- In this program agency heads from the United States, Australia, and Europe, along with a representative of the National Association of Attorneys General, provide antitrust enforcement updates from their respective organizations.
Gary Zanfagna: Welcome to the Enforcers Roundtable, always a highlight of the Spring Meeting. This year will be no exception. We are going to hear from leading competition authorities from around the world about their enforcement priorities, their transactions, investigations, and news that is in the headlines.
We have a truly global panel here today. Indeed, Sarah Court, who is with us today, is in Australia, where it is 2:00 a.m. Sarah, thank you so much. We appreciate your getting up early for us, or staying up late, however that works.
I am going to start the initial kickoff here on antitrust and competition law legislation. Becca, in February Senator Amy Klobuchar introduced her Competition and Antitrust Law Enforcement and Reform Act (CALERA), which has been talked about a lot at the Spring Meeting here, and Representative David Cicilline said he is going to introduce a number of other bills, too. If these are passed, the proposals could dramatically change the U.S. antitrust laws more than they have been changed in decades.
My question for you, Becca, is: Are changes to the U.S. antitrust laws really needed; and, if so, why?
Rebecca Kelly Slaughter: Thank you for having me. It is a real honor to be here today, particularly with such distinguished colleagues from around the world.
Let me start, as my colleagues on the FTC agency panel did this morning, by issuing the disclaimer that I am here speaking for myself and not for other Commissioners or the agency as a whole. It really is a privilege to be here and participate in this panel.
Let me go back to your really important question. I do support efforts to modernize and update our antitrust laws. Why?
First, we have a deterrence problem. When you look at our caseload—and Maribeth Petrizzi talked this morning about the record number of enforcement actions we have taken—way too many of those cases are mergers that should have never gotten out of the boardrooms to begin with. For example, we litigated a merger-to-monopoly in a coal transaction last summer. We challenged a three-to-two hospital merger in the Memphis area in December that was abandoned right after we challenged it. And the list goes on and on and on.
So I am worried that doing these one-off enforcement actions—which are important and critical and we will keep doing them—the fact that we need to do them is telling me that the deterrence signal is not getting through to the market the way it needs to.
The second is when we get into litigation we often have to engage in really costly, tortured, and extended efforts to both measure and balance harms and purported procompetitive benefits. That is hard generally. I think it is not particularly efficient.
It is especially challenging when we are looking at metrics that are difficult to quantify. If you are just looking at price, maybe you can measure it, maybe you can balance it, but a lot of the markets with which we are dealing operate on metrics that are not quantifiable like price, with questions of innovation in particular. So I worry that, with the burdens under our current law and the way the rules are set up, we have to do too much of this balancing and that puts an untenable burden on enforcers.
There are a lot of great proposals out there in Congress, and I think that Congress really deserves an enormous amount of credit for engaging in very thoughtful, detailed analytical investigations, consideration of proposals, and they are putting forward many different specific and important changes.
Among the ones that I think would make the biggest difference from my perspective for enforcers is, first, resourcing. I continue to believe—and I have been saying this since I got to the FTC—the FTC and our colleagues at DOJ are grossly under-resourced relative to the demand on our agencies. The number of merger filings, even before the recent wave, was about double where it was ten years ago and our employee count has stayed flat. That means the same number of people trying to do twice as much work. So there are proposals to increase our resourcing and to increase fees that are paid particularly in large mergers. I think those are really important.
I am also interested in the proposals that change the burdens and create more bright-line rules to better effectuate deterrence and make it clear to companies that the mergers about which we are concerned really should not get out of the boardroom, that that is not an exercise that is worth the expense for them.
None of that is mutually exclusive of some of the specific market-wide restrictions Congress is considering in, for example, digital markets, and that our colleagues in Europe are looking at too. I think that we can look carefully at where specific markets require their own layers of rules and regulation.
All of that goes hand in hand with efforts that are underway right now at the FTC to continue to bring those important clearly bad cases, but also to bring bold cases that are cutting-edge and address really important questions of innovation, whether they are in mergers or in conduct.
We are also focused very much on remedies and making sure that we are really pursuing effective remedies and being comfortable pursuing, for example, structural remedies where they are necessary to solve a competitive problem.
And finally, just yesterday I announced that the FTC is setting up a rule-making group in the Office of General Counsel. I am very interested in activating our rulemaking authority to have a more deterrent effect across markets. Whether it is our Section 5 unfair methods of competition rulemaking authority or Section 18 authority to address unfair and deceptive acts and practices, these are tools that the FTC really is going to dig in on and push forward in order to be as effective as we can with our current toolbox.
Melanie Aitken: Good morning, everybody. It is a real privilege to be here with all of you today, so I’m delighted to be a part of this.
Margrethe, I want to ask you a question picking up perhaps on some of the things that Becca referred to. At the end of last year, the European Commission proposed the Digital Services Act and the Digital Markets Act addressing online content and competition in digital markets, respectively. What specifically could you tell us about what those proposals aim to do and how they might be affected by or interact with Big Data regulations that are being passed by individual Member States, like for example, Germany?
Margrethe Vestager: Thank you very much. It is really great to be here again. I never thought that I would miss a room with no windows and 2000 lawyers, but I tell you I do. I am looking forward so much to next year. It will be great to come together. Obviously, it is excellent that we can do it this way—but, it is so good also to meet colleagues, to have a coffee and a chat. Thank you very much for making this happen.
It is not a new thing that our competition law enforcement is acting as input to regulation. We have seen that in the telecoms market, in setting fees for payment cards, in regulating airline computer systems. What the Digital Markets Act (DMA) will do is basically in the same line of thinking. We want digital markets to remain fair and contestable, and here we need rules to complement vigilant competition law enforcement by identifying what is a digital gatekeeper and what they will have to comply with.
The first step, of course, is that digital gatekeepers will be identified either based on quantitative criteria or after a qualitative assessment done by the Commission and then through a Commission decision. Following the designation as a digital gatekeeper, you will be subject to a list of dos and don’ts, things that you must do and things that you definitely cannot do. The idea here is to tackle behavior that we see as recurrent and also systemically harmful.
Some first steps have been taken in the piece of legislation called Platform-to-Business, which gives businesses core rights if they are dependent on a platform. The DMA is the other side of things, to say: If you are a digital gatekeeper, then what do you have to do? Here the important thing is the dos and don’ts that address when the gatekeeper limits the contestability of a market. That is really key.
What we have tried to do is, of course, among others, to take some of the practices that we have seen in our case work, our market investigations, research into how markets work, which means that a digital gatekeeper will be prohibited from doing a number of things—that could be self-preferencing, that could be leveraging oneself in neighboring markets, that could be combining data from different services, because that would entrench your position even more.
I just mentioned three prohibitions, but there will also be obligations. You will have to give access to search-and-query data; ensure interoperability (it could be, for instance, that another app store would have to work with your operating system); it could be providing information on advertising services.
As you can hear, it is really so that competition law enforcement informs prohibitions and obligations, but also we see some unfair practices that have come in to shape this proposal. It all comes after a very long process, and I would like to thank colleagues from all over the world because we have done a lot to look into reports done in Canada, in Australia—everywhere. We have been listening very carefully to the hearings of the U.S. Senate and Congress. It is quite a long process. I had three special advisers in the last Commission mandate to make sure that we get it right.
