Start-ups, killer acquisitions and merger control

Organisation for Economic Co-operation and Development

DAF/COMP/WD(2020)23

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English - Or. English

4 June 2020

DIRECTORATE FOR FINANCIAL AND ENTERPRISE AFFAIRS

COMPETITION COMMITTEE

Start-ups, killer acquisitions and merger control – Note by the United States

11 June 2020

This document reproduces a written contribution from the United States submitted for Item 2 of the 133

OECD

Competition Committee meeting on 10-16 June 2020.

More documents related to this discussion can be found at

http://www.oecd.org/daf/competition/start-ups-killer-acquisitions-and-merger-control.htm

Please contact Mr Chris PIKE if you have questions about this document.

[Email: [email protected]rg]

JT03462564

OFDE

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the

delimitation of international frontiers and boundaries and to the name of any territory, city or area.

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United States

1. Introduction

1. In the United States, the Antitrust Division of the U.S. Department of Justice (DOJ)

and the Federal Trade Commission (FTC) (together, the Agencies) recognize that

competitive markets play an important role in promoting and incentivizing innovation that

benefits consumers.

2. New entry, as well as expansion by existing firms, can spur innovation that benefits

consumers. Innovative firms are often attractive M&A targets. On one hand, incumbent

firms seek to acquire pioneering firms and emerging technologies that can be further

developed. On the other hand, incumbents may target such firms to eliminate a competitive

threat.

3. Section 7 of the Clayton Act prohibits mergers and acquisitions whose effect “may

be substantially to lessen competition, or to tend to create a monopoly.”

Acquisitions of

innovative firms, mavericks, nascent competitors, and potential competitors are reviewable

under Section 7. U.S. merger law is generally forward-looking, designed to stop threats to

competition “in their incipiency;” but it can be used to challenge and unwind consummated

mergers as well.

In addition, transactions may be reviewed under Section 1 of the Sherman

Act, which prohibits contracts, combinations or conspiracies in restraint of trade; or Section

2 of the Sherman Act, which prohibits monopolization, attempted monopolization, and

conspiracy to monopolize.

See, e.g., U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, HORIZONTAL MERGER GUIDELINES § 6.4 (2010),

https://www.ftc.gov/sites/default/files/attachments/mergerreview/100819hmg.pdf [hereinafter Horizontal Merger

Guidelines].

See Speech, Jeffrey M. Wilder, Acting Deputy Asst. Att’y General for Economics, U.S. Dep’t of Justice, Potential

Competition in Platform Markets, Hal White Antitrust Conference (June 10, 2019),

https://www.justice.gov/opa/speech/acting-deputy-assistant-attorney-general-jeffrey-m-wilder-delivers-remarks-

hal-white; Speech, Makan Delrahim, Asst. Att’y Gen., U.S. Dep’t of Justice, “And Justice for All:” Antitrust

Enforcement and Digital Gatekeepers, Antitrust New Frontiers Conference: The Digital Economy & Economic

Concentration (June 11, 2019), https://www.justice.gov/opa/speech/file/1171341/download; Prepared Statement of

the Federal Trade Commission, “Competition in Digital Technology Markets: Examining Acquisitions of Nascent

and Potential Competitors by Digital Platforms,” before the U.S. Senate Committee on the Judiciary, Subcommittee

on Antitrust, Competition Policy, and Consumer Rights (Sept. 24, 2019),

https://www.ftc.gov/system/files/documents/public_statements/1545208/p180101_testimony_-

_acquisitions_of_nascent_or_potential_competitors_by_digital_platforms.pdf. See also Economic Report of the

President and Annual Report of the Council of Economic Advisers (Feb. 2020), https://www.whitehouse.gov/wp-

content/uploads/2020/02/2020-Economic-Report-of-the-President-WHCEA.pdf; OECD Global Forum on

Competition, Merger Control in Dynamic Markets – Contribution from the United States (Dec. 6, 2019),

https://one.oecd.org/document/DAF/COMP/GF/WD(2019)32/en/pdf.

15 U.S.C. § 18.

Brown Shoe v. United States, 370 U.S. 294, 323 (1962); see also Complaint, United States v. Parker Hannifin Corp.,

No. 17-cv-01354 (D. Del. Sept. 26, 2017) (challenging consummated acquisition).

15 U.S.C. § 1, 2. The DOJ enforces the Sherman Act. The FTC enforces Section 5 of the FTC Act, which prohibits

“unfair methods of competition,” including violations of the Sherman Act as well as some other types of conduct.

See Federal Trade Commission, Statement of Enforcement Principles Regarding “Unfair Methods of Competition”

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4. U.S. antitrust law recognizes that mergers among competitors, including nascent or

potential competitors, may be anticompetitive, especially “when an industry leader seeks

to acquire an up-and-coming competitor that is changing customer expectations and

gaining sales.”

This includes the acquisition of a company that is not yet present in a

market, but which may have the ability and incentive to enter and compete in the

incumbent’s market.

The Agencies understand the importance of competition from firms

that threaten to disrupt market conditions by repositioning or offering a new technology or

business model, and appreciate that the elimination of such firms through M&A activity

can result in a substantial lessening of competition.

5. The Agencies also recognize that acquisitions of existing or potential competitors

may result in efficiencies. As further described in the Horizontal Merger Guidelines

(2010), the Agencies will consider whether the merger has the potential to generate

significant efficiencies and thus enhance the merged firm’s ability and incentive to

compete, which may result in lower prices, improved quality, enhanced service, or new

products. As in any merger analysis, however, cognizable efficiencies must be merger-

specific, verifiable, and not result from an anticompetitive aspect of the merger.

Ultimately, they must be shown to enhance competition and thus benefit consumers. For

example, merger-generated efficiencies may enhance competition by permitting two

ineffective competitors to form a more effective competitor, e.g., by combining

complementary assets.

