Background on the 2021 Executive Order

Executive Order 14036, titled “Promoting Competition in the American Economy,” was signed by President Joe Biden on July 9, 2021. Its core purpose was to launch a “whole-of-government effort” to combat what the administration saw as excessive market concentration and anti-competitive practices that harmed consumers, workers, and small businesses. The order contained 72 specific provisions designed to address these issues across various sectors.

Key goals included:

• Strengthening antitrust enforcement to challenge monopolistic behaviors and prior mergers that had consolidated power.
• Promoting worker rights by limiting non-compete agreements and enhancing labor market competition.
• Supporting consumer access to affordable goods and services, such as over-the-counter hearing aids and broadband “nutrition labels” for transparency.

The order directed over a dozen federal agencies to take action. For instance:

• The Federal Trade Commission (FTC) and Department of Justice (DOJ) were instructed to vigorously enforce antitrust laws, including reviewing and challenging past mergers in high-concentration sectors like technology, healthcare, and labor markets.
• The Department of Agriculture (USDA) was tasked with bolstering rules under the Packers and Stockyards Act to protect farmers and enable easier equipment repairs (advancing the “right to repair” movement).
• The Federal Communications Commission (FCC) was encouraged to reinstate net neutrality rules to prevent internet service providers from stifling competition.

Specific industries targeted included:

• Technology: Scrutiny of Big Tech mergers and practices that limited innovation.
• Agriculture: Protections against exploitative practices by large agribusinesses.
• Pharmaceuticals and Healthcare: Efforts to curb drug price hikes through merger reviews and competition in medical markets.
• Labor and Broadband: Bans on excessive non-competes and promotion of open internet access.

The order also established the White House Competition Council, a 15-member body to coordinate these efforts across agencies. Critics at the time argued it represented overreach, while supporters viewed it as a necessary response to rising corporate power, which they claimed led to higher prices and fewer choices for Americans.

Under the Biden-Harris administration, this framework led to stricter merger guidelines in 2023, increased FTC and DOJ challenges to deals, and initiatives that blocked or modified high-profile mergers in sectors like tech and groceries.

The Revocation: What Happened?

President Trump’s revocation was straightforward and immediate. The new executive order, issued on August 13, 2025, simply states: “Executive Order 14036 of July 9, 2021 (Promoting Competition in the American Economy), is hereby revoked.” It includes standard general provisions ensuring no impairment of existing agency authorities or creation of new legal rights.

The White House framed this as part of a broader agenda to dismantle “burdensome” regulations from the previous administration. The Justice Department quickly endorsed the move, announcing an “America First Antitrust” approach that prioritizes free markets over what it called the “overly prescriptive and burdensome” policies of the Biden era. This includes streamlining merger reviews and reinstating practices like early terminations for uncontroversial deals.

The revocation aligns with other recent Trump actions, such as targeted executive orders on lowering drug prices and reducing regulatory barriers, rather than a sweeping, multi-agency mandate.

What Does the Revocation Mean?

The revocation marks a philosophical pivot in U.S. competition policy. The Biden-Harris order was criticized by some as encouraging “top-down” regulations that picked winners and losers, fostering hostility toward mergers and acquisitions (M&A). By withdrawing it, the Trump administration aims to let markets operate more freely, with the government focusing on enforcing existing antitrust laws passed by Congress rather than expanding regulatory oversight.

Key implications include:

• End of the White House Competition Council: This inter-agency body, which coordinated efforts on issues like credit card fees and app store practices, is dissolved, potentially reducing holistic government scrutiny of anti-competitive behaviors.
• Shift Away from Strict Merger Scrutiny: The Biden-era guidelines made it harder for large deals to pass muster, leading to blocked mergers (e.g., in airlines and tech). Trump’s approach emphasizes “tailored action” to protect consumers without blanket opposition to consolidation.
• Broader Economic Focus: Proponents argue this will promote growth, innovation, and lower costs by reducing regulatory burdens. Critics, however, warn it could lead to higher prices, fewer choices, and greater corporate power, as seen in statements from figures like Sen. Amy Klobuchar, who called it a “step backward” for consumers and workers.

On social media, reactions vary: Some users celebrate it as a win for innovation and against bureaucratic overreach, while others decry it as favoring big business at the expense of everyday Americans, potentially costing billions in fees and losses.

FTC Chairman’s Statement

FTC Chairman Andrew N. Ferguson issued a strong endorsement of the revocation, stating:

“America’s markets are the most dynamic on Earth, responsible for enriching the entire world through technological innovations, lifting countless people out of poverty, and inspiring other countries to emulate our economic system. Our markets thrive when they operate freely and when the Federal government does not pick winners and losers but allows businesses to grow and innovate.

Today’s withdrawal of the Biden-Harris Executive Order on competition marks another break between the last Administration’s failed policies and the Trump-Vance Administration’s focus on protecting everyday Americans from anticompetitive practices through tailored action, promoting economic growth, and ensuring that American workers benefit from competition for their labor.

The now-withdrawn Executive Order encouraged top-down competition regulations, and established a flawed philosophical underpinning for the Biden-Harris Administration’s undue hostility toward mergers and acquisitions. Consistent with President Trump’s recent Executive Orders, the Trump-Vance FTC is devoting its resources to enforcing the antitrust laws passed by Congress, for the benefit of all American consumers and workers—lowering the cost of living, improving the quality of goods and services, fostering new innovations, and leading to ever-greater prosperity for our Nation.”

This statement underscores the administration’s view that the prior order stifled growth, positioning the FTC to prioritize consumer benefits through targeted enforcement.

What Should Businesses Expect from Trump Administration Competition Policy on Mergers?

For businesses, particularly those in merger-heavy sectors like tech, healthcare, and agriculture, the revocation heralds a more permissive environment. Here’s what to anticipate:

Overall, businesses should prepare for a pro-growth stance that favors innovation and efficiency. The U.S. Chamber of Commerce applauded the move, noting it entrusts consumers to “pick winners” in a competitive landscape. That said, not all views are positive—some analysts predict risks like reduced innovation from unchecked consolidation and higher prices for essentials. Companies should monitor DOJ and FTC actions closely, as enforcement will now be more case-by-case.

Conclusion

Trump’s revocation of EO 14036 resets the competition landscape, moving away from aggressive regulatory intervention toward market-driven policies. While this could unleash economic dynamism and ease M&A for businesses, it raises questions about long-term consumer protections. As the administration implements its vision, stakeholders from Wall Street to Main Street will be watching—and debating—the outcomes. Stay tuned for updates as this policy shift unfolds.

Andre Barlow

abarlow@dbmlawgroup.com

202-589-1838

Washington Premerger Notification Law

As of July 27, 2025, federal Hart-Scott-Rodino (HSR) Act filings will need to be submitted to the Washington Attorney General (WA OAG) under Washington State’s Antitrust Premerger Notification Act (APNA) if the parties have a certain minimum geographic nexus to the state of Washington. 

Under APNA, parties will need to submit a copy of their HSR filing to the WA OAG at the same time as their submission to the US Federal Trade Commission (FTC) and US Department of Justice (DOJ) if they: (1) have a principal place of business in Washington; (2) generated in-state net revenues in the prior year from the type of goods or services involved in the transaction of at least 20% of the minimum size of the HSR filing threshold (i.e., local annual net sales of at least $25.28 million in 2025); or (3) provide healthcare services within the state. While APNA imposes civil penalties for failure to file, the new law does not require a filing fee and does not impose a waiting period that prevents the transaction from closing.

Filing parties with their principal place of business in Washington must provide a complete copy of the federal HSR filing, including all exhibits and attachments submitted to federal agencies. Otherwise, the filing party need only include all exhibits and attachments at the request of the Attorney General.

Exhibits and attachments to the HSR filing include Transaction Information and Business Documents (formerly referred to as 4(c) and 4(d) documents), which often contain internal analyses of competition, market share, and strategic rationale. The law requires that submissions be made contemporaneously with the federal HSR filing, with no separate state waiting period imposed.

To preserve confidentiality, Washington’s statute expressly exempts submitted materials from public disclosure under the state’s public records laws. Disclosure is allowed only in the context of official proceedings and subject to protective orders. The statute also authorizes — but does not require — the Washington Attorney General to share filings with the Federal Trade Commission, the Department of Justice, or Attorneys General in other states with substantially similar premerger laws. This discretionary sharing mechanism is designed to support coordinated multi-jurisdictional enforcement efforts while maintaining strict confidentiality protections.

To promote compliance, the law includes an enforcement mechanism that allows for civil penalties of up to $10,000 per day for failure to file. This underscores the need for deal teams to incorporate Washington’s requirements into their closing checklists, particularly where either party has significant operations or revenue within the state.

Colorado’s Pre-Merger Notification law

Colorado’s Uniform Antitrust Pre-Merger Notification Act becomes effective on August 6, 2025.

Colorado’s Act applies across all industries, but only to transactions that are already subject to federal HSR reporting.

Under the statute, a qualifying party must provide a copy of its HSR filings to the Colorado Attorney General contemporaneously with its federal submissions, if the transaction in question meets one of the state’s nexus triggers.

Like in Washington, a party must provide a copy of its HSR filing to the Colorado Attorney General if: (1) a party to the transaction maintains its primary business headquarters within Colorado; or (2) a party to the transaction — or any entity it directly or indirectly controls — has annual net sales in Colorado related to the proposed transaction equal to or greater than 20 percent of the current HSR size-of-transaction threshold. As of 2025, with HSR thresholds at $126.4 million, the Colorado revenue trigger would equal $25.28 million in in-state sales.

Filing parties are generally required to submit an electronic copy of the complete HSR filing, including all exhibits and attachments. This ensures the Attorney General has access to the same substantive materials being reviewed by federal regulators.

Recognizing the commercially sensitive nature of merger filings, Colorado’s Pre-Merger Notification Act includes confidentiality protections. All materials submitted to the Colorado Attorney General under this law are confidential and exempt from public disclosure under the Colorado Open Records Act. Disclosure is permitted only in connection with administrative or judicial proceedings and then only under appropriate protective orders.

Colorado’s Pre-Merger Notification Act also authorizes — but does not require — the Attorney General to share information with the Federal Trade Commission, the U.S. Department of Justice Antitrust Division, and Attorneys General in other states that have adopted substantially similar legislation. It also authorizes the Colorado Attorney General to seek civil penalties of up to $10,000 for each day a party remains out of compliance.

Broader Trend of State Oversight

More states are following Washington and Colorado’s example. California, Hawaii, West Virginia, and the District of Columbia have introduced legislation that would apply to HSR-reportable transactions where a party has either its principal place of business in the state or derives at least 20 percent of its U.S. revenue from in-state operations. Notably, California’s proposed legislation includes a separate filing fee of $1,000 where a party has its principal place of business in California or $500 where the party meets the revenue threshold.

Utah and Nevada similarly introduced legislation largely mirroring Washington, Colorado, and the Uniform Antitrust Pre-Merger Notification Act. However, both bills failed to pass in the most recent legislative sessions.

New York recently proposed legislation requires any party conducting business in the state that is required to submit an HSR filing to contemporaneously provide the same notice and documentation, in its entirety, to the Attorney General.

The states are becoming more aggressive in terms of antitrust enforcement. Last year, the Colorado AG filed its own merger challenge to the Kroger/Albertsons merger separate and apart from the FTC’s challenge and litigated the case in CO state court. Notably, the Washington AG (which also has a state-level prenotification act) also challenged the merger and litigated the case in state court. 

Considerations for Businesses

For companies involved in M&A activity, these new laws introduce both strategic and operational considerations. First, dealmakers need to identify merger notification obligations early and consider incorporating potentially applicable state-law filing obligations into the due diligence process alongside HSR and other regulatory assessments, such as international merger control and foreign direct investment rules. State-level filing requirements could also be reflected in transaction timelines and closing conditions to help avoid last-minute compliance risks.

Second, filing parties also should account for the potential resource implications of the new law, including legal review, administrative processing, and possible engagement with State Attorneys General. Although the state laws do not impose waiting periods or clearance requirements, parties should anticipate increased scrutiny of transaction rationales, competitive effects, and state-specific market dynamics.

