Key Takeaways

Antitrust enforcers remained active across the globe, with the announcement by the FTC and DOJ of proposed guidelines that have an emphasis on tech mergers in the United States, and several investigations of major tech deals moving toward resolution (or continuing) in the United States, Europe, and elsewhere.

• The FTC and DOJ unveiled for public comment new proposed Merger Guidelines (the Draft Merger Guidelines), marking the first update to the horizontal merger guidelines since 2010. One evident focus of the updated guidelines is the technology space, suggesting a concerted effort to address merger-related issues in the industry.
• With updates from the FTC, UK Competition and Markets Authority (CMA), and European Commission (EC), Microsoft’s acquisition of Activision now seems on track to be completed despite the prospects looking bleak just a few months ago.
• Broadcom and VMware moved closer to closing their proposed $69 billion transaction, with the EC, CMA, and United States clearing the deal, and clearance outstanding only in China.
• ICE and Black Knight appear to be on the verge of arriving at a settlement with the FTC for their $13.1 billion transaction after Black Knight announced an agreement to sell a business in an attempt to secure clearance.
• Adobe’s $20 billion acquisition of Figma continues to face major hurdles with antitrust enforcers; the EC announced that its preliminary review found significant antitrust problems with the deal.

Proposed Merger Guidelines

On July 19, 2023, the FTC and DOJ released updated Draft Merger Guidelines.¹ This new version for the first time covers both horizontal and vertical transactions within the same set of guidelines. Historically, these guidelines have served to outline the evaluation process employed by the FTC and DOJ for assessing mergers, and courts have often cited to them to support their decisions when reviewing challenges to deals.

Since their release, however, the updated Draft Merger Guidelines have faced substantial criticism concerning their scope, approach, and reliance on very old case law. It remains uncertain whether these guidelines will hold the same weight with courts as previous versions, as they introduce novel theories of harm, some of which have not fared well in court.

It will be critical for merging parties and antitrust practitioners to monitor how the agencies apply these guidelines to the changing dynamics of the technology sector and whether the enforcement approach reflected in these new guidelines withstands scrutiny by the courts. The following summarizes new elements of the Draft Merger Guidelines that are directed at, or will have likely some impact on, transactions in the tech industry.

Multi-Sided Platforms

Guideline 10 presents the agencies’ approach when evaluating mergers involving multi-sided platforms, which are almost always technology driven. The guideline specifically identifies three types of competition related to platforms that can be harmed — competition between platforms, competition on a platform, and competition to displace a platform. Within this context, this guideline outlines five types of acquisitions and the potential harmful effects the agencies claim may arise from such transactions:

• Merger between two platforms: Such mergers can eliminate competition between the platforms involved. The guidelines recognize that smaller competing platforms may face challenges in entering the market due to network effects, leading them to specialize. Dominant platforms could, according to the guidelines, exploit their position by acquiring smaller platforms in their early stages.
• Acquisition of a platform participant: When a platform acquires a participant on the platform, it can strengthen its position by depriving rival platforms of that participant and the associated network effects. This type of acquisition may also give the platform an incentive to favor its own product, a conflict of interest which can harm competition in the product market.
• Acquisition of a facilitator of participation on multiple platforms: If a platform acquires a business that provides services facilitating participation on multiple platforms (e.g., price comparison or cross-listing management), it can harm competition by depriving rivals of platform participants.
• Acquisition of important inputs to platform services: When a platform acquires a provider of critical inputs (e.g., data for matching, sorting, or prediction services), it can deny rivals access to that input and associated benefits, hindering competition.
• Acquisition of technologies or services that decrease dependence on the platform: New technologies or services might enable platform participants to shift away from the platform or offer alternatives to its functions. The guidelines say that the agencies will aim to prevent even small accumulations of power from inhibiting the possibility of displacing the platform or reducing dependency on it.

The guidelines’ specific treatment of multi-sided platforms is not surprising given previous enforcement actions involving the concepts described. Notably, the FTC’s case against Meta alleges that Meta acquired Instagram and WhatsApp to eliminate competition from other social media and messaging platforms. The FTC recently challenged Meta’s acquisition of Within and Microsoft’s acquisition of Activision, both platform acquisitions of on-platform participants. And the DOJ’s 2020 suit to block Visa’s acquisition of Plaid alleged that Plaid offered an alternative technology to Visa’s online debit platform.

