Various leaders in the federal government have made it clear that they are now applying greater scrutiny to mergers and acquisitions and are not enamored with many years of anticompetitive business deals and settlements that offer inadequate protection to competition.
Statements from the Antitrust Division of the Justice Department and the antitrust enforcers at the Federal Trade Commission have been saying as much since President Biden took office. Before that, he wasn’t alone in the pack of Democratic candidates who felt the government needed to be tougher in protecting competition; it was a key talking point of other candidates, several who remain in the Senate today, namely Senators Amy Klobuchar, Bernie Sanders, and Elizabeth Warren.
In case anyone in the back of the room couldn’t hear this message, Assistant Attorney General Jonathan Kanter recently delivered it with bluntness and clarity in a city known at least for bluntness. The DOJ’s chief antitrust law enforcement officer said at a gathering of the New York State Bar Association’s Antitrust Section:
“We have an obligation to enforce the antitrust laws as written by Congress, and we will challenge any merger where the effect ‘may be substantially to lessen competition, or to tend to create a monopoly.’ The second prong—or tend to create a monopoly—has often been given less emphasis. No longer: we intend to remain faithful to the plain language of the Clayton Act.”
And if that still wasn’t clear, Kanter gave multiple shouts out to Robert Jackson, who in January 1937 began his tenure in the same office Kanter occupies today. Jackson – who would go on to serve on the Supreme Court and as a Nazi war crimes prosecutor at Nuremberg – took on the “widespread corporate concentration” of the day and “embark[ed] on an aggressive campaign of antitrust enforcement to free markets from the grip of monopoly power,” Kanter said. He sees the audacious Jackson as his inspiration.
Kanter acknowledged that today’s economy is very different from the 1930s but said it’s also different from even that of the 1990s and 2000s. He compared the dramatic changes that led to today's industries with those of the Industrial Revolution.
With this modern-day evolution has come “serious competition challenges in too many markets.”
"In the past two decades,” Kanter said, “concentration has increased in more than 75% of U.S. industries, including healthcare, financial services, agriculture, and others. Price-cost markups have tripled over the past 40 years. Some labor markets are even more concentrated than product markets. The monopsony power of employers in labor markets tends to depress wages, erode quality of life, and make it harder for workers to switch jobs.” He said that when markets are dominated by giants, entrepreneurs and small businesses struggle to get going, noting that new business formations are half of what they were half a century ago.
Kanter said he is “deeply concerned” about the impact these trends are having on Americans. “Too little competition hurts real people, every day,” he said. “It’s not just a statistical or economic concept. It is a half-empty grocery cart for Americans who can’t afford price hikes and padded margins. Or lower salaries and worse working conditions because of employers who face too little competition and workers who do not have sufficient options. It is masses of personal, private data extracted by dominant platforms whose digital services have few, if any, realistic alternatives. And it is the inability of Americans to buy a house and save for college.”
Since antitrust law has not kept pace with our rapidly changing economy, Kanter said “the only way to reinvigorate antitrust enforcement is to adapt our approach …" He said the Antitrust Division and its enforcement partners “are committed to using every tool available to promote competition.”
Kanter discussed the need for an attitude adjustment and more resources:
- The government’s approach must reflect the age we’re living in. “Section 2 [of the Sherman Act] doctrine that is responsive to market realities, not outdated models, is a necessary step to build a competitive economy.”
- Pre-merger notifications are coming in at an unprecedented pace and more resources are necessary. "This surge is taking place even as market-specific and merger-retrospective studies indicate that consolidation has led to less competition and more market power. The surge is also occurring as the division is experiencing a historic resource shortage.” Kanter is seeking increased funding for enforcement. “We have an obligation to enforce the antitrust laws as written by Congress, and we will challenge any merger where the effect ‘may be substantially to lessen competition, or to tend to create a monopoly.’”
- Transparency is necessary. “We are also committed to making sure that we are transparent in how we evaluate mergers, and that our economic models reflect market realities. Accordingly, together with the FTC, we have requested public comment on the existing Horizontal and Vertical Merger Guidelines.”
“We are law enforcers, not regulators.”
Kantor was particularly critical of settlements reached that he says have allowed anticompetitive deals to move forward, saying:
- The effectiveness of settlements must be reviewed. “Like [Robert] Jackson,” Kantor said, once again invoking the name of his hard-nosed predecessor from the 1930s and 1940s, “I am focused on how a remedy will function. After the ink has dried and the press cycle has faded, does a settlement in fact restore competition? Does it preserve the competitive process? Most importantly, does our overall approach to remedies, carried out across cases and industries, protect competition as the law demands? We are law enforcers, not regulators.”
- Sometimes blocking a transaction is the best solution. “I am concerned that merger remedies short of blocking a transaction too often miss the mark. Complex settlements, whether behavioral or structural, suffer from significant deficiencies. [W]hen the division concludes that a merger is likely to lessen competition, in most situations we should seek a simple injunction to block the transaction. It is the surest way to preserve competition.”
- Settlements sometimes are only a temporary solution. “Merger settlements that include partial divestitures too often result in what might be called ‘concentration creep.’ This happens when divested assets end up in the hands of someone that does not make effective use of them. Divestiture buyers may lose interest in assets after acquiring them, or be less effective than they expected.”
- Settlements don’t make useful law. "We need new published opinions from courts that apply the law in modern markets in order to provide clarity to businesses.”
- All government hands on deck. Kantor hailed the new cross-departmental initiative – the Antitrust Enforcement for All-of-Government – launched under President Biden’s Competition Executive Order. “[T]he department is eager to help other federal departments and agencies win cases targeting anticompetitive conduct that violates industry-specific statutes, including through direct litigation support and by formalizing our cooperation” via memoranda of understanding, Kantor concluded.
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Edited by Tom Hagy for MoginRubin LLP.
