2023 Update: U.S. Antitrust Sets Sail into Uncharted Seas

Last year we noted that U.S. antitrust enforcement was in a period of nearly unprecedented public attention and policy debate, and also that the Biden Administration seemed likely to launch significant new policy initiatives as the year progressed. 

And so it was — 2022 saw substantial shifts in announced U.S. antitrust policy, political and legislative hubbub over antitrust law and bold public statements from the Administration’s antitrust enforcers.  What 2022 did not see, however, was a matching surge in actual enforcement.  Instead, by most measures, U.S. enforcement levels remained comparable to the two prior administrations, and U.S. enforcers suffered unprecedented setbacks in court.  Similarly, while sweeping legislation was proposed, the only bills to actually become law were technical changes adjusting merger filing fees and venue over antitrust claims by state Attorneys General.

The FTC and DOJ have changed the focus of merger enforcement, emphasizing vertical theories of harm (as seen through challenges of the Lockheed/Aerojet, UnitedHealth/Change, and Microsoft/Activision acquisitions), sharply scrutinizing private equity firms and transactions in which they are involved, and launching significant initiatives in policing interlocking directorates, attacking non-competes (including through proposals for new rules prohibiting them),[1] as well as policing no-poach provisions, Robinson-Patman pricing enforcement and more. And in 2023 we expect major policy developments, notably the issuance of new Merger Guidelines to replace both the widely accepted 2010 Horizontal Merger Guidelines and the controversial 2020 Vertical Merger Guidelines. All told, fasten your seatbelts — 2023 promises to be quite a ride.

2022 Was a Strange Year in Merger Enforcement

2022 was a year of anomalies for U.S. merger enforcement.  On the one hand, leadership at the agencies continued to promise enforcement at unprecedented levels.  But on the other hand, the statistics do not fully live up to that promise.  While the FTC brought more merger challenges in 2022 than in 2021, it still fell short of levels seen in 2020, though DOJ brought more merger challenges than it did in a comparable period in the prior administration.^[2]  The government did bring two vertical merger challenges — doubling the total number of such litigated challenges over at least the prior two decades — but as of this writing, lost one of the two in court (United/Change), with the other in early stages of litigation.

That litigation loss leads to another point — the government’s startlingly bad court record in merger challenges.  Out of six merger challenges resolved in court in 2022, the DOJ and FTC collectively lost 5 (DOJ went 1-3 and the FTC 0-2), which is likely the worst government merger litigation record in modern U.S. antitrust history.^[3]  And this is not a function of bringing more cases and so losing more; 2019-2020, for example, saw similar numbers of merger litigations, with far better results for the government.

In the meantime, on the policy front the government continued its refusal to grant early termination of the HSR waiting period for merger filings that raise no competition issues.  That policy, initially explained as a response to historically high merger filings in 2020 and 2021, has not changed despite a decline in the number of mergers.  Additionally, merger investigations continue to probe areas that historically did not receive much attention, such as executive compensation and the levels of unionization among the merging firms’ employees.  And, perhaps most significant of all, the FTC and DOJ have been working on revised Merger Guidelines, which we expect to see in 2023.

A Tumultuous Year at the FTC

2022 brought internal tumult at the FTC, mixed results in enforcement, but significant moves on policy and regulation.

Internally, the FTC suffered a collapse in staff morale.  The FTC overall fell from nearly always being ranked as one of the very best comparably-sized agencies to work at to being one of the worst.  The Bureau of Competition—the FTC’s antitrust enforcement arm—fell from 3rd place (out of 411 comparable units) in 2020, to 401^st (out of 432) in 2021 (the rankings were released in 2022, hence their inclusion in this report).  Interestingly, the Antitrust Division of DOJ did not suffer a similar decline, instead improving slightly from its cellar-dwelling rankings in the Trump Administration.  Potentially signaling an attempt to address staff morale issues, the FTC’s Chief of Staff was replaced.

The FTC also experienced other major personnel changes in 2022.  Most critically, Alvaro Bedoya, a Georgetown law professor and privacy expert, was sworn in as an FTC Commissioner, providing the Democrats the decisive 3-vote margin they had been lacking since former Commissioner Chopra’s departure (and the expiration of the zombie votes he had left behind).  While considered likely to focus on consumer protection enforcement, Commissioner Bedoya has advocated for increased Robinson-Patman Act enforcement.  FTC Commissioner Noah Phillips resigned from his position, leaving a Republican vacancy, though his departure did not alter the FTC’s balance of power in voting.  In another important development, Professor Aviv Nevo, a widely respected antitrust economist, was selected to fill the long-vacant position of the Director of the FTC’s Bureau of Economics, bringing top-level leadership to that important component of the FTC.

