On February 4, 2021, Democratic Senator and chair of the Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights Amy Klobuchar introduced the Competition and Antitrust Enforcement Reform Act of 2021 (the “Act”), which proposes to overhaul existing antitrust laws by expanding their scope and bolstering enforcement resources.
If passed, the Act would significantly increase funding to the U.S. antitrust agencies, the U.S. Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”), providing additional resources to investigate and potentially challenge corporate transactions and other conduct that may not receive such scrutiny today. And the Act proposes substantial changes to the legal framework that would make it less difficult for the DOJ and FTC to prevail in such challenges. Not limited to well-known tech giants and other firms mentioned in the news, the Act proposes changes to antitrust law that would cover transactions large and small.
- Revised Legal Standard for Unlawful Acquisitions. The Act proposes to amend the legal standard that courts use to determine whether transactions violate the antitrust laws by reducing the burden that the U.S. antitrust agencies must establish when seeking to block a deal. Section 7 of the Clayton Act currently prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.” The proposed new standard would prohibit certain mergers and acquisitions that “create an appreciable risk of materially lessening competition, or to tend to create a monopoly or a monopsony.” Although unclear how courts would interpret this new standard in practice, it is clearly intended to enable the antitrust agencies to stop corporate transactions where there would be insufficient evidence to prevail under the current standard.
- Shift of the Burden of Proof. The Act would shift the burden of proof from the government to the merging parties in certain circumstances. Among these circumstances are acquisitions of nascent competitors (so-called “killer acquisitions”) where the buyer has market power or a market share greater than 50 percent and has a “reasonable probability” of competing with the target. Another class of deals subject to this burden shift includes acquisitions of companies that are or have a “reasonable probability” of acting as disruptors. The Act would also seek to codify the sentiment that “big is bad” by placing the burden on the parties where either the deal is valued at more than $5 billion or the buyer has assets, net sales, or a market cap in excess of $100 billion and the deal value is at least $50 million.
- Focus on Exclusionary Conduct. The Act proposes to amend the Clayton Act by creating a presumption of illegality when firms with market power or a market share greater than 50 percent engage in conduct that “materially disadvantages [one] or more actual or potential competitors” or “tends to foreclose or limit the ability or incentive of [one] or more actual or potential competitors to compete.” This presumption may be rebutted by showing, for example, that the conduct at issue has “distinct procompetitive benefits” that would eliminate the risk of harm.
- Civil Fines. The Act would increase civil monetary penalties under the Sherman Act and Clayton Act. Under the Act, penalties would be the greater of 15 percent of a company’s U.S. revenues from the prior year or 30 percent of the company’s U.S. revenue in the part of trade or commerce related to or targeted by the alleged illegal conduct for the duration that the conduct occurred.
- Increased Funds for Federal Agencies. The Act proposes to increase the annual budgets of the DOJ and FTC to $484,500,000 and $651,000,000, respectively. There have been many reports of the agencies facing budget shortfalls, which could affect the enforcement decisions made by the agencies. More funding for the DOJ and FTC could mean more staff and other resources to investigate, try, and pursue enforcement actions.
- Other Provisions. The Act would clarify that whistleblowers may be entitled to an award of not more than 30 percent of a criminal fine in certain enforcement actions. Further, in addition to the existing, standard treble damages and attorney’s fees remedy, the Act proposes to make available prejudgment interest that accrues on three times the amount of damages sustained, rather than on actual damages, as is the current law.
If the proposed Act (or some later version that is materially similar) becomes law, a meaningful increase in agency activity likely would follow. By lowering the legal standard under the Clayton Act, shifting the burden in some cases to require companies to establish that the proposed transaction is not anticompetitive and enhancing the prohibitions on exclusionary conduct, the Act would expose more companies to potential liability and substantially broaden the scope of transactions that may be subject to antitrust scrutiny. The enhanced civil monetary penalties may have the effect of chilling lawful conduct by companies or creating additional transaction costs to ensure that business decisions are in compliance with these enhanced antitrust standards.
While it is not clear whether Senator Klobuchar has enough votes to pass the Act, it is impossible to deny the number of antitrust headlines that dominate the media and the growing, widespread interest in antitrust matters. The activity in recent years of antitrust agencies, state attorneys general, and Congress are widely reported. And in Congress, legislators on both sides of the political aisle may very well have the appetite to take on antitrust.
Companies should monitor these developments closely. MoFo’s Antitrust Group will continue to follow this draft legislation and update on progress, changes, and timing for possible passage. For companies considering deals, the provisions in the Act could affect expectations related to timing, negotiations, and likelihood of antitrust scrutiny. Businesses that may be identified by the agencies as having market power or market shares exceeding the thresholds outlined in the Act may need to revisit their compliance policies, in anticipation of, or if the Act becomes law, as their business decisions may face enhanced risk of being labeled presumptively exclusionary. Our team will continue to monitor developments in this area and will provide further insights as the situation unfolds.