Sen. Amy Klobuchar (D-MN), whose presidential campaign was run in part on the need to bolster antitrust enforcement and resources, has weighed in with a revised bill that has a chance to advance now that her party has the White House, a modest majority in the House, and a razor-thin advantage in the Senate. Introduced on Feb. 4, 2021, the Competition and Antitrust Law Enforcement Reform Act would expose more mergers and acquisitions to scrutiny, and shift the burden to companies to establish their deals are not anti-competitive, rather than having the government prove they are.
The top Democrat on the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, Klobuchar called this "the first step to overhauling and modernizing our laws so we can effectively promote competition and protect American consumers.”
Klobuchar is known for bipartisan work, but Republicans didn't jump on the antitrust reform bus when she pulled it up to the Senate before. So far this bill is co-sponsored solely by Democrats: Judiciary Subcommittee on Antitrust and Commerce Committee members Richard Blumenthal (D-CT), Cory Booker (D-NJ), Ed Markey (D-MA), and Brian Schatz (D-HI). Early reactions are positive while some seem to suggest selective resistance, but not all-out opposition. Time will tell.
The bill comes after years of industry consolidation and a spree of large companies acquiring disruptive upstart competitors, trends that harm innovation, consumer welfare, and the competitive process. The senator is targeting exclusionary practices by dominant companies, such as refusals to deal with rivals, restrictive contracting, and predatory pricing. "U.S. antitrust law enforcement against powerful firms has lagged efforts in other developed countries, particularly when it comes to enforcement against the dominant digital platforms and other large corporations."
The Competition and Antitrust Law Enforcement Reform Act offers a five-pronged program of reform:
#1. Increase enforcement resources. Enforcement budgets at the Justice Department’s Antitrust Division and Federal Trade Commission "have failed to keep pace with the growth of the economy, the steady increase in merger filings, and increasing demands on the agency's resources." The bill would increase enforcement budgets.
#2. Strengthen prohibitions against anticompetitive mergers. The bill would "restore the original intent" of Section 7 of the Clayton Act; that is, to enjoin anticompetitive mergers in their incipiency so anti-competitive transactions can be prevented or corrected before they can cause harm. Right now, enforcers can block only some anticompetitive transactions, so harmful deals have slipped by. To remedy this, Klobuchar proposes to:
a) Amend the Clayton Act to forbid mergers that “create an appreciable risk of materially lessening competition” rather than mergers that “substantially lessen competition,” where “materially” is defined as “more than a de minimus.” By adding a risk-based standard and clarifying the amount of likely harm the government must prove, enforcers can more effectively stop anticompetitive mergers that currently slip through the cracks. The bill also clarifies that mergers that create a monopsony -- the power to unfairly lower the prices a company it pays or wages it offers because of lack of competition among buyers or employers -- violate the statute.
b) Shift the burden to the merging parties to prove their mergers will not create an appreciable risk of materially lessening competition or tend to create a monopoly or monopsony. These categories include: mergers that significantly increase market concentration; acquisitions of competitors or nascent competitors by a dominant firm (defined as 50% market share or possession of significant market power); and mega-mergers valued at more than $5 billion.
#3. Prevent harmful dominant-firm conduct. According to the senator's statement, Section 2 of the Sherman Act, which addresses the conduct of monopolies, has been weakened by "flawed court decisions." The bill would amend the Clayton Act to prohibit “exclusionary conduct” that presents an “appreciable risk of harming competition.”
#4. Establish an independent FTC division to conduct market studies and merger retrospectives. Merger enforcement is prospective by nature. Retrospective studies of past transactions by the FTC have proven useful in informing sound merger policy. The bill would continue such efforts.
#5. Implement additional reforms to enhance antitrust enforcement. The package proposes a series of reforms allowing civil fines for antitrust violations, studying the effect of past mergers, strengthening whistleblower protections, and other items.
This legislation is endorsed by Professor Jonathan Baker of American University Washington College of Law, Professor Martin Gaynor of Carnegie Mellon University, Professor Nancy Rose of Massachusetts Institute of Technology, Professor Steven Salop of Georgetown University Law Center, Professor Fiona Scott Morton of the Yale University School of Management, and Professor Carl Shapiro of the University of California at Berkeley.
Here are some other reactions.
The "Turbocharge" We Need
Charlotte Slaiman, Competition Policy Director, Public Knowledge:
“This bill will turbocharge antitrust enforcement. Much-needed updates to the Clayton Act’s merger review and exclusionary conduct provisions, along with a new office at the Federal Trade Commission and more funds for antitrust enforcers, will help level the playing field for enforcers to better protect consumers from anticompetitive abuses.”
An Important "Re-Set"
George Slover, Senior Policy Counsel, Consumer Reports:
"This legislation gives our antitrust laws an important re-set. It ensures that harmful merger trends and exclusionary conduct can be stopped before it is too late and the harm is locked in. It extends the reach of the law so that blocking others from a fair chance to compete is a violation, even before a monopoly results. And it gives our government the enforcement authority and resources needed for effective deterrence."
