A glance at headlines regarding competition law could easily give the impression that U.S. antitrust agencies have embarked on a record number of merger challenges in recent years. But the numbers tell a different story: in the first two years of the current Administration, the rate of merger-related federal enforcement actions has actually decreased. While the agencies are attempting to deter transactions, they are doing so through strident rhetoric and procedural changes that increase both the cost of deal making and the uncertainty of agency decision making, rather than through increased adjudicative enforcement activity.

Observers of the U.S. antitrust landscape could be forgiven for missing this phenomenon if they simply read the media coverage in recent months. Commentators and advocates continue to characterize the current status of merger enforcement actions as substantial; one attorney with the American Economic Liberties Project argued the agencies “have successfully blocked a record number of deals in the last two years,” while another antitrust commentator stated “[t]he Antitrust Division is filing a record number of cases” in recent years. In the same vein, Bloomberg claimed “US enforcers have roughly doubled their efforts to block mergers under the Biden administration.”

This view of the agencies’ conduct comes amid tougher rhetoric from the current Administration on competition law, including a July 2021 executive order urging federal agencies to plan for “the revitalization of merger oversight.” Moreover, in recent months, the Department of Justice’s Antitrust Division (“DOJ”) and the Federal Trade Commission (“FTC”) have drawn widespread attention with a few high-profile merger challenges, including DOJ’s March 2023 challenge to the proposed JetBlue/Spirit merger; the FTC’s recent challenge to Amgen’s proposed acquisition of Horizon Therapeutics under a novel and untested theory of harm filed in May 2023; and, of course, the FTC’s lawsuit seeking to block Microsoft’s proposed acquisition of Activision in December 2022.

But zooming out from the handful of headline-grabbing court challenges to look at the aggregate level of enforcement activity by the federal antitrust agencies, the picture becomes more complicated. In terms of both absolute numbers and as a percentage of the total number of transactions filed with the agencies, the number of mergers that the agencies challenged during the first two-plus years of the current Administration decreased compared to similar time periods in prior administrations.

Comparing the first two calendar years of the two most recent administrations shows the change in the number of enforcement actions,[1] as well as the enforcement rate,[2] as shown in the following two graphs:

As these figures show, the absolute number of enforcement actions was slightly lower in the first two years of the Biden Administration (50) than it was in the first two years of the Trump Administration (53). The decrease in enforcement activity becomes clearer when you look at the enforcement rate (i.e., the number of enforcement actions divided by the number of transactions reported to the agencies). As the figure on the right shows, the enforcement rate during the first two years of the Biden Administration (0.76%) was nearly 40 percent lower than the enforcement rate during the first two years of the Trump administration (1.24%).

The drop-off is even more stark when comparing the first two years of the Biden Administration to the last year of the Trump Administration, as shown in the two charts immediately below.

In 2020, the FTC and DOJ challenged 36 transactions, representing 1.9 percent of reported transactions. But in 2021, the agencies challenged just 28 transactions, accounting for 0.7 percent of reported transactions—less than half the rate of 2020. The enforcement rate has crept up since 2021, but as of the first quarter of 2023, it was still less than half of the agencies’ enforcement rate in 2020.

These numbers contradict the narrative presented in recent commentary from legal news observers: the rate of merger enforcement has actually decreased under the new leadership at the FTC and DOJ. However, concluding from the 2021 and 2022 metrics that the antitrust agencies are pro-merger would be ill-advised.

Despite initiating fewer formal enforcement actions, the antitrust agencies have sought to make deal making more difficult using other mechanisms that are not reviewable by courts. Former FTC Commissioner Noah Phillips described this counterintuitive reality in April 2022, commenting that “[a]ntitrust enforcement over the last fifteen months has been anything but vigorous—indeed, it has been sclerotic.” And yet, as Phillips observed, the FTC has engaged in “gratuitously taxing M&A” through various tactics, including:

  • Suspending the early termination of the initial Hart-Scott-Rodino Act waiting period for all transactions;
  • Increasing the number of Second Requests issued and expanding the scope and burden of those full-phase investigations;
  • Adopting a general aversion to consent agreements;
  • For those consent agreements that the FTC enters,[3] imposing a new requirement that the merged entity must obtain the agency’s prior approval to engage in future transactions in certain specified industries;[4]
  • Sending a large volume of pre-consummation warning letters.

It appears that the agencies are pursuing a goal of general deterrence of transactions through broad application of these tactics rather than by increasing the number of merger enforcement actions.

