Articles Posted in FTC

How to Deal with U.S. Government Enforcers in Antitrust Investigations

August 24, 2023 | Bona Law PC

Authors: Jon Cieslak & Molly Donovan

Having recently defended an investigation brought by the U.S. Department of Justice Antitrust Division—which was closed without prosecution of our client—we had the opportunity to reflect on ways that lawyers can navigate the high-stakes interactions with government enforcers who are investigating antitrust or other white-collar violations. Those interactions involve a number of fine lines that require real-time judgment calls specific to each situation. That said, we think these “rules of thumb” are generally applicable and will help lawyers and their clients navigate the process as smoothly and favorably as possible.

(Although this article is not focused on subpoena compliance, you can listen to our podcast on subpoena compliance here.)

Always be truthful. This should go without saying, but your credibility is everything. Once an enforcer suspects that a client or the lawyers have not been forthcoming, problems get worse. If you realize you’ve provided incorrect information to the government inadvertently, correct it at the first opportunity.
Be transparent about process. In many cases, particularly if you want to limit the scope of a subpoena through negotiations with the enforcer, it is helpful to share information about your investigative process. Disclosing how you’ve searched for documents, what you have (and have not) produced, and what employees you have talked to can help you build credibility and persuade the enforcer not to require additional information. Plus, enforcers don’t like being surprised down the road about what has/has not been provided.
Focus on the facts. Ultimately, the enforcer will decide whether or not to pursue charges based on the facts of the case. It’s important to make sure that you provide the enforcer with all the facts that help your client, particularly those that provide defensible context for otherwise incriminating facts, even if the subpoena does not specifically ask for them.
While you should provide information promptly, you do not need to please. Even if your client takes a defensive posture, and is not formally cooperating, it is often prudent to provide government enforcers with information they’re requesting—probably in writing or in the form of an attorney proffer. It is also wise to cooperate in a timely fashion and to be responsive. But there are limits: you’re not required to satisfy every request and you can negotiate timelines. You should also exercise caution, in particular, when the government asks to speak or meet with your client directly. (See the next pro tip).
Don’t lose what control you have. Being interviewed by the government is very stressful—even for a client who feels they’ve done nothing wrong or has nothing to hide. People sometimes say things they don’t mean because they’re trying to please the interviewer. People like to try to help or protect colleagues and being asked questions about what friends and associates have/have not done can put clients in very uncomfortable situations. Sometimes the lawyer thinks she understands all the details, but a client says something new and unexpected during an interview. It may not be “bad,” but surprises are almost always harrowing. What does all this mean? If you’re not required to put your client in the hot seat, don’t. Consider alternative ways to get the government the information being requested—like an attorney proffer.
If there is an interview, remember these 5 things:

1. Always be truthful (see pro tip #1).
2. Tell your client it is okay to stop the interview to speak privately as necessary. In any event, take regular breaks to check in with your client and discuss any surprises.
3. This is not a deposition, so the best advice to clients is usually to provide all responsive information they can remember when answering each question.
4. “I don’t know” is better than making something up. Don’t make something up—this doesn’t help the enforcer or you.
5. In advance of the interview, be sure your client has not destroyed or tried to hide any materials or potentially relevant documents. Be sure your client has not discussed the investigation with anybody besides lawyers. Coordinating “stories” with friends/colleagues is not okay.

Aggression is unnecessary. Communications among the lawyers should remain cordial. We’ve never seen aggression or hostility go well. In particular, insulting the government’s investigation is not a good idea. The enforcer believes she is investigating for a good reason.
Give your client consistent reminders. Remind your client what she needs to do to maintain the attorney/client privilege and not to do anything that might make her situation worse (destroying evidence/coordinating her story with others). For example, after a government interview, remind your client that everything that was asked and said should be kept confidential.

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Still More “Suddenly Classic” Antitrust Cases from the New Merger Guidelines: General Dynamics, Marine Bancorporation and Procter & Gamble

August 7, 2023 | Bona Law PC

Authors: Steven Cernak and Luis Blanquez

As we explained in a prior post, the new draft merger Guidelines issued recently by the FTC and DOJ cite to several older court opinions that may be unfamiliar to antitrust practitioners who have been focused for decades exclusively on earlier versions of the Guidelines. In the last post, we covered two such cases, Philadelphia National Bank and Pabst. Below, we cover three more of such newly “classic cases:” General Dynamics, Marine Bancorporation and Protect & Gamble.

General Dynamics

It is not surprising that the New Guidelines cite General Dynamics seven times; after all, the case has been cited in hundreds of opinions and even more law review articles and treatises. Nor are some of the citations surprising. For example, one citation (FN 93) quotes the case for the proposition that “other pertinent factors” besides market share might mandate a conclusion that competition would not be lessened by a merger. Similarly, citations about market definition make sense because the definitions of both the product and geographic markets were contentious points in the opinion. But for reasons we explain below, the citations to the case for parts of the New Guidelines that would challenge mergers on the basis of just an increase in concentration, while accurate, seem out of step with the opinion as a whole.

General Dynamics is a 1974 opinion with the 5-4 majority opinion written by Justice Stewart. Eight years before, Justice Stewart had written the dissent in Von’s Grocery. In that dissent, Justice Stewart penned one of his most famous quotes (no, not that one): “The sole consistency that I can find is that, in litigation under § 7, the Government always wins.” More substantively, Justice Stewart took issue with the majority’s market definition analysis. Instead of simply assuming a “Los Angeles grocery” market as the majority did, Justice Stewart would have applied a “housewife driving test” that, despite the antiquated name, was similar to the hypothetical monopolist test of later Guidelines. Also, instead of assuming anticompetitive effects from “high” market shares and increasing competition, as did the majority, Justice Stewart would have considered other pertinent factors, like low barriers to entry, turnover of firms, and changes to the Los Angeles population.

Eight years later, Justice Stewart applied similar concepts in General Dynamics, but this time for the majority. In this case, one Midwest coal supplier gradually purchased the voting securities of another Midwest coal producer. The DOJ produced evidence of high and increasing concentration in coal markets. Depending on the geographic market, the share represented by the top four firms went from 43-55% to 63-75% as the shares were being acquired. The lower court, however, found that there was cross-elasticity of demand among coal and other energy sources, like oil, natural gas, nuclear, and geothermal energy, so the proper product market was a broader “energy market.” Justice Stewart spoke approvingly of such a market analysis but, because of the analysis we describe below, found it unnecessary to opine on market definition. Significantly, the dissent agreed with the lower court that reviewing evidence of cross-elasticity of demand was appropriate; however, it thought that evidence supported a finding of a submarket for coal for certain customers, especially electric utilities. (The majority and dissent had similar disagreements about the geographic market definition.)