The Digital Markets Act will apply independently of competition law enforcement, be that national competition law enforcement or European competition law enforcement, which will still be applicable. That also means that national competition authorities will still have work to do. They can apply national competition rules, and of course they will have work to do—as long as it is not the same, because you cannot deal with the same thing twice—but I take it for granted that there will still be more than enough to do for us who also believe in vigilant competition law enforcement, be that on a national basis within the Union or the things that we do in the Commission.
Melanie Aitken: Thanks so much. That was a great tour for those of us maybe not as deeply acquainted with it.
I wanted to pose a question to Sarah Court. The ACCC has been reexamining its policies related to digital markets lately as well through its digital platform services inquiry and its digital advertising services inquiry, and released the first interim report on private messaging, search, and social media services, and I understand a second interim report is due shortly examining mobile apps.
We are just wondering here if you could share with us a little bit about what the ACCC is finding and where you expect those inquiries to lead.
Sarah Court: Thanks very much, Melanie. Good morning, everyone. I will echo my panelists’ comments that it is a privilege to be on such an esteemed panel, despite the unseemly time of day that it is here in Australia.
In relation to the work we have been doing at the ACCC on all things digital, it has become all-consuming over the last couple of years. Where we started off a few years ago, you’ll all remember, is we did a landmark report that we issued in July 2019 that examined the market power of Facebook and Google, Facebook in social media and Google in search. We concluded that market power had distorted the ability of businesses to compete on the merits in a range of markets, and that prompted our government to ask the ACCC to do a whole lot of follow-up reports, as you alluded to, Melanie.
One of the big ones that we are right in the middle of is an AdTech inquiry, and I know that a number of our colleagues in other jurisdictions are also looking at the AdTech market. We have issued an interim report, and we will do a final report to be released in August. I can comment on our initial findings, and that report is really looking at the entire AdTech market chain in Australia, so this is the technology that is delivering all of those personalized digital ads that we get popping up on various screens at all times.
What we found is it is a rapidly emerging market, it is extraordinarily complex. We’ve been briefed many, many times by our staff with many different diagrams of how things all fit together. What we’ve discovered is, it’s completely opaque, it’s very complex as I say, and in Australia at least it is dominated by Google at all different levels in the supply chain.
One of the interesting things is that we are finding Google’s presence and significant market share on both sides of transactions. Google is effectively working for the buyer and working for the seller across a similar transaction. We think there are real conflicts of interest here and, while we haven’t reached final conclusions, this does seem to be a market that is operating like no other market, so we will be exploring that a lot further.
We also have an ongoing inquiry that will be examining various digital platform services. This inquiry is giving us an opportunity to shine a light on different aspects of the digital ecosystems that consumers widely use. We can then understand how these services function, the state of competition, and the extent of any consumer harms. We all know digital markets are dynamic by their nature, so there is an advantage of having an ongoing inquiry in that we can adapt our areas of focus as the platforms’ business models change and new markets are created.
As Melanie pointed out, we have already released our first report from this inquiry, and the second report will be released in the next few weeks. We’re already working towards the third report due in September this year, which will examine the provision of web browsers and general search services to Australian consumers and the effectiveness of choice screens in facilitating competition and improving consumer choice. It will also be providing its advice to the Australian Government on Google’s rollout of search engine choice options on new Android devices in Europe. We are currently inviting submissions on the issues paper to help inform our report.
Brian Grube: Let’s jump to Sarah Allen. Sarah, the states have been active on the legislative front as well these days, at least here in the United States. Your home state of Virginia recently passed its own state privacy law, making it only the second state in the United States after California to have its own law. Is that a good thing and what’s that law about?
Sarah Oxenham Allen: Thanks, Brian. First, I want to thank the ABA for asking me to be here with you all today. This is my third and final appearance on the Enforcers Roundtable as the NAAG Multistate Antitrust Task Force Chair, and the ABA has been really terrific to work with over these past three years.
Second, I need to give my standard disclaimer that any opinions I express here today are mine alone and do not necessarily reflect those of NAAG or of any particular attorney general, including my own, General Herring of Virginia.
Yes, Virginia did pass a privacy act. Virginia’s Consumer Data Privacy Act (CDPA) was signed into law this month by our governor, and it provides a basic framework for consumer data privacy protections, but it will not go into effect until January 1, 2023. In the meantime, the governor and the Joint Commission on Technology and Science will appoint stakeholders to a task force that is designed to flesh out the bill’s definitions and processes, so it is likely to be amended some before actually taking effect.
Unlike the California law, the Virginia CDPA provides enforcement only through the AG’s Office, and companies will be given a 30-day opportunity to cure the violation. If the company does not cure within that time, the AG’s Office can recover $7,500 in civil penalties per violation plus injunctive relief. Consumers can request to opt out of a company’s targeted advertising or sale of their data, and they also have a right of appeal of a company’s decision regarding the request. The bill imposes further cybersecurity requirements on companies for data protection and assessments of their protections. Finally, the bill applies only to entities that control or process the personal data of at least 100,000 consumers per calendar year. It also exempts financial institutions, nonprofits, higher education institutions, and entities that already have to comply with HIPPA and the Fair Credit Reporting Act. So, although there are several similarities with the California Consumer Privacy Act (CCPA) and the European Union’s General Data Protection Regulation (GDPR), there are nuances to Virginia’s statute that are different.
Privacy statutes have been or will be introduced this year in New York, Washington, Florida, and Minnesota, and the same bill that Virginia just passed is also being shopped around to other states right now.
It is important to remember that a long time ago, 13 states already had state antitrust statutes before Congress passed the Sherman Act, and this is the third year in a row that I have said that Congress is not making progress on passing a national privacy statute, so states will continue to do what they think is necessary to protect their citizens’ privacy rights in the wake of that vacuum. However, as I have cautioned before, we may then end up with a patchwork of 50 different sets of privacy requirements that companies will need to navigate. Or the FTC can engage in rulemaking on privacy, like it did with the funeral rule, which can help fill in the gap due to Congress’s inaction.
I will just briefly note that privacy isn’t the only area where states are passing legislation that is relevant to this group. We have a number of health care notification statutes for health care acquisitions or consolidations, as well as legislation banning noncompete and no-poach clauses in employment contracts. In 2019 Washington became the third state, behind Connecticut and Massachusetts, to require notice to the state of all material health care transactions, and although California introduced a bill that it didn’t pass last year, it is likely to introduce a bill again this year, as is Florida. Oregon, Nevada, and Indiana already have pending bills. New York has introduced a bill that would dramatically overhaul its state antitrust statute. Despite challenges by a generic drug trade association, California’s law prohibiting pay-for-delay pharmaceutical settlements is now operative.
On the labor front, at least 16 states have banned some form of noncompete clauses just in the last four years, with Indiana and Virginia becoming the most recent when they passed their noncompete bans in 2020.
That’s what’s going on in the states, Brian.
Brian Grube: Thanks. I want to circle back to Becca Slaughter on the privacy front. Becca, I noticed when Sarah Allen was talking about the state privacy legislation you were nodding along, and she was noting that there are more and more states filling the federal vacuum. Is there a federal vacuum? Is that something where you foresee the FTC stepping in? What’s your reaction to Sarah’s comments?
Rebecca Kelly Slaughter: I think Sarah made a lot of really great points.
