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AAI Issues Update on Digital Technology: The Failure of Merger Enforcement and Need for Reform

The American Antitrust Institute (AAI) has released the White Paper, Update on Digital Technology: The Failure of Merger Enforcement and Need for Reform. The new White Paper updates and expands on analysis AAI originally released in July 2019.

The widely cited 2019 AAI White Paper, The Record of Weak U.S. Merger Enforcement in Digital Technology, was the subject of AAI testimony before the Senate Judiciary Committee and drew attention to the acquisitive history of the five largest multinational online service or computer hardware or software companies: Amazon, Apple, Facebook, Google, and Microsoft (“Big Tech”). It also unpacked the history of merger enforcement under Section 7 of the Clayton Act in a major segment of the digital technology sector. The White Paper concluded that, as compared to enforcement across all sectors, the rate of merger challenges in digital technology is exceptionally low.

Since then, much has happened in the digital technology sector. Big Tech has solidified its hold on the top-most slots, by market value, in the Fortune 500. Federal and state monopolization cases have been filed against Google and Facebook. Among other things, the Facebook complaints allege that acquisitions of small rivals, such as social media firms Instagram (2012) and WhatsApp (2014), were a strategy to snuff out potential competition to maintain a monopoly in personal social networking services. The public policy debate over the dominance of Big Tech has also generated numerous proposals to remedy competitive and consumer harm, including breakups and digital market regulation. A 2020 House Judiciary Committee report examined competitive issues raised by the platforms that are at the core of many of the large digital ecosystems. Moreover, the digital ecosystems have been the subject of ongoing economic, business, and policy research, which has advanced the state of thinking over potential policy solutions to the problems they raise.

Results of AAI’s updated analysis indicate that expansion by acquisition continues to be a leading method by which the large digital ecosystems grow. Enforcers can expect to see further growth that, when juxtaposed with persistent, weak merger enforcement in the sector, will likely exacerbate competition problems. Indeed, stronger merger enforcement over the last two decades would have mitigated the monopolization concerns that AAI sees now. As it stands, however, Section 2 of the Sherman Act is virtually the only antitrust tool left to combat dominance in the digital technology sector. This White Paper turns first to updating data on acquisitions by Big Tech through 2020 and merger enforcement statistics through the latest available reporting year, 2019. It then examines the implications of Big Tech’s likely trajectory of further expansion through acquisition and growth in critical cloud infrastructure capability. It closes with an analysis of reforms necessary to revitalize merger enforcement in digital technology.

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Class Action Issues Update: The Latest Developments and Looking Ahead to 2021 and Beyond

As part of its work to preserve the effectiveness of antitrust class actions as a central component of ensuring the vitality of private antitrust enforcement, the American Antitrust Institute issues periodic updates on developments in the courts and elsewhere that may affect this important device for protecting competition, consumers and workers. AAI’s Randy Stutz is joined by Hausfeld LLP’s Bonny Sweeney to discuss AAI’s Fall 2020 Class Action Issues Update and look ahead to 2021 and beyond.

They discuss classes containing uninjured members, common impact, statistical evidence (and related litigation strategy), TransUnion v. Ramirez and the Supreme Court’s new makeup, class-action legislative developments and goals, and the relationship of public and private enforcement in prosecuting Big Tech cases.

MODERATOR:
RANDY STUTZ, VICE PRESIDENT OF LEGAL ADVOCACY, AMERICAN ANTITRUST INSTITUTE

GUEST:
BONNY SWEENEY, PARTNER, HAUSFELD

 

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AAI Files Comments Opposing Proposed Rule Exempting Many Partial Acquisitions from Hart Scott Rodino Reporting Requirements

The American Antitrust Institute submitted comments on February 1, 2021 on the U.S. Federal Trade Commission’s (FTC) proposed changes to the Hart Scott Rodino (HSR) reporting requirements. AAI supports some of the proposed changes that will make needed updates to HSR reporting to keep pace with new business models and practices.  As AAI explains in its comments, however, it opposes the proposed rulemaking’s provision that would exempt from reporting many partial ownership acquisitions, including many involving private equity and institutional investors. The proposal comes at a time when increased—not decreased—scrutiny of partial ownership transactions is needed. AAI has been at the forefront of the push to recognize and understand the competitive harm that can flow from partial ownership transactions and has repeatedly urged competition authorities in various sectors to pay more, not less, attention to these transactions. AAI’s comments explain why the exceptions to the reporting exemption in the proposed rule are not enough to address these concerns, as they leave it up to companies themselves to decide who is and is not a competitor in an approach akin to the “fox guarding the henhouse.” AAI concludes that the proposed reporting exemption does not serve the interests of competition and consumers, particularly in light of concerns over rising concentration in the economy and many critical sectors.

