Above Board: Responding to an Evolving Antitrust Landscape

In this episode of the Above Board podcast, Morrison & Foerster partner and host Dave Lynn speaks with Alex Okuliar, Washington, D.C.-based partner and former senior DOJ and FTC official, on the Biden administration’s recent executive order calling for a broader “whole-of-government” approach to competition and possible implications for antitrust enforcement. Dave and Alex also touch on the key resolutions voted on by the FTC since Chair Khan’s appointment earlier this summer, as well as implications of the new approach for merger reviews. Practical guidance is provided on what corporate boards can do now to prepare for the change in approach to antitrust matters.

Transcript

Speaker: Welcome to MoFo Perspectives, a podcast by Morrison & Foerster, where we share the perspectives of our clients, colleagues subject matter experts, and lawyers.

Dave Lynn: Hello, welcome to the Above Board podcast. This is your host, Dave Lynn. I’m co-chair of Morrison & Foerster’s Corporate Finance Capital Markets practice. I’m pleased to be joined today by Alex Okuliar, who is co-chair of Morrison & Foerster’s Global Antitrust Law practice group. Alex has been practicing antitrust law for more than 20 years, representing parties in litigation in front of federal, state, and global antitrust authorities in connection with merger reviews and conduct investigations. And prior to joining Morrison & Foerster earlier this year, Alex served as the Deputy Assistant Attorney General for Civil Enforcement in the DOJ Antitrust Division and oversaw more than 150 lawyers and staff at the DOJ. In addition to his recent service at the DOJ, Alex has also been work—has worked at the FTC, having served as an advisor to a commissioner of the FTC. Alex, thank you very much for joining me today. There’s been a lot of focus on antitrust matters over the last few months, and it’s a topic that has been coming up a lot in the boardroom. The Biden administration recently issued an executive order calling for a broader whole-of-government approach to competition. What does this mean, and how is it going to change antitrust enforcement?

Alex Okuliar: The executive order reflects an attempt by the administration to reshape competition law enforcement in the U.S. in order to more closely resemble the administrative state in Europe and to significantly expand the power of the federal government over industry, including, in particular, with respect to deal making. To support this effort, the administration has appointed self-described populists to lead the two main federal antitrust agencies, the Federal Trade Commission and the DOJ’s Antitrust Division. For example, at the FTC, President Biden appointed Lina Khan as the chair. She’s best known for her sharp criticism of U.S. antitrust enforcement, and of big tech companies in particular, having published several academic articles in the space, and worked last year as council to the house antitrust subcommittee during its investigation of competition and digital markets and the subsequent drafting of a report calling for a major overhaul to the U.S. antitrust laws. She was confirmed by the Senate earlier this summer.

Alex Okuliar: Similarly, the administration has nominated Jonathan Kanter to lead the DOJ Antitrust Division. He, too, has made a name for himself as a critic of large technology companies, although he also has a history of defending some companies before the DOJ and FTC, including large companies. So he may end up being slightly more moderate than Kahn in some non-tech enforcement areas. His Senate confirmation is expected later this year. And finally, the White House has created a new position in the National Economic Council to oversee technology and competition policy and hired Tim Wu to that position, Wu is an academic at Columbia University and a vocal advocate for significantly expanded antitrust enforcement to promote small business and protect against, as he puts it, “the curse of bigness,” He’s widely viewed as one of the main architects of the new executive order and its whole‑of‑government approach, which really seeks to empower numerous agencies to consider competition issues within their respective jurisdictions and statutory mandates.

Dave Lynn: What should corporate boards look out for as a consequence of this new sweeping executive order?

Alex Okuliar: Based on the executive order and these appointments in particular, here are three sort of big changes that corporate board should be looking out for. First, it’s very likely that U.S. antitrust enforcement agencies will focus less exclusively on price, quality, and output when analyzing potential deals and other conduct. President Biden has directly criticized the economic-based consumer welfare analysis that courts and agencies have followed in the U.S. and actually much of the world over the last 40 or so years. The order calls on enforcers to expand how they think about antitrust and how the antitrust laws can be used to enhance or support for example, labor markets, employment, small businesses, startups, environmental sustainability, and broader socioeconomic issues. So in thinking about a deal or maybe a new corporate strategy, boards would be well advised to have their antitrust council assess these broader set of issues.