The first thing I want to say is the partnership that we have with state AGs has always been important but it is especially important to me now. Similar to our partnership with DOJ and our partnerships with our other colleagues in other jurisdictions, working hand-in-hand with state enforcers is something that you have seen from the FTC and I think it is something you are going to see in more and more cases. I also think that we are very much aligned on a lot of the issues that Sarah talked about.
The fact that states are acting is a clear call for federal action. Sarah has been saying it for years, I have been saying it for years, and Commissioner Wilson of the FTC, with whom I disagree about many things, also shares the view that we should be having strong federal privacy legislation. So I think the will is there and there is consensus that it needs to happen. But I worked in Congress for a long time. I know that really smart people can work really, really hard towards a solution and it is still a long process. My view is that the states are acting in the interim and the FTC will act in the interim as well.
Again going back to the rule-making group that we announced yesterday, one of the things that I care very much about our exploring is how we can move forward on data-related rulemaking. I am choosing my words carefully because I don’t think that this is just about privacy. I think that there are a lot of metrics involved in a data-driven surveillance economy that don’t just implicate traditional privacy equities; they also implicate broader concerns about competition, about how data can be collected and used and misused to target manipulative content or abusive content to people. I think it is a very complicated area, but one that deserves our direct attention and active engagement.
Particularly because of the FTC’s rather unique role in considering both consumer protection and competition issues, and the fact that it is not a coincidence that much data aggregation happens with companies that have extraordinarily large market shares as well, I think that we need to apply these lenses in tandem, and that is very much what I intend to do.
Melanie Aitken: That’s a great segue because obviously competitive concerns in Big Tech are driving not just legislative initiatives that we’ve been talking about here, but also account for a substantial portion of the agencies’ respective caseloads right now. The FTC and DOJ have filed lawsuits against Facebook and Google, respectively, and the state AGs have joined or filed parallel actions against both companies as well. In Europe we have seen fines against Google, and there is an open investigation against Google with respect to the advertising ecosystem. Europe also has the open investigations into Amazon and Apple. And earlier this year, as we’ve all read much about, the ACCC squared off against Google and Facebook over Australia’s Media Code.
What I was hoping to do is to ask a number of you in turn to address what’s keeping you busy, to provide an update on your investigations and active caseloads, and give us a sense of the conduct and the theories of competitive harm that are motivating each.
Let’s start with you, Margrethe.
Margrethe Vestager: As you say, we have an ongoing investigation into Google’s use of data and its role in the provision of AdTech in online publishing advertising. Google is both a publisher of online display advertising, for instance on YouTube, but also a provider of AdTech services, so we have exactly the same findings as Sarah just mentioned. This also includes acting as an intermediary between advertisers and third-party online publishers. We are examining these practices. It is a really complex ecosystem. We are looking at whether these practices could harm competition in the AdTech stack to the detriment of publishers, advertisers, and consumers. So I think it has very much the same inspiration as what I heard from Sarah.
We are a bit more advanced on the Amazon case; you know this is the second big Amazon case. We had the first Amazon case on e-books a couple of years ago that we settled.
In November last year we sent a Statement of Objections to Amazon, namely preliminary conclusions that Amazon abused its dominant position as a marketplace provider both in Germany and in France, systemically relying on real-time granular business data of all the many, many, many, many, many sellers on their marketplace to the benefit of Amazon Retail, which would have the effect that Amazon Retail would not have to take the same risks as all the many small traders on their platform.
Now we are awaiting the response to those preliminary conclusions, but in order to keep us busy, on the same day as we sent the Statement of Objections we also opened an investigation focusing on the so-called “Buy Box” and Amazon Prime label. Here what we are looking at is the fact that winning the “Buy Box,” getting your product up there so that is what the potential customer would see, is crucial. It is really crucial for sellers since 80 percent of all sales on Amazon are channeled through the “Buy Box.” That is one perspective.
The second perspective is that reaching Amazon Prime users is also of the essence because Amazon Prime users are more numerous and they spend significantly more on Amazon than other consumers. What we are concerned about is that the rules that Amazon have set to be in the “Buy Box” and for selling with the Prime label may be biased to favor Amazon’s own retail business and those sellers who use Amazon logistics and delivery services. Basically, the risk is that as a consumer you do not get the best offer for your query, and as a seller it is really difficult for you to get to consumers.
Last but not least, I want to mention the Apple investigations that we do have. We have three of those. We opened formal antitrust proceedings on the impact of App Store rules, the rules that concern all apps. Here the comparison is with Apple’s own apps in the entire European Economic Area.
The second thing is that this includes in particular music streaming apps and audio book apps. Here, Apple has direct competition with Apple Music and Apple Books. The thing is that Apple requires developers to use Apple’s in-app purchase system for the distribution of paid content, which is obviously of crucial interest. Through the mechanism Apple will charge you a 30 percent commission fee on music streaming or audio book purchases.
Apple also restricts the ability of app developers to inform their users about alternatives or cheaper ways of purchasing your subscription outside of the app. These practices may ultimately harm consumers by preventing them from benefiting from greater choice and lower prices.
Last but not least, we are looking into alleged restrictions imposed by Apple in connection with Apple Pay. That concerns the Apple terms and conditions and other matters related to the integration of Apple Pay on merchants’ apps on websites, iPhones, iPads; limitation of access of iPhones in Near Field Communication technology—you enable that to pay with your phone in a physical store—and here of course we see that also with rivals in the payment market.
So quite busy on the tech side of things. Obviously, we have also non-tech cases, but as you can hear, we are busy on the tech side of our caseload.
Melanie Aitken: It certainly sounds like you are. Sarah, you set us up for our last exchange about the complexity of these ecosystems and trying even to understand them, let alone do anything about it. I’d be happy to hear more about your report, or—I know certainly I speak from the Canadian perspective because we are looking at this, too—I wonder if you could share with us about the Media Code dispute with Google and Facebook, what you might be able to say.
Sarah Court: On the Media Code, what we heard from both big and small news media companies during our Digital Platforms Inquiry was that their content, and their journalistic content in particular, was being taken by platforms and shared on those platforms without there being any monetary benefit provided back to the news media businesses.
Digital Platforms, specifically Google and Facebook have become unavoidable trading partners for news businesses. And while digital platforms benefit from news media content, they do not need the content of any individual news media business. This situation has resulted in Australian news businesses accepting less favorable terms for the inclusion of news on digital platform services than they would otherwise agree to. To address this, our final report recommended that the government consider developing a code of conduct to govern relationships between digital platforms and news businesses, including minimum commitments around data sharing, notification of changes to ranking and display of news content and fair negotiation of revenue sharing arrangements. We considered such a code would help to address what we found to be a significant imbalance in the bargaining power relationship between digital platforms and news media businesses.
While bargaining power imbalances do exist in many other sectors, we considered that regulatory intervention was appropriate because failure to address the particular bargaining power imbalance threatens the sustainability of strong, independent, and diverse news media landscape, which is essential to a well-functioning democracy.
The Australian government accepted the recommendation, and in 2019 directed the ACCC to work with Google, Facebook, and Australian news businesses to develop and implement a voluntary code of conduct. When it appeared unlikely the parties would reach voluntary agreement on key provisions (particularly on revenue sharing), the government directed us to accelerate the development of the mandatory code we have today.