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Modern Farmer Highlights AAI-NFU Op-Ed: Don’t Stop at Big Tech – We Need to Bust Big Agriculture, Too

AAI President Diana Moss and National Farmers Union President Rob Larew teamed up on an op-ed highlighting competition concerns in agriculture. The opinion piece, which appeared in Modern Farmer on February 3, 2021, highlights competitive concerns in the agriculture industry. The piece, “Don’t Stop at Big Tech – We Need to Bust Big Agriculture, Too,” follows.

Amid Congressional investigation and federal, state and private antitrust cases, all eyes are on Big Tech. The step up in antitrust enforcement against the digital technology behemoths and their alleged abuses of market power is, by all accounts, good news. Successful cases could restore competition, which would benefit smaller businesses and American consumers alike. And after decades of under-enforcement of the antitrust laws in the United States, these cases could deliver some base hits—and even home runs—for a critical area of law enforcement.

But the outsized media, political and social attention paid to the tech industry has diverted focus from other important sectors. There are monopolies and domestic cartels elsewhere—in healthcare, pharmaceuticals, media and communications, as well as food and agriculture. These industries produce goods and services that are essential to the health, safety and well-being of consumers, and even to our national security, which is why antitrust laws must be enforced against violations in these sectors, too.

The food system has been particularly fertile ground for rising concentration, the emergence of dominant firms and formation of domestic cartels. Some of the largest players have been allowed to engage in anticompetitive mergers and practices that are as serious, if not more so, than those of which Big Tech stands accused.

Much like their counterparts in the tech sector, many of the largest food and agriculture corporations have acquired their way to dominance by gobbling up rival businesses. This has occurred across the food system, including digital farming startups, biotechnology firms, food manufacturers, flour millers, farm machinery manufacturers and grocery store chains. But nowhere has it been more pronounced than agricultural inputs.

In acquiring competitors both small and large, the six biggest agricultural biotechnology firms collapsed rapidly into the Big Three—Bayer, DuPont and ChemChina. This wave of consolidation, which was met with little resistance from antitrust authorities, gave these corporations control of proprietary, multi-level systems of traits, seeds, agrochemicals and digital technology that limit farmers’ choices and lock them into limited cropping systems.

But some parts of the agricultural sector are rife with other damaging antitrust violations that we haven’t seen in Big Tech. This includes alleged conspiracies to fix prices and allocate markets—practices that are made possible by high levels of consolidation and concentration.

One of the most notable examples of this is in beef packing, where the top four firms now control about 85 percent of the national market. Given the market power that the packers possess, it comes as no surprise that they have allegedly abused it: On multiple occasions, these packers have been accused of colluding to pay ranchers less for cattle and charge consumers more for beef.

However, this behavior isn’t unique to the beef-packing sector. Similar allegations of price fixing have been leveled against tuna, chicken, turkey, egg, pork and peanut producers, among others. These cartels are especially egregious because processors allegedly collude on both the sell and buy sides, hurting both farmers and consumers—including independent restaurants and grocery stores.

Beyond anticompetitive practices, rising concentration has implications for our national food security. Concentration-driven bottlenecks along the supply chain make the entire food system vulnerable to disruption, a fact that has become painfully obvious during the pandemic. Following a rash of COVID-19 outbreaks at meatpacking plants, national meat processing capacity declined by nearly half, resulting in supply chain breakdowns and price gouging that affected millions of Americans—many of whom were already experiencing food insecurity.

If disruption in the food supply system weren’t enough, the communities that support our food system are also at risk. Foreign companies now own a non-trivial portion of the United States’ farmland and food system. These entities not only resist food labeling and regulations that protect and inform consumers, they also take jobs and resources out of rural communities, accelerating social and economic decline and suppressing the growth of independent businesses that would contribute to revitalization.

Kudos to antitrust enforcers for finally taking aim at Big Tech. Monopolization cases—if they produce meaningful results—will improve the welfare of hundreds of millions of people that engage in online search, social networking and shopping. But we should not stop there. Americans depend on a safe, functional and resilient food system at least as much as they depend on their social media networks or ability to search the internet. Antitrust enforcers must turn their attention there next.

