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

Settlement Details

To resolve the DOJ’s challenge, joined by the Attorneys General of Maryland, Illinois, New Jersey, and New York, Amedisys agreed to pay a $1.1 million civil penalty and implement antitrust compliance training for key executives and employees. The DOJ alleged that Amedisys violated the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) by falsely certifying compliance with a Second Request while aware of significant gaps in its document production. The settlement also mandates divestitures of 164 home health and hospice locations across 19 states, which the DOJ hailed as “the largest divestiture of outpatient healthcare services to resolve a merger challenge.”

HSR Act Merger Review Process

Under the HSR Act, parties to mergers meeting specific thresholds must file a pre-merger notification with the DOJ and Federal Trade Commission (FTC) and observe a 30-day waiting period before closing. If further scrutiny is needed, the reviewing agency may issue a Second Request, requiring extensive documents and data about the companies, transaction, and industry. This pauses the waiting period until the parties certify “substantial compliance,” attesting that their submissions are “true, correct, and complete.” If documents are unavailable, parties must provide a statement explaining noncompliance. Failure to comply risks a civil penalty of up to $53,088 per day.

The Complaint

Announced on June 5, 2023, UnitedHealth’s proposed acquisition of Amedisys aimed to combine two major players in home health and hospice care. UnitedHealth, through its Optum subsidiary, and Amedisys, a provider of home hospice and high-acuity care, faced scrutiny for potential harm to competition in numerous local markets. On November 12, 2024, the DOJ and state co-plaintiffs filed a complaint in the U.S. District Court for the District of Maryland to block the deal, alleging it would stifle competition in home health, hospice, and nurse labor markets.

The complaint also charged Amedisys with violating the HSR Act by falsely certifying substantial compliance despite known deficiencies, including:

• Missing Emails: Amedisys failed to disclose that a 30-day email archive gap coincided with key acquisition negotiations, omitting a required statement of noncompliance.
• Unproduced Hard Copy Documents: Amedisys neglected to provide any hard copy documents, including “copious handwritten notes” from its former CEO, publicly referenced in a 2023 book.
• Omitted Text Messages: Text messages from over half of Amedisys’s custodians were not produced.

After DOJ confrontation, Amedisys produced over 2.5 million additional documents, including critical materials like an email from its CEO assessing transaction risks and a text message discussing UnitedHealth’s market consolidation. The DOJ alleged Amedisys was noncompliant for at least 252 days, risking over $13 million in penalties.

Settlement

The settlement requires Amedisys to pay a $1.1 million civil penalty and train its corporate and field leadership on antitrust compliance for falsely certifying that the company had truthfully, correctly, and completely responded to the DOJ’s requests for documents. Amedisys must train its CEO, CFO, COO, chief legal officer, and field leadership on antitrust compliance, with the DOJ approving the training content.

Key Takeaways

This settlement highlights critical lessons for companies in merger reviews:

• “Substantial Compliance” Is Serious: Agencies may reject incomplete certifications, delaying mergers and imposing hefty penalties. Close coordination with antitrust counsel is essential to ensure compliance with Second Request demands.
• Thorough Document Collection: The case emphasizes the need for comprehensive collection of hard copy and text message documents, aligning with recent DOJ and FTC guidance on preserving data from collaboration tools and ephemeral messaging platforms.

This case serves as a stark reminder: cutting corners on compliance can lead to costly consequences.

Andre Barlow

abarlow@dbmlawgroup.com

On August 7, 2025, the U.S. Department of Justice (DOJ) Antitrust Division, along with state co-plaintiffs from Maryland, Illinois, New Jersey, and New York, announced a proposed settlement to resolve their challenge to UnitedHealth Group Incorporated’s $3.3 billion acquisition of Amedisys Inc. This settlement, which requires the divestiture of 164 home health and hospice facilities across 19 states, marks a significant step in addressing antitrust concerns in the healthcare sector. This post explores the background of the lawsuit, the rejected remedies, the details of the divestiture, and the lessons learned about the DOJ’s preference for structural remedies.

Background of the Lawsuit

In June 2023, UnitedHealth’s subsidiary Optum agreed to acquire Amedisys, a leading home health and hospice provider based in Baton Rouge, Louisiana, for $3.3 billion. UnitedHealth, headquartered in Eden Prairie, Minnesota, is a vertically integrated healthcare giant, operating as an insurer, provider, pharmacy benefit manager, and healthcare software vendor. The acquisition raised red flags for the DOJ, particularly because UnitedHealth had acquired Amedisys’s primary competitor, LHC Group, in 2023 for $5.4 billion. The DOJ, joined by four states, filed a lawsuit in November 2024 in the U.S. District Court for the District of Maryland to block the merger, arguing it would significantly reduce competition in the home health and hospice markets.

The DOJ’s concerns centered on the potential for UnitedHealth to dominate the market, controlling 30% or more of home health or hospice services in eight states and expanding into five additional states for the first time. The lawsuit claimed the merger would harm hundreds of thousands of vulnerable patients by limiting access to affordable, high-quality care and reducing wage competition for thousands of nurses. The DOJ labeled the deal “presumptively anticompetitive and illegal,” citing its potential to consolidate nearly 800 local home health and hospice markets.

In addition, the DOJ forced UnitedHealth to abandon acquisitions plans for other providers.

Rejected Remedies

To address the DOJ’s concerns, UnitedHealth and Amedisys proposed multiple divestiture plans, but at least two were publicly rejected. The first, proposed in the summer of 2024, involved selling assets to VCG Luna, a subsidiary of Texas-based VitalCaring Group. The DOJ rejected this plan, deeming VCG Luna an unreliable buyer to maintain competition in the affected markets. The second attempt, in spring 2025, involved divestitures to BrightSpring Health Services and The Pennant Group. This proposal was also rejected, as it failed to fully address the DOJ’s concerns about market consolidation. These rejections underscored the DOJ’s rigorous standards for ensuring that divestitures restore competition effectively.

