Temperatures are falling, pools are closing, and school buses are hitting the streets: summer is ending with a (pumpkin-flavored) bang. And while you were at the beach – or maybe just enjoying a beach read – the antitrust agencies were hard at work. Fall is now here, and this past summer, the U.S. agencies issued new proposed rules, the EU fired a warning shot to retail brands, and we learned that even the antitrust agencies are curious about ChatGPT. 

Here’s what you may have missed this summer:  

1. EU renews antitrust enforcement in “traditional“ consumer goods sector

On July 31, 2023 the European Commission announced that it had opened an in-depth investigation into Pierre Cardin, a French-based fashion house, and Ahlers (one of Pierre Cardin’s licensees), suspecting them of having placed anticompetitive restrictions on licensees and distributors resulting in an unlawful block on their ability to sell freely within the EU.  

The use of what are known as absolute territorial restrictions can often raise antitrust problems in the EU, in situations where distributors are forbidden from selling both actively (pro-actively trying to approach/sell to customers) and passively (responding to an unsolicited purchase enquiry) in a certain territory within the EU.  The Commission looks particularly dimly on restrictions which they judge to be not only anticompetitive, but resulting directly in territorial restrictions which put obstacles in the way of cross-border trade within the EU.

Much of the (reported) focus of enforcement efforts in the EU recently has been on ecommerce and potentially anticompetitive practices in digital markets, but by opening cases such as this one, the EU is reiterating its willingness to spend time and resources cracking down on distribution practices in “traditional” consumer product markets, where it perceives those practices as restricting cross-border trade within the EU.

The takeaway: Now is the time for manufacturers engaged in distribution in Europe to re-examine their existing compliance policies and distribution arrangements to establish any weak points that could invite regulatory scrutiny at an EU or national level.

2. Renewed enforcement interest in interlocking directorates

Two directors of social media company Pinterest Inc. resigned from their positions on the board of Nextdoor Holdings Inc. in response to an ongoing DOJ enforcement effort to root out violations of the prohibition on interlocking directorates. Section 8 of the Clayton Act prohibits directors and officers from serving simultaneously on the boards of competing companies (with limited exceptions based on scope of competitive sales). Companies found to violate Section 8 must “cure” the interlock by removing the shared director. 

The DOJ announced a reinvigoration of its Section 8 enforcement efforts late last year. To date, the DOJ’s renewed interest in Section 8 enforcement has led to 15 director resignations from 11 company boards. 

The takeaway: Consider asking director candidates about potential interlocks, and remind current directors to keep the company apprised of any changes that may be affected by Section 8. Note that the antitrust agencies may also be looking for director interlocks when they review mergers. 

3. Amgen/Horizon FTC settlement re-opens a path to antitrust clearance

The FTC’s suit to block drugmaker Amgen’s acquisition of Horizon was seen by many as in line with the agency’s newly aggressive posture to M&A, including several statements from FTC Chair Lina Khan about her preference for challenges over settlement. Earlier this month, however, the FTC and six states accepted a conduct remedy to resolve concerns about potential cross-market bundled rebates. Notably, the accepted settlement is nearly identical to the commitment that Horizon and Amgen had offered prior to the FTC’s decision to litigate. 

Announcement of the remedy is a clarification that conduct relief is not off the table in all matters. While a single remedy is unlikely to signal a broad turnabout – note that Amgen/Horizon is a non-horizontal merger, which have historically raised fewer concerns – it does suggest a path forward towards resolution of merger concerns that could spare parties the expense and timeframe of litigation.

The takeaway: Conduct relief is still possible. While companies should not assume that the antitrust agencies will be willing to settle every merger, those engaging in vertical or other non-horizontal transactions may find it productive to consider this option.

4. European Commission ramps up merger enforcement for below-thresholds deals

In the course of the summer the European Commission (“Commission) underlined how far it intends to push its recently adopted “Article 22” policy on calling-in transactions for review even when the merger in question does not hit EU or national/Member State filing thresholds.

The Commission announced on August 18 that it intends to review Qualcomm’s proposed acquisition of Autotalks, an Israeli semiconductor manufacturer.  Qualcomm’s proposed acquisition does not meet the EU’s Merger Regulation thresholds, nor does it meet any national filing thresholds in any EU Member State.  The Commission has determined, nevertheless, that it would accept submissions (from a reported 15 individual Member States) that the Commission should open a merger investigation into the proposed transaction.  Within a matter of days of the Qualcomm/Autotalk announcement, the Commission confirmed that it was opening yet another merger investigation under Article 22, this time concerning the European Energy Exchange’s proposed acquisition of a power trading and clearing business owned by Nasdaq.  Again, this proposed transaction does not meet any EU or national filing thresholds.

Coming in the wake of the Commission’s original Article 22 case—Illumina/GRAIL—the Commission seems to be giving a clear indication that it has no intention of letting up on grabbing below-threshold transactions across a broad range of industry segments.