Third, companies may also want to revisit their internal document generation practices and carefully evaluate whether ordinary-course business materials contain language discussing competitive effects, market strategy, or industry dynamics — especially where such documents may be included in HSR filings and thus disclosed to state authorities.

Lessons Learned

There is a shift in how states are approaching merger oversight, signaling that state attorneys general intend to play a more active and earlier role in antitrust enforcement. While the laws impose relatively modest procedural obligations, they reflect a growing trend of decentralized regulatory scrutiny that may add complexity to deal execution. Fund managers, strategic acquirers, and other deal participants should plan ahead by evaluating both federal and state merger notification requirements early in the transaction lifecycle and consulting with counsel.

Andre Barlow

202-589-1838

Under the Biden administration, U.S. antitrust agencies, particularly the Department of Justice Antitrust Division (DOJ) and the Federal Trade Commission (FTC), took a hardline stance against negotiated merger remedies. Instead of settling, they often challenged mergers outright or allowed deals to close without formal conditions, expressing doubts about the effectiveness of remedies like structural divestments.

The Trump administration, however, signals a return to a more business-friendly approach, favoring settlement agreements with divestiture remedies to resolve anticompetitive concerns without litigation. Recent weeks have seen the clearance of five major transactions, each with tailored remedies, highlighting this shift.

Recent Examples of Merger Remedies

1. HPE/Juniper: Rather than litigate, the DOJ entered into a settlement agreement with HPE that required it to divest its Instant On wireless networking business and license Juniper’s Mist AI software.
2. Synopsys/Ansys: The FTC required Synopsys and Ansys to divest assets to Keysight Technologies to address concerns in software tools markets critical for semiconductor design and light simulation devices. This “mix-and-match” remedy involves assets from both parties.
3. Keysight/Spirent: The DOJ mandated Keysight to divest Spirent’s high-speed ethernet testing, network security testing, and RF channel emulation businesses to Viavi, addressing competition concerns in specialized communications test equipment markets.
4. Safran/Collins: To resolve DOJ concerns, Safran must sell its North American actuation business to Woodward, preventing higher prices, reduced quality, and stifled innovation in actuation and flight control markets.
5. Alimentation Couche-Tard (ACT)/Giant Eagle: The FTC required ACT to divest 35 gas stations to Majors Management to mitigate higher fuel costs in certain U.S. states. ACT must also notify the FTC before acquiring “competitively significant” stations in affected areas for ten years.
6. Omnicom/IPG: Unlike the structural divestments above, this global advertising deal involved behavioral remedies. The FTC imposed provisions to prevent Omnicom from directing advertising away from media publishers based on political or ideological viewpoints, a rare but market-specific solution.

Common Themes in Recent Remedies

• Upfront Buyers: In most of the structural divestiture cases, the parties were required to produce an upfront buyer to ensure remedy effectiveness, a standard U.S. agency practice.
• Innovation Concerns: In Synopsys/Ansys, Keysight/Spirent, and Safran/Collins, agencies cited potential reductions in innovation alongside price increases, reflecting a growing focus on innovation as a competition parameter.
• Global Coordination: These cases involved cooperation with international authorities (e.g., EU, UK, Japan, South Korea), aligning remedies and timing. For instance, the UK’s Competition and Markets Authority approved remedies in Safran/Collins on the same day as the DOJ.

FTC Leadership on Remedies

FTC head Andrew Ferguson has championed negotiated settlements, arguing they preserve procompetitive merger benefits while addressing anticompetitive concerns. Settlements are cost-effective, leveraging agencies’ limited resources and avoiding complex litigation where parties might propose remedies in court (“litigating the fix”). However, Ferguson cautions against inadequate or unworkable settlements, particularly behavioral remedies, and emphasizes the need for rigorous standards. The FTC plans to release a detailed policy statement on merger remedies soon.

Lessons Learned

The Trump administration’s antitrust agencies are now open to negotiating settlement agreements that fully resolve anticompetitive concerns, a practice welcomed by businesses and enforcement agencies alike. Companies pursuing mergers should proactively propose robust remedies early, clearly articulating procompetitive benefits like innovation, growth, and investment to align with this more collaborative enforcement approach.

Andre Barlow

The parties negotiated a divestiture of approximately 300 stores with the FTC staff to remedy the antitrust concerns.  The staff advised the four sitting commissioners to accept the negotiated settlement agreement.  A settlement, however, requires a majority vote of the four sitting FTC Commissioners.  Two Democratic members of the Commission were not comfortable with the proposed divestiture remedy, creating a deadlock with the two Republican Commissioners that followed the staff’s recommendation.  The deadlock allowed 7-Eleven to close its acquisition without any remedy at all.   

The two Democratic Commissioners, Acting Chairwoman Rebecca Kelly Slaughter and Commissioner Rohit Chopra, together issued a statement stating there is “reason to believe that this transaction is illegal under Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act, raising significant competitive concerns in hundreds of local retail gasoline and diesel fuel markets across the country.”  Expressing concern that the transaction presents a “merger-to-monopoly” or at least reduces the number of competitors from three to two in many local markets, the Democratic Commissioners warned the parties that the agency’s investigation would continue and that they were closing the harmful merger “at their own risk.” 

In a separate statement, Republican Commissioners Noah Joshua Phillips and Christine S. Wilson took issue with the lack of action by the FTC in this case: “Rather than resolve the issues and order divestitures (or sue to block the transaction), the Acting Chairwoman and Commissioner Chopra have issued a strongly worded statement” which does not bind the parties.  Commissioners Phillips and Wilson declared that “[t]here is no good reason for the Commission to be in this mess.”  According to the Republican Commissioners, the FTC had plenty of time to negotiate a resolution to resolve competitive concerns, and failure to do so has left consumers completely unprotected and created uncertainty for business.

 7-Eleven issued a statement defending its decision to close the transaction, explaining that the parties negotiated a settlement agreement with FTC staff at the end of April involving the divestiture of 293 stores that purportedly resolved all competitive concerns raised by the FTC.  According to 7-Eleven, the FTC staff, including leaders in the Bureau of Competition, recommended to the FTC Commissioners that they approve that settlement.  7-Eleven had also entered into a timing agreement with the FTC staff that was extended four times to provide additional time to negotiate a mutually acceptable divestiture package, with the final extension on April 9, 2021 allowing for the merger parties to close on May 14.

According to 7-Eleven’s statement, “[d]espite FTC staff’s recommendation that the Commission approve the negotiated settlement, on May 11, 2021—less than three days before close—Acting Chairwoman Slaughter and Commissioner Chopra indicated that they wanted more time to review the settlement agreement.  7‑Eleven took the request very seriously, but such a last-minute delay would have created enormous disruption to the lives of our new colleagues at Speedway and to the business.  Given that there was no legal basis for such a delay and given that 7‑Eleven was abiding by the negotiated settlement agreement, we closed today on schedule.”

Notably, 7-Eleven applauded the FTC staff “for their hard work and commitment in reviewing the Speedway transaction” and stated that it intends to abide by the negotiated settlement and complete the agreed-upon divestitures.

Lessons Learned:

This case serves as a reminder that when the FTC is operating with a 2 Republicans and 2 Democrats, the FTC cannot take action unless the FTC votes to do so.  If the FTC has a party-line split vote whereas they did here 2-2, no action will be taken by the Commission.  This allowed the parties to close the transaction without a formal consent decree.  Fortunately, 7 Eleven is abiding by the agreement that it entered with staff.

Merging parties with transactions that may raise competitive issues should take note that there is potential for continued stalemates at the FTC, at least in the near future. 

The complaint alleges that Amazon “fair pricing policy” requires third-party sellers who sell products through Amazon to agree to what is really a most-favored-nation (“MFN”) provision. According to the complaint, this fair pricing policy restrains third-party sellers, which wish to sell on Amazon’s platform, from selling their products on other websites, including their own websites, at prices lower, or on better terms, than offered through Amazon. This fair pricing policy replaced Amazon’s price parity provision, but the claim is that this new policy has the same effect as Amazon’s old policy.  It is considered a platform most-favored nation agreement and allows for Amazon to penalize third parties found in violation of these policies. Allegedly, the provisions have the effect of creating a price floor with Amazon’s prices being the lowest. Because these third-party sellers incorporate Amazon’s fees – which can be up to 40% of the product’s price – into their prices, they are forced to inflate their product prices on other platforms since they must account for the fees in their sale price. The claim of the Office of the Attorney General is that this policy suppresses competition and unnaturally inflates prices for consumers across all online retail platforms. The complaint asserts that these unreasonably high fees are built into prices market wide, due to the alleged price floor caused by the most-favored nation provisions.

According to the complaint, Amazon allegedly violates D.C. antitrust law in a variety of ways. First, Amazon is alleged to be engaged in unlawful horizontal agreements because Amazon horizontally competes with many third-party sellers (i) as online retailers, and (ii) in particular products. Second, Amazon is alleged to be engaged in unlawful vertical agreements because the most-favored-nation provisions eliminate competition in online retail. Third, Amazon, accounting for 50-70% of all online retail sales and benefiting from network effects, is alleged to monopolize and attempt to monopolize the online retail sales market.

D.C. Attorney General Karl Racine has stated that the lawsuit is an attempt to end Amazon’s illegal use of price agreements which destroy competition and harm the company’s two million third-party sellers. The complaint states that these pricing agreements “are facially anticompetitive and allow Amazon to illegally build and maintain monopoly power in the online retail market in violation of the District of Columbia’s Antitrust Act.”

In 2019, Amazon faced scrutiny from the U.S. Congress and regulatory agencies regarding a clause in their contracts with third party sellers that was known as a price parity provision. Though the company removed this provision, it was then replaced with the similar fair pricing policy that is under scrutiny today.

Amazon has responded to the lawsuit stating that “the D.C. Attorney General has it exactly backwards – sellers set their own prices for the products they offer in our store.” While the complaint seeks to enjoin Amazon from engaging in this allegedly anticompetitive behavior, Amazon has stated that such relief “would force Amazon to feature higher prices to customers, oddly going against core objectives of antitrust law.”

This case is noteworthy because there is not much litigation that has examined the anticompetitive effects of MFNs.  Without precedent indicating that price parity provisions or MFNs are anticompetitive, the DC AG, as the plaintiff, will have a difficult time showing how Amazon’s pricing policies result in anticompetitive effects.  Amazon will likely argue that the company’s pricing practices are pro-competitive or have no competitive effect.  MFN clauses are common in business. MFN clauses can be advantageous to a purchaser in that they eliminate the purchaser’s risk in negotiating a bad deal under unstable pricing conditions and are generally benign when the purchaser does not have market power.  But, Amazon’s MFN has been under scrutiny in the European Union so the DC AG is not on its own in scrutinizing the policy.  Indeed, when a monopolist or a firm with market power uses MFN clauses in its contracts, they can be illegal if they result in anticompetitive effects that harms the competitive process and results in increased prices overall.  For these reasons and more, MFN clauses alone are subject to the rule of reason—a lenient standard that requires a rigorous market analysis.  The difficulty in DC’s case is proving that Amazon has market power.  Market analysis or evidence needs to show that Amazon controls more than 50% of ecommerce.  Many third-party sellers are increasingly using other online platforms run by Etsy, Shopify, Facebook, Walmart Inc., eBay Inc., Target Corp., and others to reach new consumers in the wake of the pandemic.

Moreover, the lawsuit adds to increasing scrutiny over Amazon’s relationship with its third-party sellers, including a probe launched by the FTC in concert with the attorneys general around the country.  It is unclear why the District of Columbia’s lawsuit was filed before the other antitrust enforcers have completed their investigations other than politics.  In fact, D.C. Attorney General Racine is rumored to be in the running to be nominated to chair the Federal Trade Commission.  Even though this case currently involves only the D.C. AG, it still has important implications for the legal future of big tech companies and platforms. Facebook, Google, Apple, and Amazon have been under increased antitrust scrutiny in the United States for the past few years, indicating that federal and state antitrust enforcers will continue to scrutinize their conduct, actions and policies.