2. U.S. Law Addressing Acquisitions of Nascent and Potential Competitors

6. Section 7 of the Clayton Act provides a well-developed legal framework for

preventing or undoing mergers that may substantially lessen competition. The Horizontal

Merger Guidelines set out the framework used by the Agencies to analyze horizontal

mergers, including those between an incumbent and a small and growing competitor or a

potential entrant. The Agencies take a careful, fact-based approach to assessing the

competitive effects of any merger or acquisition, focusing on the particular economic

characteristics of the markets affected by the transaction. To that end, the Agencies conduct

thorough factual investigations that include economic analysis, the review of relevant

documents and information, the taking of testimony, and interviews with parties,

customers, and competitors, and other market participants.

7. In some industries, market conditions and industry structure are not always static

and may change rapidly. Therefore, the Agencies bear in mind that current or past market

shares may overstate – or perhaps understate – the current or future competitive

significance of industry participants, particularly in industries where innovation and new

Under Section 5 of the Federal Trade Commission Act, 80 FR 57056 (Sept. 21, 2015),

https://www.ftc.gov/system/files/documents/federal_register_notices/2015/09/150921commissionpolicyfrn.pdf;

see alsoCalifornia Dental Ass’n v. FTC, 526 U.S. 756, n.3 (1999).

See Statement of the Commission, supra note 2 at 7.

Horizontal Merger Guidelines § 9, Entry; Complaint ¶ 37, United States v. Westinghouse Air Brake Technologies

Corp., et al., No. 16-cv-02147 (D.D.C. Oct. 26, 2016).

Horizontal Merger Guidelines § 2.1.5, Disruptive Role of a Merging Party..

Horizontal Merger Guidelines §10, Efficiencies.

Horizontal Merger Guidelines § 2, Evidence of Adverse Competitive Effects.

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product development are key dimensions of competition.

The Agencies consider both

price and non-price effects in their analyses, recognizing that firms often compete on the

basis of quality and innovation, such as new product development, among other factors.

8. The anticompetitive effects of a merger need not be certain to render a merger

illegal under Section 7.

Predicting anticompetitive effects with precision can be

particularly difficult where the parties do not currently operate in the same relevant market

and the competitive effects are predicated on the reasonable likelihood of future

competition between the merging parties. In analyzing the potential for competitive harm

from a transaction, the Agencies rely on a broad range of evidence, including, but not

limited to, strategic plans and other business documents, and public statements of the

acquiring and to-be-acquired firm, and inquiry into the rationale for the proposed

transaction. The Agencies also consider the acquirer’s past successes or failures in bringing

to market new or acquired products and the likelihood that the acquired firm would develop

into a significant competitor without the merger. Moreover, the Agencies also seek and

evaluate the views of competitors and customers of the merging parties, industry experts,

and market analysts. Where future competition may depend on the willingness of investors

to fund, or continue to fund, new or developing market participants, the Agencies may seek

and evaluate the views and future plans of investors.

9. Section 2 of the Sherman Act provides an additional framework for evaluating

exclusionary or predatory conduct, including acquisitions that may contribute to the

acquisition or maintenance of monopoly power. For example, Section 2 may apply where

a monopolist engages in exclusionary conduct (such as an acquisition) to eliminate the

potential competitive threat posed by a technology, product, or service, even if it “is not

presently a viable substitute” for the acquirer’s own technologies, products, or services.

Section 2 liability requires proof of monopoly power in a relevant market, and

anticompetitive conduct to acquire or maintain that power.

A successful monopoly

maintenance claim does not require proof that a nascent or potential competitor would

actually have developed into a viable substitute, but “whether as a general matter the

Horizontal Merger Guidelines § 5.2, Market Shares.

Note by the United States, Non-price Effects of Mergers, DAF/COMP/WD(2018) 45,

https://www.ftc.gov/system/files/attachments/us-submissions-oecd-2010-present-other-international-competition-

fora/non-price_effects_united_states.pdf.

Horizontal Merger Guidelines § 1, Innovation and Product Variety.

United States v. Microsoft Corp., 253 F.3d 34, 54 (D.C. Cir. 2001) (“Nothing in § 2 of the Sherman Act limits its

prohibition to actions taken against threats that are already well-developed enough to serve as present substitutes.”).

Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004)(“[T]he

possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive

conduct.”)(emphasis in original); accord Retractable Techs., Inc. v. Becton Dickinson & Co., 842 F.3d 883, 891 (5th

Cir. 2016)(“Predatory or anticompetitive conduct, which excludes competitors from a market, is conduct, other than

competition on the merits or restraints reasonably necessary to competition on the merits, that reasonably appear[s]

capable of making a significant contribution to creating or maintaining monopoly power.”)(citation and internal

quotation marks omitted; emphasis added); Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 308 (3d Cir.

2007)(“Anticompetitive conduct may take a variety of forms, but it is generally defined as conduct to obtain or

maintain monopoly power as a result of competition on some basis other than the merits.”)(emphasis added);

Monsanto Co. v. Scruggs, 459 F.3d 1328, 1338–39 (Fed. Cir. 2006)(“To establish a section 2 violation, one must

prove that the party charged had monopoly power in a relevant market and acquired or maintained that power by anti-

competitive practices instead of by competition on the merits.”)(citation omitted; emphasis added).

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exclusion of nascent threats is the type of conduct that is reasonably capable of contributing

significantly to the defendant’s continued market power.”

10. Section 2 analyses also include an evaluation of any procompetitive justifications.

When parties come forward with sufficient evidence to review the claimed procompetitive

benefits of an acquisition, the Agencies consider whether that acquisition would result in,

among other things, new or improved products, increased speed to market of any acquired

products, and any benefits in the form of improved innovation, including the ability of the

merged firm to conduct research and development more effectively, to the extent those

have likely effects on the relevant market.

For example, an incumbent digital platform

might acquire, through merger, the technology of a nascent or potential competitor because

the technology complements or enhances the incumbent’s own technology. Additionally,

an incumbent may have the financial resources, experience, and other business assets to

more efficiently develop and commercialize a nascent or potential competitor’s technology,

thus making it available to more consumers.

2.1. Agency Experience

11. For years, the Agencies have challenged vertical and horizontal transactions that

involve nascent competitors. In so doing, the Agencies have sought remedies to resolve

their competition concerns. Where an adequate remedy was not available, the Agencies

went to court to seek a decision declaring the merger illegal and enjoining it from closing.