The takeaway: The number of Article 22 cases is likely to increase in the coming months and will not necessarily be confined to a handful of sectors such as pharma or tech, indicating that there’s no “safe” economic area where the Commission is not prepared to consider Article 22 referrals.

5. USDA and State AG Antitrust Enforcement Partnership Likely to Raise Scrutiny on Consumer Products Companies 

On July 19, 2023, the U.S. Department of Agriculture and over thirty state attorneys general launched an “Agricultural Competition Partnership” to “enhance competition and protect consumers in food and agricultural markets.”   The partnership will help states target anticompetitive behavior in food and agricultural markets, including in grocery, meat and poultry processing.

USDA allocated $15 million to the partnership, which, according to a USDA press release (USDA Launches Historic Partnership with Bipartisan State Attorneys General to Help Reduce Anticompetitive Barriers Across Food, Agriculture Supply Chains | USDA) will focus on:

 

• "Anticompetitive market structures and practices, as well as price gouging … in food, retail, meat and poultry processing, and other agriculture industries.
  
  
• Lack of choices for consumers and producers; [and]
  
  
• … anticompetitive barriers across the food and agriculture supply chains….”
  
  

The federal-state partnership is consistent with the “whole-of-government” approach to competition identified in President Biden’s July 2021 Executive Order on Promoting Competition in the American Economy” as well as increasingly active state AGs antitrust enforcement efforts. 

The takeaway: The Partnership demonstrates the White House’s and state AGs’ commitment to enforcing antitrust laws on subject matters, like agricultural and grocery products, which will by definition disproportionately impact consumer products companies.   

6. Proposed amendments to the Hart-Scott-Rodino rule dramatically increase the burden of U.S. pre-merger notifications

In June, the FTC and DOJ announced a Notice of Proposed Rulemaking that, if implemented, would dramatically increase the burden on parties required to submit pre-merger notification filings under the Hart-Scott-Rodino Act. While the Merger Filing Fee Modernization Act – passed at the end of 2022 – increased the HSR filing fees for large transactions, the new proposed rules would radically transform the process of submitting an HSR filing. 

If implemented, the proposed rule would require parties to provide explanations of the strategic rationale for transactions, provide significantly more competition-related documents (including so-called “4(c)” and “4(d)” documents and draft documents), and provide additional information on potential impact to labor markets. Filing parties would also be required to provide significantly more information on the parties to the transaction and identify other jurisdictions conducting a competition review of the transaction. According to the FTC’s own estimate, the proposed amendments would increase the reporting burden on filing parties in excess of 100 hours. The public comment period on the proposed rule has been extended to September 27, 2023. 

The takeaway: HSR filings which used to take 5 – 15 days to compile will now take many weeks (or even months), at least initially. Companies should account for the potential for longer timeframes when negotiating agreements.

7. Continued interest in competitive impact of artificial intelligence

In July, the press reported on a confidential investigation by the FTC into OpenAI related to potential  unfair and deceptive practices, after a copy of the FTC’s request for information was leaked. Khan had previously appeared at an April press conference by the Biden administration to unveil a “whole of government” approach to investigating the potential challenges of increased AI usage. 

AI – and in particular algorithmic pricing – makes an appearance in the draft Merger Guidelines, which warn that the use of algorithms or AI to gauge competitor pricing or actions may increase market transparency, in turn increasing the risk of competitor coordination. While both the FTC and DOJ have long been interested in the implications of algorithmic pricing, inclusion in the Guidelines and participation in broader initiatives suggest close scrutiny of AI practices is likely to increase. The Baker Botts Antitrust group pulled together a webinar, in connection with Analysis Group, on the data science of pricing algorithms, potential theories of harm and European legal framework, with regards to AI.

The takeaway: Companies in the AI space – or simply those that utilize algorithmic pricing or other AI-backed practices – should keep a close eye on statements from FTC and DOJ leadership, and European Competition authorities, which may publicly signal the focus of any upcoming AI investigations. 

8. The U.S. FTC and DOJ issue a draft update of the Merger Guidelines

In July, the Federal Trade Commission and Department of Justice issued a draft update of the Merger Guidelines. The draft Guidelines – which address horizontal, vertical, and conglomerate mergers – propose significant changes to longstanding presumptions, including lowering of the threshold for “highly concentrated markets – and introduce new theories of harm previewed in some of the agencies’ recent merger challenges. 

Among other changes, the draft Guidelines suggest that particular industries may be more susceptible to merger challenge (based on observed “trends” toward concentration) and express significant skepticism about merger efficiencies. The draft Guidelines send a clear signal that the antitrust agencies are undeterred by court losses and will continue to aggressively pursue merger challenges. 

The takeaway: Companies will still be able to close deals, but may need more upfront preparation. 

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