Alex Okuliar: In addition, the order highlighted specific industries and practices for enforcers to focus on. The administration is particularly interested in technology industries, including internet platforms, and wants agencies to look at serial mergers; acquisition of nascent competitors or disruptors; aggregations of data by companies, particularly consumer data; any unfair competition in attention markets; surveillance of consumers; network effects. More broadly, the order calls on the DOJ and the FTC to revise their enforcement guidelines on mergers, which both have said they will do. And just a few days ago, the FTC actually rescinded the existing vertical merger guidelines that were adopted just a year or so ago. In addition, Chair Khan wrote a letter responding to questions from the White House, noting that the FTC would step up its investigation of deals in the oil and gas sector, particularly at the retail level. So corporate boards should be looking out for a stepped-up enforcement, particularly if a deal or strategy relates to any of those hot button issues, as well as nontraditional theories of harm relating to things like employment or environmental sustainability that are going to become part of the DOJ and FTC’s analysis and will likely be incorporated directly into the agency’s new guidelines.

Alex Okuliar: These changes will create additional hurdles for deal making and most likely add to the time and expense associated with merger reviews. In another area, the executive order calls on the FTC to shift from a case-by-case enforcement approach, in which it goes to court to enforce the laws, to more of a rules-based approach, in which it gives notice, seeks comment, and then drafts and passes rules for market participants to follow. The shift to a rule making approach will at least at first relate to things like employee non-compete clauses, data collection and surveillance, restrictions on the rights to repair, conduct and agreements related to prescription drugs, and the like. The move to rule making is an important change as it will likely shift the balance in favor of the FTC when it goes to court to enforce these rules. Although there have been a number of commentators that have questioned whether the FTC has the authority to pass the rules, particularly broad rules, or whether it should garner any deference of courts. This latter point is part of a wider debate about the extent to which agencies should get deference for rules.

Dave Lynn: You mentioned Chair Khan’s appointment to the FTC earlier this summer, and there have been several votes since that happened. What are some of the key resolutions and their implications for mergers in particular?

Alex Okuliar: Since her elevation to chair, Khan and the other two Democrats have quickly passed a number of resolutions on a party line vote, some of which are controversial and should be a particular interest to corporate boards. As an initial matter, the Democrats have rescinded several existing agency policies, some that have been around for years and enjoyed bipartisan support. For instance, the majority rescinded the agency’s 2015 bipartisan policy to follow the consumer welfare standard and rule of reason analysis when enforcing competition laws. This change will allow the agency to implement new theories of harm as called for in the executive order and minimize the focus of antitrust on the consumer. And, in particular, the use of economic analysis to study the likely impact of a deal on prices, output, and quality. While the agency will continue to rely on economists, the nature and focus of their work will shift and incorporate new modes of analysis and new metrics for potential deal impact.

Alex Okuliar: In addition, the Democrats rescinded a 1995 policy that was passed during the Clinton administration that had limited the situations in which the FTC would seek a condition in a merger order to require the merging parties to get prior approval from the FTC before pursuing any future transactions. The old policy was to seek such provisions only where there was a credible risk of a potentially harmful deal in the future, typically with respect to assets or markets associated with the existing deal. Now, however, the FTC can leverage its power over deal reviews to extract these provisions in orders and put companies, particularly large tech companies, under order, so that any future deals, even small deals that do not require an HSR filing, would require commission review and approval. And as I mentioned earlier, just a few days ago, the Democrats rescinded the 2020 vertical merger guidelines. The vertical merger guidelines, which the FTC issued with the DOJ, provided a framework for which the agencies would review vertical mergers.

Alex Okuliar: These earlier guidelines were based on previous investigations into vertical deals and issued after multiple workshops and public comments. Chair Khan stated that she believed that the guidelines were not consistent with economic realities and was worried that courts would start utilizing them. This rescindment of the guidelines is consistent with Chair Khan’s position that more aggressive merger enforcement is required. By rescinding the guidelines, the FTC under Chair Khan can more aggressively now prosecute vertical mergers and shape future guidelines to be consistent with her view of antitrust enforcement. After the FTC’s recent meeting, the DOJ issued a statement saying that the vertical merger guidelines would still remain in place at the DOJ, but the DOJ will work with the FTC to amend or issue new guidelines. The DOJ and the FTC are also considering amending the horizontal merger guidelines. This was mentioned by the Democratic commissioners at the FTC’s open meeting and the DOJ’s press release.

Alex Okuliar: The Democrats have also taken steps to give the chair more power to operate without further approval of the other commissioners. They voted to open several broad investigations into the U.S. economy and to consolidate approval for subpoenas and CIDs, or civil investigative demands, in a single commission office, presumably the office of the chair or another commissioner designated by the chair. This allows the chair to approve staff requests for process without other commissioners and has proven controversial as it could cut minority commissioners out of the loop on an investigation until a vote is called to litigate or perhaps settle the case. This means those commissioners do not have the ability to exercise their oversight duty to ensure that the scope and burden imposed by an investigation on parties and on third-party witnesses is reasonable. In addition, a few days ago, the Democratic majority passed eight more resolutions to allow compulsory process in additional areas, including bias in algorithms and biometrics; certain monopolization offenses; abuse of intellectual property; deceptive conduct on the internet; as well as common directors, officers, and ownership issues.