Challenges to nascent competitor acquisitions have included transactions where: (i) the

merging firms were actual competitors, (ii) deals where, but for the merger, one firm would

have faced competition from the target in the future, and (iii) mergers where both firms

were working to develop products that would likely compete in the future. Examples of

each of these types of cases are discussed below.

2.1.1. Cases Involving Actual Competitors

12. The Agencies have routinely challenged acquisitions by an incumbent firm of a

smaller competitor that had, at the time of the acquisition, the potential to expand its market

share and competitive significance absent the acquisition.

13. In September 2019, the DOJ sued to block Novelis Inc.’s proposed acquisition of

Aleris Corporation in order to preserve competition in the North American market for

rolled aluminum sheet for automotive applications, commonly referred to as aluminum auto

body sheet.

As alleged in the complaint, Novelis had long been one of only a few

aluminum body sheet suppliers in North America, while Aleris was a relatively new

competitor that—in Novelis’s own words—was “poised for transformational growth.” The

proposed transaction would concentrate more than half of the domestic production and sale

of aluminum auto body sheet, 60 percent of projected total domestic capacity, and the

majority of uncommitted domestic capacity under the control of one firm. Prior to filing

Microsoft, 253 F.3d at 79 (“Given [the] rather edentulous test for causation, the question in this case is not whether

Java or Navigator would actually have developed into viable platform substitutes, but (1) whether as a general matter

the exclusion of nascent threats is the type of conduct that is reasonably capable of contributing significantly to a

defendant’s continued monopoly power and (2) whether Java and Navigator reasonably constituted nascent threats at

the time Microsoft engaged in the anticompetitive conduct at issue.”).

Horizontal Merger Guidelines § 10, Efficiencies.

See Complaint, United States v. Novelis, No. 1:19-cv-02033-CAB (N.D. Ohio Sept. 4, 2020),

https://www.justice.gov/atr/case-document/file/1199461/download.

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the complaint, the DOJ reached an agreement with defendants to refer the matter to binding

arbitration on the issue of market definition if the parties were unable to resolve the

competitive concerns with the transaction within a certain period of time. After a 10-day

first-of-its-kind arbitration hearing, the arbitrator ruled for DOJ, holding that aluminum

auto body sheet constitutes a relevant product market, as the United States had alleged. As

a result, Novelis was required to divest Aleris’s entire aluminum auto body sheet operations

in North America to fully preserve competition.

14. In August 2019, the DOJ challenged Sabre Corporation’s proposed acquisition of

Farelogix under Section 7.

The DOJ alleged that the transaction would allow Sabre, the

largest airline booking services provider in the United States, to eliminate a disruptive

competitor that had introduced new technology to the travel industry and that was poised

to grow significantly. According to the complaint, the transaction would result in higher

prices, reduced quality, and less innovation. At trial, DOJ presented evidence that Sabre

had a history of engaging in anticompetitive tactics designed to undermine and delay the

adoption of Farelogix’s technology. In April 2020, the U.S. federal district court issued its

opinion, finding that Farelogix was a “disruptor” and a “successful” competitor of Sabre’s.

It further found that the “evidence suggests that Sabre will have the incentive to raise prices

. . . and stifle innovation” following the acquisition.

Notwithstanding these factual

findings, the court denied DOJ’s request to block the merger, ruling that it was bound by

the Supreme Court’s decision in Ohio v. American Express Co.

to hold that Sabre and

Farelogix do not compete in a relevant market. The DOJ filed a notice of appeal of the

court’s decision.

On May 1, 2020, Sabre and Farelogix terminated their merger

agreement.

On May 12, 2020, the DOJ moved in the Third Circuit to vacate the district

court’s decision, pursuant to the doctrine from United States v. Munsingwear, Inc., 340

U.S. 36 (1950), because the merging parties’ decision to abandon the merger rendered the

case moot, precluding the possibility of challenging the decision on appeal.

15. In 2018, the FTC challenged the merger of CDK Global and Auto/Mate.

CDK

was the market leader in specialized platform business software for franchise automotive

dealers. Auto/Mate was a much smaller competitor with an innovative business model that

was winning business from larger firms by offering lower prices, flexible contract terms,

low fees for third-party apps participating on the platform, free software upgrades and

training, and high-quality customer service. Although Auto/Mate was already competing

in the market, the FTC was concerned that the acquisition would eliminate its future

competitive significance. Auto/Mate’s impact on existing platforms indicated that its pre-

acquisition market share underrepresented its future market significance and the FTC

concluded that the acquisition would have eliminated competition from a key emerging

Complaint, United States v. Sabre Corp., No. 1:19-cv-01548-LPS (D. Del. Aug. 20, 2019),

https://www.justice.gov/opa/press-release/file/1196816/download.

Opinion, United States v. Sabre Corp., 34, 87, Civil Action No. 1:19-cv-01548-LPS (D. Del. April 8, 2020)

138 S. Ct. 2274 (2018).

Notice of Appeal, United States v. Sabre Corp. On April 9, 2020, the UK Competition and Markets Authority

blocked the transaction on the grounds that it would stifle innovation and competition. See Bloomberg Law, U.S. to

Appeal Sabre, Farelogix Merger Decision by Victoria Graham (Apr. 9, 2020),

https://news.bloomberglaw.com/mergers-and-antitrust/u-s-to-appeal-sabre-farelogix-merger-decision.

See DOJ Press Release, Statement from Assistant Attorney General Makan Delrahim on Sabre and Farelogix

Decision to Abandon Merger (May 1, 2020), https://www.justice.gov/opa/pr/statement-assistant-attorney-general-

makan-delrahim-sabre-and-farelogix-decision-abandon.

In re CDK Global, Dkt. 9382 (complaint filed Mar. 20, 2018).

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rival. The parties terminated their acquisition agreement shortly after the FTC issued its

complaint.

