2022 Antitrust Outlook for Manufacturers — Significant Changes Under the Biden Administration
The Biden Administration is pursuing aggressive antitrust law enforcement. This article identifies some issues to watch.
On July 9, 2021, President Biden issued an executive order on “Promoting Competition in the American Economy.” While directed at various federal agencies and departments, the order specifically calls for “vigorous” antitrust enforcement by our two federal antitrust agencies, the Department of Justice - Antitrust Division (DOJ) and the Federal Trade Commission (FTC). While historically U.S. antitrust enforcement has been marked more by continuity than abrupt change, we are now seeing shifts in agency direction that could affect many businesses and industries, including manufacturers.
2022 M&A Related Developments
Merger and acquisition activity by manufacturers is typically high, as firms seek to develop innovative products, expand product portfolios, establish new supply chains (or make vertical acquisitions of vendors and suppliers), and invest in or acquire technologies to position themselves to better compete with each other, as well as with new entrants (often funded by venture capital).
How the antitrust agencies will approach M&A activity among manufacturers could be influenced by the many antitrust changes proposed (or already imposed) under the Biden Administration. These topics include:
Possible Changes to the Horizontal and Vertical Merger Guidelines: President Biden’s executive order on promoting competition called on the FTC and DOJ to “review the horizontal and vertical merger guidelines and consider whether to revise those guidelines.” A subsequent FTC/DOJ press release, dated July 9, 2021, stated that the “current guidelines deserve a hard look to determine whether they are overly permissive.” Speculation abounds as to how the agencies might seek to revise these guidelines. Market share caps, the elimination of the Herfindahl-Hirschman Index (HHI) as a measure of market concentration, and applying a “public welfare” standard (in place of the long-established “consumer welfare” standard) as the antitrust guidepost for identifying anticompetitive mergers have all been proffered by commentators. Some advocates have argued that a “public welfare” standard should include consideration of a wide range of issues such as effects on labor, corporate governance issues, environmental concerns, racial impacts, and wealth inequality concerns. The FTC reportedly has requested information in merger reviews on topics like unionization, equity, franchising, and environmental, social, and governance issues (ESG), which would appear unrelated to traditional antitrust considerations and the “substantially lessen competition” standard for merger challenges set forth by statute in Section 7 of the Clayton Act. Such an expansion of the cognizable issues relevant to merger reviews could substantially alter the predictability of agency merger enforcement efforts. Such revisions, if made — or even if applied by the antitrust agencies informally, as an exercise in agency “enforcement discretion” — could mark a change in merger enforcement, with impacts on strategic planning, business confidence, and business valuations.
Vertical Merger Guidelines Withdrawn by the FTC: In September 2021, the FTC voted unilaterally to withdraw its approval of the Vertical Merger Guidelines adopted jointly by the FTC and DOJ in June 2020. (To date, DOJ has not similarly withdrawn its approval of these guidelines.) The utility of this agency enforcement guidance to businesses and the antitrust bar is therefore in question, at least in transactions pending FTC review.
FTC “Informal Interpretations” of HSR Rules are Under Review: For decades the FTC’s Premerger Notification Office (PNO) has provided regular informal guidance to the antitrust bar on interpreting and applying the merger notification rules set forth in the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) and implementing regulations. In a blog post dated August 26, 2021, however, the FTC’s Bureau of Competition stated a concern that these “informal interpretations may not reflect modern market realities or the policy position of the Commission.”1 While HSR informal guidance is still available, the blog post noted that the FTC is “currently in the process of reviewing the voluminous log of informal interpretations to determine the best path forward.”
FTC “Warning Letters”: The FTC announced in August 2021 that it may send letters to parties to transactions under FTC investigation stating that, despite imminent expiration of the HSR waiting period, the FTC investigation remains open, and if the parties choose to close the transaction, they are “doing so at their own risk.” The legal significance of such a warning letter in any subsequent FTC challenge to a consummated transaction has yet to be tested. At a minimum, however, such letters may inject deal uncertainty by potentially delaying closings and extending the timeframe for deal reviews beyond the statutory waiting period established by the HSR Act.
Antitrust Concerns with "Technology" Acquisitions: President Biden’s executive order on promoting competition cited “dominant tech firms” as “undermining competition and reducing innovation” through “killer acquisitions,” including the acquisition of “nascent competitors.” While primarily focused on technology acquisitions by “Big Tech” platforms, this technology acquisition concern could apply to other industries. As cutting-edge technology becomes increasingly important to many manufacturing businesses, technology acquisitions could receive greater agency scrutiny.
