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Revisions to the FTC’s Merger Guidelines? This week, FTC Chair Lena Khan was interviewed by Kara Swisher of the New York Times, the day after the FTC and DOJ announced a joint public inquiry about updating the FTC/DOJ’s merger guidelines.
You can read the agencies’ joint announcement by clicking on the following link:
You can read the interview transcript by clicking on the following link (there may be a paywall involved), or listen to it on Kara Swisher’s podcast “Sway:”
https://www.nytimes.com/2022/01/19/opinion/sway-kara-swisher-lina-khan.html?showTranscript=1
Background: Ever since 1914, mergers that may substantially lessen competition or create a monopoly have been illegal. The DOJ and FTC share enforcement authority. For many years, they have issued joint guidelines about conditions or characteristics of proposed mergers which would be presumably acceptable or presumably subject to antitrust challenge. (These “presumptions” aren’t conclusive and can be rebutted, but a finding that a proposed deal would not be presumably okay usually raises the business risk so that the parties will drop it.) Over time, these “merger guidelines” have been updated as market conditions have changed. Now, it appears, the FTC/DOJ believe it may well be time to update them again.
For further background, you can see the FTC’s explanation of the merger guidelines here:
https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/mergers
Takeaways: We suggest five (5) takeaways from this week’s interview. Some of these are paraphrases of what Chair Khan said. Others are our surmise, reading between the lines.
1. The agencies are asking whether they (lately) have been “missing something” – whether the tools and frameworks that the agencies are using, and the questions that they’re asking, “are still mapping to the realities [they’re] seeing in the markets.” Before the “digital revolution,” merger analysis mostly focused on prices to the consumer: lower prices to the consumer must mean no antitrust harm. But in the digital world, lower consumer prices may no longer be the only relevant metric, much less the controlling one. Harms may come from other directions – but what directions? How will they appear? How should they be measured? (If these questions sound familiar, they are. For a refresher on the so-called “Hipster Antitrust Movement,” you can reference our May 2019 post, “Privacy Meets Antitrust” at the following link:
https://www.hoschmorris.com/privacy-plus-news/privacy-plus-may-11-2019
2. “Harmful effects” to consider may include effects on any of the following. “It’s an ongoing conversation, but increasingly, the question is how we implement some of [the following] priorities, not whether they’re important:”
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— labor markets (including monopsony and “moat building”) — People are increasingly the most valuable capital. Acquisitions that consolidate the best people in an industry may tend toward monopoly, as may “no-poach” (nondisclosure, noncompetition, and non-solicitation) agreements;
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— commercially sensitive data — Acquisitions that consolidate the most valuable databases in a field may cause competitive harm out of proportion to the pre-merger market shares of the parties;
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— privacy — Chair Khan specifically noted that as companies buy out more privacy-protective firms, the latter’s consumers may find themselves submitting to more intrusive privacy practices or being tracked by more websites – not out of choice, but from “feeling locked in or coerced;”
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— discouragement of new investment — Sometimes, firms come quickly to dominate and utterly discourage any new investment in an area (the trendy word for these areas is “kill zones”). (In the podcast, apropos the point that “Nobody invests in ‘search’ anymore,” you can hear them laughing); and even
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— supply chains —Vertical integrations up and down a supply chain may cause the chain to become “thinned out,” “rigid,” less flexible, and unable to respond quickly to crises such as we are facing now.
3. Timing of enforcement is becoming more flexible. Sometimes the FTC will jump in “after the fact,” as when it recently sued Facebook. Why? Because, as Chair Khan said, it is important to “ensure the market knows that these types of deals won’t be immunized.”
4. Prominent justifications for many mergers may not suffice, including:
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— “What could be less harmful than ‘free?’” — Chair Khan said the FTC is interested in learning “how to measure quality degradations... [and how to] muscle up our ability to show that companies have market and monopoly power even when they’re not charging prices...such as data privacy and security instances, in which firms acquired firms that were less privacy-protective, and then reneged on their commitments, and suddenly consumers were locked in and have to surrender more data or be tracked on more websites...not from free choice or consent, but really feel locked in or coerced;”
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— “Must have scale and size to compete with China” (the “national champion” argument) — Chair Khan agrees that it is “hard to design a regime where different jurisdictions have different rules of the road,” but she notes that ever since mid-century the US has moved forward with competition (e.g. the breakup of AT&T), and now the EU is getting stricter, while China itself seems to be enforcing its own antitrust laws more strictly (noting that if unfettered monopoly power is allowed to concentrate, its power can eventually rival the state’s).
5. With its resources shrinking and workload more than doubling, the FTC must shepherd its challenges for the greatest effect — Chair Khan said the FTC’s 1,100 headcount is down 2/3 over the last decade or so, while the number of proposed mergers is exploding. So the agencies will challenge the proposed deals that look most problematic, and where the challenges look most likely to affect behavior beyond just the proposed deal at issue.
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Hosch & Morris, PLLC is a boutique law firm dedicated to data privacy and protection, cybersecurity, the Internet and technology. Open the Future℠.
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