16. In December 2019, the FTC challenged the acquisition of an innovative biotech

firm, Pacific Biosciences of California, by an established incumbent, Illumina, as a

violation of both Section 7 of the Clayton Act and Section 2 of the Sherman Act. The FTC

alleged that Illumina’s proposed acquisition of PacBio would substantially lessen current

and future competition in a market for next-generation DNA sequencing systems, a rapidly

expanding technology used in genetic research and clinical testing, and that the acquisition

would unlawfully maintain Illumina’s monopoly power.

Illumina’s systems employed

short-read sequencing technology and, at the time of the proposed acquisition, it had a

market share of more than 90%. PacBio’s platforms employed long-read sequencing

technology, and, at the time of the proposed acquisition, it had a market share of

approximately 2% to 3%. But despite the current differences between their respective

systems, PacBio had made significant technological advancements in recent years, and

absent the proposed acquisition, competition between Illumina and PacBio would increase

substantially in the future. The FTC also alleged that the acquisition constituted unlawful

maintenance of Illumina’s monopoly in the U.S. market for next-generation DNA

sequencing systems, by extinguishing PacBio as a nascent competitive threat. The FTC

alleged that the parties could not verify or substantiate any merger-specific efficiencies,

that their procompetitive justifications for the acquisition were pretextual, and that any

procompetitive effects flowing from the acquisition could be accomplished through means

other than the acquisition.

The parties abandoned their merger plans after the FTC filed

its complaint.

The UK Competition and Markets Authority (CMA) was also reviewing

the transaction, and had issued provisional findings that the merger was anticompetitive.

17. In January 2013, DOJ filed a lawsuit to challenge the consummated acquisition of

PowerReviews by Bazaarvoice.

The complaint alleged that Bazaarvoice’s acquisition of

PowerReviews eliminated the company’s only significant rival in the market for product

ratings and reviews platforms used by U.S. manufacturers and retailers to display product

ratings and reviews on their websites. Product ratings and review platform providers

negotiated prices based on each customer’s perceived willingness to pay for the offered

product, and that willingness depended upon the alternatives available. The presence of

PowerReviews benefited its customers and non-customers alike because its market

presence often forced price competition, including substantial discounting, by incumbent

Bazaarvoice. On January 8, 2014, following a three-week trial, the district court found that

the acquisition would likely have anticompetitive effects and therefore violated Section 7

of the Clayton Act. Bazaarvoice was ordered to divest the PowerReviews business it had

unlawfully acquired.

2.1.2. Cases Involving a Threat to an Incumbent from a Future Competitor

18. The Agencies also have challenged acquisitions where the transaction was likely to

delay or thwart future competition against the incumbent. Identifying and proving a loss

of potential competition can be a challenging predictive exercise. In some markets, such

In the Matter of Illumina, Incorporated and Pacific Biosciences of California Incorporated, Dkt. 9387 (complaint

filed Dec. 17, 2019).

Illumina and Pacific Biosciences Announce Termination of Merger Agreement (Jan. 2, 2020),

https://www.illumina.com/company/news-center/press-releases/press-release-details.html?newsid=eb4a5eba-6b79-

41fd-b932-b89e7cd1cceb.

U.S. v. Bazaarvoice, No.13-cv-00133 (N.D. Cal. Jan. 8, 2014).

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as pharmaceutical, medical device, and agricultural technology markets, the regulatory

approval process may make identification of products in development more transparent

than in markets in which entry is not subject to such approval processes.

19. In 2015, the FTC challenged the proposed merger of Steris Corporation and

Synergy Health, alleging that the merger would eliminate Synergy as an actual potential

entrant into the market for contract radiation sterilization services, or into certain narrower

markets for more specific sterilization services. Steris was one of only two companies

providing sterilization services to medical device firms in the United States, and Synergy

had advanced plans to expand into the United States with a new, and potentially superior,

sterilization technology, including securing physical locations for its plant and contracting

for the required equipment. After the trial, the court concluded that the Commission had

failed to show that Synergy’s entry into the U.S. was probable, and declined to grant the

injunction.

20. In 2009, the FTC filed a complaint challenging Thoratec Corporation’s proposed

acquisition of rival medical device maker HeartWare International, Inc.

The Commission

charged that the transaction would eliminate current and future competition in the U.S.

market for left ventricular assist devices (LVADs), a life-sustaining treatment for patients

with advanced heart failure. HeartWare was engaged in clinical trials for a device that may

have been superior to Thoratec’s product. Although regulatory approval for these devices

was uncertain, there was sufficient evidence for the Commission to allege that Heartware’s

LVAD still in development was positioned to be the next LVAD approved by the Food and

Drug Administration for sale in the United States, and that Heartware’s product represented

a significant threat to Thoratec’s LVAD monopoly. The few other companies developing

LVADs were significantly behind HeartWare in their clinical trials and were unlikely to

reach the market as soon as, or be as competitive as, HeartWare’s device. The

Commission’s complaint alleged that no other firm could replace the current and future

competition eliminated by the merger. The parties abandoned their proposed transaction

after the Commission filed its complaint.

21. In 2007, the DOJ investigated certain vertical concerns in connection with

Monsanto’s merger with Delta & Pine Land (D&PL).

The DOJ investigation focused on

whether the transaction would harm nascent competition in markets for transgenic

cottonseed traits in the Southeast and South-Central United States. Monsanto was the first

to develop successful traits. At time when the merger was announced, almost all cotton

grown in these regions used Monsanto traits that (i) make cotton tolerant to glyphosate

herbicide and (ii) make cotton plants resistant to many insects. The DOJ determined that

the transaction would thwart or delay efforts by rival trait developers to bring competing

traits to market by depriving those rivals’ access to cottonseed material (germplasm) with

a proven track record. Ultimately, the parties divested their main horizontal overlap. DOJ

also sought and obtained rights and access to germplasm for the divestiture buyers, as well

as modification to the terms of certain Monsanto’s licenses with third-party seed companies

that provided incentives to use only Monsanto traits to the exclusion of traits developed by

others.

FTC v. Steris Corp., 133 F. Supp. 3d 962 (N.D. Ohio 2015). The Commission dismissed an administrative

complaint that sought to permanently enjoin the transaction. In re Steris Corp., and Synergy Health PLC., Dkt. 9365

(May 29, 2015).