As you noted, Melanie, there was some resistance to the code from digital platforms that I’m sure many in the audience would have read about. This included Facebook briefly removing news content from its platform for Australian users, and Google threatening to withdraw its search function from Australia entirely. However, since then the Code has passed into law, and we recognize the commercial agreements that both Facebook and Google have made with media businesses so far, which demonstrate that both small and large media players are already benefiting from passage of the code.
Finally, I’ll note that the code is not intended as a panacea or silver bullet to solve the declining production of public interest journalism, or to increase media diversity. The code was one of a number of journalism-related recommendations from the Final Report of the Digital Platforms Inquiry that were supported by the Government, which also included providing stable and adequate funding to public broadcasters, and expanding targeted grants to support the production of original local and regional journalism.
Brian Grube: Richard, let’s switch gears. The competition investigations or proceedings against Big Tech certainly aren’t isolated to jurisdictions outside the United States. There are a few going on here in the United States. Can you bring us up-to-date on the Division’s lawsuit against Google that was filed last October?
Richard Powers: Let me start by saying it’s good to be here with everyone. It’s certainly a privilege and an honor to share the virtual stage with such a distinguished panel.
As I think everyone knows, the Department filed suit against Google in October of last year. We alleged that Google has unlawfully maintained and extended its monopolies in general Internet search and search advertising markets.
We are joined in the litigation by 14 State Attorneys General. Additionally, our case has been consolidated for discovery with another case filed in the same court by a group of states and territories.
This is a good moment to pause and recognize how much the Antitrust Division values its relationships with the State Attorneys General offices. Maintaining strong partnerships with the states is a priority for the Division. In our view, the Google litigation shows how effective antitrust enforcement can benefit from a productive working relationship between the Department and the states.
Turning to the conduct at issue in our complaint, in short, the Department alleges that Google is a monopoly gatekeeper for the Internet. The complaint alleges that Google has excluded competing search engines from the search distribution channels they would need to use to challenge Google’s monopolies.
As in many markets, search engines need to be able to distribute their products to consumers to be successful. Some of the key distribution channels for search providers are preset default positions on various search access points, like browsers and preinstalled search apps. Defaults are sticky and exert a strong influence over users’ choice of search engine. As one Google executive put it rather bluntly, “Most users just use what comes on the device.”
Google uses a web of agreements with Android device manufacturers, Android cellphone carriers, Apple, and browsers like Mozilla to make Google the preset default search provider. Google has described some of these agreements as an “insurance policy” to preserve its search usage. The result is that the large majority of searches are covered by Google’s exclusionary contracts or else they are performed on Google’s own properties like Chrome. This leaves only a small fraction of searches potentially available for competing search engines. I refer you to the complaint for more details on the terms of these agreements and note that Google is contesting most of our allegations.
While I’m on it, I’d like to say a word about Microsoft and how we view the Microsoft case. In United States v. Microsoft, the D.C. Circuit recognized that agreements by a high-tech monopolist that shut off effective distribution channels for rivals, including by requiring preset default status, like Google does, are unlawful under the antitrust laws. Back then Google claimed that Microsoft’s practices were anticompetitive, but now Google uses similar anticompetitive practices to sustain its own monopolies.
Google’s unlawful maintenance of its monopolies has harmed consumers, including by reducing quality on dimensions such as privacy, lessening choice, and impeding innovation. Advertisers have also been harmed because Google is able to extract higher payments while offering lower-quality services than it would in a competitive market.
In terms of the status of the case, we are currently in fact discovery, after which the focus will shift to expert discovery, and our trial is tentatively scheduled for September 2023.
Brian Grube: Thanks, Richard. Sarah, I’m going to turn to Becca here in a minute to talk about the FTC’s Facebook suit, but your office and the other State Attorneys General Offices have been active on this front, jumping into the suits that the DOJ and the FTC have filed and filing some suits of their own. What can you add about what’s driving those cases and what we can expect to see in the coming year or so?
Sarah Oxenham Allen: Last December was a busy month for the states. As Richard noted, DOJ filed its Google complaint, which was originally joined by 11 states in October, but they filed an amended complaint in December where three more states joined, and then in mid-December 35 more states plus D.C., Guam, and Puerto Rico filed a separate complaint against Google in the same D.C. District. So if you’re doing the math, that comes out to 49 states plus three of our six territories. That’s just about everybody. As of now, the two cases, as Richard said, have been consolidated for pretrial discovery.
The two complaints are very similar, although the states’ complaint alleges an additional market in general search advertising and does not specifically allege DOJ’s broader search advertising market, although it incorporates that market by reference to DOJ’s complaint.
As Jon Sallet has explained, you can think of these three search advertising markets alleged in the two complaints as concentric circles with both complaints’ search text advertising market as the smallest circle in the center, the states’ general search advertising market around that, and DOJ’s search advertising market as the biggest market around both of the other ones.
The states’ general search advertising market includes all the paid placements that are supplied by a general search engine in response to a consumer’s search query, so it would include the smaller search text advertising market both complaints pled, as well as specialized advertisements, which are sometimes called vertical ads. Specialized vertical providers—like Expedia or TripAdvisor in the travel space, or Angi’s List or Yelp in the local services space—are often the biggest purchasers from Google of these specialized ads.
The states’ complaint also alleges anticompetitive behavior by Google regarding its search engine marketing tool Search Ads 360. SA360 is meant to allow advertisers to purchase and evaluate search advertising from multiple search engines using a single interface and to help those advertisers bid in multiple keyword auctions. However, the states allege that Google’s SA360 is only interoperable with Google’s auction time bidding while denying that interoperability to Microsoft’s Bing. This results in Google steering ad spend away from Bing and toward Google, which harms the competitive process by potentially raising the cost of ads to advertisers and lowering the quality of these ads through reduced competition.
The day before the states filed our search complaint in D.C., Texas and nine other states filed another complaint against Google in the Eastern District of Texas for monopolizing the entire AdTech chain necessary for publishers to display ads on third-party websites. I believe this case is similar to the concerns that have been voiced today by both Margrethe and Sarah Court.
The states allege that Google has accomplished this through the acquisition of the largest online ad exchange, which is AdEx, and by tying its ad server on the selling side to its buying tool that allows for third-party publishers to receive bids on the buying side. Google also requires these publishers to trade on AdEx and blocks publishers from selling ads on multiple exchanges simultaneously.
The states allege that Google extracts a very high percentage of the ad dollars put through its technology chain, which is money that would otherwise go to other online publishers, like newspapers and blogs. And although Facebook is not named as a defendant, the states’ complaint includes a Section 1 claim based on an agreement between Google and Facebook where Facebook agreed to exit the header bidding market and bid through Google’s Ad Server in exchange for preferential treatment in Google auctions, which includes increased speed and information.
Google has moved to transfer that case from Texas to the Northern District of California, where several other private cases are pending, and although there has been a hearing, there has been no decision yet on Google’s motion. On March 15, the states filed an amended complaint in that case that added four more states and Puerto Rico as plaintiffs. Finally, on December 9, 46 states plus D.C. and Guam filed a complaint against Facebook in D.C. District Court, the same day as the FTC filed its complaint against Facebook. The two complaints are very similar and allege Section 2 monopoly maintenance in the personal social networking services market. The states’ complaint also includes Section 7 claims because of Facebook’s acquisitions of Instagram and WhatsApp.