By Rachel Sims

For opening remarks, Rebecca Kelly Slaughter, the Acting Chair of the FTC, declared: “Aggressive enforcement using the FTC’s existing authority can and should be complemented by this committee’s work to sharpen antitrust laws and to impose broader market-wide restrictions that address pervasive anticompetitive conduct and conditions. I believe the FTC must push antitrust law forward through bold agency action.” Slaughter said, we must lay the groundwork for success for new theories and more aggressive enforcement.  Here, she touted the FTC’s recently announced working group to build a new approach to pharmaceutical mergers.  She suggested the FTC should consider bringing standalone Section 5 claims more frequently and called on more resources for the agency.

Slaughter conveyed her disappointment in the FTC’s decisions and actions on not suing Google back in 2013. “It’s incumbent on the FTC to bring hard cases in all areas, not just in tech, not just in platforms,” Slaughter stated. After her comments on harsher punishments for big companies that seem to weasel their ways out of antitrust laws, Slaughter called for higher tolerance for litigation risk, more specifically, declining a settlement that doesn’t entirely correct harm. She also communicated how we all must construct the basis for success in new models and more aggressive enforcement to be enacted.

The second witness, Judge Diane P. Wood stressed three crucial points in her argument. First, antitrust laws have always been concerned with intense economic power that congests flourishing competition and innovations. Second, exclusionary practices must be enforced. Third, it’s time to consider legislative changes in the remedies area of the statutes. Colorado Attorney General Phillip Weiser shared his thoughts on how courts have been hesitant in enforcing antitrust laws as well as enforcers showing an unwillingness to bring cases forward due to the Chicago school of antitrust, which only focuses on over-enforcement. This mindset is incorrect, according to Weiser, and he recommends having more enforcement cases and legislative action.

Commissioner Phillips underlined that today the antitrust agencies are engaged in vigorous enforcement and highlighted the number of enforcement actions in 2020, the highest number in decades. Today’s discussion concerns whether the law suffices.  Phillips stressed that antitrust laws protect competition.  They are not designed to address every problem large companies create.  “As you consider reform,” he told the subcommittee, “…I urge you to consider the impact on all business.”  And Phillips warned of unintended consequences.  He said government intervention is sometimes necessary but it can also get in the way.  “We can and do stop the bad ones [mergers], but over-regulating will also stop the good ones.”

After hearing from the witnesses and their remarks, the hearing went into a question and answer session for both sides of the hearing. The question and answer began with Representative David Cicilline speaking about a recent Politico report on the FTC’s choice to desert the Google case in 2013. He asked if we shouldn’t allow this to happen again, which Acting Chairwoman Slaughter retaliated that she asks for a complaint to be filed. Slaughter’s focus is further on the dangers of under-enforcement and inaction. With Slaughter as acting Chairwoman, the concern is that she will make some questionable enforcement decisions that push the envelope.

Representative David Cicilline fired at Commissioner Noah Phillips’s vote against FTC’s Facebook complaint. “My quibble with this case begins with the fact that these are transactions (Instagram and WhatsApp) that were brought to the attention of the FTC before I was there. No argument of fraud or anything like that. And for years the company was allowed to make decisions. So, a big part of this comes back to the integrity of the process,” Phillips retaliated.  He suggested that for the government to come back in, years later – and the longer you wait, the more investments the companies make – that presents a real issue.  “I can’t undo the fact that the agencies did what it did,” he said.  Phillips went further saying “I also think on the merits there are some questions to do with market definition and effects under Section 2 but I do think this broader framing is really important.  I wasn’t there when this happened – but it did happen.”

Neguse (D-CO) asked Commissioner Phillips whether he believes that the FTC’s approach to pharmaceutical mergers is working. Phillips was measured in his reply: “Some have suggested that it isn’t.  What I am interested in hearing is, what are the harms that folks think we’re missing?  Because I think if they exist, we should figure out what they are, figure out how to bring a case on them, and bring those cases.  That’s why I support the Chairwoman’s effort to convene a group of enforcers to think about what those additional harms may be.”  Neguse was less than thrilled with this answer.  He expressed his own view that the FTC’s approach to pharma deals is not working, which is why he shares Phillips’ enthusiasm about the working group convened recently by the FTC.  Asked to expound on that matter, Slaughter said she intends to look at innovation broadly and not just at pipeline products, for example.  Another area of concern is conduct: when two large companies that engage in anticompetitive conduct merge, what happens?  Slaughter is excited about the opportunity to partner with sister enforcers.

The key takeaways from this hearing are:

Acting Chairwoman is all about more aggressive antitrust enforcement. She spoke about her desire for the FTC to “go all in on litigation, even risky and costly litigation.”  She said that more cases should be brought under Section 5 of the FTC Act.  Moreover, Slaughter also believes that this aggressive enforcement can and should be complemented by Congress’s work to “sharpen antitrust laws and to impose broader market-wide restrictions that address pervasive anticompetitive conduct and conditions.”

Commissioner Phillips, meanwhile, is much more measured about his views on current enforcement. He urged the use of a scalpel in reforming the antitrust laws and warned against unintended consequences.  Phillips also cautioned that antitrust is not the appropriate tool to cure all ills such as concerns about content moderation, for example.

Given bipartisan concerns about gigantic tech firms and Democratic control of both chambers of Congress, a middle path may prove ultimately unnecessary if broader reform gets the requisite support.  However, the law ultimately shakes out, the next four years should see a renewed emphasis in challenging mergers.

By Lizzy Bensend, Spring Intern at Doyle, Barlow & Mazard PLLC.

The discussion began with revisiting the tragic siege of the United States capitol that took place on January 6, 2021. Before the siege, on many different platforms (Twitter, Facebook, etc.) President Donald Trump continued to post disputes about the presidential election, specifically mentioning voter fraud. With there being no evidence to verify these disputes, Trump’s campaign for president for a second term was over. Yet it took a violent storming of our nation’s capital to make the world realize that the words on social media and the internet do, in fact, have an effect and insight riots and violence. Any different social media platforms suspended or banned Donald Trump’s account from their sites including Twitter, Facebook, and Instagram. Thus began the great deplatforming.

Why this deplatforming is legal for big tech companies like Google and Apple is because these companies are not in affiliation with the government. This means that the First Amendment is not valid if not stated in their terms of service. If the said company feels that their terms of services have been broken by an individual or feels that said individual is a threat to others, companies have the right to deplatform them. When first signing up on the platforms, every user must agree to the companies terms of services, many just seem to not read them beforehand.

Using Twitter as an example, after being questioned about if it was legal to permanently suspend Donald Trump’s account, Twitter explains their terms of services and the reasoning behind these actions. After analyzing the tweets that Donald Trump was posting and how others were receiving them, they came to the conclusion that they would permanently suspend his account due to the risk of further violence that could be invoked.

With the first Amendment, it becomes very difficult to regulate the dissemination of information in the United States, especially since the government has not created regulations for tech. The only privacy regulator in the United States is the Federal Trade Commission, yet it does not have any real privacy authority. It focuses mainly on deception and unfair business practices.

Section 230 was created to allow internet platforms to grow and to protect platforms from lawsuits if a user posts something illegal with exceptions for copyright violations, etc. This section has also allowed for disinformation campaigns to be spread around the internet and push society apart. With the increased spread of disinformation, creating a privacy statute, revisions of antitrust laws, and reconsidering section 230 need to be on the table to help our society move forward in a positive light.

The question of what the future of technology and democracy will be like since the great deplatforming is still a mystery. Since the capital siege as well as President Joe Biden taking office, Congress has brought forward the idea of reevaluating section 230 to help avoid the further spread of disinformation.

Link to Facebook Live: https://www.facebook.com/georgetownlaw/videos/117256850273091

Lizzy Bensend

Doyle Barlow & Mazard PLLC

Background

Eldorado agreed to acquire Caesars for $17.3 billion on June 24, 2019. Eldorado is a provider of casino entertainment and hospitality services, operating 23 casino gaming properties. Caesars is a similar provider, operating 53 casino gaming properties in 14 states and in 5 countries outside the United States.

The FTC determined that Eldorado’s proposed acquisition of Caesars would likely cause substantial competitive harm to the casino services markets in South Lake Tahoe, Bossier City-Shreveport, and Kansas City.

In the South Lake Tahoe area market, Eldorado currently operates the MontBleu Casino and Spa (“MontBleu”), while Caesars operates Harrah’s Lake Tahoe Hotel and Casino and Harveys Lake Tahoe Hotel and Casino. All three casinos are located in Stateline, Nevada.  In the Bossier City-Shreveport market, Eldorado operates the Eldorado Shreveport Casino (“Eldorado Shreveport”). In the same market, Caesars offers casino services at two properties, Horseshoe Bossier City Hotel and Casino and Harrah’s Louisiana Downs. In Kansas City, Missouri, Eldorado operates the Isle of Capri casino and Caesars operates Harrah’s Kansas City Hotel and Casino.

The FTC found that Eldorado and Caesars are close competitors in the three markets and that the acquisition would substantially lessen this competition and incentivize Eldorado to raise prices while also diminishing its incentive to improve the quality of its services and amenities. These effects would be detrimental to casino customers in these markets.

The FTC also concluded that significant entry barriers exist, so entry is unlikely to be timely. Regulations limit the number of available casino licenses and inhibit the expansion of gaming operations. Obtaining regulatory approval is a lengthy and costly process. Additionally, Louisiana and Missouri have issued all available casino licenses. For this reason, entry in those markets is currently restricted.

Consent Agreement

The proposed consent agreement sets forth that Eldorado must divest its MontBleu casino and its Eldorado Shreveport casino to Twin River Worldwide Holdings, Inc. (“Twin River”). Further, the divestitures must conclude by the earlier of 12 months from the closing of the acquisition; or 30 days from the date Twin River receives all regulatory approvals.

Independently from its acquisition of Caesars, Eldorado is selling its Isle of Capri casino in Kansas City, Missouri. According to the consent agreement, Eldorado must consummate the sale of Isle of Capri within 60 days of the closure of the acquisition. If this condition is not met, the FTC has the option to require Eldorado to divest Isle of Capri to an approved buyer within 12 months.

Additionally, Eldorado and Caesars are required to abide by the Order to Separate and Maintain Assets until the divestitures are completed. Eldorado and Caesars are thus required to maintain the viability, marketability, and competitiveness of their assets while the divestitures are in progress. A monitor will ensure the parties comply with the Order to Hold Separate and Maintain Assets, the consent agreement, and the divestiture agreements. After the divestiture, the parties are required to provide transitional services to the acquirer of the assets for up to 12 months.

According to the FTC, complying with the consent agreement would result in no changes to market concentration in the three areas and prevent competitive harm.

Commissioner Chopra’s Dissent

In his dissent, Commissioner Chopra expressed that he views the acquisition as risky and having no benefit to competition, casino customers, and those working in the casino services market. While Commissioner Chopra agrees that the acquisition is unlawful, he believes the FTC should not enter into agreements with prolonged divestitures.

According to Commissioner Chopra, an agreed upon divestiture must fully restore competition and the new competitor must be ready and able to compete on day one. He notes this is not possible under the proposed consent agreement. The prolonged divestitures of Eldorado’s two casinos to Twin River can be completed at the earliest of 12 months after acquiring Caesars, or 30 days after Twin River receives regulatory approval. Commissioner Chopra expressed that prolonging the divestiture necessitates adding other risky provisions to the consent agreement. Additionally, he disapproves with the FTC’s proposal to have Commission-appointed property managers operate the casinos until the buyer is ready to take over. Chopra believes this appointment is outside of the FTC’s role. Potential anticompetitive harms are also evident to Chopra with the FTC appointing a monitor, as the appointed managers will be compensated by the prior owner and there is no clear procedure for the manager’s removal or discipline at the hands of the appointed monitor and the FTC.

Moreover, Commissioner Chopra believes the FTC failed to adequately analyze Twin River before approving it as the divestiture buyer. Recently, two hedge funds have accumulated major ownership stakes in Twin River. Commissioner Chopra is concerned that the FTC did not consider the plans of these hedge funds and that ultimately Twin River is not a long-term competitor.  He also argues that Twin River will not restore competition on day one given.