In the Matter of Thoratec Corp. and HeartWare Int’l, Inc., Dkt. 9339 (complaint filed Jul. 30, 2009).

See Competitive Impact Statement, United States v. Monsanto Co., No. 1:07-cv-00992-RMV (D.D.C. May 31,

2007), http://www.usdoj.gov/atr/cases/f223600/223682.pdf.

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2.1.3. Cases Involving Emerging Markets

22. The Agencies have also challenged mergers where both firms had products in

development for the same future market. A merger of this kind may reduce competition

by bringing separate competitive efforts under common control.

In appropriate cases, the

Agencies have required a divestiture of one of the products in development and/or the

licensing of intellectual property rights of one or both parties to the merger, so as to support

the continued development of future products.

23. In 2018, the DOJ challenged Bayer AG’s acquisition of Monsanto, alleging both

horizontal and vertical competition concerns. In its complaint, the DOJ emphasized that

Bayer and Monsanto were leading competitors in the development of new products and

services, and that the acquisition as proposed would have stifled innovation in agricultural

technologies that has delivered significant benefits to farmers and consumers.

alleviate these concerns, the DOJ negotiated a $9 billion divestiture of businesses and assets

to BASF. Among the divested assets were certain intellectual property and research

capabilities, including pipeline research and development projects, and complementary

assets necessary to ensure that BASF continues to have the same innovation incentives,

capabilities, and scale that Bayer would have as an independent competitor. Most notably,

these assets included Bayer’s nascent digital agriculture business.

24. In 2013, two of the world’s largest semiconductor manufacturing equipment

makers, Applied Materials and Tokyo Electron, announced a merger that would combine

the two leading firms that possessed the necessary knowhow, resources, and ability to

develop and supply high-volume non-lithography semiconductor equipment. The DOJ

conducted an extensive investigation and found that the existing competitive overlap

between specific equipment offered by the two firms was emblematic of a broader

competition to develop new equipment. Existing competition indicated that each firm had

the “building blocks,” the appropriate collection of assets and capabilities, necessary to be

successful developers of new equipment.

As a result, the DOJ had substantial concerns

that the merger would diminish competition to develop equipment for the manufacture of

next-generation semiconductors. In 2015, Applied Materials and Tokyo Electron

abandoned the merger after the DOJ informed them that their proposed remedy was

inadequate.

Such a merger may also have procompetitive benefits: for example, it may make entry or development of a product

more likely, or support more speedy entry, because the merger allows the firms to combine complementary assets.

See, e.g., Statement of FTC Chairman Timothy J. Muris, in the Matter of Genzyme Corporation / Novazyme

Pharmaceuticals, Inc. (January 13, 2004), https://www.ftc.gov/system/files/attachments/press-releases/ftc-closes-its-

investigation-genzyme-corporations-2001-acquisition-novazyme-pharmaceuticals-inc./murisgenzymestmt.pdf.

United States v. Bayer AG and Monsanto Company, Civil Action No. 1:18-cv-01241 (D.D.C. 2018) (complaint

filed May 29, 2018), https://www.justice.gov/atr/case-document/file/1066656/download.

See DOJ Press Release, Justice Department Secures Largest Negotiated Merger Divestiture Ever to Preserve

Competition Threatened by Bayer’s Acquisition of Monsanto (May 29, 2018), https://www.justice.gov/opa/pr/justice-

department-secures-largest-merger-divestiture-ever-preserve-competition-threatened.

Nicholas Hill, et al., Economics at the Antitrust Division 2014-2015: Comcast/Time Warner Cable and Applied

Materials/Tokyo Electron, 47 Rev. Ind. Or. 425, 433 (2015).

Press Release, Dep’t of Justice, Applied Materials Inc. and Tokyo Electron Ltd. Abandon Merger Plans After

Justice Department Rejected Their Proposed Remedy (April 27, 2015), https://www.justice.gov/opa/pr/applied-

materials-inc-and-tokyo-electron-ltd-abandon-merger-plans-after-justice-department.

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25. In 2013, the FTC challenged the merger of Nielsen and Arbitron. Both companies

were developing national syndicated cross-platform audience measurement services, which

would allow audiences to be measured accurately across multiple viewing platforms, such

as TV and online.

At the time of the merger, no firm offered a commercially available

service that could perform this function, but demand for such a service was increasing.

Evidence showed that Nielsen and Arbitron were the two best positioned firms to develop

this service. The FTC alleged that the elimination of future competition between Nielsen

and Arbitron would increase the likelihood that Nielsen would exercise market power, and

make it more likely that advertisers, advertising agencies, and programmers would pay

more for national syndicated cross-platform audience measurement services. To address

these concerns, as part of the settlement order, the Commission required Nielsen to divest

assets related to Arbitron’s cross-platform audience measurement business, including

audience data, and to enter into other licensing arrangements supporting the divestiture.

2.2. “Killer Acquisitions” and Agency Analysis

26. Commentators have noted that, in certain cases, a firm may acquire another firm

merely to terminate or suspend innovative activity or the development of a product

perceived to be a competitive threat to the acquiring firm. These transactions, when

consummated, are sometimes referred to as “killer acquisitions” because they are said to

result in a product or service being “killed” or terminated rather than brought to market.

The Council of Economic Advisors articulates this concern as one factor that may motivate

a particular acquisition:

[A]nother debate asks whether dominant platforms are harming competition by

buying too many smaller firms, such as start-ups funded with venture capital. It is

common for large platforms to acquire smaller firms. The digital economy relies

heavily on innovation, and being acquired by an established firm can be an

important exit path for initial investors. Acquisition can also be important for a

start-up’s success. The acquiring firm may bring marketing, financing, and other

business assets that enable the start-up to grow. However, if a start-up is not

acquired, it might instead grow into an independent, full-fledged competitor. Some

acquisitions may occur precisely to prevent such competition.

27. The Agencies are attentive to acquisitions in which an incumbent acquires a firm

that could develop into a future competitor, or assets necessary for a firm to develop

products or services in competition with the incumbent.

