Attorneys See Khan Expanding Authority to Target Serial Tech Deals
FTC scrutiny for the tech industry’s smaller and serial acquisitions will increase if commissioners rescind a 1995 policy statement Wednesday, as expected, antitrust attorneys told us. The commission meets Wednesday for its second open meeting under Chair Lina Khan (see 2107120065). It will vote whether to rescind the policy statement on prior notice and prior approval remedies in transactions.
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Based on meeting materials and President Joe Biden’s competition executive order, it appears Khan wants to address concerns about a single company’s acquisitions over time in a single market, said Davis Wright’s Kaj Rozga, a former FTC attorney. Rescission would strengthen the agency’s ability to enter into a consent decree on the company’s first deal, which would carry further obligations for future deals in the same market, said Rozga, noting Biden’s reference to serial buys. “Agencies are really looking very closely at the antitrust laws and whether to make changes to their policies so that they can bring more enforcement action even if there is no change with substantive law,” he said.
Rescinding the 1995 policy statement would be a “significant change” for when the FTC identifies early transactions that might not trigger Hart-Scott-Rodino Act review, said Mintz’s Bruce Sokler. It appears to be an effort by Khan to target incremental transactions like Facebook’s buys of Instagram and WhatsApp, he said.
Tech innovators aren’t huge when they’re acquired, so the balance sheet for a nascent company might not trigger HSR thresholds, said Troutman’s Barbara Sicalides. It’s “disruptive” in that it could shrink opportunities for small, nascent competitors, she said: “It could have a long-term impact on how much innovation there is in the market.” The previous policy statement, passed during the Clinton administration, was intended to avoid unnecessary cost for smaller deals. The implication of rescinding suggests the agency might not have confidence HSR notifications are sufficient, she said. She and Sokler agreed the rescission would likely have the biggest impact on tech and pharma industries. The agency and Public Knowledge declined comment.
Rescinding the 1995 statement could allow the agency to sweep in deals that would otherwise not be reportable, said Morrison & Foerster's David Shaw, a former DOJ Antitrust Division deputy chief of staff. And it could potentially flip the burden of proof, forcing companies to prove to the FTC their deals are pro-competitive, or at least not anti-competitive, to move forward. Now, the presumption is that a deal is lawful unless the FTC can prove it's anti-competitive. Shaw agreed rescission could affect innovation: Most immediately, it could raise the cost of settling a merger investigation with the FTC because a company might agree to conditions “to get that particular deal done,” but not “want to give the FTC veto power over potential future deals.”
Also this week, the House is expected to vote on a Democratic bill that responds to the Supreme Court striking down FTC Act Section 13(b) authority (see 2106210054 and 2104260065). The Consumer Protection and Recovery Act (HR-2668), which passed in June on a party-line vote, is meant to strengthen the agency’s ability to seek equitable monetary relief like restitution or disgorgement. The House Rules Committee deliberated Monday over potential amendments.
OMB issued a statement Monday applauding the effort to “expressly authorize the FTC to seek permanent injunctions and pursue equitable relief for all violations of law enforced by the Commission and ensure that the cost of illegal practices falls on bad actors, not consumers targeted by illegal scams.”
DOJ generally “supports the authority of enforcement agencies to seek monetary relief as an equitable means of remedying deceptive, fraudulent, or anticompetitive conduct by depriving wrongdoers of ill-gotten gains and restoring funds to harmed consumers” as a matter of civil enforcement policy, the department wrote House Commerce Republicans in May letter we obtained (see 2105170040). DOJ declined in the letter to provide an “official statement” because the bill doesn’t affect DOJ enforcement. But Justice cited then-acting FTC Chair Rebecca Kelly Slaughter’s April 27 testimony, in which she said legislation would be needed to address legal challenges to the FTC’s authority to protect consumers and competition.
The commission will also vote on a new policy statement on right-to-repair restrictions. It appears Khan wants to use the agency’s consumer protection authority to give consumers greater rights, said Sokler. Some claim depriving consumers of those rights is anti-competitive, said Sokler, but he expects the agency to address it as a Section 5 consumer protection matter. Looking at the FTC’s agenda, the Biden EO and the FTC’s May statement on the matter, it appears the FTC is intent on strengthening a consumer’s right to repair, said Rozga.