More important to the lower court and Justice Stewart were “other pertinent factors” that made shares of past production unhelpful in predicting future competitive effects of the merger. Here, the selling company’s reserves of coal were much smaller than its past or current production. For example, it controlled less than 1% of the coal reserves in Illinois, Indiana, and western Kentucky. As a result, its future competitive strength was much worse than a review of any current market shares would indicate. Again, the dissent did not dispute that such “other pertinent factors” were relevant to the analysis; however, it thought the facts did not support finding the seller to be so weak going forward and that much of that evidence came from post-acquisition transactions.

Given the overall facts and tone of both opinions in General Dynamics, it is odd that the New Guidelines cite it for support for challenging mergers that further a trend toward concentration. The New Guidelines accurately quote Justice Stewart’s opinion:

[The Court’s] approach to a determination of a “substantial” lessening of competition is to allow the Government to rest its case on a showing of even small increases of market share or market concentration in those industries or markets where concentration is already great or has been recently increasing…

But in the opinion, that sentence is followed by these three sentences:

…the question before us is whether the District Court was justified in finding that other pertinent factors affecting the coal industry and the business of the appellees mandated a conclusion that no substantial lessening of competition occurred or was threatened by the acquisition of United Electric. We are satisfied that the court’s ultimate finding was not in error. In Brown Shoe v. United States we cautioned that statistics concerning market share and concentration, while of great significance, were not conclusive indicators of anticompetitive effects … (cleaned up)

The New Guidelines citation to General Dynamics in its footnote 93 for the proposition that “other pertinent factors” besides concentration trends should be considered in merger analysis probably better reflects the overall tenor of the case’s opinions.

Marine Bancorporation

The Guidelines mention Marine Bancorporation seven times to highlight that when a merger eliminates a potential entrant into a concentrated market, it may substantially lessen competition or tend to create a monopoly. Marine Bancorp., 418 U.S. 602, 630 (1974).

The Guidelines explain that to determine whether one of the merging parties is a potential entrant, the Agencies examine:

whether one or both of the merging firms had a reasonable probability of entering the relevant market other than through an anticompetitive merger. The Agencies’ starting point for assessment of a reasonable probability of entry is objective evidence. For instance whether the firm has sufficient size and resources to enter; evidence of any advantages that would make the firm well-situated to enter; evidence that the firm has successfully expanded into other markets in the past or already participates in adjacent or related markets; evidence that the firm has an incentive to enter; or evidence that industry participants recognize the company as a potential entrant Marine Bancorp., 418 U.S. 636–37 (1974); and,
whether such entry offered “a substantial likelihood of ultimately producing deconcentration of [the] market or other significant procompetitive effects.” If the merging firm had a reasonable probability of entering the concentrated relevant market, the Agencies will usually presume that the resulting deconcentration and other benefits that would have resulted from its entry would be competitively significant, unless there is substantial direct evidence that the competitive effect would be de minimis.

This is known as actual potential competition. The Guidelines also describe that under perceived potential competition, the acquisition of a firm that is perceived by market participants as a potential entrant can substantially lessen competition by eliminating or relieving competitive pressure. And in FN 42 the draft includes that this elimination of present competitive pressure is sometimes known as an anticompetitive “edge effect” or a loss of “perceived potential competition.” E.g., Marine Bancorp., 418 U.S. at 639.

Procter & Gamble

The Guidelines mention Procter & Gamble six times to explain how the Agencies examine (i) whether one of the merging firms already has a dominant position that the merger may reinforce, and (ii) whether the merger may extend or entrench that dominant position to substantially lessen competition or tend to create a monopoly in another market.

The Guidelines highlight that to identify whether one of the merging firms already has a dominant position, the agencies look to whether (i) there is direct evidence that one or both merging firms has the power to raise price, reduce quality, or otherwise impose or obtain terms that they could not obtain but- for that dominance, or (ii) one of the merging firms possesses at least 30 percent market share. Procter & Gamble Co., 386 U.S. 568, 575 (1967).

If this inquiry reveals that at least one of the merging firms already has a dominant position, the Agencies then examine whether the merger would either entrench that position or extend it into additional markets. As a mechanism of whether a merger may entrench a dominant position, the Guidelines include, among others, entry barriers. A merger “may substantially reduce the competitive structure of the industry by raising entry barriers and by dissuading the smaller firms from aggressively competing.” Procter & Gamble Co., 386 U.S. 568, 578 (1967).

As in the case of General Dynamics, it is puzzling to see how the Guidelines cherry pick with the citations of Marine Bancorp and Protect & Gamble. Indeed, both cases discuss potential entry in concentrated markets and whether one of the merging firms already has a dominant position that the merger may extend to substantially lessen competition. But they also criticize––at length––the PNB 30% structural presumption and lack of economic analysis, something the Agencies completely ignore in this draft.

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More “Suddenly Classic” Antitrust Cases from the New Merger Guidelines: Philadelphia National Bank and Pabst

August 1, 2023 | Bona Law PC

Authors: Steven Cernak and Luis Blanquez

As we explained in a prior post, the new draft merger Guidelines issued recently by the FTC and DOJ cite to several older court opinions that might not be familiar to antitrust practitioners who have been focused for decades exclusively on earlier versions of the Guidelines. Below, we cover two more of such newly “classic cases:” Philadelphia National Bank and its presumptions about market shares and competition and Pabst, which the new Guidelines cite for its language on trends in concentration.

Philadelphia National Bank (PNB)

The New Guidelines mention PNB seven times to basically highlight the Supreme Court’s position that possible economies from a merger cannot be used as a defense to illegality. And they do so by including a footnote with the well-known cite from the same case: “Congress was aware that some mergers which lessen competition may also result in economies, but it struck the balance in favor of protecting competition.”

The Guidelines fully develop this argument in Guideline 1. This Guideline first explains that concentration refers to the number and relative size of rivals competing to offer a product or service to a group of customers. It further states that when a merger between competitors significantly increases concentration and results in a highly concentrated market, the Agencies presume that a merger may substantially lessen competition based on market structure alone.