The Approved Divestiture and Remedy

The proposed settlement, filed on August 7, 2025, resolves the DOJ’s concerns by requiring UnitedHealth and Amedisys to divest 164 home health and hospice locations, including one palliative care facility, across 19 states. These facilities generate approximately $528 million in annual revenue, making this the largest divestiture of outpatient healthcare services to resolve a merger challenge. The divested assets will be sold to BrightSpring Health Services and The Pennant Group, with BrightSpring acquiring 115 sites and Pennant acquiring 49, primarily home health facilities.

The settlement includes several key provisions to ensure competitive balance:

• Additional Divestitures: UnitedHealth must divest eight additional locations if regulatory approval for the initial 164 facilities is not obtained.
• Oversight: A monitor will supervise the divestiture process and ensure compliance with the consent decree.
• Support for Buyers: The agreement provides buyers with the assets, personnel, and relationships needed to compete effectively against UnitedHealth in overlapping markets.
• Antitrust Compliance: Amedisys will pay a $1.1 million civil penalty for falsely certifying compliance with the Hart-Scott-Rodino Act and must train its leadership on antitrust compliance.

The divestitures, concentrated in the Southeast where UnitedHealth’s LHC Group has a strong presence, aim to preserve competition for patients and nurses. The settlement also requires UnitedHealth to divest stakes in 10 joint ventures and includes protections to prevent interference with the buyers’ ability to compete. The proposal is subject to a 60-day public comment period under the Tunney Act, after which a Maryland district judge will determine if it serves the public interest.

Lessons Learned: The DOJ’s Preference for Structural Remedies

The UnitedHealth-Amedisys settlement highlights the DOJ Antitrust Division’s strong preference for structural remedies over behavioral ones in merger cases. Structural remedies, such as divestitures, physically alter the market by transferring assets to new competitors, ensuring long-term competition without ongoing oversight. In this case, the DOJ rejected earlier proposals that did not sufficiently restore competition, opting instead for a robust divestiture of 164 facilities to established players like BrightSpring and Pennant. The DOJ’s insistence on structural remedies reflects its belief that competition in healthcare is critical to protecting vulnerable patients and workers. By requiring divestitures across 19 states, the DOJ ensures that the home health and hospice markets remain competitive.

Andre Barlow

202-589-1838

abarlow@dbmlawgroup.com

Allegations in the Biden DOJ’s Complaint

The DOJ’s lawsuit, filed in the U.S. District Court for the Southern District of New York, alleged that the proposed acquisition would harm competition in the market for business travel management services, particularly for global and multinational companies in the United States. Key points from the complaint include:

1. Market Concentration and Oligopolistic Structure:
   • The DOJ claimed that the merger would combine Amex GBT, the largest business travel management company globally (with $28.2 billion in transaction volume in 2023), and CWT, the third-largest (with $14 billion in transaction volume), significantly reducing competition in an already concentrated market. The complaint described the market as “oligopolistic,” with Amex GBT, CWT, and BCD Travel (the second-largest player) controlling at least 70% of the market for travel management services for global companies with annual travel budgets of at least $30 million.
   • The DOJ argued that the merger would reduce the number of major players from three to two in this segment, giving the combined firm a dominant share and limiting competitive options for large businesses.
2. Harm to Competition:
   • The complaint highlighted that Amex GBT and CWT were fierce competitors, particularly for large businesses with complex travel needs. CWT had recently pursued innovative strategies to improve service and reduce prices, winning significant bids against Amex GBT. The DOJ alleged that the merger would eliminate this head-to-head competition, leading to higher prices, reduced choices, and stifled innovation for U.S. businesses.
   • The DOJ emphasized that few other companies could provide travel management services at the scale required by global and multinational firms, making the loss of CWT as an independent competitor particularly harmful.
3. History of Consolidation:
   • The lawsuit noted that this would be Amex GBT’s fifth acquisition of a travel management company since 2018, further consolidating an already concentrated market. The DOJ argued that this pattern of acquisitions exacerbated anticompetitive effects.
4. Narrow Market Definition:
   • The DOJ defined the relevant market narrowly, focusing on travel management services for global and multinational companies with significant travel budgets (e.g., over $30 million annually). This definition excluded smaller travel management companies and online tools, which the DOJ argued were not viable substitutes for the specialized services provided by Amex GBT and CWT. Amex GBT criticized this as a “gerrymandered” and “contrived” market definition, arguing it failed to account for broader competition in the evolving travel industry.

Context of the Case

• Timing and Political Context: The lawsuit was filed on January 10, 2025, just 10 days before the transition from the Biden administration to the Trump administration on January 20, 2025. Amex GBT described the filing as a “politically motivated” move by the Biden DOJ to push one final anti-merger challenge, noting that the transaction was not set to close until March 2025, giving the incoming Trump administration time to review it. Interestingly enough, the Biden DOJ did not challenge Capital One/Discover or HPE/Juniper even though the waiting period for HPE/Juniper was set to expire in January of 2025.
• Amex GBT’s Defense: Amex GBT argued that the DOJ’s complaint relied on outdated market views, ignoring post-pandemic changes in the travel industry, such as the rise of online tools and competitors like BCD Travel and Navan Inc. The company asserted that the merger would enhance innovation, create synergies, and provide greater value to customers, suppliers, and employees.
• International Scrutiny: The UK’s Competition and Markets Authority (CMA) also reviewed the merger, initially raising concerns about competition for multinational clients with travel budgets over $25 million. However, by February 2025, the CMA provisionally concluded that the deal posed no significant competition concerns, reinforcing Amex GBT’s position that the DOJ’s case was flawed.