As noted above, the FTC brought several litigated merger challenges in 2022, though it lost the two that made it to a court decision (other mergers were abandoned in the face of the FTC’s challenges, while some FTC merger litigation remains pending).  Perhaps just as importantly, though, the FTC used consent decrees in merger cases to advance a number of policy positions, including its resurrected “prior approval” requirement for subsequent transactions in markets subject to the decrees.  On the conduct side, the FTC conducted a study of supply chain issues, but once again filed no new significant conduct cases, instead continuing to litigate cases brought by prior administrations.^[4]  It should be noted, though, that major conduct cases take considerable time to put together—so stay tuned.

On the policy front, however, the 2022 FTC was quite active.  Notably, in addition to ongoing work on new Merger Guidelines and the groundbreaking rulemaking on noncompetes we mentioned above, in November the FTC announced a new Section 5 Policy Statement Regarding the Scope of Unfair Methods of Competition, in which the FTC asserted that its statutory authority sweeps far beyond the Sherman and Clayton Acts.  2023 may bring more information on how the FTC uses its new views of its authority in enforcement and regulation—and also on how courts respond.

The DOJ Springs Into Action

DOJ civil enforcement had trailed the FTC’s activity levels for some time, dating back to the Trump Administration.  AAG Jonathan Kanter’s appointment in late 2021 appears to have changed that.  In 2022, the DOJ brought its highest number of merger challenges in a single year in at least recent history, though as noted above it lost nearly all of those cases.  DOJ also continued aggressive criminal enforcement in the no-poach area, though again with mixed results, including significant losses at trial, offset to some extent by favorable pretrial rulings.

In a somewhat related development, DOJ announced an enforcement initiative involving Section 8 of the Clayton Act, which prohibits corporations from having interlocking directorates (under certain technical conditions).  DOJ kick-started this effort with a series of consent decrees, and appears to be continuing to launch investigations in this area.  DOJ also announced in speeches that it was looking at bringing criminal charges in monopolization cases under Section 2 of the Sherman Act — an area of enforcement that had been dormant for decades due to the widely-held view that Section 2 is far too nebulous for criminal prosecution.  DOJ, however, lived up to its word, bringing two criminal monopolization cases — one, a guilty plea where the individual had attempted to collude with a competitor to divide markets and exclude rivals, and the second, an 11-count indictment against a number of participants in what appears to be a sweeping criminal scheme (going well beyond antitrust) in connection with the “transmigrante forwarding” industry (relating to shipping goods between the U.S., Mexico and Central America).

One final significant development at DOJ is something that did not happen—the absence of any merger consent decrees.  Merger challenges are often resolved with consent decrees that attempt to fix the government’s concerns while allowing some part of the merger to proceed.  The consent decree — which, for DOJ, must be approved in a public federal court proceeding under the Tunney Act — allows ongoing government supervision of the remedy.  AAG Kanter has expressed skepticism about the efficacy of merger remedies, and under his leadership, DOJ has not agreed to any — at least not publicly.  However, it appears that DOJ has been accepting self-help remedies, where merging firms privately “fix” issues in a merger and then file a “clean,” no-issues merger that can be cleared without a consent. While this process may be efficient, it’s unclear how it will evolve.

Legislation

Finally, as we highlighted at the beginning of this section, 2022 saw perhaps the most legislative activity related to antitrust since the 1930s.  But at the end of the year, virtually all of the efforts to pass significant antitrust legislation had failed. Anti-“Big Tech” bills died in Congress, as did various proposals for sweeping antitrust overhauls from sources as varied as Senators Klobuchar and Hawley.  And in the new divided Congress, we see much less likelihood that major antitrust bills will move forward, at least at the federal level (the states bear watching, though).  We do expect Congress to continue probing technology companies, albeit for very different reasons on different ends of the political spectrum, and the Republican-controlled House may launch probes into whether various efforts relating to ESG raise antitrust issues.

That’s not to say that the bills that did pass have no impact.  Of most practical significance, Congress passed legislation revamping merger filing fees—basically, drastically raising fees on large transactions, while reducing fees on smaller deals.  The FTC hasn’t yet issued new guidance, so the new fees are not yet in effect, but we expect that to change shortly.[5]

Europe and ROW

In Europe, 2022 saw continued scrutiny of digital platforms, close scrutiny of European Commission (EC) decisions by the EU Courts, heightened interventionism by the UK agency (the CMA), and a mandate to use antitrust to tackle climate change.  All will remain topics to watch in 2023.