By dedicating one of only 13 guidelines to multi-sided platforms, US antitrust enforcers, like their counterparts in Europe, are signaling their belief that platforms’ gatekeeper role poses significant threats to competition. As a result, the US enforcers are likely to approach acquisitions proposed by such companies with skepticism, if not hostility. Given the long list of potential harms outlined, virtually any transaction by a platform could fit one of the criteria and raise concerns from the agencies.

Potential Competition

Guideline 4 states that mergers should not eliminate a potential entrant in a concentrated market.² The guideline lays out two versions of potential competition theories of harm: actual potential competition and perceived potential competition.

The guidelines’ discussion of actual potential competition is noteworthy, as it aligns with the FTC’s position in its unsuccessful challenge of Meta/Within.³ According to the guidelines, an actual potential competition theory of harm consists of two elements: “(1) whether one or both of the merging firms had a reasonable probability of entering the relevant market other than through an anticompetitive merger, and (2) whether such entry offered a substantial likelihood of ultimately producing deconcentration of [the] market or other significant procompetitive effects.”⁴ The guidelines say that the agencies “will usually presume” the second element if the first one is met, making the analysis predominantly focused on the probability of entry.

The guidelines stress that the agencies start their assessment of the first element by looking at “objective evidence” of a firm’s means of entry.⁵ This evidence includes characteristics of the firm, such as its size, resources, advantages, successful expansion into other markets, participation in adjacent or related markets, incentives to enter, and recognition by industry participants as a potential entrant. On the other hand, the guidelines only briefly mention a firm’s actual entry plans as an indicator of probability of entry.

The emphasis on firm characteristics and apparent de-emphasis on evidence of actual entry plans mirrors the FTC’s approach in Meta/Within. However, this reliance on vague standards tied to firm characteristics rather than concrete evidence of entry plans could allow the agencies to apply this theory of harm to almost any transaction involving a large technology company.

This approach proved fatal to the FTC’s challenge of Meta’s acquisition of Within. The district court in that case rejected this approach as impermissibly speculative:

[T]he FTC has implied that the Court may infer that Meta would have entered the market de novo — irrespective of its actual plans for entry — using available feasible means unbeknownst to the parties or the Court. See FTC Closing Hr’g Tr. 1494:16–18 (“We don’t have to show that Meta actually had a subjective intention to enter the market.”). To the extent the FTC implies that — based solely on the objective evidence of Meta’s resources and its excitement for VR fitness — it would have inevitably found and implemented some unspecified means to enter the market, the Court finds such a theory to be impermissibly speculative.⁶

While the court did not require actual plans for entry, it held, “where the objective evidence is weak or inconclusive and does not strongly point to the feasibility of entry de novo, it is incumbent on the Court to consider the potential entrant’s actual plans of entry for the purposes of ensuring that Section 7 enforcement does not veer into the realm of ephemeral possibilities.”⁷

Despite the shortcomings of the FTC’s case in Meta/Within, the guidelines’ emphasis on so-called objective evidence and their passing mention of actual plans suggest that the agencies will continue to pursue actual potential competition theories of harm in deals involving well-resourced companies, such as large tech companies, even in the absence of concrete plans to enter. Parties involved in deals with large tech companies should be prepared to rebut such theories with compelling explanations of the challenges associated with entering the relevant market de novo.

Roll-up Acquisitions

Guideline 9 is another guideline that carries significant implications in the technology space, stating that “[w]hen a merger is part of a series of multiple acquisitions, the agencies may examine the whole series.”⁸ While agency leadership’s comments suggest that this guideline primarily targets “roll-up” strategies pursued by private equity firms, it can also impact technology companies with private equity sponsors. It is also not uncommon in the tech industry to use multiple smaller acquisitions to gain necessary scale or build broad product portfolios.

According to the guidelines, the agencies will assess individual acquisitions in the context of the cumulative effect of related patterns or business strategies. This means that even if a particular acquisition doesn’t itself harm competition — for example, if the incremental share gained by the acquisition is negligible — the agencies may still challenge it if the acquirer’s cumulative strategy raises concerns about lessening competition.

The guidelines draw support for this approach from 1950 legislative history from the passage of the Clayton Act and the general statement from the Supreme Court in Brown Shoe that “cumulative series of mergers can convert an industry from one of intense competition among many enterprises to one in which three or four large [companies] produce the entire supply.”⁹ However, how this theory of harm will hold up in court remains unclear. To date, there haven’t been any challenges to deals based on the impact of other consummated and attempted deals by the same party. Nevertheless, the possibility of facing scrutiny based on the cumulative impact of a series of acquisitions should be kept in mind by technology companies, whether private equity backed or not, that engage in repeat M&A transactions.