Dismissal of the Case

On July 29, 2025, the DOJ moved to dismiss the lawsuit, exercising its “prosecutorial discretion” in a court filing before Judge Jed Rakoff in New York. The trial, scheduled for September 2025, was thus avoided, and the merger was allowed to proceed. Several factors contributed to the dismissal:

1. Change in Administration:
   • The case transitioned to the Trump administration, with Gail Slater appointed as head of the DOJ’s Antitrust Division. The Trump administration is perceived as more business-friendly and less aggressive on antitrust enforcement compared to the Biden administration. The dismissal aligned with a potential shift in priorities, as the Trump DOJ viewed the merger as less harmful or prioritized other enforcement activities. “The Antitrust Division, alone, made the decision to dismiss the case after a robust investigation,” Assistant Attorney General Gail Slater said in a statement. “The Division must also consider the enforcement trade-offs inherent to thoughtful and effective use of its limited taxpayer-funded resources.”
   • DOJ’s antitrust lawyers reviewed the transaction after Slater joined the agency in March. That review determined that new technologies are emerging to challenge travel suppliers like Amex GBT and CWT, making the merger less likely to harm competition.
2. Prosecutorial Discretion and Resource Allocation:
   • The DOJ cited “prosecutorial discretion” in its filing, with Antitrust Division head Gail Slater stating that the decision followed a “robust investigation” and considered “enforcement trade-offs” due to limited taxpayer-funded resources. This suggests the DOJ may have determined that pursuing the case was not the best use of resources, especially if the evidence of anticompetitive harm was less compelling under further review.
3. Weakness of the Case:
   • Arguably, the DOJ’s case was “flimsy” due to its narrow market definition. The market for travel management services has evolved, with online tools and new competitors like Navan Inc. increasing competition. Amex GBT’s claim that at least six travel management companies could serve large customers as effectively as CWT may have undermined the DOJ’s argument that the market was being reduced from three to two players. Indeed, the DOJ’s complaint indicates that the top three players only have 70% or the market so clearly other competition exists.
   • The UK CMA’s provisional clearance of the merger in February 2025 likely bolstered Amex GBT’s argument that the deal did not significantly harm competition, putting pressure on the DOJ to reconsider its stance.

Conclusion

The Biden DOJ’s lawsuit against the Amex GBT-CWT merger centered on allegations that it would reduce competition in a concentrated market for global business travel management, risking higher prices and less innovation, which could have impacted large global corporation customers. Large global enterprise customers with over $30 million travel budgets, however, have numerous options and can typically take care of themselves. The case was dismissed in July 2025 by the Trump DOJ, citing prosecutorial discretion and resource considerations. The dismissal was likely influenced by a combination of a weaker case upon further review by Slater’s team, which was supported by the UK CMA’s findings and a shift in administration priorities.

Andre Barlow

202-589-1838

abarlow@dbmlawgroup.com

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

The settlement aimed to restore competition by ensuring that key assets, such as HPE’s Instant On business and Juniper’s AI Ops for Mist source code, remained available to competitors. The divestiture of the Instant On business to a DOJ-approved buyer within 180 days and the licensing of Mist AI software were designed to maintain competitive dynamics in the wireless local area network (WLAN) market, preventing the merged entity from dominating over 70% of the market alongside Cisco Systems. Industry perspectives, including comments from solution providers, suggest that these measures were seen as minor concessions that preserved the deal’s benefits while fostering competition, particularly against Cisco, by enabling a stronger, AI-driven networking portfolio for HPE.

To be sure, the effectiveness of these measures in fully restoring competition depends on the execution of the divestitures and licensing, as smaller competitors may still face challenges matching the scale of the merged HPE-Juniper or Cisco. That said, the licensing Juniper’s Mist AI software source code to independent competitors is a notable concession in the DOJ’s settlement with HPE and Juniper. This move was designed to facilitate new entry and maintain competition in the wireless local area network (WLAN) market.

The Mist AI software is a key component of Juniper’s portfolio, powering its cloud-managed, AI-driven networking solutions that optimize wireless performance and user experience. By requiring HPE to license this source code to competitors, the DOJ aimed to lower barriers for new or smaller players to develop competitive WLAN solutions, potentially fostering innovation and preventing the merged HPE-Juniper entity (with over 70% market share alongside Cisco) from stifling competition. This licensing could theoretically enable entrants to build or enhance AI-driven networking products without the need to develop comparable technology from scratch—a significant hurdle given the complexity and cost of AI-driven network management systems.

The effectiveness hinges on how accessible and affordable the licensing terms are in the future so the DOJ’s oversight will be very important. New entrants will likely need more that just access to the source code, they will need the technical expertise, infrastructure, and market reach to capitalize on the code. The settlement also required HPE to divest its Instant On wireless business to a DOJ-approved buyer within 180 days. This divestiture ensures that a standalone competitor retains a foothold in the market, potentially amplifying the competitive impact of the Mist AI licensing by giving an existing player immediate market presence. Fortunately, many of the competitors in the WLAN enterprise grade are actually significant competitors already.

This is clearly a strategic compromise that preserves HPE’s ability to compete with Cisco and globally while addressing DOJ concerns in the domestic market. The licensing of Mist AI could indeed spur innovation by enabling competitors to offer AI-driven solutions, potentially leading to new entrants or strengthening existing ones like Extreme Networks, Arista, Fortinet, or Ruckus. In short, giving up the Mist AI source code is a significant concession in that it creates an opportunity for new entry by lowering a key technological barrier. Whether it truly restores competition depends on how competitors leverage this access and navigate the broader market challenges. It’s a step toward leveling the playing field, but not a guaranteed win for new entrants against the industry’s heavyweights.

Lessons Learned

The recent settlement in the HPE-Juniper merger case offers insights into the DOJ’s approach to antitrust enforcement. Although the allegations in the complaint lacked a clear resolution, the settlement reflects a pragmatic decision by the DOJ to accept an imperfect remedy for a case with weak grounds for a full challenge.  The DOJ hailed the settlement as a victory, describing it as a novel approach to addressing unique challenges in merger cases. Notably, the DOJ considered the procompetitive benefits of the merger, particularly in the context of global competition. The agreed-upon remedy includes HPE’s divestiture of its global Instant On campus and branch WLAN business and at least one perpetual, non-exclusive license to Juniper’s Mist source code. This remedy modestly reduces market share in the enterprise-grade WLAN solutions market, but allows for new entrants to expand their enterprise grade WLAN offerings.  In addition, the divestiture and licensing must be completed within 180 days, with the possibility of 60-day extensions if needed, indicating the DOJ’s flexibility in finalizing the agreement.  This is also a departure from recent practice.  