*           *           *

Companies considering deal making activity should be aware that full-phase investigations can take longer than under previous administrations, but that ultimately the agencies are not challenging as many transactions as they have in the past. This atmosphere of uncertainty requires a significant amount of planning and careful strategic thinking well in advance of entering into a merger agreement. Covington has the experience and knowledge to provide effective guidance in this challenging environment.

If you have any questions concerning the material discussed in this client alert, please contact the members of our Antitrust Litigation practice.

[1] For the purposes of this alert, “enforcement actions” include (1) complaints filed to block a merger, (2) consent agreements following merger investigations, and (3) mergers abandoned in the face of antitrust concerns raised by the FTC or DOJ with an accompanying press release or other public acknowledgement of the abandonment. This is largely consistent with how the FTC and DOJ count enforcement actions. See, e.g., Fed. Trade Comm’n & Dep’t of Justice Antitrust Division, Hart-Scott-Rodino Annual Report Fiscal Year 2021, at 9-15 (counting “challenged” merger transactions as those in which a complaint was filed (both to block mergers and for consent purposes) and when parties abandoned or restructured the transaction after the relevant agency raised antitrust concerns).

[2] We calculate the enforcement rate as the number of enforcement actions divided by the number of transactions reported to the agencies, as published officially by the FTC and DOJ in Appendix B of their Hart-Scott-Rodino Annual Reports (for data through September 2021) and preliminarily on the FTC’s Premerger Notification website (for data from October 2021 onward). While there may be slight variability in the datasets depending on how particular actions are counted, the trends described in this alert remain clear.

[3] Until May 2023, DOJ had not entered a consent agreement since the Senate confirmed AAG Kanter. The first and only consent DOJ has entered since November 2021 came mid-trial in the Antitrust Division’s litigation seeking to block ASSA ABLOY’s proposed acquisition of Spectrum Brands’ hardware and home improvement division, and even in agreeing to that settlement, DOJ publicly stated that a complete injunction would have been preferable. See Competitive Impact Statement, U.S. v. ASSA ABLOY AB, 1:22-cv-02791, Dkt. 129, at 7 (D.D.C. May 5, 2023) (“The United States respectfully submits that only a complete injunction preventing the original proposed merger would have eliminated those risks. Alternatively, complete divestitures of all relevant standalone business units necessary to fully compete may have diminished those risks significantly. Based on the totality of circumstances and risks associated with this litigation, however, the United States has agreed to the proposed Final Judgment, which includes additional provisions and protections to address some of the concerns identified above.”).

[4] Divestiture buyers are facing similar restrictions if they want to sell the divested assets within 10 years of acquiring them.

Various national competition authorities (“NCAs”) are continuing to consider sustainability arguments in competition cases. However, NCAs are increasingly diverging in their approach as to whether, and to what extent, they are willing to allow sustainability considerations in the competition law framework. This blogpost highlights a few recent developments in jurisdictions on both sides of the Atlantic.

Continue Reading Sustainability Agreements: Potential Divergence between Authorities

On April 27, 2023, the Commission presented its draft regulation on SEPs (“Draft SEPs Framework Regulation”, retrievable here).

Under the aegis of DG GROW, but in close consultation with DG COMP, the Commission seeks to address what some have perceived as lack of transparency and predictability in the licensing of SEPs.  The Commission had previously expressed its concern in its Intellectual Property (IP) Action Plan of 2020 and 2017 Communication and suggested that this situation could lead to a cumbersome and costly licensing process for both owners and implementers of SEPs.  The Commission sought feedback via a public consultation between February and April 2023.

The draft SEPs Framework Regulation would:

  • Establish a Competence Centre to register SEPs at the European Union Intellectual Property Office (“EUIPO”) and providing an electronic register and database with extensive information about SEPs;
  • Oblige the owners of SEPs to register any claimed SEP in the database;
  • Create additional essentiality checks through the Competence Centre;
  • Establish an out-of-court procedure to determine fair, reasonable, and nondiscriminatory (”FRAND”) conditions and aggregate royalties for use of a given standard.
Continue Reading Draft Regulation – The EU Commission Proposes a new Framework for the Licensing of Standard Essential Patents (“SEPs”)

The European Competition Commissioner, Margrethe Vestager, announced on 20 March 2023 that new State aid investigations into “aggressive tax planning” practices of multinationals can be expected. This follows an in-depth inquiry into tax ruling practices in European Union (“EU”) Member States for the period 2014-2018.

While the European Courts have annulled several European Commission (“Commission”) decisions that ordered companies to repay to the State advantages gained from tax rulings, they have decided that State aid law also applies to tax measures, even if direct taxation is a prerogative of Member States. However, as this article sets out, the European Courts have limited the Commission’s review.