Rob Larew is president of National Farmers Union, which represents 200,000 family farmers and ranchers across the country.

Dr. Diana Moss is the president of the American Antitrust Institute, which is devoted to promoting competition that protects consumers, businesses and society.

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Antitrust Litigation in the Age of Big Data: How New Technology is Harnessed to Enforce the Antitrust Laws and Return Money to Victims

In this podcast, AAI Vice President of Policy Laura Alexander sits down with two leaders in private enforcement who are driving the use of data and technology to win antitrust cases and get money back into the hands of consumers and other victims. Adam Zapala, a partner at Cotchett, Pitre & McCarthy, LLP, and Eric Schachter, a Vice President at A.B. Data, Ltd., discuss how digital technology, big data, and AI have increased efficiency and enabled them to bring and win cases that would not otherwise have been possible. Zapala and Schachter begin with a discussion of class notice and other manageability concerns. The far-ranging discussion, however, quickly turns to the use of social media and data analysis to detect conspiracies, the prospect of paying out class action settlements in cryptocurrencies, and how future privacy legislation may impact the tools that class administrators use to effectively reach modern class members.

Moderator:
Laura Alexander, Vice President of Policy, American Antitrust Institute

Guests:
Eric Schachter, a Vice President at A.B. Data, Ltd.
Adam J. Zapala, Partner, Cotchett, Pitre & McCarthy, LLP

 

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AAI Issues 2020 Impact Report: Highlights Continued Leadership in Competition Research, Education, and Advocacy

Today, the American Antitrust Institute issued its 2020 Impact Report. The report highlights AAI’s major initiatives and impact in 2020 and continued, long-term leadership in progressive competition research, education, and advocacy. The report illustrates how AAI’s work has a measurable, positive impact on the consumers, workers, and businesses that are at risk from the accumulation and exercise of market power. As AAI begins 2021 with a full agenda, the organization will work to continue to promote vigorous enforcement of the antitrust laws, and the competition policies and legislative reforms that support it.

Download Impact Report

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Qualities of Effective Enforcers: Choosing Antitrust Leaders for the Biden Administration

A consensus is emerging that stronger enforcement is imperative to rein in powerful monopolies and oligopolies and to promote the free and competitive markets that undergird our democracy. As the Biden Administration takes power, it has a strategic and important opportunity to appoint antitrust leadership that can boldly lead the way to an antitrust renaissance. To realize this opportunity, AAI asks President Biden to keep three major goals in mind in selecting candidates to the lead the antitrust agencies: confidence, competence, and capability.

Confidence

The most immediate goal for President Biden in selecting leaders for the Federal Trade Commission (FTC) and the Antitrust Division at the Department of Justice (DOJ) must be to restore confidence in those agencies. Such confidence—once indisputable—has been shaken by the last four years. To be effective law enforcers, these agencies must regain public confidence that they will enforce the laws aggressively and equitably. Confidence that they will be non-partisan. Confidence that their leaders will be driven by integrity and not by the personal or business relationships they entered before assuming office and will resume upon leaving. And confidence that the agencies will answer to the American people and not to the companies they regulate and oversee.

Appointing those with strong ties to, or a track record of, working on behalf of dominant companies in tech and other industries will not further this goal, no matter how smart, knowledgeable, or experienced they may be. Those appointed to lead the agencies must also give the American people confidence that they will vigorously enforce the law, as written by Congress. Broader policy initiatives for reform of the nation’s antitrust laws are a worthy goal. But, the agencies are principally a place where the law is prosecuted, not where it is remade. That job belongs squarely to Congress. Instead, the focus of the agencies and their leadership ought to properly be enforcement—aggressive, dynamic, and creative enforcement that falls within the bounds of the agencies’ clearly marked authority.

Competence

Antitrust enforcement is a specialized job requiring specialized skills. Any nominee for an agency leadership position must possess several core competencies to do the job effectively. First and foremost, a successful nominee must have significant litigation experience. The DOJ achieved something remarkable with its recent filing against Google. To fully realize the promise of that achievement will require not just filing the case, but winning it. Constructing and winning an antitrust case requires more than legal and economic theory—it requires the ability to persuade a court. And that is precisely what litigators are trained to do.

Second, President Biden would do well to select leaders with a proven track record as effective enforcers—whether federal, state, or private. There is a deep well of untapped talent and enforcement experience among current and former state and private enforcers in particular. The Administration should not overlook those who have devoted their careers to playing offense, instead of defense, on behalf of the victims of antitrust violations.