Assistant Attorney General Slater’s stance against accepting inadequate remedies may still hold when a challenge is strongly supported by evidence. However, in this case, she demonstrated willingness to negotiate a less-than-ideal remedy for a merger that likely did not warrant being blocked. This decision aligns with the investigating staff’s view that the deal should not have been challenged initially.  The decision to settle rather than litigate, despite a weak legal case due to Juniper’s modest 6.5% market share, reflects a strategic choice to preserve agency credibility while enabling the merger and also aligns with the Trump administration’s “America First” agenda.

The key takeaways are that the DOJ is open to settling weaker cases with tailored remedies; the DOJ will consider procompetitive benefits, such as global market competitiveness so that can influence outcomes in future deals; and the DOJ is willing to use flexible timelines and pragmatic remedies reflecting a balanced approach to antitrust enforcement.    

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

Facing a tight deadline before Slater’s confirmation, the DOJ filed suit to block the deal arguing it would harm competition in the enterprise-grade wireless local area network (WLAN) market.  While the DOJ’s intent to protect customers is a worthy goal, its case rests on a flawed premise, resting on a narrow view of the market that ignores robust competition and the broader strategic imperatives at play. Far from stifling innovation or choice, this acquisition would strengthen a key American player to rival Cisco domestically and, critically, counter Huawei globally.  For those reasons, DOJ’s litigation stance should be reconsidered.

Flawed Antitrust Concerns

The DOJ’s claim that the merger would overly concentrate the enterprise-grade WLAN market misreads the competitive landscape. The complaint paints HPE and Juniper as the second- and third-largest players behind market leader, Cisco, alleging their combination would leave just two firms controlling over 70% of enterprise-grade WLAN solutions. This analysis oversimplifies the competitive dynamics of the industry.

First, the European Commission and the UK’s Competition and Markets Authority, which both cleared the merger in 2024 after determining it posed no realistic threat to competition, confirm that the transaction does not raise competition concerns. In addition, the Biden Administration could have sued to block the merger but chose not to do so.

Second, the product market definition alleged by the DOJ is much too narrow.  Even the UK’s CMA did not find any functional or technical differences between WLAN products sold to large or smaller enterprises.

Third, the WLAN market is not a cozy oligopoly but a battleground where multiple players are vying for share. Cisco is more than twice as large as a combined HPE-Juniper with over 50% share for the past ten years.  Indeed, Juniper’s share is in the single digits and the combined firm’s share is less than 25%.  Companies like Extreme Networks, Arista, Fortinet, CommScope, and Ubiquiti, which make up approximately 25-30% of the DOJ’s narrowly defined market, have the technological muscle to reposition themselves, scale, expand, and rapidly grow share. Extreme Networks, for instance, powers WLAN for major enterprises like Kroger and universities, delivering secure, high-performance networks that rival those of HPE and Juniper. These firms are well-capitalized with proven deployments and R&D pipelines poised to exploit any opportunity. If HPE-Juniper raises prices or slacks on innovation, these competitors are ready to provide real choice to large enterprises including hospitals, campuses, and retailers.

Fourth, the DOJ’s focus on market share also ignores how enterprise WLAN works in practice. Large customers routinely solicit bids from multiple vendors, pitting solutions against one another in competitive request for proposals. This process keeps pricing in check and forces innovation, regardless of who merges with whom.  Juniper’s Mist platform and HPE’s Aruba have indeed competed head-to-head, but so have they with Cisco, Extreme, and others.

Fifth, the DOJ’s complaint includes a litany of inflammatory quotes from HPE’s executives’ documents, but not one deal document was cited. Notwithstanding their provocative nature, these statements have little grounding in the reality of competition.  Documents only matter if they are reliably predictive and relevant. The selective quoting of internal documents may suggest head-to-head competition, but any suggestion that the documents demonstrate that the merger would harm competition contradicts reality.  In reality, customers of HPE and Juniper may choose between the two companies as well as an entire host of alternatives including Cisco, Extreme Networks, Fortinet, and Arista.  The idea that merging HPE and Juniper would suddenly let them dictate terms overlooks the technological strength of the competitors and the bidding process. If anything, combining HPE’s scale with Juniper’s AI-driven tools could drive sharper pricing and faster feature rollouts to fend off these hungry rivals.

Finally, the DOJ is challenging this acquisition in the same district court where it lost its challenge to Oracle’s acquisition of Peoplesoft in 2014 because evidence that Oracle and PeopleSoft competed aggressively against each other was not enough to prove anticompetitive effects and that they competed in a three firm market was too narrow.

National Security and Global Competitiveness

The DOJ’s case overlooks the significant national security stakes involved in this merger. Huawei, the Chinese tech giant banned in the United States over espionage concerns since 2019, continues to dominate global telecom infrastructure markets with state-backed pricing strategies. HPE CEO Antonio Neri has framed this acquisition as essential to creating a robust U.S.-based alternative to Huawei.  A stronger HPE-Juniper would create a number-two player with the muscle to challenge Cisco at home while taking the fight to Huawei in global markets. The deal would create a “full stack” U.S. alternative to Huawei, combining HPE’s servers, storage, and Aruba networking with Juniper’s AI-native routing and telco expertise.  Integrating AI, security, and networking is a procompetitive move that bolsters national security by offering a robust Western option for global telcos and enterprises in AI driven and 6G markets. Without this deal, the U.S. risks ceding ground to Huawei, especially in emerging markets where 6G and IoT are reshaping connectivity.  Moreover, HPE and Juniper power critical U.S. infrastructure by supporting the Department of Defense and Department of Energy making the combination a matter of “core tech” that strengthens America’s technological sovereignty.

Unlocking Innovation

HPE and Juniper bring complementary strengths that could unlock significant efficiencies post-merger. HPE’s expertise in cloud computing and hybrid IT solutions pairs seamlessly with Juniper’s AI-native networking tools. Together, they could deliver unified platforms that simplify IT management for enterprises while accelerating advancements in AI-driven infrastructure. These aren’t abstract savings; they’re the kind of edge U.S. firms need to outpace Huawei’s one-stop-shop model.