The entire text of the Guideline is grounded on the PNB case and what Assistant Attorney General Jonathan Kanter mentioned in June 2023 during his speech at the Brookings Institution’s Center on Regulation and Markets Event “Promoting Competition in Banking”

In that case, in 1961 the DOJ challenged the merger of the second and third largest commercial banks in metropolitan Philadelphia. The district court allowed the merger that would have created a bank with 30 percent of the relevant market, raising the two-firm concentration ratio from 44 percent to 59 percent. The Supreme court reversed the case and established the precedent that certain mergers are so clearly likely to lessen competition that they must be prohibited in the absence of clear evidence to the contrary:

[A] merger which produces a firm controlling an undue percentage share of the relevant market, and results in a significant increase in the concentration of firms in that market is so inherently likely to lessen competition substantially that it must be enjoined in the absence of evidence clearly showing that the merger is not likely to have such anticompetitive effects. 374 U.S. at 363

In other words, without attempting to specify the smallest market share that would still be considered to threaten undue concentration, the Supreme Court confirmed that a post-merger market share of 30 percent or higher unquestionably gave rise to the presumption of illegality. Later on, in General Dynamics––a case we will discuss in our next article––the Court approved a merger with market shares above 30% because “other pertinent factors” indicated the merger would not substantially lessen competition. (The New Guidelines do not discuss that aspect of General Dynancs, despite mentioning the case in the same footnote.)

That’s why for the last 40 years the Government has been making its prima facie case by simply showing 30 percent of the market is involved in the merger, abandoned that 30 percent presumption, focusing instead on competitive effects and other relevant factors that might affect them, such as the structure of the market and potential entry.

As former Commissioner Joshua D Wright and Judge Douglas Ginsburg wrote in Philadelphia National Bank: Bad Economics, Bad Law, Good Riddance:

The problem for today’s courts in applying this semicentenary standard is that the field of industrial organization has long since moved beyond the structural presumption upon which the standard is based. The point is not that 30 percent is an outdated threshold above which to presume adverse effects upon competition; rather, it is that market structure is an inappropriate starting point for the analysis of likely competitive effects. Market structure and competitive effects are not systematically correlated. Nor does the rebuttable nature of the 30 percent presumption reduce it to a mere annoyance, an exercise the clutters up litigation but is soon enough dispatched by the defendant’s showing; the practical effect of beginning the analysis of a merger with an essentially irrelevant presumption is to shift the burden of proof from the plaintiff, where it rightfully resides, to the defendant, as though the law prohibited all mergers except those that could be proved acceptable by their proponents.

The article describes all the flaws about this outdated structural presumption. Despite those flaws, PNB has never been officially overruled and these New Guidelines might just give it new life, at least until the courts get involved.

Pabst

The new Guidelines cite U.S. v. Pabst three times, all in connection with the new Guideline that the effect of a merger “may be substantially to lessen competition” if it “contributes to a trend toward concentration.” The 1966 case reversed a lower court and found that evidence of the probable anticompetitive effect of the merger of Pabst and its brewery competitor Blatz in 1958 was sufficient to find a Section 7 violation.

The key issue was whether the DOJ had done enough to show one or more of these geographic markets: the entire United States; the three-state area of Wisconsin, Illinois, and Michigan; or just Wisconsin. Writing for the Court, Justice Black found that the evidence of “the steady trend toward concentration in the beer industry” was sufficient for a violation, no matter how the geographic market was defined.

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Agencies Issue New Draft Merger Guidelines and Create More Classic Antitrust Cases

July 24, 2023 | Bona Law PC

Authors: Steven Cernak and Luis Blanquez

On July 19, 2023, the FTC and DOJ Antitrust Division issued the draft of their long-anticipated Merger Guidelines. Like prior iterations, these Guidelines are meant to explain to potential merging parties how the agencies will evaluate their proposed transactions. Earlier versions included input from noted experts across the antitrust community and so also proved persuasive to many courts evaluating challenges to mergers by the agencies. Time will tell if these Guidelines have the same power when they are finalized after the comment period expires in late September.

Below, we provide a very short summary of these new Guidelines. But one notable feature of these Guidelines is their heavy reliance on caselaw, much of it decades old, rather than near-exclusive reliance on the latest economic thinking. The result is that many cases that antitrust practitioners might not have read in years, if ever, might suddenly be important again. Because we here at Bona Law have frequently written about such “classic antitrust cases,” we will cover two of those “suddenly classic” cases below and a few more in subsequent articles.

New Guidelines Summary: Antagonism Towards Mergers

Government agencies usually challenge proposed mergers and similar transactions under Clayton Act Section 7. That statute requires a challenger to show that the effect of the transaction “may be substantially to lessen competition or tend to create a monopoly.” Key here is that the statute does not require proof that the bad effect has already happened or even that it is certain to happen, only that it probably will happen in the future. (We covered this topic in a recent Fifth Circuit amicus brief supporting Illumina.) So these new draft Guidelines, like all other prior versions, explain the factors that the agencies will consider when making that prediction.

Compared to prior Guidelines, however, these new draft Guidelines list more and different reasons why the agencies will challenge mergers. They list thirteen different factors, violation of any one of which would be a reason to try to stop the merger. For example, the prior Guidelines often started with market definition and concentration levels but then analyzed further to see if those factors really would lead to competitive harm. These new draft Guidelines, by contrast, expand the ways markets might be defined; return to lower thresholds for determining when markets are “highly concentrated” and the transaction will significantly increase concentration; and explain that mergers involving highly concentrated markets or firms with 30% or more share of the market almost certainly will be challenged without further analysis. Also, transactions in markets trending toward consolidation will be challenged. Finally, mergers that substantially reduce competition in labor markets will be challenged. If this draft represents how the agencies will review mergers, look for much longer reviews and many more challenges.

How HSR Shifted the Focus of Merger Review Away from the Courts

Before Hart-Scott-Rodino was passed in 1976, the only way for the agencies to stop a proposed merger was to go to court. The result was a decent number of court opinions on merger law, including several from the Supreme Court.

HSR triggered a requirement for parties to most large transactions to file their intentions with the two federal agencies and allow review before closing. (We recently discussed the proposed changes to HSR.) While only a small percentage of such filings triggered close reviews, those extended reviews often took many months before the agencies decided to challenge them in court. By that time, many parties decided to abandon the transactions. The results of these process changes were fewer merger opinions from courts and a greater emphasis on the analysis at the agencies. As that analysis, as embedded in prior versions of the Guidelines, evolved away from that used by courts in earlier cases, a significant gap opened between the opinions and the Guidelines. Now that this new draft is, in many ways, returning to the analysis of those earlier opinions and citing many of them for support, antitrust practitioners will need to learn, or relearn, some of those old cases (as we predicted many months ago).

