first premerger notification scheme when it was passed in 1976. Since then, dozens of other jurisdictions have passed similar, but far from identical, schemes. HSR remains simpler (not simple) in two key-ways. First, the HSR form does not require any market, share, or similar information that would go into an antitrust analysis; instead, the parties must merely describe themselves and the transaction. Second, the HSR process does not require any pre-filing consultation with the agency to ensure the submission is complete; instead, the parties can just upload the submission and wait to be told if anything is missing.

That is not to say that submitting the HSR form and documents is simple. Like most tax forms, the form itself is only a few pages long but the instructions, definitions, rules, and interpretations necessary to correctly fill in the blanks run to hundreds of pages. And some of the information required can be obscure—for instance, many companies do not have ready their U.S. revenues classified by North American Industry Classification System codes. (Those of us who have been filing for decades appreciate that the FTC has simplified the form. For example, it no longer requires a base year of revenues or a list of added and deleted products since that base year.)

HSR Second Requests

Most parties submit the filing, let out a sigh of relief, and try not to think of HSR again. Usually that course of action is correct.  After all, the vast majority of all HSR filings are cleared in the first thirty days. If the reviewing antitrust agency believes it needs more information to decide the transaction’s likely effects, however, it will issue a “second request” for information.

A second request is a long list of document requests and interrogatories that can take months to fulfill. In the meantime, the parties and their lawyers, executives, and expert economists will debate the meaning of all that information. At the end of the process (often about a year later), the agency will decide if it should sue to stop the transaction from closing. If the agency challenges the transaction, the parties must then decide to either abandon the transaction or spend several more months, at least, defending it in court.

An HSR Second Request—Will You Get One?

Therefore, parties to an HSR filing need to predict if their filing will be one of the minority that receive a second request. If so, they must then decide which steps, if any, to take to try to head it off.

There is no set of questions to ask that will unfailingly predict the receipt of a second request; however, a positive response to several of the following questions makes it much more likely that the reviewing agency will want more information than is contained in the initial HSR submission:

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DOJ-Antitrust-Leniency-Program-300x282

Author: Jon Cieslak

In 1993, the U.S. Department of Justice Antitrust Division created its Leniency Program by issuing its Corporate Leniency Policy. The Leniency Program provides means for a company to avoid criminal prosecution for violating federal antitrust laws—such as price fixing, bid rigging, and market allocation—by self-reporting the illegal activity to the Antitrust Division.

Since then, the Leniency Program has been a major impetus for criminal antitrust cases in the United States. In fact, because the Antitrust Division’s criminal prosecutions are almost always followed by civil litigation filed by private plaintiffs, it is widely understood (though not always confirmed) that some of the largest antitrust cases of the past thirty years started with leniency applications, including In re TFT-LCD (“Flat Panel”) Antitrust Litigation and In re Sulfuric Acid Antitrust Litigation.

Although some have lately questioned the Leniency Program’s effectiveness, the Leniency Program is widely considered a success and a key part of the Antitrust Division’s enforcement toolbox. Accordingly, any time a company discovers that it may have engaged in conduct violating the antitrust laws, it should consider participation in the Leniency Program.

How does a company qualify for the Leniency Program?

The Leniency Program provides two ways in which a company can obtain leniency, commonly referred to as “Type A” leniency and “Type B” leniency. The key difference between the two is that Type A leniency is only available before the Antitrust Division opens an investigation of the illegal activity, whereas Type B leniency can be obtained even after an investigation is opened. Flowing from this key difference, the requirements to obtain each type of leniency vary slightly.

To obtain Type A leniency, a company must:

  1. Report the illegal activity before the Antitrust Division receives information about the illegal activity;
  2. Take “prompt and effective” steps to end its involvement in the illegal activity as soon as it was discovered;
  3. Report the illegal activity “with candor and completeness” and cooperate with the Antitrust Division’s investigation;
  4. Confess to its wrongdoing on behalf of the company, “as opposed to isolated confessions of individual executives or officials;”
  5. Provide restitution to injured parties if possible; and
  6. Not be a ringleader or originator of the illegal activity.