Alex Okuliar: This means that even if the Democrats lose their majority for a period of time, which may occur this fall as commissioner Chopra is nominated to lead the CFPB and maybe confirm in the coming weeks, while a new Democratic commissioner was just nominated to replace him, the chair could continue to press ahead with broad investigations without immediate oversight from the rest of the commission. And finally, at the meeting, the Democrats also signal that they would like to change the HSR reporting requirements. Commissioners stated that a lot of companies are finding what they view as potential workarounds or structuring their deals to avoid reporting the deal to the agencies. One commissioner in particular, Chopra, criticized staff, and as well as prior commissioners for, as he put it, helping companies find ways to get around filing through the agency’s long-standing practice of giving informal interpretations to companies about how to interpret the often vague HSR reporting rules. Companies can no longer rely on those informal interpretations.

Dave Lynn: The way that directors come into contact with antitrust authorities is, of course, when a company is conducting a transaction and therefore undergoing a merger review. Have you seen changes to merger reviews by the FTC over the last few months?

Alex Okuliar: Yes. We’ve seen the FTC in particular become more aggressive in the use of process, which has slowed down some deal reviews. And that’s consistent with statements that we’ve heard from some of the Democratic commissioners. We’re seeing more requests for additional information on deals, more expansive sets of questions to parties, as well as to third parties, and some related to new areas of concern for this administration, things like labor markets. The FTC also appears to be using its investigative power to address new potential theories of harm; extend review periods to allow more time to gather, read, and analyze documents, conduct interviews, and the like; and evaluate an increasing and, frankly, broader volume of company market data for new or relatively untested economic models. As a result, it also appears that in a lot of circumstances, the staff at the agency right now is less able to expedite timelines or narrow the scope of requests.

Alex Okuliar: At least not to the extent that appeared to be possible under the last few administrations. We are also seeing some frustration at the commission level from the Republican commissioners. They’ve stated publicly that there’s a lack of transparency from the chair and from some of the Democratic commissioners. And one of the Republicans, Commissioner Wilson, has had to resort to asking parties with deals under investigation for a copy of what are called second requests or request for additional information issued to them by the Bureau of Competition in the office of the chair. Commissioner Wilson has said that she cannot get copies of those requests internally. This is a concerning development and signals that the chair has consolidated a lot of investigative activity in her office and perhaps the offices of the other Democratic commissioners, and really has walked away from bipartisanship in favor of pursuing her enforcement policy agenda.

Alex Okuliar: Another final change is a new policy articulated by the Director of the Bureau of Competition and instituted because the agency appears to be overwhelmed with deal reviews, pursuant to which the agency is now sending letters in some circumstances near the end of the statutory waiting period, warning parties that despite their statutory right to close, the agency is continuing its investigation, and the parties are closing their deal at their own risk. We have yet to see how significant this new policy is because the agencies have long asserted the right to pursue consummated deals, but really rarely did so. And, of course, another important action taken by the agencies before Chair Khan was appointed is the suspension of the agency’s longstanding practice to early terminate the statutory waiting period for facially non-problematic deals. This suspension of early termination, as it’s called, has further slowed deal activity.

Dave Lynn: With all of these change in the approach to antitrust matters, what can corporate boards do now to prepare?

Alex Okuliar: On deals, boards should consider taking at least some of the following measures. So first, bring antitrust council into the picture early on to help assess risk, including risk from some of these non-traditional theories currently under consideration, and build that risk into the analysis of a particular counterparty or the risk allocation provisions, any purchase in sale or merger agreement. In addition, boards should anticipate a longer timeline to close when thinking about the risk or deal economics. If your company is in an industry of particular interest, like social media, digital platforms, healthcare, energy, or a deal involves an issue of interest to the agencies, like maybe the acquisition of a small company, a nascent competitor, or there are potentially consumer data or privacy issues involved, then the board should consider focusing on a robust analysis of synergies and benefits that can be raised and evaluated during a deal review. And finally, to the extent that a board anticipates a second request or receives one, carefully think about whether it should move immediately to substantially comply with that request, as the FTC in particular has changed its practices regarding the timing certainty that used to come with a timing agreement. And that certainty may no longer be available, in which case it would be better to rely on the statutory timing that comes with substantial compliance in order to get the deal through quickly.

Dave Lynn: Great. Alex, thank you so much for joining me and for all of those insights.

Alex Okuliar: Thanks so much. I really appreciate it.

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