New Classic Cases – Brown Shoe

One of the most important classic antitrust case is Brown Shoe Co. v. United States, mentioned more than a dozen times by the new Guidelines for numerous propositions, including vertical mergers and, especially, market definition.

In Brown Shoe, the government challenged the merger between Brown Shoe and Kinney on horizontal restraints and vertical foreclosure issues. The parties argued different market definitions. The United States proposed a broad product market including all shoes. Defendants, on the contrary, segmented the product market by age and sex of customers, together with the price and quality of the shoes.

The district court concluded that men’s shoes, women’s shoes, and children’s shoes were different product markets and determined that competition was “sufficiently threatened in these submarkets to condemn the merger.” Defendants challenged the issue of market definition all the way up to the Supreme Court.

The Supreme Court affirmed the decision of the district court and basically adopted the district court’s reasoning on the market definition issue, with a particular focus on the “interchangeability” and the “unique characteristics and uses” tests.

In the Court own words:

The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it. However, within this broad market, well defined submarkets may exist which, in themselves, constitute product markets for antitrust purposes. The boundaries of such a submarket may be determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product’s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors.

As eloquently highlighted in Antitrust Law: An Analysis of Antitrust Principles and Their Application by Areeda and Hovenkamp, this case––while still valid––has a limited application on today’s antitrust merger analysis:

[w]hile the Supreme Court insisted on a market definition, it did so for a very different purpose than we use merger analysis for today. To be sure, in a horizontal merger case it is still important to know where output movements are threatened among the post-merger firm and its competitors, but the movement contemplated in Brown Shoe was in the opposite direction from what we consider now. Today the concern is that the post-merger firm might be able to raise prices without causing too much output to be lost to its rivals. In contrast, the Brown Shoe concern was that by reducing its price (or improving quality at the same price), the post-merger firm could deprive rivals of output, thus forcing them out altogether or relegating them to niche markets.

As a rough approximation the boundaries of such a market might be about the same as the boundaries of a relevant market under today’s definitions. When one takes more dynamic considerations into account, however, there are fundamental differences. For example, the focus on excess capacity in merger cases today typically examines excess capacity held by the post-merger firms’ rivals to see if their output increase will offset the post-merger firm’s anticipated output reduction. [52] By contrast, under the Brown Shoe rationale one might want to see if the post-merger firm has sufficient excess capacity so as to be able to steal sales from smaller rivals. Under modern analysis in product-differentiated markets we want to know whether rivals will be able to reposition themselves closer to the post-merger firm, thus increasing competitive pressures on it. By contrast, under the Brown Shoe analysis, rival firms configure themselves away from the post-merger firm in order to avoid competing with it on price. Indeed, this concern that smaller rivals would be relegated to niche markets played an important part in the litigation. [53]

Further, under the modern analysis that identifies express or tacit collusion as the feared harm, the merger tends to affect all of the firms in the market the same way. That is, if the merger tends to make collusion or interdependent pricing more likely, the non merging firms will benefit as well as the merging firms and price will increase across the market. In very sharp contrast, the analysis in Brown Shoe saw the post-merger firm as benefitting at the expense of nonmerging rivals in the same market. In this sense Brown Shoe was very much a “unilateral effects” case—the benefits of the merger accrued to Brown Shoe alone.

Further, today’s merger concern with price increases as opposed to price reductions makes relevant a new set of questions that were simply not within the purview of Brown Shoe, namely, what are the effects of a merger between relatively adjacent firms in a product-differentiated market. [54]

New Classic Cases – Falstaff

The new Guidelines cite U.S. v. Falstaff four times in the section discussing potential competition. That 1973 case, and the new Guidelines, discussed both varieties of potential competition: actual potential competition and perceived potential competition. (We discussed both varieties, as well as Falstaff, in the context of the Meta/Within merger here and here.)

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The FTC Keeps Digging Its Own Grave: Microsoft-Activision Merger Deal Can Move Ahead Says Federal Judge in California

July 14, 2023 | Bona Law PC

Authors: Steve Cernak and Luis Blanquez

This week a federal judge in California denied a preliminary injunction to block Microsoft’s $68.7 billion merger with Activision Blizzard Inc. Both parties may now move ahead and close the deal––subject to further clearance in the UK and Canada––before the July 18 contractual deadline. The FTC has decided to appeal the Court order. We do not yet know the grounds for the appeal but the Court hammered hard almost every single argument from the agency.

The Order includes a detailed background of this case. In a nutshell, the FTC alleges in its complaint that Xbox-maker Microsoft would be incentivized to block Sony PlayStation access to crucial Activision games, especially the very popular Call of Duty game. Below we discuss the main three key antitrust issues involved.

Market Definition

If any, this might be the only partial victory for the FTC in this case.

The Judge states in the Opinion that at this stage of the litigation the FTC need only make a “tenable showing” and she must accept the market definition proposed by the FTC: The Gen 9 consoles market––with Microsoft’s Xbox and Sony’s PlayStation as the only competitors. But at the same time, she did not shy away from highlighting her doubt about the FTC’s market definition surviving a full-blown court review and that she would likely also include Nintendo’s Switch. Why? Because despite its content and functional differences with the Xbox and PlayStation, the FTC failed to consider whether its price, portability, and battery are factors the customer balances when deciding which console to purchase, and because many of the most popular Activision games are available on the three consoles.

As to the FTC’s additional proposed markets of the multigame content library subscription services and cloud gaming, the Court assumed––without deciding––they were each their own product market.

This is as good as it gets for the FTC in this Opinion.

The Clayton Act Requires Competition to be Harmed Substantially, Which is a Higher Standard

A vertical merger involves companies at different levels of the supply chain and are usually less problematic from an antitrust point of view. That’s why for almost fifty years neither the FTC nor the DOJ rarely challenged them. But that has recently changed under the Biden administration and the new head of the FTC Lina M. Khan.

Indeed, this case is the third recent challenge to a vertical merger. The other two were the Illumina’s acquisition of Grail (currently on appeal to the Fifth Circuit; Bona Law filed an amicus brief supporting Illumina’s position) and the Meta-Within transaction. The latter was another unsuccessful attempt by this FTC to block a vertical merger.

