The Federal Trade Commission (“FTC” or “Commission”) has recently taken bold measures to reshape the Commission’s enforcement priorities for review of mergers and acquisitions. The FTC shares jurisdiction over such reviews with the United States Department of Justice (“DOJ”). Accordingly, new policies have historically been adopted jointly by the FTC and DOJ. Several recent actions of the FTC, however, have been undertaken unilaterally in a stark departure from that tradition.
First, the FTC unilaterally resurrected a long-abandoned practice of requiring prior approval policies in connection with certain transactions. Second, the Commission unilaterally withdrew the Vertical Merger Guidelines that it had adopted jointly with the DOJ in 2020. Third, the Commission announced that it would start issuing warning letters to parties to potential transactions, increasing the possibility that transactions may be subject to action even beyond the expiration of the thirty-day waiting period.
This inter-agency split could have profound implications for how transactions are reviewed and whether they are approved. The potential tension comes at an unfortunate time, coinciding with exponential increases in transactions reportable under the Hart-Scott-Rodino (HSR) Act. This resulting opacity in the merger review processes exercised by the two agencies will require additional care by companies charged with navigating through the mergers and acquisitions process and managing antitrust-related risk.
Reissuing Prior Approval Policies
On October 25, 2021, the FTC unilaterally issued a policy statement that effectively resurrected its pre-1995 practice of requiring prior approval policies. [1] This policy requires all parties that enter into a merger consent agreement to agree that they will obtain prior approval for at least ten years before closing any future transaction affecting a relevant market. Under the policy, the FTC may seek prior approval for a future transaction even if the parties abandon that transaction. By contrast, the DOJ continues to operate under its extant prior notice requirements.
Two dissenting Commissioners, Christine Wilson and Noah Phillips, issued a statement on October 29, cautioning about the “chilling” effect that “it will have on mergers and acquisitions activity in the United States.” [2] The statement emphasized the “divergence” that the FTC’s actions are causing between it and the Antitrust Division of the DOJ.
Withdrawal of the Vertical Merger Guidelines
On September 15, the FTC voted to rescind the joint FTC-DOJ Vertical Merger Guidelines. Shortly thereafter, the DOJ issued a press release indicating that the Vertical Merger Guidelines “remain in place” at the DOJ. [3] Dissenting Commissioners Phillips and Wilson characterized the FTC’s decision to withdraw the Vertical Merger Guidelines as an attempt to “pull the rug out from under the honest businesses and lawyers who advise them.” [4] They wrote that “the Majority’s decision to withdraw the Vertical Merger Guidelines adds to the divide between enforcement at the FTC and the DOJ,” [5] and invoked long-standing “concerns about different procedures at the agencies.” [6] The dissenting Commissioners stated that “unless the DOJ similarly eschews the 2020 Guidelines, a new schism will appear.” [7] They expressed concern that the FTC’s decision to withdraw the Guidelines adds to the divide between enforcement at the FTC and the DOJ, in light of the “concerns about different procedures at the agencies and perceived differences in the standards for an injunction.” [8]
If, as predicted by some, the FTC’s rescinding of the Vertical Merger Guidelines indicates that it will more aggressively challenge vertical transactions than the DOJ, parties to potential vertical transactions will need to analyze and account for that risk.
Warning Letters Issued by the FTC
On August 3, the FTC announced that it would begin to issue warning letters to companies for reported transactions when it cannot fully investigate within the requisite timeline. The FTC indicated that the warning letters would serve to notify the parties that the FTC’s investigation remains open even beyond the HSR waiting period, alerting parties of the risk that the FTC may subsequently determine that the transaction is unlawful. [9] The FTC’s announcement of its practice to start issuing warning letters stands in sharp relief with both agencies’ prior practices of rarely challenging consummated transactions. Notably, the DOJ has issued no similar guidance.