Tech M&A Antitrust Enforcement Updates

Microsoft/Activision

In January 2022, Microsoft announced that it had agreed to acquire Activision. Microsoft makes the popular Xbox video game console, a number of popular video games (including Minecraft and Halo), and a video game subscription service, Xbox Game Pass, which includes a cloud gaming option. Activision produces highly successful video game franchises, including the all-time best-selling Call of Duty.

In April and May, the CMA and EC took different paths regarding the deal. The CMA blocked the transaction in April, while the EC accepted Microsoft’s behavioral commitments and cleared the deal a few weeks later.

After the EC cleared the deal, reports emerged that Microsoft and Activision were considering closing the deal despite the CMA’s block. The parties also told the FTC that they could close the deal at any time without further notice to the FTC.¹⁰ Though the FTC filed an administrative complaint in December 2022, there was nothing from a US law perspective preventing the parties from closing. To prevent the deal from closing during its ongoing administrative challenge, the FTC filed a complaint in federal court on June 12 seeking a preliminary injunction.¹¹ The Northern District of California expedited the hearing on the FTC’s injunction motion, which began ten days later, on June 22.

Following a five-day evidentiary hearing, the district court denied the FTC’s motion for a preliminary injunction.¹² The court found that the FTC had not demonstrated a likelihood of success in its assertion that the combined firm would likely remove Call of Duty from Sony PlayStation or that owning Activision content would substantially lessen competition in subscription cloud gaming.¹³

The court agreed that the combined firm would have the ability to foreclose competitors through ownership of the Call of Duty franchise.¹⁴ However, it rejected the FTC’s contention that Microsoft had the incentive to withhold Call of Duty from its rivals based on an array of evidence:

• Immediately upon the merger’s announcement, Microsoft committed to maintain Call of Duty on its existing platforms and even expand its availability.
• Microsoft’s deal model relied on Call of Duty sales on PlayStation and other non-Microsoft platforms following the acquisition.
• Microsoft’s deal model reflected that access to mobile content was a critical factor for the deal, suggesting the combined firm would not be incentivized to withhold Call of Duty merely to aid the shrinking console market.
• Microsoft’s witnesses consistently testified that there are no plans to make Call of Duty exclusive to Microsoft’s Xbox.
• There were no internal documents, emails, or chats contradicting Microsoft’s stated intent not to make Call of Duty exclusive to Xbox consoles.
• Call of Duty’s cross-platform play was critical to the game’s financial success.
• Microsoft anticipated irreparable reputational harm if it foreclosed Call of Duty from PlayStation.
• The FTC did not identify any instance in which an established multiplayer, multiplatform game with cross-play like Call of Duty has been withdrawn from millions of gamers and made exclusive.¹⁵

After the district court’s decision and the court of appeals’ denial of injunctive relief pending appeal, Microsoft signed a 10-year agreement with Sony to maintain Call of Duty on PlayStation following its acquisition of Activision.16 As part of the agreement, Microsoft committed to making Call of Duty available on PlayStation on the same day as the game becomes available on Xbox.¹⁷

In a significant twist, the day after the US district court announced is decision, the CMA announced a stay of Microsoft’s appeal litigation and expressed its readiness to consider proposals from the parties to restructure the transaction to address its concerns.¹⁸ Microsoft took this opportunity and, on July 25, submitted a request to the CMA for clearance of the deal.¹⁹ Microsoft’s submission was based primarily on two developments that occurred after the CMA’s initial decision: the EC’s approval and Microsoft’s supply agreement with Sony.²⁰

The CMA’s deadline to issue a final report is August 29.²¹ On July 18, the parties agreed to extend the outside date of the deal by three months, to October 18, along with higher termination fees.²² With the CMA being the most significant remaining hurdle and showing willingness to reconsider the deal, it seems the parties are now on track to complete it.