In particular, by its judgment of 8 November 2022 in the Fiat Chrysler case (C-885/19 P), the Court of Justice of the European Union annulled a Commission decision ordering Fiat Chrysler to refund EUR 30 million of tax advantages to Luxembourg. It clarifies when a tax ruling can be considered State aid.

These are the key takeaways of this judgment:

  • Although not harmonized at the EU level, direct taxation must comply with State aid rules. Therefore, the Commission may review tax rulings under State aid law and verify, for instance, that the tax system is applied consistently with the objectives pursued.
  • As long as direct taxation is not harmonized at the EU level, it is up to Member States to determine the tax regime applicable to companies. Therefore, the Commission should consider that the normal tax system, against which discriminations favoring certain companies may be State aid, is determined by national law.
  • When examining whether a tax measure favors certain companies over others, the Commission cannot substitute the normal national applicable law with its own standard of normality.

This judgement will likely impact pending investigations into the tax rulings issued to other companies and in ongoing proceedings. It will also set the approach the Commission may take in potential new investigations.

In short, this judgment says that if a tax ruling is issued in compliance with the national legal framework and not manifestly inconsistent with the objectives pursued by the national tax regime, it is unlikely to be State aid.

Continue Reading Will the EU Commission start new State aid investigations into multinationals’ tax rulings after of the Court of Justice’s judgment in the <em>Fiat Chrysler</em> case?

As part of “A Green Deal Industrial Plan for the Net Zero Age” to respond to the US Inflation Reduction Act (IRA) (see our alert), the European Commission (the “Commission”) adopted on 9 March 2023 its Temporary Crisis and Transition Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia (the “TCTF”). The text amends the Temporary Crisis Framework last amended on 28 October 2022 (see our blog). 

These are the three most important things you need to know about the TCTF:

  • To avoid that an investment would be located outside the European Economic Area (EEA), EU countries may support investments in the manufacturing of relevant equipment for the transition towards a net-zero economy, such as batteries, solar panels, wind turbines, heat pumps, carbon capture usage and storage (CCUS), as well as their key components and critical raw materials necessary for their production. They may even grant aid matching foreign subsidies to support those investments, provided that they are located in the poorer areas of the EU.
  • EU countries’ possibilities to grant aid for accelerating the rollout of renewable energy are extended to any renewable technologies, including hydropower, and no longer require a bidding process to select the aided projects that are considered as less mature.
  • The TCTF is not a subsidy program, and it is up to EU Member States to provide public funding.
Continue Reading The Commission adopts its Temporary Crisis and Transition Framework relaxing State aid rules as a response to the US Inflation Reduction Act

On 12 January 2023, the European Court of Justice (“ECJ”) published its long-awaited judgment in C‑883/19 P HSBC v Commission.

The ECJ confirmed that HSBC had engaged in anti-competitive conduct but partially overturned the General Court’s (“GC”) judgment on procedural grounds. The judgment provides critical guidance on the nature of anticompetitive information exchanges in the financial services sector and sets out important procedural aspects regarding “hybrid” cartel investigations.

The ECJ, having considered the points of appeal, exercised its discretion to issue a final judgment, in place of the GC’s judgment.

Continue Reading ECJ clarifies presumption of innocence in hybrid investigations and scope of restrictions by object in information exchanges (<em>HSBC v Commission</em>)

On the heels of Russia’s invasion of Ukraine, pandemic-induced supply chain disruptions, and U.S.-China tensions over Taiwan, 2022 accelerated a sweeping effort within the U.S. government to make national security considerations—especially with respect to China—a key feature of new and existing regulatory processes. This trend toward broader national security regulation, designed to help maintain U.S. strategic advantage, has support from both Republicans and Democrats, including from the Biden Administration. National Security Advisor Jake Sullivan’s remarks in September 2022 capture the tone shift in Washington: “…[W]e have to revisit the longstanding premise of maintaining ‘relative’ advantages over competitors in certain key technologies…That is not the strategic environment we are in today…[w]e must maintain as large of a lead as possible.”

This environment produced important legislative and regulatory developments in 2022, including the CHIPS and Science Act (Covington alert), first-ever Enforcement and Penalty Guidelines promulgated by the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) (Covington alert), President Biden’s Executive Order on CFIUS (Covington alert), new restrictions under U.S. export control authorities targeting China (Covington alert), and proposals for a new regime to review outbound investments by U.S. businesses (Covington alert). The common thread among these developments is the U.S. government’s continuing appetite to use both existing and new regulatory authorities to address identified national security risks, especially where perceived risks relate to China.

