The US Department of Justice (DOJ) and the Federal Trade Commission (FTC) lost four merger challenges (Illumina/GRAIL, UnitedHealth/Change Healthcare, U.S. Sugar/Imperial Sugar and Booz Allen/EverWatch) in September. The losses demonstrate that parties willing to litigate can have success in court.
- Federal Trade Commission v. Illumina, Inc., and GRAIL, Inc. The administrative law judge (ALJ) rejected the FTC’s vertical theory and credited a proposed fix. The FTC staff has appealed the initial decision to the full Commission for a final order.
- US v. US Sugar Corp. et al. The judge disagreed with the proposed southeast US geographic market and was persuaded that the government could adjust the supply of imported sugar to defeat an attempted price increase. The DOJ has appealed.
- US v. UnitedHealth Group Inc. et al. The DOJ lost on both horizontal and vertical theories. The judge found that the horizontal issue was remedied by the parties’ proposed divestiture of an overlapping business to a private equity buyer and the vertical theory was countered by the real-world evidence presented at trial. [EDITOR’S NOTE: for the updates on this case, please click here. ]
- US v. Booz Allen Hamilton Holding Corporation, Booz Allen Hamilton Inc., EverWatch Corp., EC Defense Holdings, LLC and Analysis, Computing & Engineering Solutions, Inc. While the opinion in this case was made public during Q4 of 2022, and thus will be discussed in more detail in our next Snapshot, the court announced its decision in September.
The absence of “smoking gun” documents and lack of a presumption of anticompetitive effects (based on market shares and concentration) made these cases very difficult for the government. The judges in these cases tended to credit structural and behavioral remedies that the government felt were insufficient and were persuaded by real-world testimony from executives and third parties contradicting the government’s theories of changed economic incentives from the transactions.
Kanter Delivers Speech on “Respecting the Antitrust Laws and Reflecting Market Realities”
Assistant Attorney General Jonathan Kanter delivered the keynote speech at Georgetown’s Antitrust Law Symposium on September 13, 2022, in which he highlighted the detriments of underenforcement and noted that the antitrust community has reached an inflection point in enforcement efforts. Kanter vowed that the Antitrust Division is “firing on all cylinders, working to use every tool [it has] available to promote competition and meet the moment.” Kanter noted that the division is litigating more than it has in years, with six pending civil antitrust lawsuits (the most civil cases litigated in the last two decades), more merger trials than any fiscal year on record and the most criminal indictments in almost four decades.
Kanter also mentioned the more than 5,000 public comments received in response to the proposed revisions of the merger guidelines and noted that the overwhelming majority of comments spoke to the desire for stronger enforcement. DOJ and FTC staff are currently preparing a draft of these revised guidelines. Until the new guidelines are published, it is difficult to predict how much weight courts will give the revised guidelines in view of existing case law and precedent.
Kanter also testified before the Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights. He committed to bringing “difficult” antitrust cases and vowed to build a team of litigators prepared for the challenge.
No US Consent Orders During the Quarter
FTC and DOJ leadership have touted their reticence to settle what they view as problematic transactions, and instead seek full-stop injunctions in court. In line with that rhetoric, no matters were settled by consent orders allowing the transaction to proceed during this quarter.
EU Lawmakers and Member-State Governments Agree on Rules to Address Distortive Foreign Subsidies
In July 2022, the European Parliament published the final text of the European Union’s upcoming instrument to address distortive foreign subsidies, following a provisional political agreement reached between the EU lawmakers in June (Foreign Subsidies Regulation). The Foreign Subsidies Regulation introduces a new mandatory screening mechanism including notification obligations and the European Commission’s right of ex officio investigations, which will have a considerable impact on M&A transactions and procurement procedures. The Foreign Subsidies Regulation provides the following:
- Transactions will have to be notified to the Commission prior to their completion if the target company, one of the acquiring companies or the joint venture to be formed has generated revenues of more than EUR 500 million in the European Union and the financial contributions from third countries have exceeded EUR 50 million over the three preceding years.
- In public procurement procedures with a contract value of more than EUR 250 million, companies will have to report all third-country financial contributions (such as the transfer of funds or liabilities, the foregoing of revenue otherwise due, and the provision or purchase of goods or services) they have received in the last three years.
- Outside the scope of notifiable transactions, the Commission may also decide to examine whether a foreign subsidy leads to a distortion of competition.