All of these challenges have one thing in common: the FTC’s aggressive stretching of the Clayton Act’s coverage. And this last case is no different. Here the District Court–– citing the well-known AT&T acquisition of TimeWarner in 2018 (See United States v. AT&T, 310 F. Supp. 3d 161, 189–92 (D.D.C. 2018) states that:

“[T]he outcome “turn[s] on whether, notwithstanding the proposed merger’s conceded procompetitive effects, the [g]overnment has met its burden of establishing, through ‘case-specific evidence,’ that the merger of [Microsoft] and [Activision], at this time and in this remarkably dynamic industry, is likely to substantially lessen competition in the manner it predicts.” See AT&T, 916 F.3d at 1037.

In the Court’s own words: “it is not enough that a merger might lessen competition—the FTC must show the merger will probably substantially lessen competition. That the combined firm has more of an incentive than an independent Activision says nothing about whether the combination will “substantially” lessen competition. See UnitedHealth Grp., 630 F. Supp. 3d at 133 (“By requiring that [the defendant] prove that the divestiture would preserve exactly the same level of competition that existed before the merger, the Government’s proposed standard would effectively erase the word ‘substantially’ from Section 7”).

Thus, like the ALJ in the Illumina case, and the District Court in the AT&T case, Judge Scott Corley once again finds in this case that the FTC did not show anything more than a “mere possibility” of substantial lessening of competition. This is not the right legal test as we have stated in a recent amicus brief in the Illumina case.

Ability and Incentive: Both Necessary to Show a Foreclosure Theory

One of the keystones of the antitrust policy under the Biden-administration has been to challenge previous case law on how to block problematic transactions, both horizontal and vertical. But so far, the agency has not been particularly successful.

Again, in the Court’s own words:

“As a threshold matter, the FTC contends it need only show the transaction is “likely to increase the ability and/or incentive of the merged firm to foreclose rivals.” [ ] For support, it cites its own March 2023 decision in Illumina, 2023 WL 2823393, at *33. The FTC in Illumina reasons:

[t]o harm competition, a merger need only create or augment either the combined firm’s ability or its incentive to harm competition. It need not do both. Requiring a plaintiff to show an increase to both the ability and the incentive to foreclose would per se exempt from the Clayton Act’s purview any transaction that involves the acquisition of a monopoly provider of inputs to adjacent markets. 2023 WL 2823393, at *38 (cleaned up) (emphasis added).

The FTC in Illumina, however, provides no authority for this proposition, nor could it. Under Section 7, the government must show a “reasonable probability of anticompetitive effect.” Warner, 742 F.2d at 1160 (emphasis added). If there is no incentive to foreclose, then there is no probability of foreclosure and the alleged concomitant anticompetitive effect. Likewise, if there is no ability, then a party’s incentive to foreclose is irrelevant.”

Judge Scott Corley makes clear in her Order that to establish a likelihood of success on the merits for a foreclosure theory in this case, the FTC must show that the combined firm (1) has the ability to withhold Call of Duty, (2) has the incentive to withhold Call of Duty from its rivals, and (3) competition would probably be substantially lessened as a result of the withholding.

The Court held that while Microsoft may have the ability to foreclose competition because it would own the Call of Duty franchise, it has no incentive to do so. The Judge supports her conclusion on the fact that: (i) immediately upon the merger’s announcement, Microsoft committed to maintain Call of Duty on its existing platforms and even expand its availability, entering a new agreement to extend Activision’s obligation to ship Call of Duty at parity on PlayStation, (ii) sent Valve a signed letter agreement committing to make Call of Duty available on Steam for ten years, and (iii) expanded Call of Duty to non-Microsoft platforms, bringing Call of Duty to Nintendo’s Switch.

In addition, the Judge noticed that the deal plan evaluation model presented to the Microsoft Board of Directors to justify the Activision purchase price (iv) relied on PlayStation sales and other non-Microsoft platforms post-acquisition, and (v) reflected access to mobile content as a critical factor in favor of the deal.

The Court further concluded that (vi) Microsoft’s witnesses’ testimony consistently confirmed the lack of Microsoft’s plans to make Call of Duty exclusive to Xbox, (vii) Call of Duty’s cross-platform play was critical to its financial success, and (viii) agreed with Microsoft’s arguments anticipating irreparable reputational harm in case of foreclosing Call of Duty from PlayStation.

The judge reached the same conclusion on the likelihood of Microsoft blocking access through online subscription services. As for cloud gaming, the Court was also persuaded by Microsoft’s recent agreements with five cloud-streaming providers to freely license Activision games––including Call of Duty––for ten years, a key factor for the European Commission to also clear the transaction in the EU few months ago.

Following this ruling, Microsoft and UK antitrust officials have agreed to suspend litigation and focus on trying to reach an agreement on how the acquisition might be modified to address any competition concerns.

Supreme Court Case Law Obligates Merger Challenges to Address the Deal and Certain Proposed Fixes

The FTC desperately tried to also show that Microsoft’s binding offer was just a “proposed remedy” that may not be considered until the remedy phase, after a Section 7 liability finding.

As support, it relies on its own 2023 Illumina decision and E.I. du Pont, 366 U.S. But once again the Court disagrees with the FTC:

“E.I. du Pont does not support the Commission’s holding. It involved a remedy proposed after a finding of a Section 7 violation. The Court held: “once the Government has successfully borne the considerable burden of establishing a violation of law, all doubts as to the remedy are to be resolved in its favor.” E.I. du Pont, 366 U.S. at 334. E.I. du Pont says nothing about whether the merger-challenging plaintiff must address offered and executed agreements made before any liability trial, let alone liability finding; that is, whether the FTC must address the circumstances surrounding the merger as they actually exist.” This same point is key to the Illumina appeal currently pending in the Fifth Circuit.

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End of an Era: The FTC Proposes Significant Changes to the HSR Form

July 6, 2023 | Bona Law PC

Authors: Steven Cernak and Luis Blanquez

During the last week of June 2023, the Federal Trade Commission proposed making the most drastic changes to the Hart-Scott-Rodino form since the form was created in 1978. According to FTC Chair Lina M. Khan’s statement, joined by Commissioners Rebecca Kelly Slaughter and Alvaro M. Bedoya “This marks the first time in 45 years that the agencies have undertaken a top-to-bottom review of the form that businesses must fill out when pursuing an acquisition that must be notified in accordance with the HSR Act.”

As we have previously described, HSR is the program under which the parties to most large transactions must submit the form and certain documents to the US antitrust agencies prior to closing the deal. The HSR form has always been short but complicated, with decades of formal regulations and informal interpretations, even lore, behind each of its sections.