A Call for Reevaluation

Blocking this merger risks weakening a U.S.-based champion at a time when global tech leadership and national security are at stake.  Slater should use her fresh perspective to reevaluate this litigation with an eye toward getting the antitrust analysis right and balancing competition policy with broader strategic imperatives. Blocking HPE’s acquisition of Juniper Networks is counterproductive because it risks reinforcing Cisco’s dominance, undermining U.S. competitiveness against global rivals, and stifling innovation. Slater should reconsider the DOJ’s litigation decision to ensure that antitrust enforcement facilitates not hinders the ingenuity of American companies.  Importantly, the acquisition does not substantially lessen competition because Extreme Networks and others are ready to fill any void for those customers looking for another source of enterprise grade WLAN products.  In conclusion, the DOJ should let this deal proceed for the sake of innovation, competition, and national security.

Andre Barlow

202-589-1838

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. 

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

The lawsuit seeks to preserve competition in the North American market for rolled aluminum sheet for automotive applications, commonly referred to as aluminum auto body sheet.  This marks the first time the Antitrust Division has used its authority under the Administrative Dispute Resolution Act of 1996 (5 U.S.C. § 571 et seq.) to resolve a matter.

“This first-of-its-kind arbitration has allowed us to resolve the dispositive issue in this case efficiently, saving taxpayer and private resources, while providing critical time-certainty,” said Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division.  “The Antitrust Division looks forward to the arbitrator’s opinion, and will study this matter both to assess the circumstances in which arbitration may be appropriate and to identify possibilities for further streamlining the process.  We will continue to examine ways to enforce our competition laws in a manner that maximizes the Division’s scarce enforcement resources to protect American consumers.”

On Sept. 4, 2019, the Justice Department’s Antitrust Division filed a civil antitrust lawsuit in the U.S. District Court for the Northern District of Ohio seeking to block Novelis Inc.’s proposed acquisition of Aleris Corporation.  Prior to filing the complaint, the Antitrust Division reached an agreement with defendants to refer the matter to binding arbitration if the parties were unable to resolve the United States’ competitive concerns with the defendants’ transaction within a certain period of time.

As described in Plaintiff United States’ Explanation of Plan to Refer this Matter to Arbitration, filed on the district court’s docket, fact discovery proceeded under the supervision of the district court.  Following the close of fact discovery, the matter was referred to binding arbitration to resolve a single issue: whether aluminum auto body sheet constitutes a relevant product market under the antitrust laws.

If the United States prevails, the United States will then file a proposed final judgment that requires Novelis to divest certain agreed-upon assets to preserve competition in the relevant market.   If the defendants prevail, the United States will seek to voluntarily dismiss the complaint.  Novelis has held separate the agreed-upon divestiture assets pursuant to a hold separate stipulation and order entered by the district court, and defendants are permitted to close the transaction pursuant to this order.

Complaint

The DOJ alleges that the acquisition would substantially lessen competition in the North American market for rolled aluminum sheet for automotive applications, commonly referred to as aluminum auto body sheet.  The complaint explains that steel companies are developing lighter, high strength steel varieties for the auto industry. But as Novelis has observed, high strength steel “is largely replacing existing mild steel” and “cannibalizing the existing material” (i.e., traditional steel). The threat of substitution from aluminum to high strength steel is, as Aleris confirms, “limited.”  The price of aluminum auto body sheet is three or four times more expensive than traditional steel.  The complaint further alleges that the transaction would combine two of only four North American producers of aluminum auto body sheet.  The other two suppliers’ capacity is mostly committed to automakers.  Thus, other automakers rely on Novelis and Aleris to produce aluminum body sheet for automobiles to make cars lighter, more fuel-efficient, safer and more durable.

For years, Novelis was operating in a three firm market where it was the price leader.  It had the ability to increase prices without a loss of sales.  DOJ alleges that in 2016, Aleris entered the North American market as an aggressive competitor, which had an immediate impact on pricing and services.  Indeed, Novelis’ documents show that it decreased prices and increased the quality of its services in response to Aleris’ entry.

Novelis’s acquisition of Aleris would eliminate a rival it described as “poised for transformational growth.”  The complaint quotes other internal presentations to the Board of Directors and emails describing an anticompetitive rationale for the transaction:

• Novelis worried that Aleris could be sold to a “[n]ew market entrant in the US with lower pricing discipline” than Novelis, and that an “[a]lternative buyer [was] likely to bid aggressively and negatively impact pricing” in the market.
• “[A]n acquisition by us as the market leader will help preserve the industry structure versus a new player . . . coming into our growth markets and disturbing the industry structure to create space for himself, while hurting us the most.”
• Novelis should acquire Aleris because there is a “disincentive for market leader [i.e., Novelis] to add capacity and contribute to a price drop” and an acquisition of Aleris “prevents competitors from acquiring assets and driving less disciplined pricing.”

If this deal were allowed to proceed without a remedy, Novelis would lock up 60 percent of projected total domestic capacity and the vast majority of uncommitted capacity of aluminum body sheet, enabling the company to raise prices, reduce innovation and provide less favorable terms of service to the detriment of automakers and ultimately American consumers.

Novelis Contends That DOJ Suit Ignores The Full Scope Of Automotive Body Sheet Competition

It says that the DOJ lawsuit is based on the contention that the only relevant competition among automotive body sheet providers is that among aluminum manufacturers such as Novelis and Aleris. It ignores competition from steel automotive body sheet, even though steel automotive body sheet is currently used for nearly 90 percent of the market.

Novelis says that aluminum automotive body sheet attempts to take share from steel automotive body sheet.  And argues that for the DOJ to prevail in its lawsuit, it needs to prove that there is a distinct “relevant market” for aluminum automotive body sheet, which means that steel automotive body sheet does not significantly constrain the price and quality of aluminum automotive body sheet. Novelis further states that the DOJ does not deny that steel automotive body sheet usually competes with aluminum automotive body sheet, but instead contends that the constraint from steel is absent from some procurements (where an automotive manufacturer has supposedly already decided between steel and aluminum). Novelis believes that by focusing on just a small slice of steel-aluminum competition and ignoring the broader competitive process, the DOJ’s theory contravenes well-established principles of market definition.