Finally, any nominee should possess the competency of a deep and multifaceted knowledge of the antitrust laws. Antitrust is a nuanced and complex doctrine with a rich and long history. The strongest nominees will have a demonstrated grasp of this complexity and history, informed by having viewed antitrust enforcement from several perspectives. Having represented a mix of plaintiffs and defendants, having worked for state and federal enforcement agencies, or having held a mix of policy and enforcement roles reflects experience sitting at all sides of the antitrust “table.” This deep experience both enriches and informs a nominee’s understanding of the task at hand and is both necessary and valuable for guiding the antitrust agencies through what could prove to be difficult years ahead.

Capability

All of the above qualifications, important though they are, mean nothing if the people chosen to lead the agencies do not have the power to get things done. Such capability stems from a mix of determined persistence and adept deployment of “soft power.” The aggressive pursuit of tough cases will only go so far in achieving competitive markets. Strong messaging, extensive coordination, and a clear vision are essential.

Case in point, former Assistant Attorney General Bill Baer brought many successful and significant cases during his tenure. However, he achieved untold other victories by strongly and clearly signaling—through speeches and conversations—that his agency would aggressively pursue any attempt, for example, to bring more 4-to-3 mergers. A tough, clear, unified public message can effectively guard against diminished competition through deterrence, without using agency resources to bring a case. The agencies need leaders who understand this power and how to wield it.

Capable agency leadership will also entail a deft touch, particularly at the FTC. These are critical years in the history of the Commission. The recent AMG Capital Management case before the Supreme Court has put the Commission’s 13(b) authority in jeopardy. There are other signs the FTC, and perhaps all independent agencies, may face legal challenges to their very existence. In this environment, FTC leadership must be particularly judicious in the cases it pursues and, simultaneously, be prepared to work with Congress to maintain and restore its authority.

Capability at the FTC also depends critically on the dynamics within the Commission. The selection of the Chair is important, but so too is the balance of the non-chair appointments. Non-chair commissioners can do a lot of good and they can do a lot of harm. A well-functioning FTC depends critically on its staff. Each commissioner must be able to effectively manage and motivate their staff to do the hard but important work of the Commission. One way commissioners do so is by embracing the spirit of collegiality that is the lifeblood of the FTC.

By design, the FTC is a bi-partisan body. When five experts with diverse backgrounds come together to wrestle with important issues, better outcomes are expected.  To do that effectively, however, each FTC commissioner must have the ability to work collegially and, when necessary, put personal views aside to reach consensus. Showboating and dissenting for the sake of dissent—particularly when a case is headed to court—impair the Commission’s effectiveness and reputation. By choosing commissioners who understand this dynamic and have the balance of qualities needed to navigate and perpetuate it, President Biden can arm the FTC with the leadership it needs to thrive in the years ahead.

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AAI Requests a Public Interest Review of the U.S. Department of Transportation’s Approval of the American Airlines-JetBlue Northeast Alliance

The American Antitrust Institute wrote today to the U.S. Department of Transportation (DOT) to request a public interest review of the agency’s recent approval of the American Airlines Inc. and JetBlue Airways Corporation “Northeast Alliance” cooperative agreement. AAI explained that the public was not afforded any opportunity to comment on the public interest implications of the DOT’s approval of the cooperative agreement, which was pushed through with only 10 days remaining in the Trump administration. AAI’s letter takes no position on the merits of Complainant Spirit Airlines’ claim that implementation of the cooperative agreement constitutes an unfair method of competition under 49 U.S.C. 41712. Rather, AAI highlights that the DOT’s approval of the cooperative agreement itself raises significant competitive concerns. Namely, the remedies contained in DOT’s agreement may be inadequate to restore lost competition. These issues warranted public input and commentary that would have ensured an appropriate review of the American-JetBlue cooperative agreement.

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AAI Files Comments in Opposition to FTC’s Consent Agreement in Merger of Pharmaceutical Giants Pfizer and Mylan

The American Antitrust Institute filed a comment on December 14, 2020 opposing the Federal Trade Commission’s (FTC’s) proposed Consent Agreement in the Matter of Pfizer Inc., Upjohn Inc., Viatris Inc., Mylan N.V., Utah Acquisition Sub Inc. (File No. 191-0182). AAI’s comment explains that the remedies contained in the Consent Agreement will not fully restore competition lost by the proposed merger of Pfizer and Mylan. AAI urged the Commission to withdraw the Consent Agreement and move instead to enjoin the proposed merger in order to protect competition and consumers, who depend on access to affordable, live-saving medications. These medications include those designed to treat a wide range of conditions, including hypertension, high cholesterol, congestive heart failure, bacterial conjunctivitis, uterine bleeding, seizures, hypothyroidism, intestinal ulcers, and smoking cessation.