Much of that history will go by the wayside if the final changes are anything like this initial proposal. The form — along with the documents and data it requires — will more closely resemble the much more onerous premerger notification schemes in other jurisdictions and will significantly lengthen the time and increase the expense of future HSR Act filings. Unfortunately, the current proposal does not envision the higher thresholds or “short forms” for obviously benign transactions present in those other jurisdictions.

The FTC will be accepting comments on its current proposal until late August. It will consider those comments before issuing the final form and instructions, likely later this year. While the details of the new form might change in the coming months, most of the current proposals likely will survive. To begin to prepare for that new day, here are some of the highlights:

Provision of details about transaction rationale and details surrounding investment vehicles or corporate relationships. This might include diagrams of a transaction’s structure, the timeline for the acquisition, and all related agreements between the parties at the time of the filing, among others;
The disclosure of required foreign merger control filings becomes mandatory;
Provision of information describing horizontal overlaps, and non-horizontal business relationships such as supply or licensing agreements;

Provision of projected revenue streams, transactional analyses and internal documents describing market conditions, and structure of entities involved such as private equity investments. This means an expansion on the scope of 4(c) and (d) documents, including, for example, drafts (not just final versions) of responsive documents and other non-transaction related documents;
Provision of details regarding previous acquisitions undertaken within the ten years prior to the acquisition filed, including information about all officers and board members, significant creditors and holders of non-voting securities, or minority shareholders (including now minority investors from companies controlled by the ultimate parent company), among many others;
Disclosure of information that screens for labor market issues by classifying employees based on current Standard Occupational Classification system categories.
Disclosure of subsidies from foreign entities of concern that Congress believes can distort the competitive process or otherwise change the business strategies of a subsidized firm in ways that undermine competition following an acquisition. Under the Merger Filing Fee Modernization Act of 2022, the agencies are required to collect information on subsidies received from certain foreign governments or entities that are strategic or economic threats to the United States.

Implementation of anything like these changes will move the HSR system even further from what Congress envisioned when it passed HSR in 1976. Then, the bill’s sponsors predicted that only the 150 largest deals each year or so would require a filing — over the last twelve months, nearly 2100 filings were made. Congress envisioned that even the “second requests” would require only documents and data that had already been “assembled and analyzed by [the parties]” — now, second requests usually take nearly a year to complete. These changes to the initial form and submission promise to add weeks to every filing, not just the problematic ones, as the parties assemble documents and data that they saw no need to analyze. Odd that the FTC sees as necessary such drastic changes to a notification program that its Introductory Guide has described as a “success” since at least 2009.

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Axon, Altria, Illumina, and Administrative Law: What an Antitrust Lawyer Should Know Now

April 20, 2023 | Bona Law PC

Authors: Steven Cernak and Aaron Gott

Last week, the U.S. Supreme Court ruled against the Federal Trade Commission and allowed Axon Enterprise to raise certain constitutional objections to FTC processes in federal court before going through the FTC’s internal administrative proceedings. That decision teed up an “existential” threat to the FTC that seems likely to return to the Court in a few years. In the meantime, however, different cases raise similar questions and might reach the Court earlier.

Axon Background and Summary

In May 2018, Axon purchased one of its competitors in a transaction that did not require an HSR filing. The FTC investigated and decided in January 2020 to challenge the consummated transaction. As is always possible with such challenges, the FTC chose to bring it in front of its internal Administrative Law Judge rather than in a federal court. In that procedure, the ALJ makes an initial decision, which then can be appealed by the parties or FTC Complaint Counsel to the Commissioners. The parties can then appeal any negative decision by the Commissioners to a federal court of appeals of their choosing.

Immediately after the FTC issued the administrative complaint, Axon sued in federal court to raise constitutional challenges to FTC procedures. Both the district court and Ninth Circuit ruled that Axon must go through the FTC’s procedures before eventually raising the constitutional issues to a federal court. Procedurally, the Ninth Circuit did issue a stay on the FTC’s proceedings in October 2020 while Axon pursued the appeal of its constitutional challenges.

On April 14, 2023, the Court unanimously ruled that Axon could pursue its constitutional challenge to the FTC in court now and did not need to wait until going through the FTC’s administrative proceedings. (The Court’s opinion also applied to a companion case involving the Securities and Exchange Commission.) Writing for the Court, Justice Kagan applied the Court’s “Thunder Basin factors” and concluded that a federal district court had jurisdiction to hear such “fundamental, even existential” challenges to the FTC’s procedures even before those procedures had run their course. That is because such constitutional challenges implicate federal courts’ general subject-matter jurisdiction to consider questions of federal law, rather than implicate the exception to questions of federal law that Congress has determined should be heard in agencies instead of the courts in the first instance. Justice Gorsuch concurred in the judgment on different grounds. The case was remanded for a trial to consider the merits of those constitutional challenges.

The Constitutional Challenges to be Decided on Remand

And what were those “fundamental, even existential” constitutional challenges? Axon explicitly identified two in its original complaint. First, Axon claims that it violates the separation of powers to have an FTC ALJ removable only for good cause — and then only by a Board whose members are also only removable for good cause — and not freely by the President. Second, Axon claims that having the FTC investigate and initiate, adjudicate, and review the complaint unconstitutionally combines prosecutorial and adjudicative functions. Finally, Axon also at least implicitly raised due process concerns because of the “black box” clearance process to determine whether the Justice Department Antitrust Division or FTC will review any individual merger under their different standards and procedures. (Justice Kagan did not think Axon’s complaint explicitly raised the clearance issue and so did not address it.)

Justice Thomas concurred fully in the Court’s opinion but wrote separately to express “grave doubts about the constitutional propriety” of having agencies, not federal courts, adjudicating private rights, as compared to governmental privileges, and with only highly deferential judicial review at the end of the proceedings.

Any antitrust attorney who has ever dealt with the FTC will agree with the Court’s description of these challenges as “fundamental” to how the FTC operates. Since 1914, the FTC has been the agency developing its alleged expertise in policing unfair methods of competition by playing prosecutor, judge, and jury. Specifically regarding potentially anticompetitive mergers, the FTC and Antitrust Division have decided which agency will perform the review based on opaque, historical, difficult-to-explain precedent. (For example, traditionally the FTC has reviewed mergers involving light-duty vehicles while the Antitrust Division reviewed those involving medium and heavy-duty vehicles.) With the Court’s remand in Axon, the FTC will soon be forced to defend these practices in a district court and, presumably, eventually again in the Supreme Court.

Will JLI/Altria or Illumina/Grail Reach the Court Before Axon?