Novelis further contends that the DOJ also disregards the extraordinary bargaining power of the automotive manufacturers and their ability to generate bid processes that will ensure competitive pricing for automotive body sheet.

Lessons Learned:

Here, the transaction is presumptively anticompetitive because a large dominant player with 60% of a concentrated market is acquiring a new disruptive entrant.  What is noteworthy is the use of the arbitration procedure agreed to by Novelis and the DOJ.  The DOJ and Novelis clearly are debating the product market definition.  If the DOJ is right on the product market definition, the merger is anticompetitive in the North American market for aluminum auto body sheet and it would require a fix.  The merging parties can then negotiate a divestiture remedy that would resolve the competitive concerns.  As Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division put it, “[t]his arbitration would allow the Antitrust Division to resolve the dispositive issue of market definition in this case efficiently and effectively, saving taxpayer resources.” He added that “[a]lternative dispute resolution is an important tool that the Antitrust Division can and will use, in appropriate circumstances, to maximize its enforcement resources to protect American consumers.”  

This complaint also demonstrates that the DOJ will use merging parties’ own words against them when challenging their deal.  Historically, “hot docs” provide an easy way to capture the interest of a judge by saying this case is simple and all you have to do is examine the merging parties’ own words.  The DOJ routinely cites “hot docs” in its complaints.  The DOJ focuses on “hot docs” when they exist because these documents are very helpful in explaining whether a transaction is anticompetitive.  This case demonstrates why corporate executives must be mindful about what they write as careless and inappropriate language in company documents can have an extremely negative effect on a merger review.

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.

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.

Complaint

The DOJ alleges that the acquisition would substantially lessen competition in the North American market for rolled aluminum sheet for automotive applications, commonly referred to as aluminum auto body sheet.  The complaint explains that steel companies are developing lighter, high strength steel varieties for the auto industry. But as Novelis has observed, high strength steel “is largely replacing existing mild steel” and “cannibalizing the existing material” (i.e., traditional steel). The threat of substitution from aluminum to high strength steel is, as Aleris confirms, “limited.”  The price of aluminum auto body sheet is three or four times more expensive than traditional steel.  The complaint further alleges that the transaction would combine two of only four North American producers of aluminum auto body sheet.  The other two suppliers’ capacity is mostly committed to automakers.  Thus, other automakers rely on Novelis and Aleris to produce aluminum body sheet for automobiles to make cars lighter, more fuel-efficient, safer and more durable.

For years, Novelis was operating in a three firm market where it was the price leader.  It had the ability to increase prices without a loss of sales.  DOJ alleges that in 2016, Aleris entered the North American market as an aggressive competitor, which had an immediate impact on pricing and services.  Indeed, Novelis’ documents show that it decreased prices and increased the quality of its services in response to Aleris’ entry.

Novelis’s acquisition of Aleris would eliminate a rival it described as “poised for transformational growth.”  The complaint quotes other internal presentations to the Board of Directors and emails describing an anticompetitive rationale for the transaction:

• Novelis worried that Aleris could be sold to a “[n]ew market entrant in the US with lower pricing discipline” than Novelis, and that an “[a]lternative buyer [was] likely to bid aggressively and negatively impact pricing” in the market.
• “[A]n acquisition by us as the market leader will help preserve the industry structure versus a new player . . . coming into our growth markets and disturbing the industry structure to create space for himself, while hurting us the most.”
• Novelis should acquire Aleris because there is a “disincentive for market leader [i.e., Novelis] to add capacity and contribute to a price drop” and an acquisition of Aleris “prevents competitors from acquiring assets and driving less disciplined pricing.”

If this deal were allowed to proceed without a remedy, Novelis would lock up 60 percent of projected total domestic capacity and the vast majority of uncommitted capacity of aluminum body sheet, enabling the company to raise prices, reduce innovation and provide less favorable terms of service to the detriment of automakers and ultimately American consumers.

Novelis Contends That DOJ Suit Ignores The Full Scope Of Automotive Body Sheet Competition

It says that the DOJ lawsuit is based on the contention that the only relevant competition among automotive body sheet providers is that among aluminum manufacturers such as Novelis and Aleris. It ignores competition from steel automotive body sheet, even though steel automotive body sheet is currently used for nearly 90 percent of the market.

Novelis says that aluminum automotive body sheet attempts to take share from steel automotive body sheet.  And argues that for the DOJ to prevail in its lawsuit, it needs to prove that there is a distinct “relevant market” for aluminum automotive body sheet, which means that steel automotive body sheet does not significantly constrain the price and quality of aluminum automotive body sheet. Novelis further states that the DOJ does not deny that steel automotive body sheet usually competes with aluminum automotive body sheet, but instead contends that the constraint from steel is absent from some procurements (where an automotive manufacturer has supposedly already decided between steel and aluminum). Novelis believes that by focusing on just a small slice of steel-aluminum competition and ignoring the broader competitive process, the DOJ’s theory contravenes well-established principles of market definition.

Novelis further contends that the DOJ also disregards the extraordinary bargaining power of the automotive manufacturers and their ability to generate bid processes that will ensure competitive pricing for automotive body sheet.

Arbitration

The Antitrust Division has agreed with defendants to refer the matter to binding arbitration should certain conditions be triggered.  The arbitration would resolve the issue of product market definition.  The arbitration would take place pursuant to the Administrative Dispute Resolution Act of 1996 (5 U.S.C. § 571 et seq.) and the Antitrust Division’s implementing regulations (61 Fed. Reg. 36,896 (July 15, 1996)).  This would mark the first time the Antitrust Division is using this arbitration authority to resolve a matter.  The head of the Antitrust Division, Makan Delrahim, said that “[t]his arbitration would allow the Antitrust Division to resolve the dispositive issue of market definition in this case efficiently and effectively, saving taxpayer resources.  Alternative dispute resolution is an important tool that the Antitrust Division can and will use, in appropriate circumstances, to maximize its enforcement resources to protect American consumers.”