Type B leniency shares some of these requirements, but has several of its own. To obtain Type B leniency, the following conditions must be met:

  1. The company is the first “to come forward and qualify for leniency;”
  2. The Antitrust Division does not already have evidence against the company “that is likely to result in a sustainable conviction;”
  3. As with Type A, the company ended its involvement in the illegal activity;
  4. As with Type A, the company cooperates with the investigation;
  5. As with Type A, the company confesses its wrongdoing;
  6. As with Type A, the company provides restitution; and
  7. The Antitrust Division determines that leniency “would not be unfair to others” under the circumstances.

What are the benefits of the Leniency Program?

While the Leniency Program’s requirements are considerable—it is no small thing to self-report and admit to an antitrust crime—the program offers substantial benefits to those that qualify. First and foremost, a successful leniency application means that the Antitrust Division will not bring criminal charges against the company for the reported activity. Although there are other ways to avoid charges, such as a deferred prosecution agreement, the Leniency Program provides the surest path to immunity.

In addition, if a company qualifies for Type A leniency, all company directors, officers, and employees who admit their involvement and cooperate with the Antitrust Division’s investigation will likewise receive leniency. Under Type B leniency, the Antitrust Division will evaluate leniency for directors, officers, and employees on an individual basis, but still commonly grants leniency.

Finally, a successful leniency application provides benefits in any related civil litigation pursuant to the Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA). An upcoming article will discuss those benefits in detail.

How does a company participate in the Leniency Program?

A company’s participation in the Leniency Program can vary depending on the facts and circumstances of the illegal activity and, in particular, how the Antitrust Division chooses to investigate it. But there are a few common steps you should plan on at the outset.

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FTC-DOJ-Antitrust-Guidance-300x200

Authors: Jim Lerner and Luis Blanquez

Both of the U.S. government agencies responsible for antitrust enforcement (the Department of Justice– “DOJ” and Federal Trade Commission – “FTC”) have review mechanisms available for companies seeking guidance on whether they are likely to take antitrust enforcement action against a proposed agreement or course of conduct: the DOJ has a Business Review process and the FTC has an Advisory Opinion process.

From a practical perspective (and putting aside mandatory Hart-Scott-Rodino merger filings), it is uncommon in the U.S. for parties to submit their agreements to the competition authorities for review before entering the agreement or undertaking the proposed conduct. Except in particular circumstances—such as with complex antitrust and intellectual property issues—most parties decide that the potential antitrust-enforcer guidance is not worth the time and effort involved in seeking such review.

But there are instances in which it does make sense to seek antitrust agency review, so we describe the processes here.

With respect to the DOJ Business Review process, while there has been expedited treatment for collaborations directly related to COVID, the “traditional” Business Review process tends to be lengthy (it can regularly take up to 6 months or more to get through the entire process) and complicated. Applicants for a Business Review letter must make a complete disclosure of all the necessary information about the agreement or collaboration for which a review is requested. This requires background information about the parties and industry, copies of any/all operative documents, detailed statements of any/all collateral oral understandings, and any additional information the Division requests. Depending on how the Division responds, it doesn’t necessarily result in any guarantees about what the Division will or will not do if the described conduct/collaboration goes forward. One other big downside is that the process is truly prospective––that is, it requires that the parties not start their proposed activities until after the Division responds.

The use of FTC Advisory Opinion process is similarly infrequent, also due to narrow set of conditions under which the Commission or the Commission Staff will actually consider such a request. At the linked document set out, the Commission will only consider an Advisory Opinion when (1) the matter involves a substantial or novel question of fact or law and there is no clear Commission or court precedent, or (2) the subject matter of the request and consequent publication of Commission advice is of significant public interest. The request for an advisory opinion must concern a course of action that the requesting party proposes to pursue. That is, the requesting party must intend to engage in the proposed conduct; hypothetical questions or questions about conduct that is already ongoing will not be answered. Furthermore, a proposed course of action must be sufficiently developed for the Commission or its staff to conclude that it is an actual proposal rather than a mere possibility, and to evaluate the proposal based on the description and supporting information provided with the request. At the same time, however, the parties cannot have started their requested conduct. As you can tell, the scope of this tool is very limited.