"Achievable" Reform
Diana L. Moss, President, American Antitrust Institute:
“Senator Klobuchar’s bill puts us on a path toward tractable, actionable, achievable antitrust reform that will free consumers, workers, and businesses from the crushing economic impact of anticompetitive mergers and monopolies. This is exactly the kind of leadership we need at the moment we need it most."
Curbing "Pac-Man Acquisitions" Long Over-Due
Bill Baer, Visiting Fellow, Brookings Institution:
"The bill is premised on the notion that 40 years of Chicago School conservative orthodoxy has left antitrust enforcement ill-equipped to address the challenges of the 21st century economy. The result, Klobuchar and others argue, is more concentrated markets, unchecked Pac-Man acquisitions by dominant firms in tech and other sectors, more sellers with monopoly power, more buyers with monopsony power, and an overly cautious jurisprudence that ignores the plain meaning of current antitrust laws. The debate over Klobuchar’s proposals … will focus principally on whether it is time to substantively modify antitrust law and to increase the responsibility of the business community to justify consolidation and behaviors that risk injury to consumers and competition. That debate will be vigorous— and is long overdue..."
A Needed Risk-Based Approach
Washington Post Editorial Board:
"Judges have required too much certainty from enforcers to show that a merger will impede competition; the legislation introduces a risk-based approach instead. Judges have tended to assume mergers aren’t anticompetitive even in concentrated markets; the legislation would flip the presumption so that the most dominant companies must demonstrate the value of a merger. A thornier provision in the bill treats exclusionary conduct on the part of the same dominant companies as anticompetitive unless shown otherwise. The proof of this pudding will be in the adjudicating: Certainly, some exclusive deals and even some self-preferencing bring benefits to consumers. Such practices may merit scrutiny, but not automatic prohibition. The question of precisely which actions by gatekeeper firms are insidious and which are innocuous remains unanswered, and answering it remains essential."
Expect "Headwinds"
Ryan Tracy, Wall Street Journal:
“The proposals will likely face headwinds. Republicans didn’t sign on to many of the ideas when Ms. Klobuchar floated them during the previous session of Congress, and businesses including big technology companies are expected to oppose a significant rewriting of antitrust laws.”
Be "Mindful" of Economic Impacts
Neil Bradley, Executive VP and Chief Policy Officer, U.S. Chamber of Commerce:
"The antitrust laws have served American consumers and its economy well. Changing the legal standards for merger review, deciding who a company can do business with, relying on fines over remedies to restore competition, and expanding private litigation will not make America’s economy more vibrant and will have far-reaching implications impacting virtually every sector of our economy. We urge Congress to be especially mindful of the impact of changes in our antitrust laws and to focus on ensuring federal antitrust agencies have the resources to do their job consistent with the law."
Undermining the Consumer Welfare Standard a "Non-Starter"
Sen. Mike Lee (R-UT):
"[S]ome of my colleagues across the aisle would seize this moment to radically alter our antitrust enforcement regime in a manner that would undermine both the economy and Congress’s legislative prerogative." The consumer welfare standard "conforms antitrust law to basic doctrines of fairness and equality under the law," Lee said. "Rather than simply declaring that ‘big is bad,’ antitrust law—properly applied—looks to conduct and its effect on consumers in the same way that other laws judge a person’s conduct and not their status... Our current laws are more than up to the task of policing the anticompetitive conduct that has left so many markets bereft of competition." He said the standard is not a "get-out-of-jail-free card for any business if properly enforced."
Lee, who is Ranking Member of the Senate Judiciary Antitrust Subcommittee, said it was time to revive his proposed One Agency Act, which would consolidate antitrust enforcement authority at the Department of Justice by: (1) removing the Federal Trade Commission’s “unfair methods of competition” authority; and (2) transferring all FTC antitrust matters, personnel, and resources to the DOJ. "The two-headed approach to antitrust enforcement of the last century has led to growing inefficiency, waste, delays, and confusion," according to Lee's summary of the proposal.
The existing strict interpretation of merger and acquisition control requires proof that a transaction is likely to reduce consumer welfare by enhancing the market power of the merged firm to enable it to raise prices or reduce output. In 2021 this is no longer an appropriate approach. It may have appeared to be a rigorous or scientific application of neo-classical microeconomics in an economy dominated by the physical production of goods and the value of applied human resources, but it makes little sense in a modern industrial world dominated by firms that produce output at zero marginal cost, deliver services to consumers for free, intermediate transactions, facilitate social networking or communications, and maintain brand loyalty through unceasing innovation and constant improvement. The need to update antitrust laws to promote and protect free and fair market competition in the age of big data, ecommerce, and social networking is a long-time coming.
Edited by Tom Hagy for MoginRubin LLP.