AAI filed its recent White Paper, From Competition to Conspiracy: Assessing the Federal Trade Commission’s Merger Policy in the Pharmaceutical Sector, in support of its comment. The AAI White Paper provides empirical evidence of the harmful effects of the FTC’s 25-year policy of settling virtually all highly concentrative horizontal pharmaceutical mergers with consent orders containing divestitures, rather than seeking full-stop injunctions. The effect of the Commission’s policy has been to create a pharmaceutical industry landscape that includes: (1) highly concentrated pharmaceutical markets; (2) the “swapping” of assets within a relatively small group of large and increasingly powerful firms that have engaged in serial M&A and purchases of divested assets in other mergers; (3) failed divestitures in past generic pharmaceutical mergers, as the FTC’s own evidence shows; and (4) conspiracies to fix generic drug prices or allocate customers that are the subject of ongoing federal, state, and private civil litigation and federal criminal indictments.

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AAI Offers Guidance to 11th Circuit on Franchise Employee No-Poaching Agreements (Arrington v. Burger King Worldwide)

AAI filed an amicus brief asking the Eleventh Circuit Court of Appeals to tread carefully in determining the standard of review applicable to intrafranchise employee no-poaching agreements and to hold defendants to their proper burden in an ancillary restraints analysis.

Agreements between employers not to solicit or hire one another’s employees have garnered considerable attention in recent years, with courts, state attorneys general, and the federal antitrust agencies rightly recognizing that these agreements are tantamount to price fixing and cause considerable harm to labor markets and to workers.  Despite the widespread consensus that no-poach and no-hire agreements between unrelated competitors are categorically illegal, less certainty surrounds the standards applicable to no-poach and no-hire agreements between franchisors and their franchisees.  Recent empirical work has revealed that such agreements are endemic in the fast food restaurant industry.  The Washington State Attorney General has convinced more than 150 chains to drop no-poaching provisions from their franchise agreements and has sued those who have refused to do so.  At the same time, the Department of Justice (DOJ) has intervened in private civil cases against franchisors and offered controversial guidance, which AAI has disputed, that seems to suggest intra-franchise no-hire agreements are ancillary restraints subject to the full-blown rule of reason.

Arrington v. Burger King Worldwide is a private class action case against Burger King, alleging that the no-poaching provision that used to be standard in Burger King’s franchise agreements unreasonably restrained competition for labor between and among Burger King and its franchisees, suppressing wages.  The district court dismissed the case, finding that Burger King and its franchisees represent a unitary economic interest and that they are, accordingly incapable of conspiring under Copperweld.  Plaintiffs and the DOJ, who wrote separately as an amicus, argued forcefully against the district court’s Copperweld analysis.  AAI noted its agreement with Plaintiffs on the Copperweld issue, but wrote separately to address the proper framework for addressing intrafranchise no-poaching agreements, should the Eleventh Circuit contemplate affirming on alternate grounds.

AAI’s brief emphasized the importance of the per se and quick-look rules to effective antitrust analysis and enforcement, and argued that the effects of any agreement, and not the relationship between the franchisor and the franchisees, should drive the analysis of the applicable standard for proving liability.  Moreover, although Burger King and its franchisees have a vertical relationship in the restaurant-format and burger markets, it is their relationship in the separate market for labor, where they lack such a relationship, that is relevant to the antitrust analysis.

The brief also argued that the court should treat skeptically any claim that no-poaching agreements are necessarily ancillary to fast-food franchise agreements.  The fundamental connection between the labor restraint and the franchise agreement, which is required before the ancillary restraints test may even be invoked, is far from clear.  But even if the court applied the ancillary restraints test, the brief argues, the no-poaching agreements are neither reasonably necessary nor the least restrictive means available for achieving any efficiencies.  That more than 150 chains, including Burger King, have voluntarily dropped the provisions rather than defend them in court more than establishes that these burdens on worker freedom are unnecessary.  And, even if these provisions had some procompetitive effect, the franchisor could achieve the same effect by paying for worker training.  In any event, AAI cautioned the court to weigh only cognizable efficiencies in the relevant labor market against the obvious anticompetitive effect of the restraints on the market for low-wage workers.