The cases have not yet been consolidated, but they are now before the same judge, and earlier this month Facebook filed motions to dismiss in both cases claiming it doesn’t have monopoly power because they define the market much more broadly; that there is no consumer harm; and, in a truly unique argument, I find, that the states lack standing to bring claims under their parens patriae authority. It also made a laches defense against the states’ Section 7 claims.
I’d like to echo what Richard said. Throughout all of our Google and Facebook investigations and now litigation, the states have been coordinating very closely with DOJ and the FTC, and we look forward to continuing that good relationship through trial.
Brian Grube: Let’s hear from you, Becca. The FTC has also filed a lawsuit, as Sarah said, against Facebook. What’s the story going on there?
Rebecca Kelly Slaughter: I think Sarah laid out the theories very well. I would add some important points.
First, the complaint that the FTC filed was voted out on a bipartisan basis in the fall. Sometimes we get questions about whether a change in administration will affect ongoing litigation. I don’t expect this one to change.
Second, as Sarah highlighted, our case was investigated, developed, and filed in parallel and in tandem with 48 jurisdictions, 46 states and two territories. I think that is a really important thing to note to show both the breadth and depth of interest and sense of consensus among all of the enforcers on this particular topic.
As Sarah noted, the main theory of the case, both suits, is that Facebook engaged in a systematic strategy to buy and bury threats to its monopoly in personal social networking services. That strategy included acquisitions of up-and-coming rivals like Instagram and WhatsApp and also the imposition of anticompetitive conditions on software developers. The complaint alleges that this course of conduct harms competition, leaves consumers with few choices for personal social networking, and deprives advertisers of the benefits of competition.
Another point I would make about this is that this case is very much about innovation. It is another one of those cases where we are not focusing on a price complaint. It is about innovation and access and growth of competition in markets.
Finally, it is important to highlight the remedy portion of this. We are asking the court to fix the problem with a structural remedy that would include at a minimum the divestiture of Instagram and WhatsApp and other conditions that the court finds may address the competitive problems that we have identified.
And, again, I think that Sarah did a great job laying the case out and explaining the ways in which these cases are an example of a really strong partnership among enforcers.
Brian Grube: Let me follow up now with a question either to you, Becca, or maybe to Richard or Margrethe. We have seen or heard just now about the collaboration between the U.S. federal antitrust agencies and the states. Is there any collaboration across international boundaries that is going on in connection with these investigations or proceedings?
Rebecca Kelly Slaughter: The one point I was going to make wasn’t about this specific investigation, but I’ve said, and Richard has said several times, how well we are all working with the states. I think for the benefit of this panel and the audience it is important to note that the DOJ and the FTC are committed to working really well together with each other. It has been a high priority for me and I have been delighted to work in partnership with Richard and his colleagues at the DOJ. We are communicating, collaborating, and coordinating and that is a message that I want to make sure everyone hears loud and clear.
I will turn it back over to talk about specific coordination on the particular cases.
Margrethe Vestager: I want to echo that cooperation like the one just described between the states and the FTC and the DOJ is also the global example. We really need each other here. One of the things I really appreciate is the longstanding excellent cooperation that we have had at all levels. I think it says a lot about the dedication because everyone knows resource constraints, everyone knows how difficult it can be, but the fact that the cooperation is ongoing year after year after year shows that it is really beneficial on both sides.
This also covers digital cases. Of course there may be differences in the geography or market specificities, there can be differences in the legislation, so sometimes of course when we look at an impact we will have a slightly different take on it. But I think it is really important that we can coordinate so that the outcome can align, and also maybe sometimes the timing of enforcement can be consistent.
The EU and the U.S. agencies of course cooperate at all levels. I think the important thing here for people to know is of course that we do that within the appropriate procedural framework. This is not left to coincidence or personal contacts. There is a framework. Everyone who deals with this would know it.
One obvious thing here would of course be that the exchange of confidential information between the Commission and the U.S. or Australian competition authorities requires explicit waivers from the parties in the case. I think that shows also that this is building a real strong community of competition enforcers.
Having a procedural framework, knowing exactly what to do, not leaving it to the personal contact but making it a regular thing, I think for us is a big strength, and of course I hope that our colleagues see that the same way.
Richard Powers: I am going to jump in very quickly and say a couple things.
One, to echo what Becca said earlier, the partnership between our agencies has been a priority for us and continues to be a priority for us. The same is true in terms of our relationship with the states and international enforcers. These are necessary relationships for us to be able to do our jobs, so this has been a priority for us and will continue to be a priority for us.
I think it is fair to say at any given point in time we are actively working with a number of partners and agencies, including myriad agencies from around the world, on specific cases as well as on policy matters. I think that is something that we will continue to do, and we will continue to work to build and strengthen these relationships.
Melanie Aitken: I guess this is sort of a first cousin or a next-gen type of question. Certainly I know in terms of the information exchange, having been a net beneficiary in Canada, with some—even Margrethe was there at the time towards the tail-end—the ability to get the benefit of the enormous resources that are afforded some of the major agencies is hugely important for some of the smaller jurisdictions.
The question I wanted to pose is that—this is an age-old question maybe just applied in a new area—being that we’ve got this multiplicity of actions in various jurisdictions around the world, and of course that runs the risk, for some of the reasons Margrethe referred to—in the sense that legislation can differ, powers can differ, learning and all of that can differ—but for those who are subject to those investigations and those enforcement actions there is the real risk of overlapping, and indeed potentially conflicting, remedies.
So my question—and maybe I’ll start with you, Rebecca—would be: What, if anything, is being done at this stage in terms of thinking about how to coordinate; align outcomes, as Margrethe referred to; whether the framework is what would be used, or whether there has even really been the time and energy and ability to think to that level in terms of remedies not being conflicting as among jurisdictions?
Rebecca Kelly Slaughter: I think in any particular case, as my colleagues have noted, when we have transactions or investigations that cross jurisdictions we want to be talking to and working with our fellow enforcers to understand their intent and their approach and how they see the case proceeding. Of course, I think it is better for everyone if we can be as aligned as possible, and we endeavor to do that. But I would also note that we all enforce different laws, and those different laws have different remedial structures, different investigative powers, different standards, and our job is to enforce the law that we have here.
So I have to say I hear the concern from parties “What if your remedy conflicts with a different jurisdiction?”—and, of course, we will try to avoid that—but I also think the risk of a conflicting remedy in jurisdictions is sort of the price of doing business in multiple jurisdictions with different laws at the same time. I think that when you want to operate a global business you are operating pursuant to the laws of multiple jurisdictions. I think the cost of that is on the parties, who get the benefit of that global operation as well.
I am in favor of coordination wherever it is possible, but that should never be at the expense of doing the fullest and the most robust enforcement of the laws that we have in the United States, for example, and I know my colleagues feel—I don’t want to put words in their mouth—I assume they feel the same way about enforcing the laws in their jurisdictions as well.
Margrethe Vestager: I really appreciate what Rebecca says here and I completely share this.
Of course, it also differs from instrument to instrument because if you look at mergers, for instance, when we have a merger investigation and that merger is notified in different jurisdictions, if at all possible to align timewise, to exchange when it comes to theories of harm, in order for remedies to match, obviously that’s a priority for us because we want to solve a competition problem; we don’t want to create a more difficult situation for the businesses merging.