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Pandemic-Antitrust-Changes-300x212

Author:  Steven J. Cernak

With the number of vaccinations rising and mask mandates going away, it appears that life might be heading back towards something like the “old normal.” But during the pandemic, businesses and consumers formed new habits. How many of those new actions will continue post-pandemic and how will those changed processes affect antitrust practice? With all the caveats about predicting the future, here is one set of opinions.

Joint Ventures

At the beginning of the pandemic, many law firms chose to remind their readers that antitrust laws still applied and, for instance, price-fixing was still per se illegal. We chose to remind our readers that pro-competitive joint ventures of various sorts have always been fine under the antitrust laws and might prove useful to businesses struggling to survive a pandemic and lockdowns. The DOJ and FTC also reminded everyone that antitrust laws still applied but, to their credit, also pointed to permissible joint ventures. They also streamlined their review processes for parties wanting an advisory opinion on joint efforts related to the pandemic.

Obviously, it is too early to tell if there has been any change in the number of price-fixing and similar conspiracies consummated during the pandemic; however, it does appear that many businesses did use joint ventures to improve efficiency. As of this writing, at least six joint efforts took advantage of DOJ’s streamlined Business Review Letter processes to obtain greater antitrust certainty about their joint efforts. Also, over 160 notices under the National Cooperative Research and Production Act were filed with DOJ and the FTC in the past twelve months. While many of those notices were merely updates from a much smaller number of joint ventures to disclose changes in membership of the consortium, they do provide some evidence that many companies remembered the pro-competitive business benefits of some collaborations of competitors. As businesses look for ways to improve efficiencies in uncertain times, look for these collaborations to continue.

Pricing

Pricing at all levels of distribution sends key signals to consumers, distributors, and manufacturers and so is often an important antitrust topic. As we explained early in the pandemic, however, price gouging is not a violation of the federal antitrust laws. State price gouging laws and contractual provisions were used early in the pandemic to protect consumers from high prices and manufacturers from blame for high prices by authorized and other distributors. Fears of price gouging seemed to fade early in the pandemic and, other than isolated incidents caused by temporary shortages, seem unlikely to return; instead, the pricing issue currently top of mind is general price inflation, a topic not covered by antitrust laws.

Supply Chain Issues—From Just in Time to Just in Case?

At the beginning of the pandemic, it was shortages of toilet paper and other paper products.  Here near the end, it is a shortage of computer chips for motor vehicles (and other products), chicken, and other products. Both the products and the causes of the shortages seem to have changed during the pandemic. The toilet paper shortage was caused by a sudden and extreme temporary increase in demand; the more recent ones are caused by various supply chain and labor issues resulting in multiple and long-term dislocations.

At bottom, many of these dislocations stem from companies trying to implement their interpretations of the Toyota Production System, particularly a just-in-time supply chain. Such supply chain management reduces costs and inefficiencies by eliminating buffer stocks and working closely with a smaller network of suppliers. In normal times, such systems reduce costs; however, they can be fragile and unable to quickly adjust to exogenous supply shocks, like natural disasters or unexpected bankruptcies. All such systems are based on assumptions that such shocks will not take place or that sufficient additional supply can be quickly found and substituted. When those assumptions turn out to be wrong, businesses can suffer.

Will living through these trying times cause businesses to think more about “just-in-case” supply?  Will manufacturers be more likely to object on antitrust grounds to supplier consolidation that leaves one fewer potential, even if not current, supplier?  Will “5-to-4” mergers now be problematic? Will the FTC object to a hospital merger that could reduce supply unlikely to be used except in a pandemic? If businesses, economists, and enforcers modify their thinking on “efficiencies”, merger review results could be different at least on the margins.

Fewer Smoke-Filled Rooms But Not Necessarily Less Price Fixing

Business travel seems to be coming back, though apparently more slowly than personal travel.  As companies and their employees have become more comfortable interacting virtually, it seems unlikely that travel to trade association and other meetings of competitors will soon, if ever, get back to prior levels. If so, there would be fewer opportunities for competitors to physically meet in typical “smoke-filled rooms” or hotel bars or other places where anti-competitive agreements have been hatched in the past. But that does not mean fewer opportunities to collude—it just means the conspirators will use Zoom, WhatsApp or many other communication and messaging methods. Fortunately, DOJ has understood these trends for years, as detailed in the links here.  For counselors and antitrust compliance specialists, we might need to update our training examples.

