Corporate acquirers accustomed to government inertia in antitrust reform are navigating a sea change in Washington, according to Craig Seebald, a Washington, D.C.-based Partner and leader in the global Antitrust Group at Vinson & Elkins LLP (“V&E”).
see video here.
Democrats now control both the executive and legislative branches, and even some GOP lawmakers are backing stricter laws against monopolies, — developments the firm reviewed in an August 19, 2021 webinar titled “Navigating the New Antitrust Enforcers.”
Just six months after President Biden took office, he issued an executive order that created a White House Competition Council and detailed a broad role for the federal government in enforcement of, as well as in promoting, competition among the industries with which it routinely does business.
On Capitol Hill, GOP Sens. Mike Lee of Utah and Charles Grassley of Iowa introduced the Tougher Enforcement Against Monopolies (“TEAM”) Act that says mergers giving a company a 33 percent market share would substantially lessen competition and require greater scrutiny.
Additionally, the law would ban acquisitions that leave businesses with a 66 percent market share and roughly double the amount of money devoted to federal antitrust enforcement.
“There has been a major change in terms of the view of antitrust,” Seebald said. “We’re seeing lots and lots of legislation in Congress, and there’s some prospect of new antitrust laws on the books by the end of next year.”
Here are three important takeaways from the webinar, which also included Washington, D.C.-based lawyers Hill Wellford, a Partner who heads V&E’s Antitrust Government Investigations Team; Alden Atkins, a Commercial & Business Litigation Partner; and Lindsey Vaala, Antitrust counsel and member of the firm’s Global Cartel Defense and Coordination Team.
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The Biden White House has appointed aggressive antitrust advocates.
While Biden’s executive order is among the most visible results of his push to foster competition, personnel moves may have significant impact, too.
The order itself, which cites a wave of corporate consolidation that has driven up prices for consumers, as well as the significant market power accrued by Silicon Valley giants, is widely acknowledged as the work of Timothy Wu, the president’s Special Assistant for Technology and Competition Policy, explained Vaala.
A Columbia Law professor and former senior enforcement counsel to the New York Attorney General, Wu is the author of The Curse of Bigness: Antitrust in the New Gilded Age, which argues that out-of-control corporate consolidation poses a threat to the American economy and political system, Vaala said.
He’s also credited with coining the term “net neutrality,” a policy stance that prohibits internet service providers from discriminating against different types of content.
To head the Federal Trade Commission, whose primary duties include antitrust enforcement, Biden appointed Lina Khan, a Columbia Law associate professor who made waves with a 2017 article titled “Amazon’s Antitrust Paradox,” published in the Yale Law Journal.
Khan’s previous work includes serving as counsel to the House Judiciary Committee’s Subcommittee on Antitrust, Commercial and Administrative Law and as legal director at the Open Markets Institute, which fights market concentration.
In the Yale Law Journal article, Khan argued that the federal government’s traditional reliance on price fluctuations to determine whether anticompetitive behavior is hurting consumers was insufficient to gauge the threat posed by Seattle-based Amazon’s domination of e-commerce.
Khan’s stance is that companies such as Amazon, which offers a platform to retail competitors that can be used to track their sales and pricing, are leveraging that data to “steal a march and take rivals’ customers,” explained Wellford.
Her theory is shared by Sen. Elizabeth Warren, the Massachusetts Democrat and onetime presidential contender, who has proposed breaking up large tech companies, including Amazon, as a remedy.
At the Department of Justice, Biden has nominated Jonathan Kanter — a Paul Weiss alum who is now a partner at The Kanter Law Group, a boutique antitrust firm — to lead the antitrust division.
In a number of speeches over the past few years, Kanter has argued that “antitrust laws and their emphasis on quantitative economics makes them poorly suited to address the conduct of large companies, particularly tech companies’ platforms, that frustrate competition,” Atkins said. “He would say that economics does play a part, but it should not be the only part. He would focus on a qualitative analysis. His view of what is happening is that tech companies like Facebook are frustrating the ability of nascent competitors to begin competing.” Because effects on nascent competition might not be measured by the quantitative economic analysis traditionally used in antitrust, Kanter emphasized that antitrust should emphasize qualitative analysis of competitive effects.