Also, when you look at merger investigations, the cooperation between authorities is of the essence because sometimes with coordination, with exchanges, it is possible for the companies to design a remedy to the competition concerns that works in multiple jurisdictions. That I find to be really important and an obvious benefit for the business side of this work when we work closely together. We always engage in that. It’s not always easy because, as Rebecca just said, we have different procedural rules, we have different timelines—in particular, the question of timelines of course creates a need for complex handling here. We do our best and so do our colleagues in order to accommodate that remedies can be aligned.
Melanie Aitken: I think those are on both your parts always well received. Everybody appreciates the sovereignty that any particular jurisdiction must be mindful of first and foremost, the concern also that the very effectiveness of your own parochial remedy can be affected or undermined, or enhanced frankly, through that cooperation.
Just following on a little bit about remedies, do you have a sense—and again maybe I’ll start with you, Rebecca—you’ve talked a little bit about what kind of remedies would be effective in terms of structural, but how do you see those being administered? Do you see it more being by the courts, by the agencies themselves, or any other comment on remedies you would like to make?
Rebecca Kelly Slaughter: I think that this piggybacks on what Margrethe was saying and what I was saying before. U.S. law favors structural remedies, particularly as compared to European law. I think there are good reasons for that for us. Just because a structural remedy might not be on the table for a transaction or conduct that applies in both the U.S. and European jurisdictions doesn’t mean the United States should forgo pursuit of structural remedies. That’s the first thing.
To your question, Melanie, about how structural remedies are administered, to me part of the benefit of them is that they do not have to be administered in the same way as conduct remedies. One thing I’ve always found really interesting about the conventional wisdom that structural remedies are a more radical approach is that I actually think in many ways they are a much more conservative approach. They are a clean break, they don’t require ongoing monitoring by the government. They don’t require complicated negotiations and interference with contracts, pricing, or other terms. So I think if you want government out of the business of ongoing involvement in businesses, structural remedies are a much cleaner way to get there than conduct remedies.
I also don’t think they are mutually exclusive. I think that there are a lot of cases that will lend themselves to some structural relief and perhaps some additional conduct relief. I think that these are fact-specific inquiries. The only top-line message that I would deliver is that I am in favor of remedies, whether structural or otherwise, that solve the problem. If we cannot have remedies that solve the problem, and in particular if remedies that are proposed will be difficult to administer, difficult to enforce, or allow anticompetitive concerns to continue, then we should forgo such a remedy and instead litigate.
That is the point that I would encourage the audience to take away. I think we need to have a very high threshold of confidence that the remedy will solve the competitive problem in front of us and appropriately effectuate deterrence in a market.
Melanie Aitken: Margrethe, would you have something to add?
Margrethe Vestager: I think there is a lot of wisdom to that. We have a lot of experience in also monitoring very complex behavioral remedies.
Sometimes when I compare I say, “Is it really worth it for you to have the Commission sitting on your shoulder for years on end? Wouldn’t it be easier just to be clean-cut?”
Here my personal opinion is not so much the case. For us the responsibility is to find the remedy that will solve the concern that we have in front of us. In merger cases we would have a preference for structural remedies exactly for everyone to move on, because that would also allow the business community not to have the ongoing monitoring that would take place for a very long time. But I don’t think that one can say, at least from our practices, that there is indeed just one thing that works. For us it is really important to say, “With this situation, with this type of conduct, what can be done to mitigate it?”
In some of the antitrust cases, of course, we would want to stress that we need maybe more restorative remedies. You know we have the fine to punish past behavior, cease-and-desist to stop what you are doing, and then remedies coming in to say, “What can be done here?” That takes a lot of work for a very long time. We are still in the Google Shopping clearing-up, and even though we see more and more shopping rivals in the shopping box and we see 50 percent of the clicks going to merchants that are customers of Google rivals when it comes to shopping comparison, of course it is still an ongoing thing.
We are still waiting to see the results of the preference menu or choice screen as the follow-up of the Android decision, where we have the concerns—and this is in our decision and what I also hear colleagues putting on the table in front of Google here.
But it must be case-by-case, because otherwise I don’t think that we are true to our mandate to serve customers in the best possible way. Of course, it must be proportional, it must reflect the case at stake, and I think that is our obligation and that is how we will continue. But in markets that are more and more complex, with a tendency to tipping, with network effects, all of that of course increases our focus on the restorative part of a decision of the remedies to solve the question in front of us.
Melanie Aitken: I wonder at this point, in the interest of time, we’ll move on to the always exciting topic of mergers and acquisitions, and of course the flavor of everyone’s discussions these days in terms of “killer acquisitions” and acquisitions of nascent competitors and the innovation arguments on both sides. So over to you, Gary.
Gary Zanfagna: Thank you, and thanks everybody for a really informative discussion of what’s ahead of us with Big Tech and high tech. Very interesting. Thank you so much for all your candor.
Let’s move on to mergers and acquisitions, merger control as Melanie said. Killer acquisitions, acquisitions of nascent competitors, the challenges of evaluating potential competition, and the impact that it eliminates—it’s not new; it’s age-old thought on that, age-old analysis.
Today’s debate about killed acquisitions raises familiar questions: How to predict which companies, if left to their own devices, might grow to meaningful competitors? Whether the possibility of competition by nascent competitors outweighs the possibility of the benefits that consumers might realize if a company instead were acquired and its innovation and talents were integrated into the resources of a large firm.
With that lead-in, Becca, this dilemma the way I just laid it out seems to rest at the core of the case the FTC has against Facebook, which challenges among other things, Facebook’s past acquisitions of Instagram and WhatsApp. In deciding whether to authorize such a complaint or other Commission complaints, how do you weigh the balance of these possibilities? Or is that even the right question that we should be focusing on?
Rebecca Kelly Slaughter: You are right that potential competition/nascent competition, is the hot topic right now in enforcement, or one of many hot topics. Who knew that antitrust enforcement would be such a hot topic? I mean everybody here knew, but outside of this virtual room of 2,000 people, who knew it would be as exciting as it is these days? This is great.
One of those elements really is nascent competition. You are right that it is very much at the heart of the FTC’s Facebook complaint.
But I think it is important to note, as alleged in the complaint, that the acquisitions in particular of Instagram and WhatsApp were part of an ongoing, long-term strategy to buy and bury nascent competitors rather than to compete.
As Margrethe suggested when we talked about remedies, nascent competition is a fact-specific inquiry for each case that we have in front of us. When we see the acquisition of a potential or nascent competitor by an incumbent, we have to think a lot about what are the incentives that that acquirer has and what are the factors that go into the deal rationale for them.
Maribeth Petrezzi this morning talked about Procter & Gamble/Billie as another acquisition we challenged at the end of last year that involved a nascent competition question. We also challenged Illumina’s acquisitions of PacBio, which was a nascent competition question.
So this isn’t just about tech. In many spaces we are looking at making sure that acquisitions are not going to interrupt the flourishing of a competitive marketplace.
The question may be easy, if you wait for a competitor to get so large that it is very clear an acquisition will limit competition, but the health of our markets really depends on the ability of new companies to enter and grow. That is vital for competition. So making sure that we are looking at those early-stage acquisitions as well as the acquisitions of developed companies is a really important part of that.
Gary Zanfagna: Thank you very much, Becca. That’s well put.
That actually leads me to a follow-on question to Richard, if I may, in terms of how you approach the question of nascent competition. The Division recently took on a nascent competition issue in the online payment space, as everybody knows, challenging Visa’s proposed acquisition of Plaid as a violation of Section 2 of the Sherman Act. What does DOJ’s approach to that action tell us about how the issues might best be addressed? Specifically, why did DOJ do a Section 2 case?