Lessons Learned:

Here, the transaction is presumptively anticompetitive because a large dominant player with 60% of a concentrated market is acquiring a new disruptive entrant.  What is noteworthy is the use of the arbitration procedure agreed to by Novelis and the DOJ.  The DOJ and Novelis clearly are debating the product market definition.  If the DOJ is right on the product market definition, the merger is anticompetitive in the North American market for aluminum auto body sheet and it would require a fix.  The merging parties can then negotiate a divestiture remedy that would resolve the competitive concerns.  As Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division put it, “[t]his arbitration would allow the Antitrust Division to resolve the dispositive issue of market definition in this case efficiently and effectively, saving taxpayer resources.” He added that “[a]lternative dispute resolution is an important tool that the Antitrust Division can and will use, in appropriate circumstances, to maximize its enforcement resources to protect American consumers.”  So, this may be the start of a trend to obtain settlements without the need for a full trial on the merits.

This complaint also demonstrates that the DOJ will use merging parties’ own words against them when challenging their deal.  Historically, “hot docs” provide an easy way to capture the interest of a judge by saying this case is simple and all you have to do is examine the merging parties’ own words.  The DOJ routinely cites “hot docs” in its complaints because they catch the interest of the media and, particularly, the judge.  The DOJ will focus on supposed “hot docs” to support its case because the buyer appears to be touting the intended anticompetitive consequences of the acquisition.  At the end of the day, however, a “smoking gun” document regarding anticompetitive intent will be rejected by a judge unless the DOJ provides the foundations of an antitrust case through market analysis and empirical evidence.  Nevertheless, this case demonstrates why corporate executives must be mindful about what they write as careless and inappropriate language in company documents can have an extremely negative effect on a merger review.

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

Background

In a letter to Makan Delrahim, the head of the DOJ’s Antitrust Division, Senators Richard Blumenthal (D-CT) and Amy Klobuchar (D-MN) described the ticket industry as “broken” and they lamented the “exorbitant fees and inadequate disclosures” in the ticket buying process.

According to their letter, Live Nation’s acquisition of Ticketmaster in 2010 has resulted in the merged firm obtaining too much control over the concert business.  “The Ticketmaster-Live Nation merger has contributed to consumers’ difficulties in the ticketing market,” the two senators wrote in the letter.  In approving the Live Nation/Ticketmaster merger, the DOJ entered into a 10-year consent decree with Live Nation prohibiting the firm from certain behaviors like using its power over concerts to force venues to use Ticketmaster.  Over the years, a number of competitors have complained that Live Nation has been violating the terms of the consent decree or at the very least the spirit of the decree.

Senators Blumenthal and Klobuchar are asking the DOJ to conduct a “retrospective study on the effects of past consolidation” and to consider extending the decree past its expiration next year.  Though the DOJ has previously investigated claims that Live Nation had violated its consent decree, the DOJ has never taken action.  In an August 28 statement, Live Nation said the senators’ letter is “based on a fundamental misunderstanding of our consent decree and general ticketing industry dynamics.”  Further, “…Live Nation and Ticketmaster have always complied with their obligations under the consent decree.  We do not force anyone into ticketing agreements by leveraging content, and we do not retaliate against venues that choose other ticketing providers.”  Thus, according to the statement, “[t]here is no cause for further investigations or studies.”

The Antitrust Division has been investigating whether Live Nation has engaged in anti-competitive exclusionary behavior and is adhering to its 2010 consent decree.

Thoughts

The Obama administration was very lenient in its review of Live Nation’s acquisition of Ticketmaster.  The deal raised serious horizontal and vertical concerns and should have been blocked.  Yet, the DOJ opted to accept a weak settlement that included behavioral conditions prohibiting Live Nation from engaging in certain conduct.  The DOJ put itself in the position having to police Live Nation’s corporate behavior and third parties in the position of having to report bad behavior to the DOJ.  These types of behavioral conditions that cannot be effectively enforced are not useful.  In reality, there was probably no behavioral or structural remedies that could solve the anticompetitive concerns raised by the merger.  Behavioral remedies require ongoing monitoring of Live Nation’s and Ticketmaster’s conduct.  The settlement agreement was a quick win, but a settlement agreement that requires ongoing monitoring is not very effective unless it is enforced.  Clearly, Live Nation/Ticketmaster is a monopolist in the primary ticketing service market. The high market share is indicative of it having market power. However, there is nothing illegal about having a monopoly.  The question is whether Live Nation/Ticketmaster is engaging in any activity to maintain its monopoly such as exclusionary conduct or violating the express conditions in the 2010 decree.

The DOJ’s most recent investigation into Live Nation’s conduct without any enforcement action to date highlights the limitations of behavioral conditions in past consent decrees. DOJ Antitrust Division Assistant Attorney General Makan Delrahim is not in favor of behavioral decrees because they are regulatory and require monitoring and supervision.  The DOJ under his leadership has strengthened the terms of consent decrees making them easier to enforce.  For the DOJ to bring a case on an older consent decree violation or to force modifications of the Live Nation decree, it must meet a very high clear and convincing standard.  Unfortunately, there is so much wiggle room in past settlement agreements that contain behavioral restrictions that merging parties can devise strategies that may be within the letter of the settlement agreement but violate the spirit of the decree.  In short, the DOJ would need to uncover evidence that Live Nation has actually violated the decree before it can bring an enforcement action or force an extension of the decree.  Delrahim has expressed the view that Congress did not intend for the Antitrust Division or the courts to be overseers of corporate behavior.  He has argued that “antitrust is law enforcement, not regulation,” and that antitrust enforcers should seek to block anticompetitive transactions, rather than allow them to proceed subject to behavioral conditions.  The Live Nation/Tickemaster is a prime example of why the DOJ must sometimes decide to block a merger rather than negotiate a settlement with ambiguous behavioral conditions.

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

Complaint

The DOJ alleges that Sabre and Farelogix compete head-to-head to provide booking services to airlines.  Booking services are IT solutions that allow airlines to sell tickets and ancillary products through traditional brick-and-mortar and online travel agencies to the traveling public.  The DOJ alleges that the acquisition would eliminate competition that has substantially benefited airlines and consumers in both the traditional and online markets.  The complaint further alleges that the transaction would allow Sabre, the largest booking services provider in the United States, to eliminate a disruptive competitor that has introduced new technology to the travel industry and is poised to grow significantly.