Digital Regulation Takes Center Stage in Europe…

In 2022, the EU’s new suite of digital regulation came into force: the Digital Markets Act (DMA) on November 1, 2022 and the Digital Services Act (DSA) two weeks later.  Together, the regulations aim to “create a safer digital space where the fundamental rights of users are protected and to establish a level playing field for businesses.”^[6]

The DMA introduces a set of ‘dos and don’ts’ governing the behavior of so-called gatekeeper digital platforms, and are largely inspired by past and present antitrust cases in digital markets.  Unlike traditional antitrust, though, they do not take account of competitive effects or harm and they do not explicitly allow for efficiency justifications.  Potential gatekeepers will be gearing up to submit which services are in scope by mid-2023.  Although the regulation has the potential to reshape how businesses and consumers interact with digital platforms, we will not have a chance to see how this takes shape until the early part of 2024, when the behavioral rules start to apply.

The DSA focuses on the distribution of user-generated content online.  It introduces a multi-layered set of obligations designed to protect users, improve transparency and foster innovation.  Rules include a prohibition of dark patterns and an obligation on platforms to publish an annual transparency report on content moderation (showing, e.g., the number of user complaints received).  Enforcement will be the responsibility of designated authorities in each Member State, and rules will apply in early 2024.

…And the Trend Catches on in the Rest of the World

Policymakers around the world are also exploring proposals for digital regulation, similar to the DMA.

We discussed Germany’s new digital regime in our 2021 report.  Under those rules, the Federal Cartel Office (FCO) can issue an ex ante prohibition order against certain conduct by companies with “paramount cross-market significance” (PCMS), based on an open-ended list of practices (e.g., impeding interoperability, gaining unfair advantages, leveraging, or self-preferencing).  In 2022, the FCO designated Amazon and Facebook (Meta) as having PCMS: 2023 may see further designations and perhaps the first conduct prohibition decisions.

Other jurisdictions are still at a preparatory stage.  In Japan, the Japan Digital Market Competition Headquartersis consulting on the need for new regulations for mobile ecosystems, voice assistants, and wearable devices.  The Australian Competition and Consumer Commission (ACCC) is now halfway through its five-year Digital Platform Services Inquiry.  The former ACCC chair called for “ex ante rules to describe what [digital platforms] should and shouldn’t do,” anxious that “if Australia doesn’t get on board, the bus will leave without us.”^[7] Nearing the end of the year, the Turkish Competition Authoritypublished its Draft Regulation to ensure that Turkish competition law reflects “the fast-paced changes in internet technologies in recent years [that] have reshaped the digital market and consumer habits.”

In the UK, new digital legislation remains on the agenda, despite delays to the expected timing of the draft bill.  The new regime will establish a code of conduct for firms with ‘strategic market status.’  The CMA has established a Digital Markets Unit to enforce the regime and “promote competition in digital markets for the benefit of consumers.”^[8]  The timing of the draft bill remains uncertain but CMA officials have expressed that they wish the regime to be in place by October 2023.[9]

Antitrust Enforcement Continues, but is Subject to Close Review by the EU Courts

In 2022, the European courts showed that they are increasing their scrutiny of European Commission (EC) decisions, especially in relation to abusive unilateral conduct. Three decisions by the General Court highlight this trend: its partial annulment of the EC decision imposing a fine of approximately €1 billion on Intel, in which it found the EC’s analysis of the rebates granted by Intel was insufficient to establish anticompetitive effects; its annulment of the EC’s Qualcomm decision in its entirety (including a ~€1 billion fine), in which the General Court observed that the EC failed to prove that the alleged anticompetitive effects were caused by Qualcomm’s exclusionary payments; and its findings, in the course of largely upholding the EC’s Google Android decision, that the EC had erred in concluding that the portfolio-based revenue share agreements were in themselves abusive and that the Commission’s investigation suffered from procedural errors.  The Google Android judgment underscores the Commission’s obligation to examine alleged exclusionary effects rigorously.[10]

Merger Control Becomes More Complex…

There are three trends to watch out for in merger control in 2023.