Thoughts

The FTC majority decision is in line with the FTC’s past decisions to allow mergers of casino companies on the condition that the buyer divests overlapping casinos that raise competition concerns.  In the past, the FTC approved mergers with settlement agreements that did not identify an upfront buyer.  In this case, the FTC has actually done more than it has in the past as it identified the divestiture buyer, had an opportunity to vet the buyer, and required a comprehensive remedy to make sure that the divested assets are protected while the divestiture buyer obtains necessary licenses.  That being said, Commissioner Chopra raises significant concerns about the FTC’s process and review of divestiture buyers.  He is right that in the FTC should always strive to require divestiture remedies that restore competition on day one.  Whenever there is a delay in the sale of the divested asset, there is an increased risk that the divestiture buyer may fail may in effectively maintaining competition.  Also, given past failed divestiture remedies, he is right to question a divestiture buyer’s motives and incentive, and divestiture buyers must be thoroughly vetted before allowing an anticompetitive merger to be consummated.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

And

Alexandra Taylor

The FTC has a long history of scrutinizing transactions in the pharmaceutical industry, but Commissioners’ statements demonstrate that they are not on the same page with regards to the analytical approach of analyzing pharmaceutical mergers and how to remedy the competitive problems that are identified.

The three Republican Commissioners in the majority adhere to the traditional framework, which examines actual competition between existing treatments and potential competition between existing and pipeline treatments, and then tailors very narrow remedies to address those competitive overlaps.

Background

AbbVie and Allergan compete in the manufacture and sale of pancreatic enzyme therapies for exocrine pancreatic insufficiency (“EPI”).  AbbVie’s Creon is a pancreatic enzyme therapy for EPI, a condition that results in the inability to digest food properly.  Creon is the market leader.  Meanwhile, Allergan’s Zenpep (pancrelipase) was a strong competitor in a concentrated market where the other two players have only one or two percent share.  Indeed, AbbVie and Allergan together control 95 percent of the market for these drugs.  As a result, the FTC concluded that the merger lessened competition in the market for treatment of EPI.

AbbVie and Allergan have investigative biologic drugs working their way through the U.S. Food and Drug Administration (“FDA”) approval process that are indicated to treat moderate to severe Crohn’s disease and ulcerative colitis.  AbbVie’s Skyrizi, an IL-23 inhibitor, is already on the market to treat moderate-to-severe psoriasis, but Skyrizi and Allergan’s IL-23 inhibitor, brazikumab, will potentially compete in the future.  The FTC alleges that the acquisition would eliminate future direct competition between AbbVie and Allergan in the development and sales in the United States of IL-23 inhibitor drugs for treatment of moderate-to-severe Crohn’s disease and moderate-to-severe ulcerative colitis.

Consent Agreement

Under the proposed consent agreement, AbbVie and Allergan are required to divest to Nestlé, S.A. (“Nestlé”) Allergan’s assets related to EPI drugs Zenpep and Viokace.  AbbVie and Allergan also are required to transfer to AstraZeneca plc (“AstraZeneca”) Allergan’s rights and assets related to brazikumab — its IL-23 inhibitor that is in development to treat moderate-to-severe Crohn’s disease and ulcerative colitis.

Commissioner Chopra and Slaughter‘s Dissents

Commissioners Rohit Chopra and Rebecca Slaughter, the two Democrats, continue to call for a fundamentally different approach to analyzing pharma mergers especially when the merger combines two firms that have engaged in a laundry list of egregious anticompetitive practices that have resulted in higher prices and less consumer choice.  Commissioner Chopra remains skeptical that the FTC’s traditional framework identifies the complete set of harms to patients and favors taking a more expansive approach to analyzing the full range of competitive consequences of pharmaceutical mergers.  Commissioner Slaughter agrees with Chopra’s dissent but also expresses concern about the lessening of innovation that occurs from a massive pharmaceutical merger.

Commissioner Chopra criticizes the FTC’s myopic approach to analyzing pharmaceutical mergers as he points out that “he agency’s default strategy of requiring merging parties to divest overlapping drugs is narrow, flawed, and ineffective”.  He added that “it misses the big picture, allowing pharmaceutical companies to further exploit their dominance, block new entrants, and harm patients in need of life-saving drugs.”

However, the main focus of his dissent is on the FTC’s willingness to accept “risky or questionable buyers”.  He questions whether Nestlé, the maker of candies such as KitKat is a suitable buyer for a prescription drug and whether the divestiture of a pipeline drug to AstraZeneca would actually restore competition.

His main complaint about Nestlé is that the company is not a pharmaceutical manufacturer so it lacks the experience necessary to succeed.  And, while the divestiture of brazikumab rids the overlap, AstraZeneca is getting the asset for nothing and Allergan will continue to pay for the development costs of the drug so AstraZeneca gets a “windfall”, has no financial stake in the development of brazikumab, and will have little to no financial incentive to market the product aggressively when and if it is ever approved.

Commissioner Chopra also notes that the FTC failed to account for the hurdles that AstraZeneca will face if brazikumab is ever approved.  AstraZeneca would have to contend with AbbVie’s rebate wall.  Chopra specifically states: “the Commission could have also taken steps to reduce a key barrier to entry and expansion for AstraZeneca by restricting AbbVie and Allergan’s contracting and rebating practices.  This would make it more likely that AstraZeneca would exercise its option to develop and bring brazikumab to market.  Importantly, in the immunology space, a key feature of competition is the ability for a market player to engage in ‘portfolio contracting’ and ‘bundled rebates’ across its portfolio of drugs.  The evidence in the investigation suggests that AbbVie currently uses its bargaining leverage from its blockbuster drug Humira to preference its other immunology drugs.  AbbVie’s rebating practices are suspicious in their own right, and certain aspects of these practices might be unlawful.”

Majority Statement

On the flip side, the majority took on Commissioner Chopra’s dissent with a very aggressive tone.  The majority said Chopra’s dissent “makes misleading claims about the staff’s investigation, the state of competition in the pharmaceutical industry, and the commission’s enforcement record in this industry,” and that it “relies on false assertions, misapplication of law, and specious logic.  It appears to have fully embraced the adage to “never let the truth get in the way of a good story”.  The majority points out that while Nestlé is the world’s largest food and beverage company, it has “tremendous financial resources”, a substantial U.S. sales infrastructure, and “contrary to Commissioner Chopra’s assertions — Nestlé is no stranger to the healthcare space.”  Additionally, the majority took on the part of Commissioner Chopra’s dissent, which raised concerns regarding the potential that the merged firm could use rebating practices to disadvantage AstraZeneca in bringing brazikumab to the market.  To that end, the majority stated that “in the context of a merger investigation, the role of a divestiture is to restore competition to the state that it would have been absent the merger, not to provide the divestiture buyer with advantages that Allergan would not have had.” Basically, the majority is saying that behavioral remedies are inappropriate because Allergan would have had similar hurdles to overcome.

Truth be told, the FTC has an enormous amount of flexibility in crafting remedies to ensure that competition is fully restored.  Here the majority takes a very narrow approach of simply transferring pipeline assets to a divestiture buyer without regard to whether the product will ever be marketed.  The decision is curious given that former Director of Bureau of Competition Bruce Hoffman publicly stated in a speech in 2018 that pipeline drug divestitures face a “startlingly high” rate of failure and as Chopra points out in his dissent, the FTC has a history of using behavioral conditions to support divestiture buyers.

That said, the majority believes that the consent fully resolves competitive harm from the merger because the divestitures handle the overlaps, both firms are strong in different areas, and there is no evidence the deal will result in higher prices and lost innovation.

Concluding Thoughts

The philosophical divide between the Republican and Democrat Commissioners is not a surprise given some of their past votes on merger approvals.  The fundamental conflict goes to the very heart of how the FTC should evaluate pharmaceutical mergers.  The majority – as well as the FTC staff – continues to use the standard traditional analytical framework.  They are making an evidentiary-based analysis as to whether the specific merger before them is likely to substantially lessen competition in a line of business.  The majority is concluding that the transaction should be allowed with narrowly tailored divestiture remedies that resolve the specific competitive concerns and shies away from using a broader and more comprehensive approach.

The Democratic Commissioners, on the other hand, believe that the FTC’s analytical approach is myopic and fails to address wide-ranging issues of competitive harm.  They believe that the healthcare markets are not competitive and that the FTC’s approach has led to increased consolidation and higher prescription drug prices so a change in approach may be necessary.  And to the extent that the FTC is going to accept divestiture remedies of specific products, the Democratic Commissioners believe the FTC should require divestiture buyers that will fully restore competition.

Here, Commissioner Chopra raises serious issues about both buyers.  There is certainly always a concern when the divestiture buyer does not replace the competitive intensity that is lost from the merger, and here, Nestlé’ is no Allergan.  The evidence also very clearly suggests that AstraZeneca is not financially committed to the pipeline drug that it is acquiring for “no money” and that certain conduct in the industry may prevent AstraZeneca from effectively marketing brazikumab.  Specifically, Commissioner Chopra shines a light on how AbbVie’s rebating and bundling practices may actually be monopolistic conduct that is anticompetitive, and he rightly questions whether the conduct should have been prohibited in the consent order.  While the Commissioners disagree on a lot, they certainly all should be in agreement that consumers should not have to bear the risk of a failed remedy.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Consumer Group Concerns Regarding Rebate Walls and the Proposed Divestiture

The letter expresses concerns that the proposed divestiture to AstraZeneca of Allergan’s brazikumab, a drug in development, is inadequate to address the clear anticompetitive effects of the AbbVie/Allergan merger.  The letter makes the following points:

First, the divestiture of Allergan’s IL-23 inhibitor, brazikumab, a drug in the pipeline, to AstraZeneca is unlikely to fully restore competition.  The divestiture is being proposed to resolve the horizontal overlap between AbbVie’s IL-23 inhibitor, Skyrizi, and Allergan’s brazikumab for potential biologic treatments for Crohns diseas and ulcer colitis.  The group argues that the divestiture raises a number of serious concerns because it goes against the Commission’s policy of requiring divestitures of on market drugs instead of pipeline drugs.  Indeed, the FTC has required divestitures of on market drugs in Bristol Meyers/Celgene and Amneal/Impax because the Commission generally believes that consumers should not bear the risk that a divestiture may fail.

Second, the consumer groups contend that AstraZeneca is a questionable buyer for brazikumab.  AstraZeneca is not committed to the assets because it gave up on them just three years ago and according to the parties’ press releases announcing the deal, won’t be investing in the development costs to obtain FDA approval.  In fact, Allergan is expected to pay for the development costs.  Without having a significant financial stake in the development of brazikumab, it becomes less likely that AstraZeneca will ever launch the products and compete with AbbVie’s Skyrizi in the markets for Crohn’s disease and ulcerative colitis.

Third, for any divestiture to be effective, it is crucial to impose restrictions on AbbVie’s use of rebate walls (contracts that foreclose rival drugs from getting on drug formularies) that could inhibit any buyer of the pipeline assets from being an effective competitor in the future.  AbbVie’s use of rebate walls creates substantial barriers to AstraZeneca’s commercial success in bringing brazikumab to the market and the success of competing products in these therapeutic categories. AbbVie has and is currently engaged in restrictive contracting practices that have enabled the creation of so called “rebate walls” to protect its blockbuster drugs, Humira and Skyrizi, that not only lead to higher prescription drug prices, but foreclose rival drugs from obtaining access to payors’ formularies, resulting in reduced consumer choice.

Rebate Walls Raise Serious Antitrust Concerns

Pharmaceutical manufacturers have implemented a new strategy to block and delay entry of biosimilars and other drugs from the market through a contracting practice that creates what is known as a “rebate wall” or “rebate trap”.   A rebate wall occurs when a manufacturer leverages its market-dominant position to secure preferred formulary access for its products by offering lucrative incentives to pharmacy benefit managers (“PBMs”) and health insurers in the form of volume-based rebates.  These rebates are often offered across multiple products, indications, and therapeutic specialties, the breadth of which cannot be matched by new and innovative therapies.  The Trump Administration earlier this year sought to eliminate rebates from the Medicare prescription drug program because pharmaceutical rebates raise more profound competitive problems than discounts in other industries.  In fact, the coalition notes that there is increasing evidence that rebates actually inflate prices (as opposed to decreasing them) and that these rebates, unlike typical discounts, do not ultimately benefit consumers.