28. For example, in 2017, the FTC charged Mallinckrodt (formerly known as Questcor)

with unlawful monopolization by acquiring the rights to a drug that threatened its monopoly

in the U.S. market for adrenocorticotropic hormone (ACTH) drugs. In its complaint, the

FTC alleged that Questor enjoyed monopoly power as a result of its control of Acthar, the

only U.S. ACTH drug, and that it had unlawfully maintained that monopoly power by

acquiring the U.S. rights to develop a competing drug, Synacthen Depot. The FTC alleged

that Questcor’s acquisition of the U.S. rights for Synacthen had eliminated the possibility

In the Matter of Nielsen Holdings N.V. and Arbitron Inc., Dkt. C-4439 (complaint filed Feb. 28, 2014).

See FTC Press Release, FTC Approves Nielsen Holdings N.V. and Nielsen Audio, Inc.’s Application to Sell its

LinkMeter Technology and Related Assets to comScore, Inc. (Apr. 2, 2014), https://www.ftc.gov/news-events/press-

releases/2014/04/ftc-approves-nielsen-holdings-nv-nielsen-audio-incs-application.

Economic Report of the President, supra note 2, at 219. See also Cunningham, Ederer and Ma, Killer Acquisitions

(March 22, 2019), https://ssrn.com/abstract=3241707 (unpublished paper attempting to measure and identify the

incident of such acquisitions in the pharmaceutical industry).

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that another firm would develop it and compete against Acthar. To resolve the FTC’s

concerns, Questor agreed to sublicense the Synacthen assets, including intellectual property

rights, to another firm to commercialize Synacthen in the United States, and further to pay

$100 million in redress of the Defendant’s violations.

29. In 2016, the DOJ challenged Westinghouse Air Brake Technology Corporation’s

(“Wabtec”) acquisition of Faiveley Transport. The DOJ alleged that the transaction, as

originally structured, would have substantially lessened competition for the development,

manufacture, and sale of various freight railcar brake components. Prior to the acquisition,

Faiveley had formed a joint venture with another rail equipment supplier that allowed it to

bundle brake components and compete more effectively with the two large incumbents,

one of which is Wabtec. In addition, Faiveley had been developing its own control valve,

which is the most highly-engineered, technologically-sophisticated component in a freight

car brake system, the market for which had been a duopoly for years. With a control valve,

Faiveley could more directly compete with the incumbents—even though full

commercialization and approval was likely years away. The transaction also would have

eliminated future competition for control valves by preventing Faiveley’s entry into this

market, and would have thus maintained a century-old duopoly between Wabtec and its

only other control valve rival. To remedy these concerns, the companies agreed to divest

Faiveley’s entire U.S. freight car brakes business to Amsted Rail Company, an employee-

owned rail equipment company.

30. In 2008, the FTC charged that Inverness Medical Innovations’ acquisition of assets

of ACON Laboratories, and its interference with that company’s efforts to develop and

supply consumer pregnancy tests, unlawfully maintained Inverness’s monopoly power, and

harmed or threatened to harm competition, in a market for consumer pregnancy tests.

Through its acquisition of ACON assets, Inverness imposed a covenant not to compete on

ACON that limited the scope and duration of its joint venture to develop and market digital

consumer pregnancy tests, required ACON to remit to Inverness any profits from that joint

venture, and acquired rights to intellectual property developed by ACON and its joint

venture partner. The FTC alleged that through these actions, Inverness interfered with

ACON’s ability and incentive to develop and manufacture digital consumer pregnancy

tests, and hampered the joint venture partner’s ability and incentive to develop and market

competing digital consumer pregnancy tests. The FTC’s complaint also identified that

Inverness eliminated future competition from water-soluble dye lateral flow consumer

pregnancy tests by purchasing ACON’s water-soluble dye consumer pregnancy test assets,

and by ceasing development and marketing efforts for test products associated with the

assets.

To address the FTC’s concerns, Inverness agreed to sell the water-soluble

consumer pregnancy assets, disclaim any ownership rights for intellectual property

FTC v. Mallinckrodt, Civil Action No. 1:17-cv-00120 (D.D.C. 2017) (complaint filed Jan. 25, 2017),

https://www.ftc.gov/system/files/documents/cases/170118mallinckrodt_complaint_public.pdf; see FTC Press

Release, Mallinckrodt Will Pay $100 Million to Settle FTC, State Charges It Illegally Maintained its Monopoly of

Specialty Drug Used to Treat Infants (Jan. 18, 2017), https://www.ftc.gov/news-events/press-

releases/2017/01/mallinckrodt-will-pay-100-million-settle-ftc-state-charges-it.

United States v. Westinghouse Air Brake Technologies Corp., No.1:16-cv-02147 (D.D.C. 2017 filed Oct. 26, 2016),

https://www.justice.gov/atr/case/us-v-westinghouse-air-brake-technologies-corp-et-al.

See FTC Press Release, Inverness Medical Innovations Settles FTC Charges That it Stifled Future Competition in

U.S. Market for Consumer Pregnancy Tests (Dec. 23, 2008), https://www.ftc.gov/news-events/press-

releases/2008/12/inverness-medical-innovations-settles-ftc-charges-it-stifled.

In the Matter of Inverness Medical Innovations, Inc., FTC File No. 061-0123 (complaint filed Dec. 23, 2008)

https://www.ftc.gov/sites/default/files/documents/cases/2008/12/081223invernesscmpt.pdf.

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developed during the joint venture, refrain from interference with ACON’s ability to

transfer or license digital consumer pregnancy test technology to its joint venture partner,

and refrain from interference with ACON’s ability to manufacture digital consumer

pregnancy test technology for its joint venture partner.

2.3. Jurisdiction to Review Mergers Involving Nascent Competition

31. The 2005 OECD Council Recommendation on Merger Review (“OECD

Recommendation”) and the International Competition Network’s Recommended Practices

for Merger Notification and Review Procedures (“ICN Recommended Practices”) call for

notification thresholds to be based on: (i) objectively quantifiable criteria, and (ii)

information that is readily accessible to the merging parties. The OECD and ICN

recommended practices also call for such thresholds to screen out transactions lacking a

material nexus to the reviewing jurisdiction.

