2024 Antitrust Update: Agencies Sharpen Their Teeth, But Is It All Bark and No Bite?
January 17, 2024
Antitrust in 2023 was marked by a series of policy developments—some still nascent, some ripe for enforcement for the first time. In the U.S., the FTC and DOJ finalized their drastically transformed merger guidelines. In the EU, landmark new digital regulations became applicable for the first time. And the UK government introduced a bill promising major new digital and consumer protection rules.
Regulators may be getting new tools, but the question for 2024 will be how they use them. Enforcement remained healthy on both sides of the Atlantic last year and we can expect that to continue. U.S. agencies continued their focus on allegedly anticompetitive labor and employment agreements, while seeing mixed results in their enforcement litigations. While the UK’s Competition and Markets Authority (CMA) showed signs of relaxing its interventionist stance, it remained unafraid to pursue novel theories of harm.
Other topics to watch this year include the antitrust response to the rise of artificial intelligence, the EU’s new foreign subsidies regime and the continued complexity of cross-border merger control with its often-divergent outcomes.
U.S. Antitrust Developments
FTC/Litigation Updates: Intensified Rhetoric, Few Legal Victories
Aggressive posturing by US enforcers isn’t leading overwhelmingly to court wins, though the US agencies obtained better litigation results than they did in 2022. 2023 also brought the same rhetoric and intense scrutiny of transactions as we saw in 2022. And yet, current enforcement numbers remain far below those of past administrations. In previous years, antitrust agencies have challenged the legality of 3 to 4 percent of reviewed transactions; while the current administration has challenged under 2 percent. We expect merging parties will still face aggressive regulators in 2024. The FTC and DOJ are willing to challenge and litigate hard cases under novel theories of antitrust harm, and use the second request process to find and enforce other violations. Meanwhile, dealmakers are responding with higher break fees and longer termination dates, with 18 to 24 months becoming more common in large, complex deals.
In an interview with The Wall Street Journal, Assistant Attorney General with the U.S. Justice Department’s Antitrust Division Jonathan Kanter suggested the agency is digging more deeply into minority acquisitions and board seat appointments. He says, “If companies are making minority investments and obtaining board seats, and those investments and those board seats lead to the kind of control that would be troubling in the context of a merger or an agreement—absolutely we should take a look. If that is becoming a more common playbook, then it is incumbent on us as enforcers to adapt.”
The finalized merger guidelines represent a drastic shift in the merger investigations process. The guidelines depart from decades of practice by introducing novel presumptions that could make it harder for mergers to obtain regulatory clearance from the agencies. The agency standard concentrations are significantly lower, there are now new provisions addressing vertical deals and an expansion of the evaluation of transactions’ impact on labor and employment issues. The new guidelines specifically call for evaluations of any prior enforcement, restrictive agreements, worker switching costs and a loss of compensation potential. However, the guidelines themselves have no legal effect—they are simply statements of internal agency policy. So, while they provide more insight into the thinking of the current leadership, whether they have any impact on courts remains to be seen.
HSR Form Changes
The US agencies also proposed massive changes to HSR filing requirements. If adopted—and significant pushback is expected—the proposals would increase the burden in each area where information is currently required and would add numerous additional requirements. In addition, given the vagueness of the new requirements, if adopted, the proposals could create a dynamic where the agencies may reject filings for purported technical non-compliance or encourage parties to extensively consult with staff prior to submitting filings or even to submit draft filings for “pre-filing review.” This system may be somewhat similar to the filing system in Europe, but the US filing requirements apply to a vastly larger array of transactions, the overwhelming majority of which present no antitrust issues. Thus, for decades the US system has focused on light up-front filing requirements, with in-depth review reserved for the tiny fraction (typically less than 3%) of filings that actually raise antitrust concerns. The current proposals would flip that on its head, imposing extensive burdens on all transactions—including the 97% or so of filings that raise no antitrust concerns.
Continued Focus on Labor and Employment Issues
In January 2023 the FTC proposed a near-total ban on noncompete agreements. This latest update in the FTC and DOJ’s focus on labor and employment issues was announced simultaneously with enforcement actions accusing companies of abusing employment agreements to depress wages and limit competition. Industry officials and trade organizations were highly critical of the rule proposal and some doubt the FTC has legal authority to make the change.
After multiple court losses and market wide investigations trying to prosecute “no poach” violations, the agency recently moved to dismiss a matter involving healthcare workers in the Surgical Care Affiliates case, perhaps signalling a change in strategy by DOJ.
Section 8 Investigations
2023 has seen dozens of active investigations leading to more than fifteen director resignations. The FTC also had its first Section 8 enforcement action is more than 40 years. During an HSR investigation of the deal between Quantum Energy Partners and EQT, the agency identified a problematic board overlap and the potential for an exchange of confidential information. The FTC required the director to resign and the company to divest shares eliminating the risk of an illegal exchange of competitive information.