FTC is Currently Investigating Rebate Walls

On July 29, 2019, Johnson & Johnson (“J&J”) disclosed that the FTC issued a civil investigative demand regarding its investigation of whether J&J’s contracting practices related to its rebates for Remicade (infliximab) amount to exclusionary conduct illegal under the antitrust laws.

In 2017, Pfizer Inc. (“Pfizer”) filed a lawsuit against J&J for its contracting practices that protect Remicade’s position in the market and deny patients access to Pfizer’s infliximab biosimilar, Inflectra.  The lawsuit is still in the discovery phase.

Biosimilar developers have been urging the FTC to weigh in on whether exclusionary contracts for brands based on aggressive rebating strategies are legal and the agency has chosen a high-profile example to investigate.

Pfizer applauded the FTC’s investigation in a statement: “We believe the [FTC’s] decision to open an investigation into the competitiveness of the biosimilar is an important step, which we hope will lead to a robust, competitive marketplace for patients and physicians to access biosimilar medicines.”

Rebate Wall Concerns Were Raised By Nine Senators in the FTC’s Investigation of Bristol-Myers/Celgene and AbbVie/Allergan

On September 19, 2019, nine senators (Klobuchar, Booker, Baldwin, Smith, Hirono, Sanders, Harris, and Warren) wrote a letter to the FTC expressing their concerns that “[p]ost-merger, the combined firm would have greater ability to condition buyers’ access to these multi-billion dollar drugs on purchases of less popular drugs in their portfolios. They could also use their increased leverage to secure favorable positions on buyers’ drug formularies by offering volume-based rebates that competitors with rival products cannot match; these “rebate traps” or “rebate walls” can have the effect of preventing alternative drugs, including more affordable biosimilars and generics, from competing.”

Thoughts

The AbbVie/Allergan merger gives the FTC an opportunity to investigate the questionable contracting practice in the pharmaceutical drug industry known as a “rebate trap”.  Payors such as PBMs and health insurers obtain rebates on prescription drugs from pharmaceutical manufacturers that have actually inflated the price of drugs and stifled the ability of rival drug manufacturers to effectively compete.  This practice is recognized by both the administration and industry players as anticompetitive.  Moreover, major drug manufacturers such as Pfizer, Shire, and Sanofi have filed antitrust suits challenging rebate walls as antitrust violations.  In theory, rebates could have a positive impact on the prescription drug market if they led to lower prices and benefitted consumers.  But, in practice, this is simply not the case. Rebate walls distort the workings of the free market, result in higher drug prices, and reduce patients’ access to affordable branded drugs.

While rebates and discounts can be procompetitive if they lead to lower prices for consumers, some drug manufacturers are structuring discounts to limit competition from rivals in an effort to protect their monopolies.  When a rebate wall is successfully erected by a market-dominant manufacturer, a payor faces strong financial disincentives to grant access to new and innovative therapies, as doing so would result in the loss of hundreds of millions in guaranteed rebate dollars for the payor.  This condition creates a “trap” for payers who would otherwise be inclined to grant formulary access to therapies that are newer and more innovative, yet lack established volume and subsequent potential for rebate revenue.  In many cases, these actions prevent patients and physicians from seriously considering new medications at competitive prices.

Given the competitive risks that rebate walls pose, the coalition has asked the FTC to investigate how the rebate wall may undermine the proposed divestiture.  Competition works when new rival drugs  are allowed open and fair access to the market and consumers have access to cost saving treatments.  And while the FTC has not publicly acknowledged examining rebate walls, the issue is now in front of the staff.

According to the New York Times, the smaller rivals, which have largely been publicly quiet until the hearing, finally stepped up to the plate and sounded off on big tech at a hearing in Boulder, Colorado.  The Congressional subcommittee heard stories of technology giants wielding their massive footprints and platforms as weapons, allegedly copying smaller competitors’ features or tweaking their algorithms in ways that stifle competition.

The pleas for regulatory relief resonated with lawmakers, led by Rep. David N. Cicilline (Democrat – Rhode Island), the chairman of the House’s antitrust subcommittee. Cicilline noted that “it has become clear these firms have tremendous power as gatekeepers to shape and control commerce online.”

The executives sounded off on big tech and the bipartisan committee encouraged them to testify about their stories.  The founder and CEO of PopSockets, explained how his company clashed with Amazon over policies that made it hard to sell his products on his preferred terms and prices.

Executives at Sonos, a high-end audio company, and Basecamp, which makes web-based product management tools allege that Google undermines smaller rivals. Sonos has sued Google, alleging patent infringement.  David Heinemeier Hansson the co-founder of Basecamp explained that its competitors have been purchasing ads on Google against the company’s own name, meaning people who search for Basecamp see rivals unless they scroll down their results page.  In other words, Hansson says that Google requires companies “to pay protection money” — or risk obscurity.

Tile makes Bluetooth trackers that can be attached to your personal possessions to help you keep track of them.  A Tile executive explained how Apple rolled out the “Find My” device tool — built into its operating system — that resembled Tile’s app used to find devices making it more difficult for Tile to compete.  From Tile’s perspective, it created a helpful tool for consumers, which was then copied by Apple and then Apple made its app the default on its devices, purposely hurting Tile’s business by making it more difficult for iPhone users to change their default settings, thus creating hurdles for Tile’s app that does not apply to Apple’s app. Tile wants a level playing field.

Along the lines of Tile wanting Apple to simplify what it claims is a too-complicated process right now, Apple shared a statement as part of the congressional hearing suggesting that a fix to this is coming soon. Per the statement shared by a CNBC reporter, Apple noted that:  “When setting up a new device, users can choose to turn on Location Services to help find a lost or misplaced device with ‌Find My‌ ‌iPhone‌, an app that users have come to rely on since 2010. Customers have control over their location data, including the location of their device. If a user doesn’t want to enable these features, there’s a clear, easy to understand setting where they can choose exactly which location services they want enabled or disabled. “…We’re currently working with developers interested in enabling the ‘Always Allow’ functionality to enable that feature at the time of setup in a future software update.”

Democrats and Republicans at the hearing sympathized with the executives.  There was little push back against the testimony of the small rivals.  Indeed, small rivals are encouraged to approach the DOJ Antitrust Division, FTC, and Congress about how the tech giants have used their powerful positions in search, e-commerce, online ads and smartphones to squeeze them out.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Most recently, on November 6, 2019, the Federal Trade Commission (“FTC”) issued an Opinion and Final Order in which the Commission upheld the Administrative Law Judge’s (“ALJ”) decision that Otto Bock HealthCare North America, Inc.’s (“Otto Bock”) acquisition of FIH Group Holdings, LLC (“Freedom”) was anticompetitive and that Otto Bock must divest Freedom’s entire business with the limited exceptions granted by the ALJ.  The Commission’s order was approved by all five commissioners and continues the trend of unwinding consummated acquisitions that are deemed to be anticompetitive.

Accordingly, buyers must be aware of the risks of closing a non-reportable transaction that eliminates competition.  Here are a couple of points to keep in mind:

First, Non-Reportable Transactions That Eliminate a Competitor May Raise Antitrust Scrutiny

Indeed, corporate executives that enter into non-reportable acquisitions of their competitors must be aware that in some cases these deals entail significant antitrust risk.  Just because the deal is not reportable under the HSR Act does not mean that the federal or state antitrust agencies won’t investigate, challenge, and unwind it.

Second, Size of Transaction Does Not Matter

The antitrust agencies can investigate and unwind a deal, no matter the size of the transaction.  The antitrust agencies have challenged consummated deals valued as low as $3 million (see George’s/Tysons,  Complaint, United States v. George’s Foods, LLC, No. 5:11-cv-00043 (W.D. Va. May 10, 2011).  Other small deals challenged by the agencies include Renown Health’s $3 and $4 million deals; a $5 million transaction (Complaint, United States v. Election Sys. & Software, Inc., No. 1:10-cv-00380 (D.D.C. Mar. 8, 2010); Magnesium Elektron/Revere Graphics, a $15 million deal; Charlotte Pipe/Star Pipe, a $19 million deal; Dun & Bradstreet’s $29 million deal;  BazaarVoice/Power Reviews; and the list goes on.

Third, Length of Transaction Has Been Closed Does Not Matter

The FTC has challenged a consummated transaction more than eight years after the transaction closed (see Complaint, Graco Inc., No. 101 0215 (F.T.C. Apr. 17, 2013).

Fourth, Disgorgement of Profits Is Possible

The agencies have sought disgorgement of profits earned from post-merger price increases to remedy the anti-competitive effects of a consummated merger.  For example, under the terms of the consent order in FTC v. Hearst Trust, Hearst agreed to disgorge $19 million in profits earned from price increases following its acquisition of MediSpan, Inc. (Final Order, FTC v. Hearst Trust, No. 1:01CV00734 (D.D.C. Nov. 20, 2001)).  In another example from the DOJ, U.S. v. Twin America, LLC, et. al, Twin America, Coach, and City Sights together were required to pay $7.5 million in disgorgement to remedy alleged violations of Section 7 of the Clayton Act, Section 1 of the Sherman Act, as well as New York State law, including the Donnelly Act (see Proposed Final Judgment, United States v. Twin America, LLC, Civil Action No. 12-cv-8989 (ALC) (GWG) (March 16, 2015)).  In one case, the DOJ and New York State sought disgorgement of defendants’ illegal profits earned from increased prices charged after the formation of an illegal joint venture that eliminated competition and created a monopoly in “hop-on, hop-off” bus tours in New York City.

How Does the Government Learn of Non-Reportable Anticompetitive Mergers?

In the absence of an HSR notification, the agencies become aware of possibly anticompetitive mergers through the companies own press releases, news reports, complaints from competitors or customers, information from other investigations, or, in some cases, self-reporting by the parties.

Background of Otto Bock/Freedom Deal

On September 22, 2017, Otto Bock and Freedom simultaneously executed a merger agreement and consummated their merger.  The transaction did not require a pre-merger notification filing in the United States so the FTC did not have a chance to evaluate whether the acquisition was anticompetitive prior to the closing.  But, shortly after the deal Otto Bock issued an ill advised press release that highlighted that the deal combined the #1 and #3 players in the field of prosthetics in the United States, led to market share gains and strengthened its leading position.  Believing that “antitrust issues had already been clarified”, they closed the deal and then Otto Bock took steps to integrate Freedom’s business, including personnel, intellectual property, know-how, and other critical assets.

Shortly after the closing, the FTC started an investigation and within three months took action by filing an administrative complaint seeking to unwind the merger.  At the same time, Otto Bock agreed with the FTC to hold the businesses separate during the litigation to preserve the acquired business from Freedom.  According to the FTC’s administrative complaint, the merging parties were head-to-head competitors in the manufacture of microprocessor prosthetic knees (“MPKs”) and the deal eliminated head-to-head price and innovation competition, removed a significant and disruptive competitor, and entrenched Otto Bock’s position as the dominant supplier of MPKs.

Otto Bock made a number of arguments in its defense.  First, it offered a divestiture of Freedom’s MPK assets to an identified buyer, which it argued eliminated the FTC’s allegations of purported harm.  The FTC, however, rejected the remedy as insufficient.  It also argued that the efficiencies would outweigh the procompetitive effects and that Freedom was a failing firm.

ALJ Decision in Otto Bock

On April 29, 2019, the ALJ upheld the FTC’s administrative complaint finding that the transaction substantially lessened competition in the relevant market for the sale of MPKs to prosthetic clinics in the United States.  The deal eliminated competition between Otto Bock and Freedom that spurred innovation and lower prices.  The ALJ found that Otto Bock’s divestiture remedy was insufficient and found that the appropriate remedy was the divestiture of all the assets acquired with the possible exception of certain foot products that are not necessary to competition in the relevant MPK market.  On May 8, 2019, Otto Bock filed a notice of appeal stating that it would appeal the entirety of the ALJ’s initial decision and order. 