This apparent split introduces further uncertainty to parties and counsel navigating through transactions by increasing the risk of post-consummation investigations. Commissioner Christine Wilson has warned that the new policy will “raise the costs of doing mergers and threaten[s] to chill harmful and beneficial deals alike.” [10] Wilson expressed concern “that the carefully crafted HSR framework is suffering death by a thousand cuts.” [11]
The FTC’s Divergent Approach
As discussed above, the FTC’s recent measures represent what appears to be a growing split between how the agencies may approach merger review. The divergence created by these changes builds on already existing tension between the agencies in approach to other matters such as the role of antitrust enforcement in intellectual property licensing, as demonstrated by the DOJ’s unprecedent opposition to the FTC’s recent suit against Qualcomm, in which Qualcomm and the DOJ’s positions prevailed in the Ninth Circuit Court of Appeals. [12] The agencies’ apparent growing divergence on matters of antitrust enforcement has led to calls by some to examine the FTC’s role in antitrust enforcement authority. For example, the Tougher Enforcement Against Monopolies (TEAM) Act, proposed by Senator Mike Lee of Utah and Chuck Grassley of Iowa, the top Republicans on the Judiciary Subcommittee on Antitrust, would strip the FTC of its antitrust responsibilities and consolidate the FTC’s antitrust resources with the DOJ’s Antitrust Division. [13] On October 4, U.S. Senators Lee and Grassley, and representatives Buck and Jordan, addressed a letter to the FTC Chair Khan and DOJ Acting Assistant Attorney General Richard Powers emphasizing the growing divergence between the two agencies’ merger review processes. [14] They complained that the agencies appeared to be “applying the law unequally to similarly situated parties, raising serious concerns about the fairness of America’s antitrust enforcement regime.” [15] The Senators and Representatives criticized the FTC’s recent actions and the “lack of alignment between DOJ and FTC in antitrust enforcement.” [16]
This increasing divergence sets the stage for likely confusion and uncertainty in an already complicated merger review process. It is within the realm of possibility that transacting parties could receive different outcomes based solely on the reviewing agency and the standards it applies. Parties should engage antitrust counsel early in the deal process to address the new level of risk assessment required by these changes and to navigate through deal-structuring considerations. The practical implications of these changes are expected to become more solidified as the FTC takes enforcement actions under the new measures.
Whenever a client is pursuing a merger or acquisition that may present competition concerns, please consider engaging Wiggin and Dana’s antitrust practice group in order to understand the potential risks and thus be better able to respond to inquiries from the regulators.
Verbum sat sapienti est. [17]
[1] Press Release, FTC, FTC to Restrict Future Acquisitions for Firms that Pursue Anticompetitive Mergers (Oct. 25, 2021), https://www.ftc.gov/news-events/press-releases/2021/10/ftc-restrict-future-acquisitions-firms-pursue-anticompetitive?utm_source=govdelivery.
[2] Dissenting Statement of Commissioners Christine S. Wilson and Noah Joshua Phillips Regarding the Statement of the Commission on Use of Prior Approval Provisions in Merger Orders, at 2 (Oct. 29, 2021), https://www.ftc.gov/system/files/documents/public_statements/1598095/wilson_phillips_prior_approval_dissenting_statement_102921.pdf.
[3] Press Release, DOJ, Justice Department Issues Statement on the Vertical Merger Guidelines (Sep. 15, 2021), https://www.justice.gov/opa/pr/justice-department-issues-statement-vertical-merger-guidelines.
[4] Dissenting Statement of Commissioners Noah Joshua Phillips and Christine S. Wilson Regarding the Commission’s Rescission of the 2020 FTC/DOJ Vertical Merger Guidelines and the Commentary on Vertical Merger Enforcement, at 1 (September 15, 2021), https://www.ftc.gov/system/files/documents/public_statements/1596388/p810034phillipswilsonstatementvmgrescission.pdf.
[5] Id. at 5.
[6] Id.
[7] Id.
[8] Id.
[9] Blog Post, FTC, Adjusting merger review to deal with the surge in merger filings (August 3, 2021), https://www.ftc.gov/news-events/blogs/competition-matters/2021/08/adjusting-merger-review-deal-surge-merger-filings.
[10] Statement of Commissioner Christine S. Wilson Regarding the Announcement of Pre-Consummation Warning Letters, at 2 (Aug. 9, 2021), https://www.ftc.gov/system/files/documents/public_statements/1593969/pre-consummation_warning_letters_statement_v11.pdf
[11] Id. at 1.
[12] FTC v. Qualcomm, Inc., D.C. No. 19-16122 at 55 (9th Cir. Aug. 11, 2020).
[13] Press Release, U.S. Senator for Utah Mike Lee, Sens. Lee, Grassley Introduce TEAM Act to Reform Antitrust Law (June 14, 2021) https://www.lee.senate.gov/2021/6/sens-lee-grassley-introduce-team-act-to-reform-antitrust-law.
[14] Letter to Acting Assistant Attorney General Richard Powers and Chairwoman Lina Khan (Oct. 4, 2021), https://www.lee.senate.gov/services/files/F2587AAC-7AC6-48A3-BB55-3DF05A68C981.
[15] Id. at 2.
[16] Id.; FTC Watch, Lawmakers could strip FTC powers in response to Khan’s activist agenda (Nov. 22, 2021), https://www.mlexwatch.com/ftcwatch/articles/14137.
[17] “A word to the wise is sufficient.”