Broadcom/VMware

Broadcom and VMware are making significant progress toward closing their proposed transaction, with the EC, CMA, and United States clearing the deal. The EC accepted Broadcom’s proposed commitments and cleared the transaction on July 12. The EC’s investigation concluded that the deal could harm competition in the worldwide market for Fibre Channel Host-Bus Adapters (FC HBAs) but ruled out concerns in other markets.²³ Broadcom offered remedies to address the EC’s concerns, including granting access to interoperability APIs and technical support to its only rival, Marvell, ensuring their interoperability with VMware’s software, and providing an irrevocable open-source license to the source code for all current and future FC HBA drivers. An independent trustee will supervise these commitments for 10 years.²⁴

Similarly, the CMA cleared the deal on August 21, saying that the deal would not substantially affect innovation or harm the ability of rivals to compete against the combined company.²⁵ The CMA had provisionally cleared the deal on July 19 after its Phase 2 investigation.²⁶ The CMA panel concluded that the deal would not substantially reduce competition in the supply of server hardware components in the UK. The panel found that the potential financial benefit of making rival products work less well with VMware’s software would not outweigh the potential financial cost for Broadcom and VMware.

Meanwhile, in the United States, Broadcom reported in a Securities and Exchange Commission filing on August 21 that “the Hart-Scott-Rodino pre-merger waiting periods have expired, and there is no legal impediment to closing under US merger regulations.”²⁷ The FTC issued second requests to the parties in July 2022 and had reportedly been seeking information from third parties, including customers of Broadcom and VMware.

These recent clearance decisions from the EC, CMA, and United States signal significant positive progress for the deal, with China being the only country where antitrust approval is pending. While the recent developments in the EU, CMA, and United States clearances may influence the investigations by SAMR (China’s antitrust regulator), approval from Chinese regulators could prove a problem, as the Chinese government appears to be holding back deals involving US Companies as part of the ongoing trade dispute with the United States.²⁸

The companies initially aimed to complete the transaction by August 26, but meeting that deadline now seems overly optimistic. Nevertheless, the recent developments from the EC, CMA, and United States offer encouraging signs for the deal’s eventual completion, and the parties also have the option to extend the deadline to November 26, 2023, based on regulatory approval waiting periods.

ICE/Black Knight

In May 2022, Intercontinental Exchange (ICE) announced its agreement to acquire Black Knight for approximately $13.1 billion. Black Knight provides various services to the mortgage industry, including its loan origination system (LOS) called Empower and a product pricing and eligibility engine (PPE) that aids lenders in identifying the best available mortgage rates for potential home buyers. ICE also offers an LOS product called Encompass, along with a related PPE service.

The FTC brought an administrative action challenging the transaction on March 9 based on concerns that the combination of the country’s two largest LOS systems would give ICE the ability to raise costs for lenders, ultimately increasing costs for home buyers. The FTC challenged the deal even though Black Knight had reached an agreement with a buyer to divest its Empower LOS product to secure clearance. The FTC sought a temporary restraining order and preliminary injunction in federal court on April 10 to prevent the parties from closing the transaction.

On July 17, 2023, Black Knight announced an agreement to sell its Optimal Blue PPE business to Constellation Software for $700 million in another attempt to secure clearance. Following this announcement, the FTC filed an unopposed motion to withdraw the matter from adjudication on July 19, 2023, and on August 7, 2023, the FTC, ICE, and Black Knight jointly stipulated to dismissing the federal court case against the proposed acquisition.²⁹ While a formal settlement agreement has not yet been finalized, the dismissal suggests that a settlement is likely.

Adobe/Figma

In September 2022, Adobe announced its intention to acquire Figma, a leading user interface/user experience (UI/UX) design platform, for approximately $20 billion. The proposed acquisition represents Adobe’s largest acquisition in its 40-plus-year history.³⁰ Figma, which launched in 2016, pioneered web-based, real-time collaborative design tools. Adobe launched its own UI/UX design tool, Adobe XD, almost a year later, in 2017.³¹

The deal is facing significant headwinds from antitrust enforcers. The EC announced on August 7 that a preliminary review of the deal triggered major concerns that it could significantly reduce competition in the global market for interactive product design tools, and also shut out competitors.³² The EU stated that it will complete its investigation by December 2023.³³ The CMA also referred the deal to a Phase 2 probe and is scheduled to publish its final report in late December 2023. And in the United States, the parties received second requests from the DOJ on November 14, 2022.³⁴ Press coverage surfaced earlier this summer reporting that DOJ was preparing to file a lawsuit to block the transaction, but no such lawsuit has appeared. Both Adobe and Figma have publicly confirmed their compliance with the DOJ’s second requests and have expressed optimism about the deal’s closure before the end of the year.³⁵

While some progress has been made in the respective investigations, the future of the acquisition remains uncertain. The upcoming months are expected to shed light on the regulators’ direction and decisions regarding this high-profile transaction.