Commission Opinion and Order

The Commission found that there was a presumption of harm based on high market shares and concentration levels.  In addition, the Commission found that the record evidence of competitive harm was compelling.  The evidence confirmed that Otto Bock possesses the leading share of U.S. MPK sales with the C-Leg 4 and showed that Otto Bock and Freedom vigorously competed against each other in terms of price and innovation competition.  Internal documents showed that they would respond against each other with price promotions and discounts.  If one came out with a new generation, the other would try to “leap frog” the other.  The evidence further demonstrated that Otto Bock viewed Freedom as a direct competitive threat and demonstrated that one of the reasons for the acquisition was to eliminate the development of Freedom’s new MPK, the Quattro, that had the nickname the “C-Leg Killer”.  Part of the reason for the acquisition was to make sure that no other competitor acquired Freedom’s Quattro.  In summary, the Commission upheld the ALJ’s decision that the acquisition substantially lessened competition and that to fully restore the competition lost from the acquisition, Otto Bock must divest Freedom’s entire business with the limited exceptions granted by the ALJ.

Lessons Learned

The FTC’s investigation, challenge, and successful litigation serve as a reminder to corporate executives and antitrust counsel that antitrust risks do not end once a deal closes, and that a transaction is not free of antitrust risks simply because the transaction is not reportable under the HSR Act.  The Commission’s Opinion and Order unwinding the merger further demonstrates the risks of closing a deal that presents significant antitrust concerns and makes clear that such challenges will continue to be pursued by the FTC.  The Commission’s Opinion and Final Order requiring a complete divestiture of the business that was acquired also makes clear that when the FTC is evaluating a proposed remedy that its goal is to fully restore competition.  When a buyer proposes to sell a carve out of assets instead of a whole business to a divestiture buyer, it must show how the partial divestiture of assets to the divestiture buyer restores competition.

Corporate and private counsel should be aware of the likely consequences and the risks of consummating transactions that raise significant competitive issues.  The risks may include: defending against costly and lengthy government investigations as well as government and private litigation; unwinding the merger through either complete or partial divestitures even after integration has taken place; and disgorging profits gained from the alleged anticompetitive merger.  Accordingly, before competitors execute a transaction agreement, counsel should conduct a preliminary assessment of whether the proposed transaction gives rise to substantive antitrust issues no matter the deal’s size.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Coalition Opposing the Merger

The coalition includes Families USA, Public Citizen, U.S. PIRG Education Fund, Service Employees International Union, American Federation of State, County, and Municipal Employees, UNITE HERE, Consumer Action, American Federation of Teachers, Alliance for Retired Americans, American Family Voices, Doctors for America, End AIDS Now, Prescription Justice, Social Security Works, the Other 98, Treatment Action Group, and NextGen California.  It is asking the FTC to conduct a thorough investigation and to block the merger if the facts support it and a remedy cannot be devised to restore competition.  The coalition highlights the competitive problems arising from continued consolidation in the pharmaceutical industry and requests that the FTC include in its investigation ongoing anticompetitive conduct by the parties, such as the use of rebate walls, which will have an even more profound anticompetitive effect if this merger is consolidated, as well as past abuse of the patent system.

The letter makes three points.

First, the merger of AbbVie and Allergan will continue a tremendous trend of consolidation and the evidence shows that consumers are paying higher prices and losing out on access and choice because of less innovation by big pharma companies.  Mergers result in fewer choices for consumers, and drug companies are increasingly spending their money on acquisitions instead of research and development.

Second, the merger will reduce competition in a number of markets where the companies directly overlap with each other.  The coalition underlines an overlap between AbbVie’s blockbuster, Humira, which already treats 10 indications including Crohn’s disease and ulcerative colitis, and its new IL-23 blockbuster, Skyrizi, which is currently marketed to treat moderate to severe psoriasis but is being investigated to treat Chron’s disease and ulcerative colitis, with Allergan’s brazikumab, an IL-23 inhibitor that is currently being investigated to treat Crohn’s disease and ulcerative colitis.  The coalition further points out that the FTC’s policy is to accept divestitures of actually manufactured pharmaceutical products over pipeline products.

Third, the merger will exacerbate competitive problems that already exist in the pharmaceutical drug industry relating to rebate walls and patent abuses.  The coalition requests that the FTC not limit its investigation to direct product overlaps because the combination of AbbVie’s and Allergan’s blockbuster drugs will enable AbbVie to engage in a whole range of potentially anticompetitive conduct to hamper the ability of rivals to compete.  Indeed, both manufacturers have previously engaged in anticompetitive behavior to prolong their monopolies, suppress competition and raise prices.  The coalition points out, for example, that the merger would enable AbbVie to increase its bargaining leverage over payors to use exclusionary practices such as rebate walls to limit the ability of rivals to expand and enter.  It underscores that both AbbVie and Allergan have used rebate walls to stifle competition in the past.

Families USA, one of the groups that signed onto the letter, said, “The proposed acquisition of Allergen by AbbVie will combine two companies that independently engage in anticompetitive practices that make prescription drugs unaffordable for families into one mega corporation.  We urge the FTC to carefully consider the impact of this proposed drug company merger on competition and prices and protect access to critical medicines for consumers.”  And Peter Maybarduk, Access to Medicines Director for Public Citizen, said, “Two leading price gouging patent manipulators unite.  AbbVie is notorious for manipulating its patent power over the blockbuster medication Humira and AIDS drugs like ritonavir, keeping affordable generics off the market and even slowing innovation.  Allergan is notorious for hiding its patents behind the sovereign immunity of a Mohawk tribe.  Unless the FTC steps in, we can look forward to new efforts to destroy competitive markets by the pharma giant that emerges from this deal, in an industry increasingly focused on monopolizing yesterday’s inventions instead of creating new ones.”

Rebate Walls

Pharmaceutical manufacturers have implemented a new strategy to block and delay entry of biosimilars and other drugs from the market through a contracting practice that creates what is known as a “rebate wall” or “rebate trap”.   A rebate wall occurs when a manufacturer leverages its market-dominant position to secure preferred formulary access for its products by offering lucrative incentives to pharmacy benefit managers (“PBMs”) and health insurers in the form of volume-based rebates.  These rebates are often offered across multiple products, indications, and therapeutic specialties, the breadth of which cannot be matched by new and innovative therapies.  The Trump Administration earlier this year sought to eliminate rebates from the Medicare prescription drug program because pharmaceutical rebates raise more profound competitive problems than discounts in other industries.  In fact, the coalition notes that there is increasing evidence that rebates actually inflate prices (as opposed to decreasing them) and that these rebates, unlike typical discounts, do not ultimately benefit consumers.

FTC is Currently Investigating Rebate Walls

On July 29, 2019, Johnson & Johnson (“J&J”) disclosed that the FTC issued a civil investigative demand regarding its investigation of whether J&J’s contracting practices related to its rebates for Remicade (infliximab) amount to exclusionary conduct illegal under the antitrust laws.

In 2017, Pfizer Inc. (“Pfizer”) filed a lawsuit against J&J for its contracting practices that protect Remicade’s position in the market and deny patients access to Pfizer’s infliximab biosimilar, Inflectra.  The lawsuit is still in the discovery phase.

Biosimilar developers have been urging the FTC to weigh in on whether exclusionary contracts for brands based on aggressive rebating strategies are legal and the agency has chosen a high-profile example to investigate.

Pfizer applauded the FTC’s investigation in a statement: “We believe the [FTC’s] decision to open an investigation into the competitiveness of the biosimilar is an important step, which we hope will lead to a robust, competitive marketplace for patients and physicians to access biosimilar medicines.”

Rebate Wall Concerns Were Raised in the FTC’s Investigation of Bristol-Myers/Celgene

On January 11, 2019, Rep. Peter Welch (D-VT) and Rep. Francis Rooney (R-FL) wrote a letter to the FTC, urging the agency to investigate Bristol-Myers Squibb Company’s (“Bristol-Myers”) acquisition of Celgene Corporation (“Celgene”).  The letter asked the FTC to examine how the acquisition allows Bristol-Myers to increase its drug portfolio and leverage over PBMs when negotiating preferred drug placement on formularies.  The letter argued that the larger the firm, the more it can use rebate walls to block more affordable and, in some cases, more efficacious products’ access to formularies.

Thoughts

The AbbVie/Allergan merger gives the FTC an opportunity to investigate the questionable contracting practice in the pharmaceutical drug industry known as a “rebate wall”.  Payors such as PBMs and health insurers obtain rebates on prescription drugs from pharmaceutical manufacturers that have actually inflated the price of drugs and stifled the ability of rival drug manufacturers to effectively compete.  This practice is recognized by both the administration and industry players as anticompetitive.  Department of Health and Human Services Secretary Alex Azar has noted that rebate walls can prevent competition and new entrants into the system.  Moreover, major drug manufacturers such as Pfizer, Shire, and Sanofi have filed antitrust suits challenging rebate walls as antitrust violations.  In theory, rebates could have a positive impact on the prescription drug market if they led to lower prices and benefitted consumers.  But, in practice, this is simply not the case.  Rebate walls distort the workings of the free market, result in higher drug prices, and reduce patients’ access to affordable branded drugs.

While rebates and discounts can be procompetitive if they lead to lower prices for consumers, some drug manufacturers are structuring discounts to limit competition from rivals in an effort to protect their monopolies.  The FTC understands that when a rebate wall is successfully erected by a market-dominant manufacturer, a payor faces strong financial disincentives to grant access to new and innovative therapies, as doing so would result in the loss of hundreds of millions in guaranteed rebate dollars for the payor.  This condition creates a “trap” for payers who would otherwise be inclined to grant formulary access to therapies that are newer and more innovative, yet lack established volume and subsequent potential for rebate revenue.  In many cases, these actions prevent patients and physicians from seriously considering new medications at competitive prices.

Given the competitive risks that rebate walls pose, the coalition has asked the FTC to investigate how this transaction may make the situation related to this suspect contracting practice worse.  Competition works when new rival drugs (biosimilars, branded drugs or generics) are allowed open and fair access to the market and consumers have access to cost saving treatments.  And while the FTC has not publicly acknowledged examining mergers between drug manufacturers under this type of theory before, the issue is now in front of the staff.

The notion that antitrust enforcement is motivated by politics has hung over the Trump administration since the Department of Justice’s failed attempt to block AT&T’s acquisition of CNN’s owner, Time Warner and some antitrust experts might point out that the Obama administration also influenced the DOJ’s decisions to sue or settle cases.

While politics has always played a role in setting the antitrust agenda, typically antitrust investigations and enforcement decisions are based on the facts.  Indeed, there is no credible evidence that the big tech firms have engaged in unlawful monopolization or that they have stifled innovation.  In fact, Iowa’s Attorney General Tom Miller, who is well known for his role of leading 20 states in the DOJ’s antitrust suit against Microsoft, said this past July that “[w]e are struggling with the law and the theory,” to bring a case against the big tech firms.

But, this didn’t stop the state AGs from entering the fray.  Republicans are concerned that the tech platforms have suppressed conservative viewpoints, Democrats are worried that these tech companies are simply too big and powerful.  But the announcements of the state AG investigations into Google and Facebook have two things in common: a lack of substance as they can point to no consumer harm and publicity to tout their efforts.

The latest announcement of the state AGs’ investigation of Google – from the steps of the Supreme Court no less – demonstrates just how political antitrust enforcement is becoming.  This type of high-profile activism may benefit state AGs’ political aspirations, but it could impose enormous costs on consumers.  Indeed, the mere threat of numerous investigations could have a chilling effect on innovation and competition for as long as these probes last.

Some state AGs appear to be conflating antitrust and other politically popular pet causes, raising the specter of using antitrust enforcement for political gain.  On the same day of his announcement of the Google investigation, Texas Attorney General Ken Paxton sent a fundraising request in an email to his supporters touting his efforts to take on “Silicon Valley titans.” And, according to a copy of the email shared with POLITICO, Paxton asserts “Texans are put at risk” by Google because of the company’s market dominance and privacy practices, and because its “executives clearly display anti-conservative and anti-Republican bias, subtly controlling what Americans see when they search for information about national political issues.”  But political concerns have no place in an antitrust investigation and using antitrust investigations to punish speech raises profound First Amendment concerns.