32. In the United States, the Hart-Scott-Rodino Antitrust Improvements Act of 1976,

15 U.S.C. § 18a (§ 7A of the Clayton Act) requires that parties to certain mergers or

acquisitions notify the Agencies before consummating the proposed transaction.

Reportability under the Act depends on whether the value held as a result of the transaction

and the size of the parties, as measured by their sales and assets, meet the statutory

thresholds,

and, if so, whether an exemption applies.

The U.S. premerger notification

program allows for efficient and expedient review of approximately two thousand proposed

transactions annually by the Agencies.

Premerger notification has vastly improved the

Agencies’ ability to identify and prevent anticompetitive mergers, and to avoid the

challenges of “unscrambling the eggs.”

33. Although the U.S. premerger notification system subjects most mergers of

significant size to premerger review for competition concerns, a transaction does not have

to be subject to such review for the Agencies to be able to challenge it under the antitrust

laws. Under Section 7 of the Clayton Act – which was enacted many years before the HSR

Act – the Agencies can challenge acquisitions of stock or assets, without regard to whether

See OECD Recommendation on Merger Review (2005), http://www.oecd.org/daf/-

competition/oecdrecommendationonmergerreview.htm; ICN Recommended Practices for Merger Notification and

Review Procedures, https://www.internationalcompetitionnetwork.org/wp-

content/uploads/2018/09/MWG_NPRecPractices2018.pdf.

The Act generally requires transactions to be notified when: (1) the acquiring or acquired person is engaged in U.S.

commerce or in any activity affecting U.S. commerce; (2) the amount of voting securities, or the non-corporate

interests that yield control, or assets held as a result of the acquisition is over $94 million (the size of transaction test);

and (3) if a transaction is valued at $376 million or less, one person has sales or assets of $188 million or more and

the other has sales or assets of $18.8 million or more (the size of person test). If the size of the transaction is greater

than $376 million, the size of person test does not apply. These notification thresholds are adjusted annually, and are

available at: https://www.ftc.gov/enforcement/premerger-notification-program/current-thresholds.

16 CFR Part 802. E.g., there is an exemption for the acquisition of foreign assets if sales in or into the United States

attributable to those assets are $94 million or less, aimed at ensuring that only transactions with a material nexus to

the U.S. are notifiable.

For annual information on the number of notified transactions, as well as the number challenged or abandoned, see

the FTC’s Annual Reports to Congress Pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976,

https://www.ftc.gov/policy/reports/policy-reports/annual-competition-reports.

An e-filing system for submission of premerger notification filings has been established to handle filings during

the COVID-19 coronavirus pandemic. See https://www.ftc.gov/enforcement/premerger-notification-

program/guidance-filing-parties.

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the acquisition requires a premerger notification under the HSR Act, and such challenges

can be brought either before or after a transaction is consummated.

34. As a result, another important element of the U.S. merger review regime is the

Agencies’ ability to review, and if necessary, challenge non-notifiable transactions,

including consummated transactions. For example, over the past five years, the FTC has

conducted an in-depth review of 15 transactions that were not notifiable under the Act, in

addition to the 117 notified transactions where the Commission conducted an in-depth

review. Similarly, DOJ conducted in-depth reviews of 18 transactions that were not notified

under the HSR rules during this period, in addition to 124 in-depth investigations of notified

transactions.

35. Although most of the cases discussed above involved reportable transactions, some

were not. For instance, Bazaarvoice/PowerReviews, discussed infra, was a non-reportable

transaction. In 2013, when Mallinckrodt (then Questcor) acquired the U.S. rights to

Synacthen, although it met the HSR size of transaction and person thresholds, the

transaction was not reportable because it involved an exclusive license where the licensor

retained manufacturing rights. Later that same year, the Agencies revised the HSR Rules

to require premerger notification of exclusive license transactions where the licensee

acquires all commercially significant rights from the licensor.

36. For reportable transactions, DOJ and FTC staff rely on several sources to learn of

the potentially anticompetitive transactions. Often, the Agencies’ respective staff will learn

about such transactions from their ongoing monitoring of the trade press or other media.

For example, the FTC’s retail and hospital mergers section subscribes to publications of

the National Federation of Retailers and the American Hospital Association, which often

report on transactions that do not meet the notification thresholds. DOJ similarly monitors

trade press covering the industries subject to its oversight. For instance, DOJ opened its

preliminary investigation into Bazaarvoice’s consummated acquisition of PowerReviews

based on information discovered through its media review.

37. Complaints are another source of information about potentially anticompetitive

transactions. Complainants can range from industry participants, such as customers

concerned about potential anticompetitive effects arising from a merger between suppliers,

to individual citizens or labor unions. Complaints may come to the agencies directly, may

be reported in the press, or may be communicated to the Agencies by state or federal

government agencies.

38. The investigation of non-reportable transactions proceeds in a manner similar to an

HSR investigation. The Agencies are able to obtain documents and information through a

Civil Investigative Demand in place of a Second Request. Unlike an HSR investigation,

however, the parties to a non-reportable transaction may be able to consummate their deal

at any time if all other regulatory approvals have been received. In many cases, however,

the parties enter into a timing agreement or hold separate agreement to preserve the viability

of the relevant assets during the agency’s investigation and any potential challenge.

78 FR 68705 (November 15, 2013).

See, e.g., In re Otto Bock HealthCare North America, Inc., Dkt. 9378, Opinion (Nov. 6, 2019) (defendants agreed

to Hold Separate Agreement three months after consummating acquisition of Freedom and prior to FTC complaint),

https://www.ftc.gov/system/files/documents/cases/d09378commissionfinalopinion.pdf.

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3. Policy Initiatives Related to Nascent Competition

39. The FTC recently conducted a series of hearings to examine whether adjustments

to competition policy are necessary to address changes in the economy, evolving business

practices, and new technologies.

In particular, hearings held on October 17, 2018,

assessed the appropriate antitrust framework for evaluating Acquisitions of Nascent and

Potential Competitors in Digital Technology Markets.

Participants discussed many of the

issues raised by the OECD Competition Committee relating to nascent acquisitions, and

the FTC received public comments on this topic.