Richard Powers: Stepping back, the Division filed its lawsuit back in November of last year and alleged that the acquisition of Plaid by Visa violated both Section 7 of the Clayton Act and Section 2 of the Sherman Act. The complaint explained that Plaid, a financial data aggregation platform, planned to leverage its existing technology and connections to 200 million U.S. bank accounts to launch an online debit product that would compete with Visa’s monopoly. As the complaint explained, Visa’s CEO described the Plaid acquisition as an “insurance policy” to protect Visa’s U.S. online debit business.
Another Visa executive described Plaid as a “volcano” whose current capabilities were just “the tip showing above the water” and “what lies beneath was a massive opportunity—one that threatens Visa.” He also drew a diagram of Plaid as a volcano, which you can see in the complaint.
The specific market structure and dynamics matter a great deal when assessing a dominant firm’s acquisition of a nascent competitor. For example, here Visa’s durable monopoly in online debit and the high barriers to entry in that market—there hadn’t been a meaningful new entrant in decades—made the risk to Visa from a nascent competitor like Plaid especially acute.
Now getting to the second part of the question, we brought the case under Section 2 because the facts led us there and we believed we could prove the elements. Both Section 2 and Section 7 are violated when a monopolist like Visa acquires a nascent competitor like Plaid to remove a significant competitive threat to the monopolist before it takes root.
The competitive harm from fact patterns in which a dominant firm acquires a nascent competitor can be significant. We will continue to scrutinize these mergers carefully. These types of cases, which are a top priority for the Division, will receive our full attention, and I can assure you that we are committed to taking an active enforcement approach here.
Gary Zanfagna: That makes perfect sense. Section 2, as you explained it, kind of makes more sense with a dominant firm and their actions to protect and exclude. But do you think that Section 2 is stronger than Section 7? You brought them both. I guess my question is: Is it more of a Section 2 case in your mind?
Richard Powers: As I said, we felt like we had the facts and we could prove both. I think, as we do in every situation, we have to look and see what the facts are and make the decision about what’s the best way to bring the case.
Rebecca Kelly Slaughter: I don’t want to suggest that DOJ is out on a limb here with this kind of theory. I think they did a lot of really important work on that case. A Section 2 count was also part of the FTC’s complaint against Illumina’s acquisition of PacBio. We had, just like DOJ, a Section 2 and a Section 7 in there.
I don’t think we weigh which count is stronger. We look at the facts, we see which violations of the law apply, and we plead those as they apply. So I don’t think that there is a balancing act there.
The other point that I’d make is, in addition to saying the DOJ isn’t out on a limb, I think these are issues in which there is a lot of broad bipartisan support and consensus. I mentioned our Illumina/PacBio case, which I think we filed in 2019. My colleague Noah Phillips and I testified together at a hearing in the House Judiciary Committee last week. He testified about nascent competition cases and his perspective that these are the kinds of cases where we have to be much more sensitive to error risk in terms of the risk of under-enforcement and what that does to the competitive level in markets.
I think that we need to be more sensitive to under-enforcement across the board, and I am generally very worried about Type 2 errors instead of Type 1 errors. But I just think it is worth pointing out that there is a lot of support on this topic and attention to the importance of it, and thinking particularly about not only the facts and the law but the way the error risk calculus plays out in nascent competition cases.
Melanie Aitken: I wanted to ask Margrethe a question, if I could. I understand that the Commission is reportedly considering amendments to the merger control rules, including reviving EU Merger Regulation Article 22 in this area, trying to figure out how to go after these killer acquisitions. That particular amendment or reviving of a rule would allow the national competition authorities to refer transactions that do not meet the Community-wide filing thresholds, as I understand it.
What specifically is the Commission considering in this regard? And then, as a sort of a separate question but related, how do you envisage challenging these very real issues around potentiality and potential competitors?
Margrethe Vestager: You are right that we have been working actually quite broadly on our merger rules. We have had a very far-reaching evaluation of various merger control rules and procedures. Two main focuses: we have looked at our turnover-based thresholds and we have looked at our efforts to simplify our procedures for the benefit of businesses.
The entire impulse to look at our merger control rules would be to say they need to be effective, but we should do that without any administrative burden that we can avoid.
This has been really in-depth work. A lot of people have contributed—businesses, organizations, really engaging with partners. It has been really, really helpful. On the basis of that, today actually we published a staff working document that summarizes all our findings of the evaluation on thresholds and simplification measures.
Second—and I would like to elaborate a bit on this—we published guidance on the referral mechanism under Article 22 of the EU Merger Regulation in order to facilitate and clarify the use of it.
Third, we also published a consultation to stakeholders with a view to further simplification in the way that things are done, in particular to harvest more benefits from digitization.
Actually what we found when we were looking at the present thresholds was that they allow us to catch the bulk of transactions where we would find problems. But, as said, we have an increasing unease with the kind of transactions that we are discussing here, where you have a really big company acquiring a much smaller player that generates little or no turnover and because of that falls below our threshold. That includes, I should say, acquisitions of nascent competitors, innovative companies—that can be in digital, pharmaceuticals, biotechnology, certain industrial sectors as well.
Ever since we have had the Merger Regulation, so many years ago, we had this correcting mechanism to the turnover thresholds called the referral mechanism, which would allow us to see things that we would otherwise not be seeing. This mechanism allows Member States to refer to us a transaction that is actually not notifiable to the European Level.
This is what Article 22 of the Merger Regulation is all about, this referral system. But we have not been using this tool for transactions that also fall below Member States’ thresholds because, based on the experience in general, they would not have a significant impact on the internal market.
That is what we have been rethinking. We think that it may not be true anymore that this type of transaction could not have a significant impact in the single market. This is why we have refreshed our approach to the use of Article 22. The guidance we published today is about how and when we accept referrals and which cases are the best candidates for such referrals.
As to the simplification initiative, that was already there yesterday on our website. Here we will push for different things. Expand the scope of the simplified procedure. Streamline the treatment of simplified cases and, if possible, in non-simplified cases also reduce information requirements. Shorten the duration of the pre-notification phase, and use electronic notification to ensure that it is safe, reliable, and cost-effective that we get the documents. And here of course we ask for stakeholder input.
But the real news is the guidance on how to use Article 22 for us to see more of those transactions that do have a significant impact on the single market in order to be able to assess exactly this question on a case-by-case basis on nascent competitors, and innovation will play an increasing part here. I take that for granted.
Melanie Aitken: Sarah, the ACCC announced that this year it will release proposals to amend Australia’s merger control regime to address Big Tech transactions, including the acquisition of potential competitors. What ideas are under consideration? How do they compare to existing law? When do you expect to release the proposals?
Sarah Court: In recent years, the ACCC has publicly raised concerns about whether the merger control regime applied in Australia is fit for purpose and capable of achieving its objective of prohibiting anticompetitive mergers. The possible options we are considering are not directed towards a particular sector. However, it will not come as a surprise to anyone that we are giving careful thought to issues including the acquisition of potential competitors, including by Big Tech. This is a complex exercise and we have not yet reached a concluded view that we can share publicly about possible reform options but our goal is to be in a position to do so later in the year.
