On July 9, 2021, President Biden signed the Executive Order on Promoting Competition in the American Economy. The Order, breathtaking in scope, asserts as a key goal the desire to improve the lives of consumers through encouraging competition. The Order sets about accomplishing this goal through "green lighting" regulatory authorities to assert regulatory oversight over a variety of existing business practices. Alternatively, the Order encourages various regulatory bodies to develop new regulations to address these practices.
Employment, finance, insurance and general commercial transactions all are within the breadth of the Order. In this alert we bring together some of our practitioners in the areas of antitrust, employment, technology, financial services, consumer protection and insurance to provide their thoughts on the possible impact of the Order. Please feel free to contact any of the authors for further information.
Impact on Antitrust – Mark Herlach
A hallmark of US antitrust policy is the protection of competition, not competitors. This reflects an assumption that average citizens will benefit from the efficiencies that accompany a competitive marketplace. Healthy skepticism about whether this approach has, in fact, accomplished its implicit social goals is evident in Executive Order 14036, Promoting Competition in the American Economy, which President Biden issued on July 9, 2021 (the Order). The Order emphasizes two areas requiring close attention: (1) excessive consolidation and (2) the prevalence of unfair trade practices that harm consumers. In the discussion that follows, we endeavor to place in context some key antitrust considerations and challenges embodied in the Presidential directive.
As with other priorities of the Administration, the antitrust elements of the Order focus on the significance of government policy for the lives of average citizens. It highlights the numerous ways in which antitrust policy affects everything from the price of consumer goods to the availability of good jobs for US workers. It is instructive that the Order focuses on whether antitrust policy has benefited the average American rather than the academic and theoretical discussions that are a common focus of antitrust experts. The Order envisions “antitrust for the common person,” not for economists.
The Order’s emphasis on excessive consolidation is consistent with views expressed by Administration officials in other contexts, particularly with respect to the role of information and technology platforms whose success has led to concerns over the pervasive role they now play in the day-to-day lives of US citizens. Whether these players should be viewed as highly successful innovators who are simply reaping the fruits of their innovation or parties who have attained excessive market power is a growing legal and social debate. Although reasonable minds can differ on the ultimate question, there is an emerging consensus that the traditional way of analyzing antitrust issues - particularly questions of concentration - is ill-suited for the current environment. The mere fact that the Order was issued implies a recognition that something very different confronts the government than the railroad and oil trusts that gave rise to the Sherman Act over one hundred and twenty-five years ago.
The Order is full of references to the protection of workers and small businesses. The implicit question is simple: in a world increasingly reliant on innovative technologies that have become essential to everyday life, what legal guardrails are required to protect individuals and who should serve as the policy guardian? In the eyes of the Biden Administration, the existing sentinels of competition have been inadequate.
The Order’s response to these fundamental questions is a combination of procedure and principle. The procedure consists of the establishment of a White House Competition Council in the Office of the President. This inter-agency task force includes as members all the key federal economic agencies and, consistent with their statutory responsibilities, independent agencies with responsibility for antitrust and consumer protection. At the same time, the Order directs or encourages various departments and agencies to undertake pro-competitive initiatives, including the following:
- Agencies are generally directed to review the influence of regulations on competition and concentration.
- The Attorney General and Federal Trade Commission are encouraged to review the horizontal and vertical merger guidelines and whether to revise them.
- The Secretary of Commerce and Attorney General are encouraged to review the intersection between antitrust and intellectual property to limit the potential for anticompetitive extension of market power beyond the scope of granted patents.
- Financial regulators, including the Federal Reserve Board and the other financial agencies, are encouraged to review current practices and ensure that Americans have the choice among financial institutions and are protected against excessive market power.
- The Chair of the Federal Trade Commission is encouraged to review “persistent and recurrent practices that inhibit competition” in a host of areas, including data collection and surveillance, prescription drugs, the Internet, occupational licensing, and “any other unfair industry-specific practices that substantially inhibit competition.”