First, the EC will seek to use Art. 22 of the EU Merger Regulation and the Illumina/Grail precedent to review mergers that would previously not have been investigated. Art. 22 of the EU Merger Regulation allows Member States to ask the EC to examine certain transactions, even post-closing, that do not meet EU/national thresholds.  The provision has been around for decades, but the EC gave it new life with a 2021 guidance paper to try to capture potentially problematic deals that fall below traditional revenue-based jurisdictional thresholds.

For example, the Illumina/Grail transaction did not meet any EU/national notification thresholds because GRAIL had no products or sales in the EU.  After receiving a complaint about the deal, the EC wrote to Member States asking them to consider a referral request.  The French authority was the first to do so, and five others followed.  The EC accepted the referral request.  Illumina appealed to the General Court, which upheld the EC’s decision on jurisdiction.

The GC judgment has been appealed and the ECJ will now confirm or reverse the EC’s approach. The new interpretation of Article 22 creates uncertainty as to whether a transaction may be subject to merger control in the EU, and adds a layer of merger control below the EU and national thresholds. Previously, businesses could rely on bright line thresholds to determine whether a given transaction would be subject to review.  Under the new approach, national authorities can, at their own volition or the request of the EC, refer transactions to the EC even after they have closed, triggering a merger investigation.

Second, the DMA will require gatekeepers to inform the EC of intended transactions involving “another provider of core platform services or of any other services provided in the digital sector” regardless of whether they meet EU or Member States’ merger control thresholds.  Providing that information to the EC could kickstart a referral process just like the one in Illumina/Grail.

Third, the Foreign Subsidies Regulation (FSR) enters into force as of July 12, 2023, adding another layer of regulatory review.  Companies that have received non-negligible non-EU State financial contributions will be required to make mandatory and suspensory notifications to the EC from October 12, 2023 onwards when making large acquisitions of control in the EU or participating in large tenders in the EU.  Under the FSR, to mirror its State Aid control for EU aid, the EC will assess whether any such non-EU State support amounts to a distortive foreign subsidy and if so, whether redressive measures should be imposed.  The scope of the FSR is deliberately broad so further guidance from the EC on its interpretation and application, which is expected in early 2023, will be welcome.

…And the CMA Cements Itself as a Leading Agency

In 2021 we observed that the CMA was taking an increasingly interventionist approach to mergers.  This trend continued in 2022.  The CMA was the first regulator to open an in-depth investigation into Microsoft’s $69 billion attempt to buy Activision, with the EC later following suit, and the U.S. Federal Trade Commission deciding to sue to block the deal shortly afterwards.  Two years since the end of the Brexit transition period, the CMA is cementing its place as a powerful and proactive regulator on the global stage.  To take two examples:

Facebook (Meta) / GIPHY marked the first time the CMA reversed a completed deal involving a GAFAM firm.  The CMA’s decision (appealed to the CAT and largely upheld in June 2022) was grounded in a relatively novel theory of dynamic competition.  The CMA essentially found that the threat of GIPHY potentially competing with Facebook in the future in display advertising acted as competitive constraint on Facebook today and this amounted to a substantial lessening of competition.

The investigation is also significant because the CMA imposed its largest ever fine for breach of a hold-separate order.  The CMA fined Facebook (Meta) £50.5 million for “consciously refusing to report all the required information” under the CMA’s compliance reporting regime and for twice changing its Chief Compliance Officer without seeking the CMA’s permission.^[11]  The fine underlines the CMA’s determination to apply and enforce interim measures strictly.

Cargotec / Konecranes provided an illustration of the post-Brexit divergence between the UK and EU.  The EC and CMA examined the same markets and theories of harm: horizontal effects in cargo handling equipment in Europe-wide markets, as well as potential vertical concerns in the market for crane spreaders.  Both opened a Phase 2 investigation.  And both regulators said they had been in regular contact throughout the investigations.  Ultimately, the EC accepted the parties’ proposed divestiture package as a remedy, but just four days later, the CMA announced that it would block the merger.  It found that the same divestiture package accepted by the EC “lacked important capabilities.”^[12]  The deal fell apart shortly afterwards.

A Focus on Sustainability Economics

Europe has led the charge on making sustainability part of the antitrust agenda.  Some think the two are not natural companions, although others think that competition policy can backfire if market failures that led to the climate crisis are ignored.  While it can be efficient for companies to collaborate on sustainability goals, some take the view these arrangements could be caught by rules against competitor cooperation and standardization agreements.  With climate change becoming a global priority, the last few years have seen a number of competition authorities considering guidelines on how competition policy and sustainability economics can be integrated.