2022 Additional Antitrust Developments
Changes under the Biden Administration extend beyond M&A. Some of these include:
Antitrust Concerns with “Labor Markets”: Many manufacturing businesses are labor intensive, and the Biden Administration has signaled that “labor markets” are a topic of high antitrust interest. The FTC and DOJ have recently held a number of workshops addressing competition issues affecting labor markets and the welfare of workers. Topics discussed included labor monopsony; the use of restrictive clauses in labor agreements, including non-competes and non-disclosure agreements; information sharing and benchmarking activity among competing employers; and the relationship between antitrust law and collective bargaining efforts in the “gig economy.” Employee non-competes were a particular focus of these workshops. DOJ has (even prior to the Biden Administration) pursued companies engaged in employee “no-poach” agreements, sometimes as a criminal antitrust violation. Manufacturers will want to follow Biden Administration labor policy changes, including the possible use of antitrust law to effectuate labor policy changes.
Antitrust Interest in Supply Chain Disruptions: Many manufacturers have complex supply chains. On November 29, 2021, the FTC voted to conduct a study of whether and how the supply chain interruptions of the past year have affected competition. The study will look to answer two central questions that may be of interest to manufacturers: (i) why these disruptions occurred and (ii) whether they are leading to specific “bottlenecks, shortages, anticompetitive practices, or contributing to rising consumer prices.” According to the FTC announcement, an order for detailed information will be sent to nine large retailers, wholesalers, and consumer good suppliers in the United States. That said, the FTC certainly could expand this probe to include other companies, including manufacturers in various industries.
Authorizations for FTC Antitrust Investigations: In July and September 2021, the FTC — through some 15 resolutions — authorized a compulsory process for FTC investigations over a wide range of antitrust topics, including proposed and consummated mergers, suspected monopolization, and suspected abuse of intellectual property. Under these resolutions, a single FTC commissioner may authorize FTC staff attorneys to issue compulsory process (such as civil investigative demands and subpoenas). Previously, such prior delegations applied virtually exclusively to consumer protection investigations, as opposed to antitrust investigations. With full Commission oversight of antitrust investigations rescinded, there may be “less accountability and more room for mistakes, overreach, cost overruns, and even politically-motivated decision making,” according to FTC Commissioners Phillips and Wilson in their dissenting statement of September 14, 2021.2Whether and how this lowering of the threshold for the FTC to launch antitrust investigations could affect manufacturers is unknown, but it does reflect a change worth considering. As both the FTC and DOJ have authority to review and challenge consummated deals — even deals that were notified and received HSR clearance — one possible outcome of these resolutions is to increase the number of investigations of consummated transactions.
Criminal Prosecution of Monopolists? While potentially criminal, DOJ has, in recent history, pursued monopolization cases civilly under Section 2 of the Sherman Act, and reserved criminal prosecutions for cartel conduct challenged under Section 1 of the Sherman Act. Nevertheless, Deputy Assistant Attorney General Richard Powers stated on March 2, 2022 that DOJ is prepared to bring criminal charges for monopolization “if the facts and the law lead us to the conclusion that a criminal charge based on a Section 2 violation is warranted.” Were DOJ to pursue this path, it would reflect a substantial change to DOJ’s criminal antitrust enforcement practices.
The Continuing Risks from Cartel Conduct
The developments discussed above are largely driven by the Biden Administration, although one antitrust risk that transcends administration changes and partisan lines is cartel conduct. We cannot forget the lessons of DOJ’s long-running investigation of auto parts suppliers, one of the largest criminal investigations ever pursued by its Antitrust Division, which resulted in charges against some 48 companies and yielded almost $3 billion in criminal fines. Settlements of class action and other private plaintiff claims reportedly exceeded $1 billion.
While DOJ’s Antitrust Division has long pursued both companies and individuals criminally in cartel cases, the Biden Administration’s Deputy Attorney General Lisa Monaco announced in October 2021 that DOJ would enhance efforts to charge individuals in white-collar prosecutions. You may recall the famous “Yates memo” from 2015 — issued by then Deputy Attorney General Sally Yates — announcing stepped-up efforts to prosecute individuals. The October 2021 announcement appears to renew and reinvigorate this focus on prosecuting individuals.
Manufacturers may have little control over Biden Administration-initiated changes to the merger and non-merger enforcement policies discussed above. An effective antitrust compliance program, however, can pay real dividends by detecting and deterring cartel conduct. Though DOJ historically did not give credit for antitrust compliance programs in making charging decisions and sentencing recommendations, it announced changes to both policies in July 2019. These changes increase the legal benefits of implementing an effective antitrust compliance program.
1 Reforming the Pre-Filing Process for Companies Considering Consolidation and a Change in the Treatment of Debt, Federal Trade Commission, August 26, 2021, https://www.ftc.gov/enforcement/competition-matters/2021/08/reforming-pre-filing-process-companies-considering-consolidation-change-treatment-debt (Last Accessed May 25, 2022).
2 Dissenting Statement of Commissioners Noah Joshua Phillips and Christine S. Wilson Regarding the Issuance of Eight Omnibus Resolutions, U.S. Federal Trade Commission, Sep. 14, 2021, https://www.ftc.gov/system/files/documents/public_statements/1596256/p859900njpcswomnibusdissent.pdf (Last Accessed May 25, 2022).