As alleged in the complaint, Sabre is the dominant provider of booking services in the United States with over 50% of airline bookings through travel agencies.  Sabre operates a global distribution system (“GDS”), which is a digital platform that provides booking services to airlines in addition to other functionality.  The DOJ characterizes Farelogix as an innovative technology company that has stepped in to address the needs of airlines and their customers.  The DOJ says that Farelogix has injected much-needed competition and innovation into stagnant booking services markets by developing new technology {new distribution capability} that empowers airlines to make a wider array of offers to travelers who book tickets through travel agencies.  This new technology enables airlines to make more varied and personalized offers to consumers who book through travel agents, including bundles of ancillary products such as wi-fi, lounge passes, entertainment options, and meals – choices not available to travelers through Sabre’s legacy technology.

The DOJ also points to some hot docs in its complaint.  The DOJ alleges that Sabre executives acknowledged that acquiring Farelogix would eliminate a competitive threat and further entrench Sabre in booking services.  For example, on the day Sabre announced its intention to buy Farelogix, Sabre’s chief sales officer texted a colleague that one major U.S. airline would “hate” it.  The colleague replied, “Why, because it entrenches us more?”  Similarly, a Farelogix executive observed that buying the company would allow Sabre to “tak[e] out a strong competitor vs. continued competition and price pressure.”  Sabre’s internal documents show that Sabre’s attempt to acquire Farelogix follows many other attempts by Sabre to neutralize its competitor, including a campaign to “shut down Farelogix.”  Indeed, Farelogix has long complained about Sabre’s tactics, alleging that Sabre has sought to stifle competition.  For example, in 2013, Farelogix’s Chief Executive Officer alleged that “Sabre has wielded its monopoly power in an attempt to destroy Farelogix and prevent competition….”  Moreover one Sabre sales executive noted after the announcement of the acquisition that the airline’s “FLX [Farelogix] bill is going up big time.”

The DOJ’s complaint alleges that Sabre has used a broad range of contractual and technical barriers to prevent entry or expansion by suppliers that could threaten its control over bookings through travel agencies. For instance, Sabre’s contracts include provisions that inhibit airlines’ use of an alternative supplier like Farelogix, even when doing so would be less expensive for airlines.  As recently as 2018, Farelogix denounced these restrictions, complaining that airlines’ GDS contracts “effectively prohibit working with third parties or make doing so cost prohibitive.”  In January 2019, a Sabre senior vice president acknowledged that airlines view Sabre’s restrictions as “abusive but there’s nothing they can do because they need the distribution and they are tied with a contract.”

The DOJ alleges that the two relevant markets are highly concentrated but acknowledges that Farelogix’ share is very small.  The DOJ alleges, however, that Farelogic’s market share understates its competitive significance in the current and in future markets.

In summary, the DOJ alleges that Sabre controls over 50 percent of bookings through traditional and online travel agencies in the United States, so airlines must sell tickets through Sabre to reach a broad set of U.S. travelers. Sabre has used this power to suppress Farelogic’s entry and expansion.  Nevertheless, Farelogix’s presence in these markets has led to lower prices and increased innovation that would be lost if the merger is not blocked.

Lessons Learned

The DOJ’s block of Sabre’s proposed purchase of Farelogix demonstrates that it is willing to challenge large dominant companies that seek to acquire small nascent rivals in technology markets that are highly concentrated.  Sabre’s proposed acquisition of Farelogix is a dominant firm’s attempt to take out a disruptive competitor that is an important source of competition and innovation.  The DOJ is taking the position that acquisitions of small disruptive rivals in highly concentrated markets can result in higher prices, reduced quality, and less innovation regardless of the target’s low market share.  The DOJ views the transaction as part of an emerging trend of large technology firms acquiring nascent competitors to keep them from emerging as full-fledged rivals.

This complaint also demonstrates that the DOJ will use merging parties’ own words against them when challenging their deal.  Here, the hot docs in Sabre’s text messages, documents, emails, and corporate filings support the DOJ’s decision to block the merger. Historically, “hot docs” provide an easy way to capture the interest of a judge by saying this case is simple and all you have to do is examine the merging parties’ own words.  The DOJ routinely cites “hot docs” in its complaints because they catch the interest of the media and, particularly, the judge.  The DOJ will focus on supposed “hot docs” to support its case because the buyer appears to be touting the intended anticompetitive consequences of the acquisition.  This case demonstrates why corporate executives must be mindful about what they write as careless and inappropriate language in company documents can have an extremely negative effect on a merger review.  A good rule of thumb is to write every document so that neither you nor the company would be embarrassed if it appeared on the front page of the Wall Street Journal.

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

The HSR Act requires companies to notify the DOJ and the Federal Trade Commission (FTC) of certain mergers and acquisitions, allowing the agencies to review transactions for potential anticompetitive effects before they close. For transactions meeting specific size thresholds, parties must file an HSR notification and observe a mandatory waiting period while the agencies evaluate the deal. If the waiting period expires or is terminated early, the parties may proceed. However, if the DOJ or FTC issues a “second request” for additional documents and information, the transaction is paused until compliance is met, a process that can be time-consuming and costly. In some cases, the agencies may block the transaction entirely.

To evade the HSR Act’s waiting period, Canon and Toshiba created a special purpose company to conceal the transaction. This allowed Toshiba to quickly improve its financial statements following the public disclosure of financial irregularities.

To settle the charges, Canon and Toshiba each agreed to pay a $2.5 million fine, implement HSR compliance programs, and adhere to inspection and reporting requirements, among other obligations.

Lessons Learned

The DOJ views HSR Act violations as a serious matter. The Act’s notification and waiting period requirements are essential for enabling the DOJ and FTC to review and challenge potentially anticompetitive mergers before they are finalized. This enforcement action underscores the Antitrust Division’s commitment to upholding the HSR process and ensuring compliance.