- The Secretary of Agriculture is directed to investigate specific unfair practices that affect farmers and consumers.
- The Chair of the Federal Communications Commission is encouraged to work on a list of consumer-related issues regarding the Internet and other mediums of communication.
- Transportation agencies are encouraged to address shortcomings in a series of areas, including commercial aviation and public rail transportation.
- The Secretary of Health and Human Services is directed to address issues ranging from access to health care to the availability of generic drugs.
The foregoing are simply illustrative, but they convey the sweeping character of the Order, which addresses a host of key factors that determine the economic and physical health of individual citizens.
While the Order necessarily defers to the existing statutory authority of federal agencies and departments, it sends a powerful message that the Biden Administration is serious about reviewing the ways in which current antitrust doctrine and related policies have failed the average person. Reflecting the limits of Presidential authority, the Order is not prescriptive. It directs action in a few areas but, more often, it simply encourages a review of, and potential changes to, the existing approach. The ultimate outcome will depend on actions by individual agencies and departments. Given current political divisions, concrete achievements in many of the areas addressed by the Order will be difficult to achieve. The Order is a powerful statement of Biden Administration policy, but implementing lasting changes in our national antitrust policy involves powerful competing interests and will be a profound challenge.
Impact on Labor and Employment – Scott McLaughlin and Marlene Williams
The July 9th Order is President Biden’s attempt to make good on his campaign promise to limit unfair non-compete agreements. In the Order, President Biden encourages the FTC to adopt rules banning or limiting non-compete agreements. The Order is vague on details, simply stating:
To address agreements that may unduly limit workers’ ability to change jobs, the Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.
The FTC will have an uphill battle in drafting rules regarding non-compete agreements. First, currently, there is nobody of Federal non-compete law because this is an area the states have traditionally regulated. It is not clear the FTC has any authority to suddenly dictate non-compete law in the 50 states. The FTC has already highlighted the issues it will face. In January 2020, the FTC held a workshop regarding non-compete agreements. In his opening remarks, FTC Commissioner Noah Joshua Phillips addressed the effect non-compete agreements have on employees’ mobility. However, he also addressed the several hurdles the FTC faced, “including the lack of clarity in the rulemaking authority, the traditional commitment of the issue to the states, the fact that neither the FTC nor any court has found non-competes to violate the FTC Act’s prohibition against ‘unfair methods of competition’, and the lack of a good historical precedent.”
Additionally, the Order does not expressly address non-solicitation agreements regarding a company’s customers or employees, which also restrict an employee’s ability to change jobs. But it does reference “other clauses or agreements” that may limit an employee’s mobility. Moreover, it fails to acknowledge that employers typically use non-compete agreements to protect their trade secrets, business goodwill, and investment in employee training.
President Biden stated, “one in five workers without a college degree is subject to non-compete agreements.” Therefore, there is speculation that the FTC will focus its efforts on addressing non-compete agreements for lowwage earners. Additionally, there would be quite a bit of time before any rules are issued by the FTC. Regardless, the lack of details leaves employers with uncertainty about their current restrictive covenants. Employers do not need to make sweeping changes to their non-compete agreements yet as a result of this Order. But employers should assess their restrictive covenants to make sure that they are narrowly tailored to meet legitimate interests, as opposed to so broad that they prevent an employee from working in an entire industry. This is also a good time for an employer to enhance their cybersecurity focusing on trade secret protection.
Impact on Financial Services – Lewis Wiener
President Biden’s July 9th “Executive Order on Promoting Competition in the American Economy” is designed “to promote competition in the American economy, which will lower prices for families, increase wages for workers, and promote innovation and even faster economic growth.”
The Order stands to impact the financial services sector, including banking and consumer finance, in several material ways, including, most importantly, increased scrutiny over mergers and acquisitions and the enforcement of antitrust laws to combat competition.