Zoom—The Next Google? 

Remember when you first discovered Google? Not only how well the search engine worked but how clean the site was, except when it included cute drawings and links like the Santa Tracker on Christmas Eve? Might be hard to remember now but the company whose motto was “Don’t be evil” seemed to be universally popular. Now? Well, it still remains at least respected and used by a lot of people, but it has also gathered enemies across the political spectrum and around the globe, often for alleged antitrust violations.

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Author:  Steven J. Cernak

Hart-Scott-Rodino or HSR, the U.S. premerger notification program, has undergone several major changes since the beginning of the pandemic. Some FTC Commissioners have suggested even more changes. HSR filers, both frequent and infrequent, need to understand these current developments.

As this blog has discussed frequently (see here, here, and here), 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 buyers and sellers for most transactions whose value exceeds $92M must submit a form and certain documents relating to the parties and the transaction and then wait for 30 days. The FTC and DOJ use that time to decide whether to ask for more information or allow the transaction to close. While those basics have not changed, some of the details are new.

Until the pandemic hit, the HSR system essentially had no way for parties to electronically submit forms and documents; instead, parties or their lawyers printed out paper copies and shipped them in by local couriers or overnight delivery services. Once the pandemic hit and government staffers started working from home, the FTC Premerger Notification Office, which oversees HSR submissions, had to develop a new system.

The resulting system requires parties to email the PNO and request a link that can then be used to upload the form and required documentary attachments. As with any system in which many large documents must be transferred, the time to upload the materials can vary by the size of the documents and the strength of the filer’s connection. While parties save the time and expense of delivery services, they should not count on instant uploads. Also, the PNO updated its instructions on the system several times in 2020 so that even filers who successfully submitted materials several months ago should look for revisions as recently as December. For instance, the materials must be submitted in pdf format with searchable text. As a result of these changes, frequent filers have had to adjust processes used for years to comply with the new procedures.

Parties have figured out those new processes, as evidenced by the huge number of filings over the last several months. While the number of HSR filings was down considerable early in the pandemic, that number increased until November 2020 had more than twice the number of filings of the same month in the previous year. February and March of 2021 also had increases of more than 100% year-over-year, disproving the guess by some observers, this author included, that the November figure was a blip caused by the end of the year and presidential administration.

The agencies continue to process all the filings, though not quite with the usual speed. To help the situation, the FTC suspended the early termination program by which the agencies affirmatively clear the most routine transactions in less than 30 days and allowed them to close.  Now, all parties, even those to transactions that raise no antitrust issues, need to plan to wait the entire 30 days before closing.

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Authors: Luis Blanquez and Jon Cieslak

Deferred prosecution agreements (“DPAs”) in the antitrust world have been a hot topic on this side of the Atlantic during the past two years. DPAs seem to be slowly becoming an efficient instrument for the Department of Justice to tackle antitrust conspiracies, and we expect this trend to continue.

What is a DPA?

A DPA is a legal agreement between a prosecutor and a defendant where the former eventually drops any charges against the latter, if the terms of such agreement are met. In other words, a DPA is a contract to resolve a criminal enforcement action without the prosecution of charges.

If the defendant––either a company or an individual––complies with all the terms of the DPA during a period of time (usually two to three years), despite being initially charged, the prosecutor will dismiss the charges and the defendant will avoid a conviction. DPA terms commonly require a defendant to pay a fine, implement certain remedial measures to alleviate the wrongdoing, or take steps to ensure future compliance.

While DPAs are almost universally considered a positive outcome for the defendant, they do carry some risk. By agreeing to a DPA, a defendant admits to wrongdoing and waives any right to challenge a set of agreed facts that are sufficient to sustain a conviction. Accordingly, if a defendant fails to comply with the terms of a DPA, it will face prosecution and almost certain conviction.