If the Commission concludes that a foreign subsidy is likely to create distortions in the internal market, it may impose redressive measures such as the following:
- Obligations to grant fair and non-discriminatory access conditions for certain infrastructure that was acquired or supported by the distortive foreign subsidies
- Reduction in the capacity or market presence of the undertaking that received a distortive foreign subsidy
- Refraining from certain investments
- Licensing at fair, reasonable and non-discriminatory terms and conditions for assets that were acquired or developed with the help of third-country subsidies
- Publication of the results of research and development
- Divestiture of certain assets
In certain cases, the Commission may even order the unwinding of a transaction and the repayment of the foreign subsidy, including reasonable interest.
The Foreign Subsidies Regulation will enter into force once it is formally adopted by EU lawmakers and published in the Official Journal. It will become directly applicable across the European Union six months after entry into force. The notification obligations will start to apply nine months after entry into force. The Commission also is currently drafting procedural rules on how to notify transactions, how to calculate time limits, and the process for preliminary reviews and in-depth probes when there is a suspicion of distortive foreign subsidies.
UK Government Proposes New Measures to Strengthen the CMA’s Powers
On April 20, 2022, the UK government proposed new measures to boost consumer protection rights and competition rules. In particular, the UK government’s reforms aim to strengthen the Competition & Markets Authority’s (CMA) powers and alleviate burdens on smaller companies.
With regard to mergers, the UK government proposed several important changes, including:
- Adjusting the CMA’s jurisdictional thresholds to better target the mergers most likely to cause harm, including (i) raising the turnover threshold in line with inflation (from greater than £70 million to greater than £100 million UK turnover) and (ii) providing additional bases to review “killer” acquisitions (i.e., acquisitions of an innovative nascent competitor by an incumbent to preempt future competition) and other mergers that do not involve direct competitors
- Creating a small merger safe harbor, exempting mergers from review where each party’s UK turnover is less than £10 million; and
- Accepting commitments from businesses that resolve competition issues earlier during a phase 2 investigation.
UK Competition Appeal Tribunal Principally Upholds the CMA’s Prohibition of Meta / Giphy
On June 14, 2022, the UK Competition Appeal Tribunal (CAT) largely upheld the CMA’s decision to block Meta’s acquisition of Giphy. In November 2021, the CMA concluded that Meta’s acquisition of Giphy would allegedly reduce competition between social media platforms and that the transaction allegedly removed Giphy as a potential challenger in the display advertising market. The CMA alleged that competition concerns arising from the acquisition could only be removed if Meta divested Giphy to an approved buyer. In December 2021, Meta filed an appeal against the CMA’s decision challenging (i) the CMA’s findings that the acquisition would result in a horizontal substantial lessening of competition, (ii) the CMA’s findings with regard to market definition, (iii) the counterfactual, (iv) the remedies and (v) procedural flaws.
The UK CAT confirmed the CMA’s findings that the acquisition could harm competition and dismissed all of Meta’s claims except for one procedural argument. The UK CAT ruled in favor of Meta with regard to the treatment of certain third-party confidential information, thus breaching Meta’s rights of defense. The UK CMA is currently conducting its remittal inquiry process.
UK Government Publishes First Report on the National Security and Investment Act
On June 16, 2022, the UK Business Secretary published the first report on the National Security and Investment Act (UK NSI Act). The UK NSI Act entered into force on January 4, 2022, and introduced a screening mechanism, running alongside the UK merger control rules, to review acquisitions that could harm the UK’s national security. The report covers the first three months of the UK NSI Act’s operation.
According to the report, the Investment Security Unit (ISU) received 222 notifications in the period from January 4, 2022, to March 31, 2022. Of these notifications, 196 concerned mandatory notifications, while 25 of the notifications were voluntary. The ISU also received one retrospective validation application (i.e., an application for notifiable acquisitions that have already been completed without approval and are therefore legally void) to be retrospectively recognized as being valid in law. The government called in 17 out of the 222 notifications for further assessment.
In terms of timing, the average number of working days from receipt of a mandatory notification to informing parties of a decision to accept that notification was three working days. There is no statutory time limit for the ISU to accept a mandatory notification, but they try to evaluate notifications as quickly as possible. With regard to the number of working days to call in a mandatory notification once accepted, the government took on average 24 working days to call in transactions. The statutory time limit to call in a mandatory notification is 30 working days.
For the updated enforcement trends, including key industries, selected enforcement actions as well as notable cases in the US and UK, please click here.