The Order’s focus on heightened scrutiny of merger and acquisition activity and “full and aggressive” (but promised “fair”) enforcement of antitrust laws could result in increased litigation and/or a slowdown of concentration, in the financial sector, which has seen consolidation under prior administrations. As noted by President Biden, there will be “No more tolerance for abusive actions by monopolies. No more bad mergers that lead to mass layoffs, higher prices, fewer options for workers and consumers alike.” Not just looking ahead, the Order states that the administration “retains the authority to challenge transactions whose previous consummation was in violation of the [antitrust laws].”
Specifically addressing the financial sector, and noting that the federal government has not denied a bank merger application in over 15 years, the Order “encourages” the Department of Justice to work with the Federal Reserve, the FDIC, and the OCC to revisit the current merger guidelines and to develop, within the next 180 days, a new plan “for the revitalization of merger oversight.” Addressing the impact of tech companies in the financial sector, the Order also directs the Secretary of the Treasury to submit a report to the new White House Competition Council within 270 days, “assessing the effects on competition of large technology firms and other nonbank companies’ entry into consumer finance markets.”
Impact on Consumer Protection – Ronald Zdrojeski
The Order manifests the President’s desire to change or limit a wide variety of common business practices to improve competition. Whether the Order will accomplish that through increased regulatory enforcement under existing regulations or through the adoption of new regulations remains to be seen. What is breathtaking, however, is the sheer breadth of the Order especially in the area of consumer protection. For example, the Order directs the Consumer Financial Protection Bureau (CFPB) to issue rules giving consumers full control of their financial data to make it easier for customers to switch banks. Specifically, the Order requires the CFPB to complete its rulemaking of Section 1033 of the Dodd-Frank Act to facilitate financial data portability and promote consumers’ rights to access and control information about their accounts. The Order by its terms also seeks to limit or prohibit a slew of practices that companies regularly engage in non-compete agreements, warranty obligations on goods and drug prices, just to name a few. The federalization of oversight in these areas, if accomplished, would result in a regulatory environment not seen in decades, if ever. What is clear is that these efforts are likely to result in increased regulatory attention of various business practices and, thereby, in the short term increase costs to business.
Impact on Insurance – Kymberly Kochis and Thomas Curvin
While President Biden’s Executive Order only specifically addresses health insurance, its sweeping initiatives will likely impact the insurance industry as a whole, including property and casualty insurers. This Order and the Administration’s actions come at a time where property and casualty insurers, especially personal lines carriers, are seeing an uptick in consolidation with larger insurers buying smaller carriers. While these smaller transactions may not be the Biden Administration’s focus, any larger transactions certainly will be. For example, the Biden Administration’s competition concerns in the property and casualty market are already playing out in the US Department of Justice’s suit to block the merger of brokers Aon and Willis Towers Watson. Less than a month ago the U.S. Department of Justice filed suit to stop this merger based on antitrust grounds and concerns that it would eliminate substantial competition. It is important for property and casualty insurers to monitor this suit and any similar actions taken by the Administration to understand the impact that not only President Biden’s Executive Order will have, but also the Biden Administration more generally.
Impact on Tech Companies – Michael Bahar
In addition to announcing the Administration’s policy to enforce the antitrust laws to address the challenges posed by new industries and technologies, “including the rise of the dominant Internet platforms,” another major feature of the Order is the focus on tech’s collection and processing of personal information. While California, Virginia, and Colorado have recently passed enhanced privacy laws that impose substantial new privacy obligations on private companies, the U.S. has yet to significantly advance federal privacy legislation. The Order attempts to fill that gap— or further incentivize Congress to act— by encouraging the FTC to establish rules on surveillance and the accumulation of data, from a “competition, consumer autonomy, and consumer privacy” perspective. According to the accompanying Fact Sheet, the large platforms’ power gives them “unfair opportunities” to get a “leg up on the small businesses that rely on them to reach customers.” Accordingly, the Order encourages the FTC to establish rules barring unfair methods of competition on internet marketplaces.
Further, the Order directs the Treasury Department to, within 270 days, submit a report examining the impact of competition of large technology firms and other non-bank companies’ entry into consumer finance markets.