As the federal antitrust authorities and the state AGs begin their investigations, they must be mindful that companies like Google and Facebook have delivered a tremendous amount of innovation enabling the launch of new products and services that have resulted in many benefits to consumers such as free online search, email, messaging, and artificial intelligence services all while competing in a highly competitive advertising market with the likes of AT&T, Disney, CBS, and Comcast/NBCU.  These multichannel competitors have been locked in the stone age for years, are now finally innovating to compete against the new digital advertising entrants such as Google, Facebook, and Amazon.

In addition to competing with the large entertainment companies for users’ eyeballs and time, Google fiercely competes with Facebook, Amazon, and Apple in various ways, including the development and launch of new products and services such as digital assistant devices, internet of things platforms, and virtual reality products, providing consumers with an abundance of choices and convenience.  In short, the big tech platforms are not successful because they are big and powerful – they are big and powerful because they have been successful.  And that success stems from the nature of a free market economy that provides incentives of firms to innovate and grow.

Without question, this type of efficiency and competition should be preserved.  What’s more, utilizing antitrust enforcement as a political tool is a threat to the rule of law.  Antitrust enforcement should not be turned into a political enterprise to police unrelated, and unsubstantiated, “harms” based on subjective moral and social judgments.  Instead, it must continue to be primarily based on sound theories, objective economic criteria, and evidence of consumer harm.  For years, enforcement decisions were based on the consumer welfare standard – not on populist standards that change with the political winds.

Remember the antitrust laws are focused on consumers and whether any company is disadvantaged by Google’s business practices is not at issue – the central issue to a court will be, do consumers pay more.  And although there may be pockets of disgruntled rivals, there is little to no evidence that consumers have paid more because of the way that Google conducts its business.

Andre Barlow

202-589-1838

On the same day, Assistant Attorney General Makan Delrahim of the Antitrust Division of the U.S. Department of Justice (“DOJ”) said the DOJ is working with a group of more than a dozen state attorneys general as it investigates the market power of major technology companies.  Delrahim said at a tech conference that the government is studying acquisitions by major tech companies that were previously approved as part of a broad antitrust review announced in July of major tech firms with significant market power.  “Those are some of the questions that are being raised… whether those were nascent competitors that may or may not have been wise to approve,” he said.

On July 23, the DOJ said it was opening a broad investigation into whether major digital technology firms engaged in anticompetitive practices, including concerns raised about “search, social media, and some retail services online.”  The investigations appear to be focused on Alphabet Inc.’s Google, Amazon.com, Inc. and Facebook, Inc. (“Facebook”), as well as potentially Apple Inc.

More than a dozen states are expected to announce in the coming weeks that they are launching a formal probe.  “I think it’s safe to say more than a dozen or so state attorneys general (that) have expressed an interest in the subject matter,” Delrahim said.  In July, eight state AGs met with U.S. Attorney General William Barr to discuss the effect of big tech companies on competition, and various antitrust actions.

On August 19, the New York Attorney General’s office said it is continuing to “engage in bipartisan conversations about the unchecked power of large tech companies.”  North Carolina Attorney General Josh Stein is also “participating in bipartisan conversations about this issue,” his office said.  The DOJ is looking not only at price effects, but also at innovation and quality, and the next steps in its broad antitrust review would be seeking documents and other information.  Delrahim also said that after the July announcement, the companies under investigation “immediately reached out to work with us in a cooperative manner to provide information that we need as far as the investigation.  In June, the FTC told Facebook it had opened an antitrust investigation.  Last month, the FTC resolved a separate privacy probe into Facebook’s practices after the company agreed to pay a $5 billion penalty.

Thoughts

The states joining the DOJ’s and FTC’s investigations are not a surprise.  As many as 39 states have been raising antitrust concerns about the big tech firms with both the DOJ and FTC.  They have similar concerns regarding big tech as the federal antitrust agencies.  The issues relate to whether the markets for online advertising, search, social media, app sales and certain retail sectors are currently competitive.  The state AGs involvement in these investigations adds another layer of complexity for Google, Facebook, and Amazon.  This action by the state AGs should remind everyone that sound antitrust enforcement is not just a federal affair.  Indeed, many of the seminal antitrust cases including cases creating key principles of monopolization and merger law were brought by state attorneys generals.

State attorneys generals use the power under federal and their own state statutes to protect consumers against anticompetitive and fraudulent conduct in credit card, pharmaceutical, computer and many other markets crucial to consumers.

States have significant advantages over federal enforcers.  They are closer to the market and consumers and recognize the direct harm to consumers.  They have the ability to secure monetary damages.  States are often customers and victims of anticompetitive behavior.  State enforcers can bring combined antitrust and consumer protection cases.  And although each state has limited antitrust and consumer protection resources, states increasingly are using multi-state task forces to investigate and prosecute unlawful conduct.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Complaint

The FTC is alleging the merger of the chemical companies would substantially reduce competition in the Pacific Northwest and the Southern and Central United States for the production and sale of hydrogen peroxide, a commodity chemical used for oxidation, disinfection, and bleaching.

Most hydrogen peroxide produced in North America is sold to pulp and paper customers for bleaching pulp and de-inking recycled paper, according to the complaint.  Hydrogen peroxide is also used to sterilize food and beverage packaging, and in chemical synthesis, fracking, water treatment, and electronics.  For most end uses, there are no effective substitutes, the complaint alleges.  Because of high transportation costs, customers prefer nearby suppliers.

The complaint alleges that the acquisition would harm competition in at least two ways.  First, it would increase the likelihood of coordination in a market  that already functions as an oligopoly and has a long history of price-fixing including guilty pleas and litigation settlements.   The markets are highly concentrated, with significant transparency among rival firms, and long-term, stable customer-supplier relationships, low elasticity of demand, and a history of strong interdependent behavior, the complaint states.  Evonik has high market shares of approximately 50% in both geographic markets.  Second, the acquisition would eliminate significant head-to-head competition between Evonik and PeroxyChem in the Pacific Northwest, where it would leave only one other hydrogen peroxide producer, and in the Southern and Central United States, where it would leave three other producers.  The complaint alleges that customers have benefitted from competition between Evonik and PeroxyChem in the form of lower prices.

New competitors or expansion by existing firms is unlikely to be timely or sufficient to offset anticompetitive harm, due to the massive investment necessary to build a new hydrogen peroxide plant.

The FTC vote to issue the administrative complaint and file the agreed-upon request for a temporary restraining order in the U.S. District Court for the District of Columbia was 4-0-1.  Chairman Joseph J. Simons was recused.  The administrative trial is scheduled to begin on January 22, 2020.

Lessons Learned

The FTC’s challenge of the merger is demonstrates that the FTC will take action to preserve competition and protect consumers when the facts support a lawsuit.  The FTC action shows that  firms that propose a merger or acquisition in a concentrated industry with a history of past collusion should expect increased scrutiny. As the FTC noted in its Complaint, evidence of past collusion is important to the FTC’s coordinated effects analysis. Merging parties should be prepared to show that market conditions have changed since the past collusion has occurred. Here, the parties were not able to do that and the FTC alleged that the market is vulnerable to coordination.  Besides relying on a coordinated effects theory, the FTC alleges that the merger eliminates head to head competition, which will likely lead to higher prices.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

On Friday, February 1, Senator Amy Klobuchar re-introduced two bills aimed at strengthening antitrust enforcement.

The co-sponsors include Senators Ed Markey (Dem-Massachusetts), Richard Blumenthal (Dem-Connecticut), Dick Durbin (Dem-Illinois) and Corey Booker (Dem-New Jersey).

The Consolidation Prevention and Competition Promotion Act of 2019 would, among many other things, include revising the Clayton Act to eliminate the well-established standard against mergers that would “substantially” lessen competition with a lower “materially likely” standard.  It intends to “clarify that the Clayton Act prohibits mergers that, as a result of consolidation, may materially lower quality, reduce choice, reduce innovation, exclude competitors, increase entry barriers, or increase price.”  This change would dramatically change current antitrust law by proposing new legal standards for approval of larger corporate mergers.  The legislation makes clear that consolidation itself is harmful because, among other things, it threatens democracy by concentrating political power and creates hurdles for fresh competition from small businesses.  A conclusion that a transaction “may cause more than a de minimis amount of harm to competition” is sufficient to make it illegal. Among the factors to be considered are the transaction’s impact on market concentration, the value of the transaction ($5 billion, to be adjusted annually), the market capitalization, the value of assets held or the amount of sales made by any party ($100 billion, to be adjusted annually), regardless of horizontal competition between the merging parties.  This bill also proposes to establish a “new competition advocate,” which would have broad authority to monitor a range of potential market distortions and formally recommend competition investigations to the Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”). In addition, the legislation would require post settlement data to be submitted annually for five years after approval of a merger on the competitive impact of the acquisition, including information on pricing, availability and quality of any impacted product or service, as well as data on cost savings, consumer benefits and effectiveness of any merger conditions.

The Merger Enforcement Improvement Act would, likewise among many other things, require merged parties that settled with the antitrust agencies to submit to the FTC or DOJ, whichever vetted the deal, data that would allow them to assess the impact of the merger, including pricing of service, the cost-saving benefits claimed in the merger, and the effectiveness of any divestitures.  In addition, the bill would direct the FTC to conduct a study, using any compulsory process necessary, to examine the competitive impacts of institutional investor ownership in competitors in moderately concentrated or concentrated markets, including assessing whether, and to what extent, mechanisms exist by which an institutional investor could affect competition.  If the results of the study—which must be published within two years of enactment—find that there is undue influence, subsequent remedial action could profoundly impact the form and shape of institutional investor holdings.

Democrats Favors Aggressive Antitrust Reviews

Democrats in the House are aiming to ramp up oversight of the antitrust agencies.  Congressman David Cicilline (D-R.I.) the new chairman of the House Judiciary Committee’s Antitrust, Commercial and Administrative Law Subcommittee wants the antitrust agencies “to drive down the cost of prescription drugs and health care” and “hold big tech companies accountable”.

The House Democrats plan to hold hearings related to a number of industries, including technology, healthcare and pharmaceuticals, food and several consumer products.  Potentially joined by a few Republicans who have been critical of U.S. antitrust enforcement policy, the House Democrats also intend aggressive oversight of the FTC and the DOJ.   Among other things, House Democrats propose creating a “consumer competition advocate” that will “proactively recommend competition investigations” to the DOJ and FTC.  Under the House Democrats’ proposal, the DOJ and FTC would be required to publicly justify any decision not to pursue an investigation recommended by the consumer competition advocate.  The office would also be responsible for maintaining and publishing data regarding market concentration and conditions.

The House Democrats are expected to work with their Senate colleagues to attempt to rewrite key provisions of the antitrust laws, because they believe the current antitrust laws do not appropriately address the “the full range of potentially anticompetitive behavior.”

Concluding Thoughts:

The Democrats and Republicans have been critical of the lack of U.S. antitrust enforcement that has resulted in consolidation and increasingly concentrated industries.  It is unclear how far these measures will advance but it has a better chance to do so in this Congress than it did in the last one.  What is clear, however, is that these proposals are part of a broad agenda to enlarge the scope of antitrust enforcement.  The initiatives and legislative proposals serve as a condemnation of the antitrust record of the Trump, Obama, and Bush administrations for being too lax, particularly in merger enforcement as well as in the remedies that were accepted by the FTC and DOJ that allowed both horizontal and vertical mergers to go forward.  Regardless of whether any new legislation is actually passed, we would expect antitrust enforcement to continue to be a hot topic in the political arena as well as more congressional hearings and investigations of consolidated industries in the next two years.

Andre Barlow (202) 589-1838 abarlow@dbmlawgroup.com

The letter asks the FTC to examine how the transaction may harm competition with respect to horizontal overlaps and even complementary drugs.  Specifically, the letter points out that the acquisition allows BMS to increase its drug portfolio and leverage over pharmacy benefit managers (“PBMs”) when negotiating preferred drug placement on formularies and bundled discounts that can create “rebate walls”.