These efforts continued into 2022.  In the EU, the EC published its new Draft Horizontal Guidelines and Horizontal Agreements Block Exemption Regulations.  Under the draft revised Guidance, sustainability agreements may fall outside the scope of application of competition rules if the agreements do not affect price, quality, quantity, choice or innovation.  Even beyond that, the draft revised guidelines provide a safe harbor for sustainability standards, and suggestions on conditions for exemption of sustainability agreements.  For instance, the Guidance states that a restriction of competition can only be justified if consumers in the relevant market receive a fair share of the benefits - though there is debate on how this ‘fair share’ will be measured.[13]

Over in the UK, the CMA’s Annual Plan for 2022-2023 listed the transition to low carbon growth as one of the CMA’s focuses, “including through the development of healthy competitive markets in sustainable products and services.”^[14]  In March 2022, the CMA launched a sustainability task force to lead the CMA’s sustainability work.  Its role is to “develop formal guidance, lead discussions with government, industry and partner organisations and continually review the case for legislative change.”^[15]  Guidance is expected February 2023, and it is expected to be quite permissive especially with respect to agreements to mitigate the climate crisis.

National authorities like the German FCO and the Netherlands’ Authority for Consumers and Markets (ACM) took the lead in developing precedent.  The ACM applied its draft sustainability guidance to informally approve a number of arrangements in 2022.  The ACM, for instance, approved a collaboration between Shell and TotalEnergies to store CO2 in empty natural-gas fields, an agreement between Coca Cola, Vrumona, and two supermarket chains to discontinue the use of plastic handles on soft drink and water multipacks, and an agreement between garden centers to avoid buying from flower growers who used illegal pesticides.

The new guidance should help companies navigate competition law while exploring new initiatives to pursue their CSR goals.  The limits of these principles will become clear as we see more examples of cooperation in the private sector.  November’s UN Climate Change Conference (COP27), and the debate on the antitrust analysis of the Race to Zero policy to stop finance and insurance of new unabated fossil fuel projects, made clear that sustainability remains a key topic for debate.[16]  We should not be surprised if this continues to be top of mind for antitrust enforcers going into 2023.

[1] For more detail on the proposal, see our January 2023 alert memo available here.

[2] PaRR, “FTC merger challenges lead to abandonment in 80% of cases.” DOJ’s overall enforcement statistics are being suppressed because it is not obtaining consent decrees in any mergers (see below).

[3] We should note that some of these losses are being appealed, and at least with the FTC’s appeals—which are to the Commission itself—there is a reasonable likelihood of the government prevailing, at least temporarily.

[4] The FTC’s cases and proceedings index shows no conduct case filings in 2022 other than the settlement of the long-pending Louisiana Real Estate Appraisers matter.

[5] Once in effect, the new fee structure will be: $30,000 for deals valued at under $161.5 million; $100,000 for deals valued at $161.5 million or more but not more than $500 million; $250,000 for deals valued at $500 million or more but not more than $1 billion; $400,000 for deals valued at $1 billion or more but not more than $2 billion; $800,000 for deals valued at $2 billion or more but not more than $5 billion; and $2.25 million for deals valued at $5 billion or more.   

[6] See European Commission, “The Digital Services Act Package” (last modified November 24, 2022), available here.

[7] See Monash University, Roundtable Discussion (September 28, 2022), 1:05-1:07, available here.

[8] UK Secretary of State for Digital, Culture, Media and Sport and the Secretary of State for Business, Energy and Industrial Strategy “A new pro-competition regime for digital markets - government response to consultation” (May 6, 2022), available here.

[9] For more information on how digital regulation is taking shape around the world, see our Digital Markets Regulation Handbook available here.

[10] For further details, please see our October alert memo available here.

[11] CMA Press Release “CMA fines Facebook over enforcement order breach” (October 20, 2021), available here.

[12] CMA Press Release “CMA blocks planned Cargotec / Konecranes merger” (March 29, 2022), available here.

[13] See Oxford Business Law Blog, “New EU Guidelines for Horizontal Agreements: A Changing Climate for Sustainability Cooperation?” (March 23, 2022), available here. 

[14] CMA Press Release “CMA publishes Annual Plan 2022 to 2023” (March 24, 2022), available here.

[15] CMA Press Release, ”CMA publishes environmental sustainability advice to government” (March 14, 2022), available here.

[16] Cleary Gottlieb partner Maurits Dolmans gave a presentation on the need for the law and enforcement policies to adjust to the climate crisis (see here for a blog post regarding his overall impressions of the Conference, and here for a personal take on the Race to Zero policy).