The Federal Trade Commission (FTC) and Antitrust Division of the U.S. Department of Justice (DOJ) held the final installment of their “listening tour” on May 12, 2022, focused on the firsthand effects of mergers and acquisitions (M&A). Previous forums focused on the media and entertainment, healthcare and agricultural and food industries. In connection with regulators’ efforts to update and revise their antitrust merger guidelines, this session focused on the effects of consolidation in the technology sector and allowed the FTC and DOJ to hear from smaller market participants, investors in technology startups, technology workers, public advocacy groups and other stakeholders affected by mergers in the technology industry.

In his opening remarks, Assistant Attorney General Jonathan Kanter, who heads the DOJ’s Antitrust Division, described the forum sessions as a complement to the agencies’ public comment process and lauded the level of public engagement, noting the FTC had received more than 5,000 responses to its request for public comments. Kanter also indicated the listening sessions marked the conclusion of “stage one” for revising the guidelines “to better fit a modern economy.” He also offered assurances that the FTC and DOJ plan to engage stakeholders across the economy in “further dialogue and debate” once a draft of the revised guidelines is released for public comment to ensure that consumers “receive the full benefits of competition in these important markets.”

Summary of the Technology Listening Forum

On the topic of technology sector consolidation and antitrust enforcement, Kanter acknowledged the transformative impact of “the digital revolution” on American society, noting that Americans increasingly do business, socialize, shop and engage in political participation on the same handful of giant platforms. Kanter colorfully described the power wielded by these “digital gatekeepers” as something “not seen since the robber barons in coal and steel a century ago.” He also expressed concern that allowing dominant firms to acquire nascent competitors unchecked could stifle innovation and potentially foreclose future development of new markets and sources of competition. Kanter also echoed concerns raised by FTC Chair Lina Khan during an earlier forum session on Media and Entertainment regarding consolidation’s effects on the public’s ability to exercise meaningful decision-making power over how and where they get information and news. Unsurprisingly, he characterized “digital markets” as the most “consequential topic in antitrust enforcement today” and noted that ensuring these markets remain competitive, promote innovation and enhance consumer choice is a top priority of antitrust regulators and enforcement.

The panelists raised a variety of concerns with regulatory treatment of tech company consolidations, highlighting the anticompetitive and other deleterious effects of past mergers of prominent platforms and firms. A number of the panelists voiced concerns over anticompetitive technology industry practices, such as self-preferencing and content moderation, that have been the subject of recent legislative proposals. Other speakers invited regulators to consider factors beyond the effects on competition and consumer choice when reviewing proposed mergers, including how major mergers might impact certain labor markets, how consumer data may be aggregated and used, and whether an acquiring company might pursue new revenue opportunities from an acquired platform that could threaten the civil rights of or disproportionately impact certain communities or segments of the population. One point the diverse group of forum panelists could all agree on was that greater scrutiny of future merger transactions of technology sector firms is needed.

After the panel discussion concluded, Khan offered a brief commentary that was largely sympathetic to the concerns expressed by the members of the public who were invited to speak, at one point referring to them as “a particularly relevant and instructive set of topics.” Khan acknowledged that “the imbalance in power between platforms and the businesses that depend on them” can enable anticompetitive or unfair business practices and allow providers of dominant platforms to “dictate the terms of commerce.” She made a point to recognize and reiterate the comment by one small business owner who likened her company’s relationship with a dominant platform provider to being the modern equivalent of “tenant farming.” Khan noted regulators needed to revisit lessons from the past decade to better understand the important role consolidated control of data can play in inhibiting entry of potential competitors into certain digital markets and cautioned against adopting “overly optimistic views” of how likely such entry might be. Finally, she stressed that to preserve markets where business can compete on the merits in the technology sector, regulators must keep their “tools sensitive and attuned to” real-world experiences such as those shared by the forum participants.

Key Concerns

The principal concern presaged by the technology installment of the “listening tour” is that heightened scrutiny of consolidation in the technology industry is in the pipeline. A number of the issues raised by participants during the final session of the listening tour, particularly those touching on individual or civil rights, likely fall outside the traditional scope of antitrust enforcement, at least as it applies to regulatory assessment of proposed merger transactions. It is clear from these comments the public has an expectation that, with mergers involving technology companies and digital platforms, the FTC and DOJ should look beyond the effect on competition to consider other areas of concern such as privacy protections, content moderation and disruption of labor markets in their assessment of proposed acquisitions.