The transaction gives the FTC an opportunity to investigate a questionable contracting practice in the pharmaceutical drug industry known as a “rebate wall” or “rebate trap”.  Payors such as PBMs and health insurers obtain rebates on prescription drugs from pharmaceutical manufacturers that have actually inflated the price of drugs and stifled the ability of rival drug manufacturers to effectively compete.  This practice is recognized by both the administration and industry players as anticompetitive.  Department of Health and Human Services Secretary Alex Azar has noted that rebate walls can prevent competition and new entrants into the system. Moreover, major drug manufacturers such as Pfizer and Shire have filed antitrust suits challenging rebate walls as antitrust violations.  In theory, rebates could have a positive impact on the prescription drug market if they led to lower prices and benefit consumers.  But, in practice, this is simply not the case.  Rebate walls distort the workings of the free market, result in higher drug prices, and reduce patients’ access to affordable branded drugs.

Given the competitive risks that rebate walls pose, Congressmen Welch and Rooney have asked the FTC to investigate how this transaction may make the situation related to this suspect contracting practice worse.  Competition works when new rival drugs are allowed open and fair access to the market and consumers have access to cost saving treatments.  The FTC has not publicly acknowledged to examining mergers between drug manufacturers under this type of theory before, but the issue is now in front of the staff.  Rebate walls may be anticompetitive in certain circumstances, but it will be interesting to see if the FTC focuses on this issue in a Second Request investigation.  The FTC is now on the clock.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

The staff attorneys who run investigations and negotiations at the Commission are out of the office, which means that parties are simply waiting while everything is on hold.  HSR waiting periods will continue to run during a government shutdown.  DOJ and FTC staff will continue to review premerger filings and conduct investigations to determine whether to challenge reported transactions under the antitrust laws.  Second Requests will continue to be issued and, if engaged in merger litigation, FTC and DOJ attorneys will notify opposing parties and the courts of the government shutdown and attempt to negotiate timing extensions and suspensions. If such relief is not available, they will continue to litigate the matter.

The DOJ and the FTC both issued contingency plans indicating that certain employees connected to antitrust enforcement within the Antitrust Division of the DOJ and the Bureau of Competition at the FTC will be excepted from the furlough and will continue to conduct antitrust enforcement activities.

While difficult to predict, there may be delays in review of certain strategic transactions (including increased risk of a “pull and refile” scenario, or a higher likelihood of a Second Request being issued). Transactions with substantive antitrust issues will likely still receive scrutiny by the agencies, and the shutdown is unlikely to decrease the likelihood of a Second Request or challenge if the agencies believe circumstances warrant such action. If anything, some parties who file during the shutdown may be more likely to get a Second Request than they would have been if there was no government shutdown because they will not have the full 30 days to provide information to address an agency’s initial questions.

In the current DOJ Contingency Plan, of the 655 Antitrust Division employees, a total of 264 (40%) are excepted from furlough in the case of a government shutdown. In the current FTC Contingency Plan, of the 306 total Bureau of Competition employees, a total of 132 (43%) are excepted from the furlough. Moreover, within the Bureau of Economics, of the 105 employees, 10 (9%) are excepted from the furlough.

The FTC is suspending all Second Request and non-merger investigations currently underway during the shutdown. According to the DOJ contingency plan, the DOJ will operate with limited staffing to those employees necessary to launch or continue merger investigations or litigation where it cannot obtain a continuance or extension of a statutory deadline.  

At the FTC, Second Requests will be issued and, once issued, the staff will go back to being furloughed. The five Commissioners are still working.  There is not much merging parties can do to speed up the process so the FTC investigations will be delayed. The DOJ is operating at more strength and the front office is still at work.  Both agencies, however, will try to work to achieve certain transaction deadlines.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Background

On February 21, 2017, Tronox inked a deal to buy Cristal for $1.67 billion and a 24% stake in the new entity. The transaction would have created the largest TiO2 company in the world, based on titanium chemical sales and nameplate capacity.

Tronox Limited operates three titanium dioxide TiO2 pigment plants in the United States, Netherlands and Australia. Tronox has a TiO2 plant in Hamilton, Mississippi. Cristal operates eight TiO2 manufacturing plants in the USA, Brazil, United Kingdom, France, Saudi Arabia, China and Australia. Cristal has two TiO2 plants in Ohio.

Administrative Complaint

On December 5, 2017, the Federal Trade Commission (“FTC”) issued an administrative complaint challenging Tronox Limited’s proposed acquisition of Cristal, a merger of two of the top three suppliers of chloride process titanium dioxide (“TiO2”) in the North American market.  The FTC was challenging Tronox’s acquisition of Cristal over significant concerns that the deal would substantially lessen competition for chloride-process titanium dioxide in the United States and Canada.  Titanium dioxide is an industrial chemical primarily used as a white pigment in paints, coatings, and specialty paper products.  Titanium dioxide is manufactured using either a chloride process or a sulfate process. The vast majority of titanium dioxide sold in the United States and Canada is made using the chloride process, which produces brighter, more durable coatings than the sulfate process. The FTC alleges that in the North American market, sulfate titanium dioxide is not a viable substitute for chloride process titanium dioxide. The FTC also alleges that major customers for titanium dioxide in the North American market, principally coatings manufacturers, could not easily or cost-effectively shift away from chloride process titanium dioxide in favor of sulfate process titanium dioxide.

FTC Has Taken Issue With Consolidation in the TiO2 Market Before

In 1999, the FTC blocked E.I. du Pont de Nemours & Co.’s (“DuPont”) acquisition of Imperial Chemical Industries (“ICI”). At the time, DuPont (25%) and ICI (10%) combined produced 35% of the global supply. DuPont was the leading supplier, both in the United States and the world, of TiO2 pigments and ICI was the second-largest supplier in the world, with plants located in the United States and abroad. The deal was structured so that DuPont would acquire ICI’s TiO2 facilities outside North America, and NL Industries (“NL”), another competitor, would acquire ICI’s TiO2 assets in the United States. The DuPont/ICI transaction, therefore, avoided a production overlap in North America. Nevertheless, the FTC’s concern was that the elimination of an important import competitor like ICI could facilitate or increase the likelihood of coordination. The parties abandoned the deal in January of 1999 when faced with a lawsuit.

The FTC Alleged A Coordinated Interaction Theory

The FTC’s administrative complaint alleges that the combination would reduce competition in the North American market for chloride process titanium dioxide. The FTC alleged that if the deal is consummated, it would increase the risk of coordinated action among the four remaining competitors, and increase the risk of future anticompetitive output reductions by Tronox. The FTC alleges that without a remedy Chemours and the merged firm would have 80% of the chloride process titanium dioxide market with Venator and Kronos making up the rest of the share.

Under this theory, the FTC needs to prove that the elimination of a competitor may create or enhance the ability of the remaining firms to more easily (either explicitly or through more subtle means) coordinate on price, output, and/or capacity.  The FTC alleges that the NA chloride TiO2 industry has a number of characteristics that make it vulnerable to coordination such as commodity like product; concentrated industry with small number of competitors; transparency into the strategic decisions of competitors; customers with long term contracts makes it easy for competitors to detect deviations from past practices; low elasticity of demand; and history of interdependent behavior and allegations of collusion.

Recent Collusion Case

The FTC cites a history of restricting production to support higher prices and past collusive conduct to support its coordinated interaction theory. In its Complaint, it made reference to the September 14, 2017 Third Circuit Court of Appeals decision in Valspar Corp. v. E.I. DuPont de Nemours and Co., 873 F.3d 185 (3rd Cir. 2017), where the court observed that the U.S. titanium dioxide industry has high entry barriers and is dominated by a few firms that closely track one another’s activities and the class action case brought against the entire industry several years ago in a federal court located in Maryland.

Valspar, a large-scale titanium dioxide purchaser, broke away from the class and brought its own claims against the industry for price fixing and settled with everyone except DuPont. Valspar filed its case in Delaware and alleged that the suppliers conspired to increase prices, beginning when DuPont—the largest American supplier—joined the Titanium Dioxide Manufacturers Association (TDMA) in 2002.  During a 10 year period, DuPont announced price increases 31 times, which were matched by the other suppliers. The Third Circuit affirmed the summary judgment in favor of DuPont because it found that Valspar’s characterization of the suppliers’ price announcements “neglects the theory of conscious parallelism” and is contrary to the doctrine that in an oligopoly “any rational decision must take into account the anticipated reaction of the other . . . firms.”  The Third Circuit noted that price movement in an oligopoly is interdependent and frequently will lead to successive price increases, because oligopolists may “conclude that the industry as a whole would be better off by raising prices.”  Valspar did not show that the suppliers’ parallel pricing went “beyond mere interdependence [and was] so unusual that in the absence of advance agreement, no reasonable firm would have engaged in it.” While this all sounds good for DuPont, which is Chemours today, it does not sound so good for Tronox at the FTC. Long story short, the FTC alleges that the proposed merger would make that situation even worse.

According to the FTC, the transaction would “combine two of the three largest producers” and result in “increase[d] concentration in an already concentrated market.”  The FTC alleged that the deal would increase the likelihood of coordination in an oligopolistic market and allow Tronox to “discipline its output” to influence supply and increase prices.  Id.  The administrative trial  was completed on June 22, 2018, but Administrative Law Judge D. Michael Chappell has not yet issued a ruling.

All Global Antitrust Agencies Have Cleared the Deal

Despite a challenge in the United States, the European Commission cleared the deal on July 4, 2018, contingent on Tronox’s agreement to divest its global titanium oxide operation for pigment used in paper laminate.  The transaction also has received approvals in Australia, China, Colombia, New Zealand, Saudi Arabia, South Korea and Turkey.  The United States is the only outstanding jurisdiction where clearance is required.

D.C. District Court Opinion: Internal Company Documents Support FTC’s Market Definition and Chinese Entry Would Not Occur Soon Enough to Prevent Anticompetitive Harm

On July 10, 2018, the FTC filed its complaint in federal court seeking a preliminary injunction because it was concerned that the companies would close the transaction “as soon as July 16, 2018”.  Complaint, FTC v. Tronox Ltd., No. 18-1622, at 2 (D.D.C. July 10, 2018).  After an evidentiary hearing, Judge McFadden announced his decision to preliminarily enjoin the transaction until the FTC’s administrative law judge issues his opinion.

On September 12, Judge McFadden released a redacted version of the decision, which finds that the FTC has shown that the Tronox-Cristal merger will likely result in high concentration in the North American chloride-process TiO2 market and that the merger will increase the merged firm’s incentives to engage in strategic output withholding.  Moreover, the district court agreed with the FTC’s market definition of North American chloride-process titanium dioxide.  Judge McFadded rejected Tronox’s argument that the market definition should be expanded to include worldwide chloride-process and sulfate-process titanium dioxide.  Judge McFadden was persuaded by Tronox and Cristal internal company documents, which supported the existence of both a separate chloride-process submarket and a distinct North American regional market.  Judge McFadden found that internal documents and the economic realities of the market favored the FTC’s market definition.

Tronox also argued that competition from Chinese producers would reduce or negate any anticompetitive effects from increased market concentration.  Judge McFadden rejected this argument because the Chinese producers are really not in the U.S. market and there was no evidence that their entry would be quick enough to prevent a merged Tronox-Cristal firm from reducing output or increasing prices in the interim.

Conclusion

The FTC’s successful challenge of the Tronox/Cristal merger in federal court demonstrates that President Trump’s FTC will take action to preserve competition and protect consumers when the facts support a lawsuit.  The case is interesting because the federal court hearing only delays the Tronox deal for a short time and allows for the administrative trial process to be completed.  Indeed, the parties after completing post-trial briefs and oral arguments, are now simply awaiting the decision from the administrative law judge.  The district court opinion, however, confirms that internal company documents are the best evidence to support market definition and that merging parties that want to use entry as a defense need to have evidence that the entry is likely and can occur quickly.  When defendants argue against their own internal company documents and against market realities they are likely to lose that argument in front of the antitrust agencies and a district court.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com