While Axon now will have its day in district court to raise these issues, two other FTC competition matters that have already gone through the administrative proceedings might raise similar constitutional issues in courts of appeals more quickly.

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Latest Step on Twisty Illumina/Grail Antitrust Merger Challenge Road

April 5, 2023 | Bona Law PC

Author: Steven Cernak

The twists and turns of the various antitrust challenges to the proposed Illumina/Grail merger have provided antitrust practitioners numerous lessons the last two years. This week, the FTC commissioners unanimously voted to overturn their administrative law judge’s initial decision and order Illumina to divest the controlling stake in Grail that it had purchased. The FTC’s opinions provided some lessons on vertical-merger challenges and the constitutionality of FTC organization and processes. But because the parties plan to appeal, this week’s decision is just the latest turn in a long and winding road.

Facts and Prior Developments

Here is a summary of the facts and past developments from our earlier writings. Illumina is a provider of a certain type of DNA sequencing, including instruments, consumables, and reagents. According to the FTC’s complaint, it is the dominant provider of this DNA sequencing.

Grail is one of several companies developing a multi-cancer early detection (MCED) test. An MCED promises to be able to detect biomarkers associated with up to fifty types of cancer by extracting the DNA from a simple blood sample. To work, the MCED needs DNA sequencing supply. According to the FTC complaint, the type of DNA sequencing that works best — and with which Grail and all other MCED developers have been working — is the type supplied by Illumina.

The parties announced Illumina’s proposed acquisition of Grail in September 2020 and said that it would speed global adoption of Grail’s MCED and enhance patient access to the tool. In late March 2021, the FTC challenged this transaction by filing an administrative complaint before its own administrative law judge (ALJ). The FTC also sought a temporary restraining order and preliminary injunction from the U.S. District Court for the District of Columbia. The parties successfully removed the case to the Southern District of California.

Shortly thereafter, the European Commission announced that it too would investigate the transaction, even though the transaction did not meet its usual thresholds. The Commission made this decision at the request of several member states. The parties challenged the Commission’s jurisdiction and its usual requirement that the transaction not close until the Commission completed its investigation. As a result of the European action, the FTC decided that its federal court case to block closing was no longer necessary and so dismissed it.

So, in Europe, the investigation continued while in the U.S. the parties prepared for and held the trial in front of the FTC’s ALJ. During this time, the parties closed the transaction. Last Fall, the Commission decided to block the transaction. The parties are appealing that decision. Just before the European decision, the FTC ALJ dismissed the complaint in an unexpected decision ruling for the first time against the FTC in a merger case. In a nutshell, the ALJ concluded that the FTC failed to prove that Illumina’s post-acquisition ability and incentive to advantage Grail to the disadvantage of Grail’s alleged rivals would likely result in a substantial lessening of competition in the relevant market for the research, development, and commercialization of MCED tests. FTC Complaint Counsel appealed the FTC’s own ALJ decision. Earlier this week, the four Commissioners unanimously agreed to overturn it.

Review of Facts, Vertical Merger Standards, and FTC Constitutionality

In late 2021, the FTC voted to withdraw its vertical merger guidelines; therefore, this opinion is one of the first chances since then for practitioners to see how these particular Commissioners would approach vertical mergers. The Commission’s opinion asserted that “case law provides two different but overlapping standards for evaluating the likely effect of a vertical transaction:” Brown Shoe’s focus on share of the market foreclosed and other structural factors versus the more recent focus on the merged entity’s ability and incentive to foreclose rivals from necessary inputs or distribution channels.

In her concurring opinion (and one of her final actions before her resignation), Commissioner Wilson asserted that while Brown Shoe has not been overruled, its most recent application was in 1979, more recent FTC actions have focused on the ability/incentive framework, and some commentators have called Brown Shoe and its focus on market share, “largely repudiated.” Because the DOJ Antitrust Division has not abandoned the vertical merger guidelines and recent courts have focused more on the ability/incentive framework, the Commission opinion here introduces uncertainty for parties as to the standard they should follow for evaluating vertical mergers—the Court and DOJ standard or this new FTC standard?

While there was some disagreement on the legal standard, the four Commissioners agreed on the application to the facts: The transaction was anticompetitive and should be unwound. As per FTC procedure, the Commission reviewed the ALJ’s fact and legal findings de novo and disagreed with them in key areas. Below, we summarize three examples.

First, the ALJ had found that Illumina had the ability to foreclose Grail’s rivals in various ways; but the ALJ found these facts “less significant” in this case because that ability came from being the only practical supplier of the sequencing, regardless of the Grail transaction. The ALJ contrasted those facts with the recent DOJ AT&T vertical merger review, where the alleged ability would be created only by the challenged transaction. The Commission opinion found this analysis “flawed” and that Complaint Counsel must show only that the ability existed, not that it was created by the proposed merger.

Also, the ALJ rejected concerns about Illumina’s increased incentive to foreclose Grail rivals for several reasons, especially because successful commercial sale of the MCED tests of those competitors was so far in the future that a foreclosure strategy now made no sense. The Commission opinion disagreed, finding that foreclosure tactics now would destroy current and ongoing R&D competition and help cement Grail’s very profitable production future.

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Bona Law Helps Deliver Successful 2023 Spring Meeting for the ABA Antitrust Section

April 3, 2023 | Bona Law PC

Authors: Steve Cernak, Dylan Carson, Kristen Harris

Back in person again, the 71st edition of the American Bar Association Antitrust Law Section’s annual Spring Meeting did not disappoint and Bona Law was there for the formal and informal conversations that will help shape antitrust enforcement in the U.S. and abroad. With over 3700 registrants from over 60 countries and dozens of panels, events, and receptions — formal and informal — the 2023 Spring Meeting was the place to be for antitrust and consumer protection lawyers last week. Bona Law attorneys Steve Cernak, Dylan Carson, and Kristen Harris represented the firm and engaged with numerous public antitrust enforcers, private practitioners and in-house antitrust counsel from across the globe on a variety of hot topics. Next year’s event promises to continue this tradition when Cernak becomes Antitrust Section Chair-elect in August 2023 and Harris joins him in Section leadership.

Cernak moderated a panel of the Federal Trade Commission Bureau Directors. Our takeaway of their message is that they have no plans to slow down the aggressive antitrust and consumer protection enforcement, despite some court losses and other resistance. Some commentators had complained that this FTC was downplaying or completely ignoring economic learning. The new Director of the Bureau of Economics swatted away that claim, saying he and his economists are fully on board with the enforcement direction. Expect continued aggressive enforcement out of this FTC, with a focus on revitalizing vertical merger enforcement, the Commission’s Section 5 authority, and Robinson-Patman Act enforcement. On the DOJ side, the importance of corporate antitrust compliance programs and the future of criminal and civil monopolization cases were repeated themes on multiple panels.