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President Biden has drawn a massive battle plan for fighting monopolies
The executive order on competition that Wu masterminded echoes some of his writing for The New York Times and is “striking for its strident tone,” Vaala remarked.
“The order really strives to make competition a concern for nearly every federal agency under President Biden,” she added. “It emphasizes right off the bat the need for a whole-of-government approach, bringing the full weight of the federal government to bear on the allegedly dismal state of competition in multiple industries.”
The order, which includes 72 separate initiatives, takes on markets that the White House describes as significantly less open and competitive than just 20 years ago.
A smaller number of large companies now have bigger market share in more than 75 percent of U.S. industries, including health care, financial services and farming, the administration says. Mark-ups, or charges that exceed the cost of production, have tripled as a result.
Among the steps the Biden administration plans to take are:
- Banning or limiting non-compete agreements to make it easier to change jobs and earn higher wages
- Lowering prescription drug prices by supporting state efforts to import cheaper drugs from Canada
- Lowering Internet costs by banning excessive early termination fees and ending landlord-exclusivity deals that leave tenants with a single option for Internet service
- Focusing enforcement on labor, agricultural, healthcare and technology markets
- Urging federal agencies, which are large customers of private industry, to set pro-competition rules and spending policies
The competition council that Biden created will both monitor progress on those initiatives and coordinate the federal government’s overall response to the rising power of corporations, the White House says.
Its members will include the secretary of the Treasury, the attorney general, the secretary of Defense and other Cabinet members, and the group will be chaired by the director of the National Economic Council.
“The agencies are really encouraged to work together to boost competition, but also to individually assess the ways in which they can each influence competition, through regulatory authority or through the procurement process,” Vaala said. “From a practical perspective, what that means is that the White House has now told the Defense Department, ‘Consider how you use your procurement process to create more competition.’ That could have a powerful impact, depending on how it’s implemented.”
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Antitrust fervor is growing in Congress
Traditionally, Republicans have been viewed as the party of big business and the Chamber of Commerce, while Democrats have a reputation for being more enforcement-oriented.
That has created a relative stalemate, Seebald says: “It’s why you haven’t seen much new antitrust regulation. The Sherman Act of the 1890s is still a major part of the antitrust legislation we deal with.”
That dynamic is changing rapidly, however, with growing antitrust concerns among GOP lawmakers reflected in the TEAM Act and other proposals.
The Bust Up Big Tech Act, introduced by Republican Sen. Josh Hawley of Missouri, would prohibit companies like Amazon from selling their own goods alongside those of rivals using their platforms.
His Trust-Busting for the Twenty-First Century Act, meanwhile, would ban all acquisitions by companies with a market value of $100 billion or more.
That premise, says Seebald, would keep a tech company like Microsoft from buying a consumer business like Coca-Cola even though “there would be no antitrust competitive issues.”
Another bill, sponsored by Grassley and Democratic Sen. Amy Klobuchar, updates pre-merger filing fees to charge companies more for larger deals than small ones, replacing a structure that hasn’t changed since 2001.
A separate bill from Klobuchar, introduced in February, would allow antitrust fines of 15 percent of revenue, Seebald said.
Common themes among many of the bills, he added, are major restrictions on very large companies doing transactions, loosening of evidentiary standards for proving anticompetitive behavior, and enhancing the government’s enforcement powers.
The prospect of such laws and the Biden administration’s focus on promoting competition are making the multibillion-dollar market for mergers and acquisitions in the U.S. significantly more complex for buyers and sellers alike, while Silicon Valley companies face challenges simply preserving their existing structures.
The administration’s actions and appointments have the most immediate effects, but V&E’s attorneys are continuously monitoring legislative actions, which might prove more significant and longer-lasting.