Safe Harbor Information Sharing
In 2023 both DOJ and FTC withdrew healthcare enforcement policy statements enforcement guidance that had been applied to information sharing for businesses generally. In announcing the withdrawal, Deputy Assistant Attorney General Doha Mekki asserted that the policy statements did not reflect the current modern business place and that the “safety zones” outlined in the guidelines have been misapplied in contexts and industries that were never contemplated by the guidance: “…the Division is concerned that the factors do not consider the realities of a transformed industry and, therefore, understate the antitrust risks of competitors sharing competitively-sensitive information.” She went on to explain the DOJ will now take a “case by case enforcement approach to better evaluate” whether information sharing may harm competition.
In September, the DOJ filed a lawsuit accusing Agri Stat of engaging in an illegal information exchange related to turkey, chicken and pork. This case follows a number of other antitrust cases brought by both the DOJ and by private plaintiffs relating to issues in these industries.
Constitutional Legal Challenges
The Supreme Court heard two cases impacting administrative proceedings at federal administrative agencies: (1) Axon v. FTC and SEC v. Cochran in a consolidated case; and (2) SEC v. Jarkesy.
On April 14, 2023, the Supreme Court unanimously held, in Axon and Cochran, that parties may raises challenges to the constitutionality of the structure of administrative agencies in federal court prior to the conclusion of administrative proceedings. The Supreme Court held that the “review schemes set out in the Securities Exchange Act and Federal Trade Commission Act do not displace district court jurisdiction.”
The Supreme Court heard argument in the Jarkesky case on November 29th. The Jarkesy case claims that the SEC’s use of ALJs violates the Constitution and denies the company the right to a jury trial despite being faced with civil penalties. While the Axon case primarily impacted how a challenge can be heard, the Jarkesy case may pose a greater threat to administrative litigation, at least where penalties are at issue.
In December 2023, the 5th U.S. Circuit Court of Appeals rejected, based on existing Supreme Court precedent, constitutional challenges to the FTC in the Illumina/Grail merger case.
U.S. Congress has lost much of its momentum for addressing Big Tech and general antitrust reform, but there is a renewed push to regulate AI. The Senate Judiciary Committee held a hearing on AI and competition focusing mainly on pricing algorithms. AI applications like ChatGPT and other large language models are displaying new capabilities leaving legislators and regulators wondering if enforcement tools are keeping up with the technology. Some industry experts believe new laws and tools are needed, but with political gridlock in Washington we are unlikely to see major changes in the law any time soon.
Europe and ROW Antitrust Developments
In Europe, digital regulation led the agenda for 2023 and the coming year looks to be no different. Other topics to watch are a new foreign subsidies regime, continued cross-border merger review complexity, and major new powers for digital regulation and consumer protection in the UK.
Digital Regulation Will Stay in the Headlines…
This year, the European Commission (EC) will start to enforce its landmark digital regulations for the first time.
The Digital Markets Act (DMA) and Digital Services Act (DSA) came into force in 2022. While the DMA introduces a set of “dos and don’ts” governing the behavior of “gatekeeper” digital platforms, the DSA focuses on the distribution of user-generated content online. Both regulations are designed to “create a safer digital space where the fundamental rights of users are protected and to establish a level playing field for businesses.”
In late 2023, the European Commission (EC) designated its first round of DMA “gatekeepers”: Amazon, Apple, ByteDance, Google, Microsoft and Meta. These gatekeepers will have to follow the DMA’s behavioral rules in respect of their designated services as of March 2024. We will likely see further gatekeeper designations this year as platforms continue to emerge and grow, and we may even see the EC’s first infringement decisions if it deems that gatekeepers are not compliant.
The world will be watching with interest as these far-reaching and unprecedented regulations play out for the first time. Jurisdictions like Japan, Australia and Turkey – in the midst of exploring their own digital regimes – will be paying particularly close attention.
…While Antitrust Regulators Will Keep a Close Eye on Artificial Intelligence
Artificial intelligence has been on the antitrust radar for a few years, but the “chatbot” explosion of 2023 caught the world by surprise. Regulators were nevertheless quick to react, and 2024 will likely witness the first attempts to regulate AI across competition, IP and other fields.
In the UK, the Competition and Markets Authority (CMA) launched a review into AI foundation models in May 2023. Its initial report focused on guiding principles rather than concrete regulatory proposals, but announced the beginning of “a significant programme of engagement” in the “UK, US and elsewhere.” CEO Sarah Cardell emphasised at the time that the CMA is “ready to intervene where necessary.” Her remarks were prescient: two months later the CMA published an invitation for comments on whether it should review the Microsoft/OpenAI partnership under UK merger laws.