The consensus view at the hearings was

that the current antitrust laws are effective and adaptable to the digital platform

environment. Additionally, participants agreed that the prospective loss of future

competition is a viable theory of anticompetitive harm that the Agencies have used to

challenge transactions in the past, and could continue to rely upon in the future.

40. On July 23, 2019, the DOJ announced that it was reviewing the practices of market-

leading online platforms.

The review focuses on whether and how market-leading online

platforms have achieved market power and are engaging in practices that have reduced

competition, stifled innovation, or otherwise harmed consumers. The goal of the review is

to assess the competitive conditions in the online marketplace to ensure that companies

compete on the merits to provide services that users want. If violations of law are

identified, the DOJ will proceed appropriately to seek redress.

41. On February 11, 2020, the FTC issued Special Orders pursuant to Section 6(b) of

the FTC Act to five large technology firms: Alphabet (including Google), Apple, Amazon,

Facebook, and Microsoft.

The FTC’s Special Orders require these firms to provide

information about prior acquisitions not notified to the Agencies under the HSR Act,

including information and documents on the terms, scope, structure, and purpose of

transactions that each company consummated between January 1, 2010 and December 31,

Federal Trade Commission, Hearings on Competition and Consumer Protection in the 21

Century (Jun. 18, 2018),

https://www.ftc.gov/policy/hearings-competition-consumer-protection.

Federal Trade Commission, FTC Hearing #3: Multi-Sided Platforms, Labor Markets, and Potential Competition

(Oct. 15-17, 2018), https://www.ftc.gov/news-events/events-calendar/2018/10/ftc-hearing-3-competition-consumer-

protection-21st-century (see public comment questions relating to “Acquisitions of Nascent and Potential

Competitors in Digital Technology Markets”).

See Federal Trade Commission, Competition and Consumer Protection in the 21

Century, Transcript at 168-375

(Oct. 17, 2018), https://www.ftc.gov/system/files/documents/public_events/1413712/ftc-

_hearings_session_3_transcript_day_3_10-17-18_1.pdf, and Public Comments, https://www.ftc.gov/news-

events/events-calendar/2018/10/ftc-hearing-3-competition-consumer-protection-21st-century. See also Public

Comments submitted in response to FTC Hearings Initial Topic 6: Evaluating the Competitive Effects of Corporate

Acquisitions and Mergers, https://www.ftc.gov/policy/public-comments/2018/07/initiative-759.

Press Release, U.S. Dep’t of Justice, Justice Department Reviewing the Practices of Market-Leading Online

Platforms (July 23, 2019), https://www.justice.gov/opa/pr/justice-department-reviewing-practices-market-leading-

online-platforms.

See FTC Press Release, FTC to Examine Past Acquisitions by Large Technology Companies (Feb. 11, 2020),

https://www.ftc.gov/news-events/press-releases/2020/02/ftc-examine-past-acquisitions-large-technology-

companies. Section 6(b) of the Federal Trade Commission Act, 15 U.S.C. § 46(b), authorizes the FTC to solicit

information from businesses for research or non-enforcement purposes.

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2019.

This information will help the FTC evaluate whether the Agencies are getting

adequate notice of transactions that might harm competition in the digital economy.

42. On February 12, 2020, the DOJ partnered with Stanford University to hold a

workshop on Venture Capital and Antitrust. The workshop explored trends in venture

capital investment from the 1990s through 2020, with a focus on what antitrust enforcers

can learn from investors about how to identify nascent competitors in markets dominated

by technology platforms. The workshop also addressed proposed solutions to concerns that

competitive alternatives to the market-leading platforms are not attractive investment

opportunities. The program brought together venture capitalists, academics in law and

business, and other tech industry stakeholders to explore the practical considerations that

early stage investors face when calculating the risks of investing in a startup and exit

strategies.

4. Conclusion

43. For decades, the Agencies have made combatting anticompetitive conduct in the

technology sector is a top priority. In 2019, the FTC created the Technology Enforcement

Division (TED) in the Bureau of Competition, focused on investigating anticompetitive

conduct and mergers in the digital economy, including by digital platforms.

In addition

to allocating nearly two dozen full-time staff attorneys to TED and drawing on the expertise

of PhD economists in the Bureau of Economics, the FTC has hired technologists to enhance

its institutional expertise. Today, DOJ’s Technology and Financial Services Section is

tasked with enforcing the antitrust laws in high-tech industries and digital markets.

From

2002 until 2017, the section was known as the Networks & Technology Enforcement

Section. Before that, it was known as the Computers and Finance Section.

44. The Agencies are cognizant of concerns regarding transactions that may

substantially lessen competition, including killer acquisitions in digital and other markets,

and are committed to ensuring that technology markets remain competitive. The Agencies

will continue to evaluate their approach to identifying and investigating acquisitions of

nascent and potential competitors that may lessen current or future competition. Existing

statutory tools—including Section 7 of the Clayton Act and Section 2 of the Sherman Act—

provide powerful tools to protect consumers from acquisitions and other conduct that

threatens to harm nascent and potential competition. The Agencies will continue to make

vigorous and effective use of those tools to protect competition.

Under the HSR of 1976, businesses are required to file premerger notification for acquisitions above a certain

monetary threshold. However, the lack of reporting requirements for smaller transactions has historically omitted

small business acquisitions from federal antitrust review. Since 1976, premerger notification filings for transactions

valued above $50 million were required in the United States pursuant to the HSR Act. In 2000, Congress amended

the HSR Act to require the annual adjustment of these thresholds based on the change in gross national product. As

of February 28, 2020, the premerger notification and report are required if the transaction is above $94 million. See

https://www.ftc.gov/news-events/blogs/competition-matters/2020/01/hsr-threshold-adjustments-reportability-2020.

See FTC Press Release, FTC’s Bureau of Competition Launches Task Force to Monitor Technology Markets (Feb.

26, 2019).

See U.S. DEP’T OF JUSTICE, ANTITRUST DIV., Technology & Financial Services Section,

https://www.justice.gov/atr/about-division/tfs-section.