Under the current merger guidelines, primarily derived from Section 7 of the Clayton Antitrust Act,1 regulators focus on the likely changes in competitive outcomes caused by a merger as well as whether the deal will significantly create, enhance or entrench market power.2 Regulators seem poised to expand that focus in the revised guidelines. Commentary from Khan and Kanter signaled that regulators may be sympathetic to many of the concerns expressed by public participants, even those that do not fall within the traditional bounds of antitrust law. In particular, Khan highlighted that “antitrust enforcers need to be especially attuned to” the fact that in digital markets, businesses in slightly adjacent markets are oftentimes the firms best positioned to provide an important source of competition for incumbents. While the FTC and DOJ are unlikely to adopt significant changes to the merger guidelines to address these concerns in the absence of legislative action, their messaging certainly suggests they will find a way to frame examination of some of these collateral issues in the language of increasing efficiencies, enhancing consumer choice and promoting competition. Also of note, Kanter’s and Khan’s remarks also suggest this heightened sensitivity is unlikely to be reserved for blockbuster deals.

The FTC’s and DOJ’s interest in revising the merger guidelines, as well as the invitation to seek public input on the impact of technology firm combinations, did not arise in a vacuum. Both houses of Congress have introduced numerous pieces of legislation containing antitrust-style reforms aimed at addressing some of the same practices about which forum participants expressed concerns, including:

  • The Open App Markets Act (H.R.5017/S.2710), which would prohibit covered app stores from requiring app developers to use a specific in-app payment system or requiring preferential pricing from developers who offer users a choice of alternate payment options.
  • The Platform Competition and Opportunity Act (H.R.3826/S.3197), which would prohibit dominant platforms from acquiring current or potential competitors and would require dominant platforms to establish, by clear and convincing evidence, that a proposed acquisition would not present anticompetitive harm. This would be an inversion of the traditional burden, normally borne by the government, to show a proposed transaction is likely to harm competition.
  • The American Innovation and Choice Online Act (S.2992 / H.R.3816), which targets self-preferencing by entrenched digital platforms and would prohibit them from giving their products or services an advantage over those of other third-party businesses that use the platform or from otherwise discriminating among “similarly situated business users.” The bill would also prevent covered platforms from using any non-public data that is associated with their competitors to benefit their own goods.
  • The Ending Platform Monopolies Act (H.R.3825, not yet introduced in the Senate), which would forbid a dominant platform from offering products or services on its own platform or one to which it controls access. It would also prohibit covered platforms from owning a line of business that otherwise creates a conflict of interest or could be leveraged to elevate its own offerings over competitors’.
  • The Merger Filing Fee Modernization Act (H.R.3843/S.228) is perhaps the least politically controversial of the current crop of proposed legislation that could impact future merger transactions and is intended to afford antitrust enforcers greater capacity to pursue anticompetitive conduct. The legislation would authorize substantial additional funding for federal antitrust enforcement through a combination of appropriations and substantial increases, with future inflation adjustments, to the required premerger filing fees (which have not been increased since 2001).
  • Augmenting Compatibility and Competition by Enabling Service Switching (ACCESS) Act (H.R.3849) would require data portability and platform interoperability between dominant digital platforms, to combat the negative effects on competition and consumer choice that arise from user lock-in and extreme barriers to entry for competitors due to the network effect.

Conclusion

There is growing public and regulatory support for subjecting proposed M&A in the digital platforms and technology space to greater antitrust scrutiny, including the consideration of non-traditional factors beyond the effect of the proposed transaction on competition. As regulators begin to conform their practices to these new priorities in the coming months, organizations contemplating consolidations within the industry and startups looking to exit through possible acquisition by an established firm should be prepared to address regulatory inquiries into the likely impacts of the proposed transaction on peripheral matters โ€“ such as how the consolidated entity plans to use data acquired in the transaction โ€“ in addition to the effects on competition. It is therefore prudent to engage competent and experienced professionals, including antitrust counsel, early in the process to develop an accurate picture of potential hot spots regulators may want to assess.

Notes

1 Section 7 of the Clayton Act forbids any merger or acquisition if, “in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” 15 U.S.C. ยง 18.

2 See U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines (2010) at 2; U.S. Dep’t of Justice & Fed. Trade Comm’n, Vertical Merger Guidelines (2020) at 2.

Source link


The above content is from google feed with the source link mentioned. If you wish to remove the content from here then contact us and it will be removed within 24 hrs.