EU legislators agreed the final text of the AI Act in late 2023 after last-minute changes to reflect the development of chatbots and the LLM-race. The Act will regulate both those that provide and those that deploy AI systems with an effect in the EU. And, doubtless keen to ensure that its new digital regulations do not become obsolete as soon as they launch, the EC has made clear that the DMA has “all the tools” it needs to “understand and regulate” AI.
The CMA Sharpens Teeth in Digital Regulation and Consumer Law, but the Fate of Merger Control is Uncertain
In the UK, 2023 was marked by two themes pulling in opposite directions.
The first was the arrival of the Digital Markets, Competition, and Consumers Bill, and its promise of wide-ranging new powers for the CMA in digital regulation and consumer protection. If the Bill comes into force, as is expected later this year:
- The CMA (via a new Digital Markets Unit) will be able to impose bespoke conduct requirements on digital firms with “strategic market status” and make “pro-competitive interventions” to address these firms’ market power. Financial penalties under the regime will be severe and the Digital Markets Unit will be able to apply to the court to disqualify individuals from holding company directorships in the UK.
According to CMA CEO Sarah Cardell, we will see a “watershed moment” in the UK’s consumer protection regime. If the Bill becomes law, the CMA will for the first time be able to directly impose orders and fines for consumer law infringements (up to 10% of global annual turnover). If the Bill passes, the new regime will come into effect in late 2024 or 2025.
The second theme was the signs of a possible turning point in the CMA’s merger enforcement. In the seven years since the Brexit vote, the CMA has established a reputation for being the most interventionist antitrust agency in the world, blocking or causing the abandonment of 38 transactions since January 2019, including those with little UK nexus.
The events of 2023 suggested that this stance may be relaxing. Having blocked the Microsoft/Activision deal in April, the CMA took the highly unusual step of opening a new investigation into a “restructured” version of the transaction in August, eventually approving the deal in September based on behavioral remedies. While we would expect the CMA to remain among the more interventionist agencies in the world, the Activision experience suggests that going forward it may become easier to find remedies to resolve the CMA’s concerns, in particular if the CMA moderates its aversion to accepting behavioral remedies.
The New Normal for Cross-Border Merger Review
2023 saw examples of significant divergence between EU and UK merger investigations. This has been a common thread since Brexit and it warrants the attention of companies involved in cross-border deals in Europe.
The CMA and EC reached contrasting conclusions on three high-profile transactions.
- The EC approved Microsoft’s acquisition of Activision conditional on a behavioral commitment, but the CMA blocked the deal outright, arguing that the proposed behavioural remedies would be insufficient (before ultimately approving a restructured deal).
- The CMA approved the merger between Booking.com and Etraveli, while the EU rejected the parties’ proposed remedies and blocked the deal.
- The CMA approved Broadcom’s acquisition of VMware unconditionally at Phase 2, while the EC required behavioural commitments from Broadcom before allowing the deal.
Merging parties in cross-border deals will need to consider distinct strategies for each regulatory body, possibly including different proposals for remedies.
Competition Enforcement in Labor Markets: Talk Turns to Action?
Back in 2021, the EC announced plans to pay more attention to agreements restricting competition on the labor market.
So far, enforcement action has been confined within Member State borders, including in relation to no-poaching agreements in Portugal and Lithuania.
In 2023, however, the EC updated its guidelines on horizontal cooperation agreements to consider wage-fixing as a by-object infringement, giving it the power to take a harder line on these agreements without needing to show an effect on competition. This suggests that EU-level enforcement may be on the agenda for 2024, bringing the EU in line with the US, where no-poach and similar agreements have long been a focus.
The EU Now Reviews Deals for Distortive Subsidies
The Foreign Subsidies Regulation (FSR) is now in effect, adding a further layer of regulatory review for M&A and public tenders in the EU. Companies that have material financial interactions with non-EU state entities – including arms-length commercial dealings – are obliged to notify large acquisitions and public procurement bids to the EC. Under the FSR, the EC will assess if businesses have received subsidies that distort competition in the internal market, and if so, whether redressive measures should be imposed.
The FSR is the first of its kind globally – no other jurisdiction regulates “foreign subsidies” on competition grounds. Due to the FSR’s broad scope, over 30 transactions have been notified since the regime became fully operative in October 2023. Amid calls for better clarity, the EC has promised early guidance on how it will assess the distortive and positive effects of foreign subsidies in the first half of 2024, ahead of formal guidelines in 2026.
 EU Commission “A New Era of Cartel Enforcement, Margrethe Vestager,” Speech, (October 22, 2021).