^[1] Department of Justice and Federal Trade Commission, 2023 Draft Merger Guidelines, available at https://www.justice.gov/d9/2023-07/2023-draft-merger-guidelines_0.pdf (hereinafter Draft Merger Guidelines). The public is invited to provide comments to the Draft Merger Guidelines until September 27, 2023. The agencies will use the public comments to evaluate and update the draft before finalizing the guidelines.
^[2] Draft Merger Guidelines, at 11.
^[3] Order Denying Plaintiff’s Motion for Preliminary Injunction, Federal Trade Commission v. Meta Platforms Inc., 5:22-cv-04325 (N.D. Cal.) (hereinafter, Meta/Within decision)
^[4] Id.
^[5] Id.
^[6] Meta/Within decision, at 53.
^[7] Meta/Within decision, at 54.
^[8] Draft Merger Guidelines, at 22.
^[9] Id., citing Brown Shoe Co. v. United States, 370 U.S. at 334 (1962) (“Where several large enterprises are extending their power by successive small acquisitions, the cumulative effect of their purchases may be to convert an industry from one of intense competition among many enterprises to one in which three or four large concerns produce the entire supply.”)
^[10] Complaint, FTC v. Microsoft, Case No. 3:23-cv-02880, 2-3 (June 12, 2023).
^[11] Id.
^[12] Preliminary Injunction Opinion, FTC v. Microsoft, Case No. 3:23-cv-02880, 1 (July 10, 2023).
^[13] Id.
^[14] Id. at 33.
^[15] Id. at 33-38.
^[16] https://www.cnbc.com/2023/07/16/microsoft-and-sony-sign-deal-to-keep-activisions-call-of-duty-on-playstation.html.
^[17] https://www.yahoo.com/lifestyle/microsofts-msft-10-deal-sony-151403131.html#:~:text=The%20
company%20has%20offered%20Sony,just%20like%20its%20Game%20Pass.
^[18] https://www.theverge.com/2023/7/11/23791149/microsoft-activision-blizzard-uk-regulators-cma-appeal.
^[19] Microsoft’s Submissions On Material Changes Of Circumstances and/or Special Reasons For The Purposes Of Section 41(3) Enterprise Act 2002,
https://assets.publishing.service.gov.uk/media/64c76983331a650014934e7c/A._Microsoft_
submission.pdf. 
^[20] Id. 
^[21] Notice of extension under section 41A(2) of the Enterprise Act 2002 of the period for the discharge of the duty under s41(2) of the Enterprise Act 2002,
https://assets.publishing.service.gov.uk/media/64ae72e0fe36e0000d6fa75f/Notice_of_
extension_.pdf.
^[22] https://fortune.com/2023/07/19/microsoft-extends-activision-deal-close-date-termination-fee/.
^[23] Broadcom, VMware Deal Set for EU Green Light - Bloomberg.
^[24] Mergers: Commission clears acquisition of VMware by Broadcom (europa.eu).
^[25] https://www.networkworld.com/article/3705249/uk-authority-oks-broadcoms-vmware-buy-but-
regulatory-hurdles-remain.html (hereinafter Network World article).
^[26] CMA provisionally clears $69 billion technology deal - GOV.UK (www.gov.uk).
^[27] Network World article.
^[28] Id.
^[29] https://www.jaxdailyrecord.com/news/2023/aug/07/black-knight-says-ftc-dropping-federal-lawsuit-against-merger/.
^[30] https://www.cmswire.com/digital-experience/how-does-adobes-20b-acquisition-of-figma-impact-ux-designers/. 
^[31] https://techcrunch.com/2017/10/18/adobe-xd-designing-at-the-speed-of-thought/.
^[32] https://siliconangle.com/2023/08/07/eu-launches-investigation-adobes-proposed-20b-acquisition-figma/.
^[33] Id.
^[34] https://www.bloomberg.com/news/articles/2022-11-18/adobe-receives-us-justice-request-for-more-data-on-figma-deal#xj4y7vzkg; see also MLex | Adobe, Figma receive second request from US DOJ.
^[35] https://www.theregister.com/2023/03/16/adobe_reckons_itll_complete_20bn/.

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