Since Lina Khan's appointment as chair of the Federal Trade Commission, antitrust practitioners and the business community have been reading the tea leaves, searching for clues for what to expect from Chair Khan's tenure. Ms. Khan's views on Amazon and Big Tech are of course well known, but beyond that, while practitioners expected enforcement to be aggressive, the areas of focus (beyond the platform technology companies) and the specifics of her enforcement priorities had yet to be articulated. Then, on September 22, 2021, the FTC made public a memo from Chair Khan to the other commissioners and commission staff entitled "Vision and Priorities for the FTC." 1 This was soon followed, on September 28, 2021, by a blog post by Holly Vedova, the new head of the Bureau of Competition, about a "more streamlined and more rigorous" Second Request merger review process. 2 These statements provide insight into a future, more aggressive direction for the FTC under Chair Khan.
Chair Khan's Memo
In her memo, Chair Khan laid out her thinking on a strategic approach for the agency and several policy priorities. The strategic approach was to take a "holistic approach to identifying harms" affecting workers and "independent businesses" as well as consumers, aimed at addressing power asymmetries and unlawful practices, including those harming "marginalized communities." The agency should, in Chair Khan's view, orient its enforcement efforts at "targeting root causes," using an interdisciplinary method to invest in a more "empiricism-driven" approach, and to be forward-looking in anticipating problems and taking swift action. Lastly, the FTC should further "democratize" to ensure it is in touch with the "real problems that Americans are facing", recognizing the agency plays a key role in "shap[ing] the distribution of power" across the economy.
Chair Khan laid out three policy priorities. First, she wants to "address rampant consolidation and the dominance it has enabled across markets." Given market power was, in her view, an increasingly systemic problem, the agency needed to focus resources on the most significant actors as well as deter unlawful transactions that in her view never should have been proposed. As part of this, she noted a key task will be revising the merger guidelines. Her second priority was aimed at "dominant intermediaries" and other "gatekeepers" in the economy, with a focus on the growing role of private equity in abetting business models that may facilitate unfair methods of competition. The third priority is a focus on how contract terms—particularly those in "take-it-or-leave-it contracts"—represented unfair methods of competition, citing non-competes, repair restrictions and exclusionary clauses.
Second Request Process Changes
In her blog post, Bureau Director Vedova outlined the recent surge in merger filings—doubling between 2010 and 2020 with 2021 on pace for a record-setting number—and how this has strained the FTC's ability to challenge all anticompetitive deals. Thus, it is "incumbent on [the FTC] to streamline [its] processes in ways that better enable us to scrutinize, detect, and challenge illegal deals." She laid out five changes to the FTC's merger review Second Request process:
- Second Requests that will target a broader range of relevant market realities, to rectify what she deemed an "unduly narrow approach to merger review" in the past;
- Second Request modifications will only be discussed by FTC staff after the parties had submitted foundational information such as identification of relevant employees and agents and their roles, and information about how the companies' store data;
- Second Requests will now require the parties to provide information in advance on how they intend to use e-discovery tools before they apply those tools to identify responsive materials;
- Second Requests will no longer permit the parties to submit Partial Privilege Logs as a way to alleviate the burden of logging privileged material from production; and
- Second Requests and other requests for information will now be securely accessible to all commissioners and relevant agency offices. Previously, under Chair Khan, Second Requests were not generally accessible to all commissioners and were only provided at the chair's discretion, a departure from prior practice.
Taken together, these statements portray a much more aggressive posture for the FTC, both in substance as well as procedurally. Substantively, it seems clear from her memo that Chair Khan accepts as a given that market power is a systemic issue across the economy and that she sees the FTC's role as combating the trend of market consolidation that has occurred. Any company with a high market share in anything that could conceivably be defined as a relevant antitrust market will need to be increasingly cautious going forward, understanding it will be under enhanced scrutiny from the FTC. While it is unclear what Ms. Khan means by "key gatekeepers" and "dominant intermediaries" in the economy—categories that could range from platform technology companies to traditional wholesalers—companies that might fall into these categories will need to tread carefully going forward. Her statement about deterring facially unlawful transactions—combined with her previous statements about how divestitures have sometimes fallen short as a means to remedy structural concerns—should give pause to any company with significant market share evaluating an acquisition of a competitor.
By emphasizing a "holistic" approach aimed at "root causes"—in combination with Ms. Verona's statement that merger reviews will be taking a broader view of market effects—one can expect that Second Requests will be employed based on novel theories of competitive harm. These might include exclusionary practices like predatory bundling and HR practices, as well as areas where there is a concern with past underenforcement, such as monopsony issues. How this will all play out in individual cases of course remains to be seen.
Procedurally, the Second Request process, already a burdensome exercise for any merging party, looks to become more burdensome at the FTC. Some of the changes align with the current practice of the Department of Justice. Generally, the Antitrust Division requires parties to provide information about their use of e-discovery tools like technology-assisted review in advance. The Antitrust Division has also never allowed parties the option of submitting a partial privilege log. Providing key information about employee roles and data systems at an early stage of Second Request negotiations is also generally the current accepted practice at both the FTC and Antitrust Division. However, the blog post, while claiming to offer a "streamlined" approach, seems only to add burden to the parties with no real streamlining that would reduce the burden on merging firms.
1 Chair Lina M. Khan, Memorandum Re: Vision and Priorities for the FTC, Sept. 22, 2021, available here
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