With a Republican majority in the U.S. House of Representatives riding the tailwinds of this bipartisan consensus, 2023 is looking like a pivotal moment for national security regulation—expanding beyond the use of traditional authorities such as trade controls and CFIUS, into additional regulatory domains touching upon data, communications, antitrust, and possibly more. In parallel, the U.S. focus on national security continues to gain purchase abroad, with foreign direct investment (“FDI”) regimes maturing in tandem with CFIUS, and outbound investment screening gaining traction, for example, in the European Union (“EU”). It is crucial for businesses to be aware of these developments and to approach U.S. regulatory processes with a sensitivity towards the shifting national security undercurrents described in greater detail below.

Continue Reading Will 2023 Be an Inflection Point in National Security Regulation?

The Digital Markets Act (“DMA”) will apply from 2 May 2023. To facilitate its implementation, the European Commission (“Commission”) aims to publish an accompanying DMA Implementing Regulation  (“IR”). In anticipation of this, the Commission has sought feedback via a public consultation on the draft IR between early December and 9 January 2023.

The draft IR addresses a range of procedural aspects concerning the DMA, including gatekeeper designation and core platform service notifications, opening of proceedings, the right to be heard, and access to the file. By contrast, the draft IR is silent on the Commission’s investigative powers during the gatekeeper designation process and the process of further specifying the obligations set out in Article 6 DMA (both of which gatekeepers will undoubtedly be eager to learn more about).

The Commission is aiming to publish the final IR “well before” the DMA starts applying in May 2023, and it will apply from the same date as the DMA. Whilst the draft IR may still be subject to changes before the final version is adopted, it already provides valuable insights into the Commission’s thinking. How stakeholder feedback might affect the position as currently set out in the final IR remains to be seen.

Two themes in the draft IR – each further outlined below – are particularly noteworthy:

  • First, it touches upon the potential delineations of core platform service under the DMA, an issue which can have important ramifications for future enforcement: delineating one core platform service from other services in the context of digital ecosystems which are often designed to be seamless could prove rather complex.
  • Second, the draft IR displays a certain tension between achieving a “rapid and effective investigatory and enforcement process” (Recital 3 IR) while also ensuring that rights of the defence of the parties to the proceedings are effectively protected. The Commission’s emphasis on speed in DMA enforcement may require some notable departures from the traditional procedural framework for antitrust.
Continue Reading Countdown to Compliance: the DMA Implementing Regulation

European Union (“EU”) Foreign Subsidies Regulation (“FSR”), a new state aid instrument adopted at the end of 2022, will have a significant impact on transactions in the EU. The FSR impacts any company that is present in or wants the enter the EU, and has received financial support in any form from non-EU governments. 

The FSR is game-changing — it imposes notification obligations on companies on subsidies received from non-EU countries and, when those subsidies are considered to distort the internal market in the EU, the European Commission (“EC”) can impose remedies.

Companies will now have notification obligations if they have received foreign financial contributions above a certain amount and are:

(1)    acquiring a company that has a turnover of at least EUR 500 million in the EU, or

(2)    participating in a public tender with a value of EUR 250 million.

These notification obligations will start to apply on 12 October 2023.

Earlier this week, the EC published the FSR’s Draft Implementing Regulation which provides more detail on the notification requirements and process. In summary, the Draft Implementing Regulation sets out a notification process that is inspired by the Merger Regulation.

In addition to the notification obligations, the EC will be able to conduct ex officio investigations, or request a notification (even when such is not mandatory), when it has concerns that distorting subsidies may have been granted.

Covington’s competition law team has in-depth knowledge and combines all the necessary capabilities to help you address your obligations under the FSR, including strong State aid and merger control expertise.  We have a number of former officials from the EC’s State aid enforcement units as part of our team. We have also participated in discussions with the EC on the FSR and will continue to do so regarding the coming EC implementing acts and guidance.

We have put together a brief overview for your reference. We would be happy to facilitate a discussion with our team to review what this regulation could mean for your company.

Sustainability governs all policies and sectors of social and economic life. The goal of sustainable development is to meet the needs of today’s generations without compromising the self-sufficiency of future generations. Companies are called upon to innovate as economic conditions indicate a change in the direction of sustainability. Sustainability considerations and green developments have increasingly caught the attention of competition law’s enforcers. Competition authorities such as the European Commission (“Commission”), the Hellenic Competition Commission (“HCC”), the Dutch Competition Authority (“ACM”) and the German Competition Authority (“Bka”) have taken a positive stance towards accepting sustainability initiatives proposed by the private sector. How can companies balance both sustainability and competition law? In this blog post, we analyze recent developments that further explain the sustainability framework that companies have to navigate.

Continue Reading Building a sustainability strategy – what companies can (not) do from a competition law perspective