The Spring Meeting attracts practitioners and enforcers with a wide range of views on antitrust enforcement priorities. An interesting vibe we picked up from panels on the Biden Administration as well as hallway conversations is the newer ideological splits. On one side are the Biden Administration enforcers and their many supporters who want to see new or revived enforcement theories or laws very different from those that have prevailed for over forty years. On the other side are the supporters of that economics-based status quo, including both Obama-era enforcers and big business types, who, while not always agreeing on specifics, have found a common opponent in the Biden Administration enforcers. The split is not the same “red v. blue” split seen elsewhere in U.S. politics and expect to see strange bedfellows for some time to come.

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Meta/Within Merger Antitrust Opinion: Cutting Edge Tech, Vintage Precedent

February 14, 2023 | Bona Law PC

Authors: Steven Cernak and Luis Blanquez

Earlier in February 2023, the Court for the Northern District of California denied the FTC’s preliminary injunction motion to prevent the closing of Meta Platforms Inc.’s acquisition of Within Unlimited, Inc.––a virtual reality (VR) App developer. The FTC has declined to appeal the loss and has paused its administrative in-house challenge. Meta has now closed the transaction. Below we summarize the key points from the opinion and what we think are the two key takeaways for merger practitioners.

Opinion Summary

As with many contested mergers, a key legal battle in this case was market definition. The FTC proposed a relevant product market consisting of VR dedicated fitness apps, meaning VR apps “designed so users can exercise through a structured physical workout in a virtual setting.” The merging parties, on the other hand, alleged that the FTC’s proposed market definition was too narrow, excluding “scores of products, services, and apps” that are “reasonably interchangeable” with VR dedicated fitness apps, including VR apps categorized as “fitness” apps on Meta’s VR platform, fitness apps on gaming consoles and other VR platforms, and non-VR connected fitness products and services”. Extensively quoting Brown Show and that venerable opinion’s “practical indicia” of a market, the Court held that the FTC made a sufficient evidentiary showing of a well-defined submarket, consisting of VR dedicated fitness apps.

Having won that battle, the FTC argued that the proposed acquisition would violate Section 7 of the Clayton Act by substantially lessening competition in the market for VR dedicated fitness apps. According to the agency, even though Meta was not currently a competitor in the VR dedicated fitness app market, it was both (i) an actual potential competitor, and (ii) a perceived potential competitor in the relevant market. In the first theory, the FTC argued that the transaction harmed competition because Meta would have entered the market on its own. In the second theory, the FTC argued that Meta’s mere presence on the wings of the market before the transaction kept current participants from acting anticompetitively.

The court denied the FTC’s motion for preliminary injunction, finding that the facts did not support either potential competition theory. The court, however, did find that both theories remained good law and, therefore, are available for the FTC and DOJ to support violations of Section 7 of the Clayton Act in the future. Merger practitioners will need to learn, or remember, the necessary elements of these theories, including sufficient market concentration and the acquiring party having the necessary characteristics, capabilities, and economic incentive to enter the market.

Key Takeaway: Old Precedent Comes Back

Most merger practitioners have become used to working with the DOJ/FTC Horizontal Merger Guidelines (HMG) and the opinions that follow their reasoning, especially those from this century. For some practitioners with little to no grey hair, those precedents might be all they have ever known. For example, the district court opinion in AT&T/TimeWarner in 2018 has multiple cites to H.J. Heinz from 2001, Arch Coal from 2004, and Baker Hughes from 1990. Last year’s UnitedHealth/Change opinion cited all those same cases plus Anthem from 2017 and Sysco from 2015. Sure, some older precedent always makes it into opinions and briefs — defendants often cite General Dynamics from 1974 and the government loves 1963’s Philadelphia National Bank — but those exceptions are few.

As the FTC has moved away from the 2010 HMGs but not yet replaced them, practitioners have questioned where to find guidance. If the briefs and opinion in this case are any clue, the answer might be court opinions from forty or more years ago.

For example, look at the cases cited in the potential competition sections of the opinion. Now, it is true that the Supreme Court cases that extensively discuss the theories, such as Marine Bancorp., date from the 1970’s. The district and appellate court cases relied on by the court in the section discussing the continued validity of the actual potential competition theory date from 1984, 1981, 1980, and 1974. The only more recent court opinion mentioned is the FTC’s loss in 2015’s Steris. The Court’s 1973 opinions in Falstaff Brewing gets extensive discussion in ten separate mentions. According to Lexis, that case involving Dizzy Dean’s favorite beer has only been cited twenty times since 2010.

Even when defining the product market, the court spends ten pages going through various indicia found in 1962’s Brown Shoe and only two pages on the hypothetical monopolist test found in the HMGs — and then only “[i]n the interests of thoroughness.” The cases cited in the Court’s legal analysis of product market definition include several from this century but also older ones like Twin City Sports Service (1982), Times Picayune (1953), and Continental Can (1964). So at least until any new Guidelines are issued, merger practitioners might need to spend more time honing arguments based on older cases and less time arguing the intricacies of the HMGs.

Key Takeaway: Competitive Pressure from Apple?

In discussing competition in the VR hardware and various software or app “markets,” the Court describes many different current competitors. While it is difficult to know for certain because of the extensive redactions, it appears that Apple applied extensive competitive pressure on Meta, either as another potential suitor for Within or a current or potential competitor in some VR-related market—or both. Specifically, the judge says in his opinion that Meta was concerned that Apple might “lock in” fitness content (perhaps Within?) that would be exclusive to Apple’s expected VR hardware.

If so, these two Big Tech behemoths pressuring each other, especially in markets neither one dominates, is further support for some of the ideas expressed at least in Nicolas Petit’s Moligopoly Scenario. Paraphrasing one of Petit’s points, these powerful companies might seem like monopolists, but they act more like oligopolists fearful of competitive pressure from other giants and others. In short, none of them wants to miss the next big thing and become the next Blockbuster to some future Netflix. This opinion seems to put considerable weight on contemporaneous documents from Meta and others that describe those types of strategic considerations driving Meta’s behavior. If future cases follow suit, merger practitioners might be able to focus more on well-supported boardroom considerations and less on hypothetical analyses from outside economic experts.

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