The Role of DPAs in the DOJ Criminal and Antitrust Recent Guidelines

Until recently, if an antitrust defendant did not win the race for leniency, the DOJ Antitrust Division’s approach was to insist that the company plead guilty to a criminal charge with the opportunity to be an early-in cooperator, and potentially receive a substantial penalty reduction for timely, significant, and useful cooperation. This all-or-nothing philosophy highlighted the value of winning the race for leniency.

But all that changed in July 2019, when the Antitrust Division announced a new policy to incentivize antitrust compliance. These new guidelines were presented by AAG Makan Delrahim on July 11, 2019, at the Program on Corporate Compliance and Enforcement at the New York University School of Law: Wind of Change: A New Model for Incentivizing Antitrust Compliance Programs.

Delrahim explained that, unlike in the past, corporate antitrust compliance programs will now factor into prosecutors’ charging and sentencing decisions, allowing companies to qualify for DPAs or otherwise mitigate exposure, even when they are not the first to self-report criminal conduct.

In particular, Delrahim highlighted three important points.

  • First, that the adequacy and effectiveness of a compliance program is but one of the ten factors the Justice Manual directs prosecutors to consider when weighing charges against a corporation. Among the “Factors to Be Considered”, four in particular stand out as hallmarks of good corporate citizenship: (1) implement robust and effective compliance programs, and when wrongdoing occurs, they (2) promptly self-report, (3) cooperate in the Division’s investigation, and (4) take remedial action.
  • Second, that the DOJ’s new approach would allow prosecutors to proceed by way of a DPA when “the relevant Factors, including the adequacy and effectiveness of the corporation’s compliance program, weigh in favor of doing so.” DPAs, as the Justice Manual recognizes, “occupy an important middle ground between declining prosecution and obtaining the conviction of a corporation.”
  • Third, that the mere existence of a compliance program does not necessarily guarantee a DPA. Instead, “Department prosecutors are directed to conduct a fact-specific inquiry into “whether the program [at issue] is adequately designed for maximum effectiveness in preventing and detecting wrongdoing by employees. In making a charging recommendation, Antitrust Division prosecutors will evaluate the compliance program’s effectiveness or lack thereof, and holistically, consider it together with all the other relevant Factors.”

This marked a substantial policy shift for the Antitrust Division, which previously never considered DPAs as an option to resolve antitrust conspiracy cases. Under the DOJ’s existing leniency program, the antitrust Division was allowing full immunity exclusively to leniency applicants.

That’s not the case anymore––but make no mistake––only so long as the offending party has, as explained above, a truly robust and effective compliance program in place. And for that purpose, the recent Revised Guidance from the Criminal Division issued in June 2020 on the Evaluation of Corporate Compliance Programs is the last piece of this puzzle. The new Guidance provides additional information to assist prosecutors––both in antitrust and other investigations––in making informed decisions as to whether, and to what extent, a corporation’s compliance program was effective at the time of the offense. You can read more about it on our previous post:

The Department of Justice Policy and Guidance on Antitrust Compliance Programs and Antitrust Criminal Violations

A Detailed Look at the First Eight DPAs Under the New Policy Incentivizing Compliance

As a result of the new DOJ’s guidance on antitrust compliance programs and criminal investigations, we are starting to see an increased use of DPAs by the Antitrust Division. Let’s have a close look at the ones made public so far.

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Author: Jon Cieslak

Over a year after it was first passed by the Senate, the Criminal Antitrust Anti-Retaliation Act finally became law in December 2020. The new law protects employees who report criminal antitrust violations such as price fixing or bid rigging from retaliation.

The Act states that an employer may not “discharge, demote, suspend, threaten, harass, or in any other manner discriminate against” an employee, agent, contractor, or subcontractor who reports suspected criminal antitrust violations to an appropriate authority, which includes the federal government, the employee’s supervisor, or an individual working for the employer with appropriate investigative powers (such as corporate counsel or an antitrust monitor). The Act also protects employees who participate in or assist a federal investigation of suspected antitrust violations, whether or not they acted as a whistleblower in the first instance.

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