While I am unable to share these ideas at this stage, I can share with you some of the reasons we are exploring reforms. These are primarily due to overarching concerns that we are not achieving the balance required to ensure good outcomes for consumers and the economy when merger cases are contested in the courts.
In contested merger cases, the uncertainty inherent in the forward-looking nature of the merger test has presented challenges and this uncertainty has at times played against the ACCC in court, even where industry evidence indicates that competitive harm would be likely. We are increasingly concerned about the weight placed by the court on evidence given by the merger parties as to what is likely to happen in the future without the acquisition, which is challenging for the ACCC to refute. While this evidence is of course relevant for the court’s consideration, it is also open to manipulation and risks overlooking the likely anti-competitive effects of the merger itself.
We consider that merger control should place greater weight on the risks to competition as a result of a merger, such as the loss of potential competition, barriers to entry being increased, or the foreclosure of competitors. Without sufficient weight, it is difficult to deal with acquisitions involving potential competition, such as dominant firms acquiring nascent competitors. Such acquisitions can entrench the market power of dominant firms, in particular by providing them with advantages of scale and reducing future competition.
Finally I should explain that the proposals the ACCC will put forward are separate from recommendations made in our Digital Platforms Inquiry final report. These recommendations included a voluntary notification protocol which would require large digital platforms to notify us in advance of certain acquisitions, as well as updates to the specific factors both the ACCC and the courts can take into account when assessing the competitive impact of a merger, including the role of data and the acquisition of potential competitors as part of the merger assessment.
Brian Grube: Let’s shift gears away from M&A and head directly to consumer protection for a couple of minutes.
Becca, one of the biggest issues in consumer protection these days is the case AMG Capital Management currently pending before the U.S. Supreme Court. It has already been argued, as I understand it. At stake is the FTC’s ability to pursue restitution as an equitable remedy in not only consumer protection cases but also potentially antitrust cases, which the Commission does from time to time.
What are your expectations there; and, if the Court should go against the FTC, what’s Plan B?
Rebecca Kelly Slaughter: You’re right. You pivoted to the point that I wanted to make clear, that Section 13(b) is not actually just about consumer protection. Although it is a tool we use very frequently there, it also is really important in our competition cases as well.
I have long given up on the ability to make predictions about what will happen at the Supreme Court. I can tell you that I think our staff did an exceptional job arguing the case. I think the challenges to our authority under Section 13(b) are misplaced and contrary to decades of case law, so I think that we both can and should win. But you’re right, we always have to be prepared for what happens if we don’t win. In fact, we have already put a lot of those pieces into play.
The first thing that I’ll say is we are in every case looking more frequently for where rule violations may apply in addition to violations of the FTC Act.
Rule violations trigger civil penalties. They put money on the table for defendant companies. I will tell you they can be less satisfying from my perspective because I would rather give money back to consumers who are harmed than send it to the U.S. Treasury, but from a deterrence perspective and from an activating our tools standpoint it is important. So we are looking for rule violations in every case and you are going to see us pursuing those more frequently, and I think you already have.
Second—again I feel like a broken record about this—is rulemaking. We are looking at where our rulemaking tools can apply to help fill in some of those gaps that we might have in the Section 13(b) space, if that is in fact where the Supreme Court goes.
The third thing I’d say is you may see more administrative litigation instead of federal court litigation from the FTC. That comes with different timelines, it is a little bit different in process, but the overall message is there is no universe in which we will let up on pursuing important cases because of a Supreme Court decision or lower court decisions that we think misinterpret the law and limit our tools. We are going to find other tools and we are going to go after that and make sure that our focus remains protecting consumers, small businesses, and workers from illegal conduct. I think that is overall the message.
But at the same time, we are asking, on a bipartisan basis, for Congress to fix what we think is a misunderstanding of the law in the federal courts. All five Commissioners sitting last fall wrote together a letter to Congress saying that we think that they should act swiftly to restore our Section 13(b) authority as it has long been understood by not only us but the courts, and I think we will continue to make that case to them as well.
But it is very much a “do both” situation—try to get a fix and in the meantime work with what we have in our toolbox, including dusting off tools that we haven’t used for a long time because we have relied more on Section 13(b).
Brian Grube: Sarah Allen, I’ll come back to you. The FTC is not the only cop on the beat on the consumer protection front. The states are also active there.
What role have the states been filling lately and where could they pick up the slack if the Court goes against the FTC?
Sarah Oxenham Allen: One case where the FTC is asking for restitution on the antitrust side is the Vyera litigation against Vyera, Phoenixus, and Martin Shkreli. There are seven states that are also claimants in that case that are using state antitrust authority to try to get restitution and disgorgement in that case. So I think we can be a backstop to the FTC in these situations.
As far as consumer protection, the states have been extremely busy in consumer protection because of the pandemic over the past year. Briefly, our activity falls into three major buckets.
The first really is consumer education to alert people to potential scams, particularly concerning Covid cures, fake PPE, and vaccines, which is the newest one. Vaccines are free, they shouldn’t cost consumers anything, so if anybody is telling you something different, that’s not true.
The second bucket is trying to get companies to allow consumers to cancel and get refunds on vacations, gym memberships, and other businesses that were shut down, as well as trying to prevent evictions.
The third bucket is various types of enforcement actions, the most common being price gouging. Price-gouging statutes do differ from state to state, with some limiting how far back into the distribution chain the state can go to charge a company with price gouging. However, there is a very important case that has come out of Kentucky. Kentucky has hit a snag in going after online merchants who sell through Amazon to consumers in its state because of a preliminary injunction imposed in a suit brought by the Online Merchants Guild. The injunction was issued on Dormant Commerce Clause grounds, despite several other states—including Florida, Ohio, Pennsylvania, Illinois, and New York— successfully bringing similar price-gouging actions against online sellers during the pandemic.
Kentucky was limiting its investigation to only Kentucky businesses that were selling online to Kentucky consumers, but the Guild was able to successfully argue to the district court that any enforcement action would necessarily dictate the prices that merchants sold to consumers in other states because Amazon won’t allow its merchants to change their prices by state.
Kentucky appealed this decision to the Sixth Circuit in September. Thirty-one AGs filed an amicus brief arguing that states trigger their price-gouging statutes in times of emergency to protect the welfare of their citizens, not for protectionist or discriminatory reasons or to control out-of-state prices. The states also argued that Kentucky’s actions would not establish conflicting regulatory burdens for the merchants.
The Sixth Circuit’s hearing was on March 10, during which at least one judge seemed pretty skeptical that Kentucky could be enjoined for investigating Kentucky merchants selling online while it remains free to investigate the same conduct by brick-and-mortar stores in the state. The Guild also argued that the proper target of Kentucky’s investigation should be Amazon since merchants can only suggest prices while Amazon ultimately controls the price that the consumer pays.
As I said, this decision is vitally important to the states’ efforts to police price gouging during times of emergency, and if the injunction is allowed to stand, it will have the effect of preventing states from regulating only in-state commerce if the business sells online through a national platform instead of in a traditional brick-and-mortar store. So we’ll be keeping our eyes out for that decision.
Brian Grube: At this point we will shift gears again and head back to Richard to talk a little bit about the criminal docket at the Antitrust Division these days. Richard, in recent years we have seen a downturn in the number of criminal prosecutions, but lately we have been seeing something of a resurgence both on the generic drugs front as well as with cases in the agricultural sector, not to mention the Division’s first two criminal no-poach cases. What else is in the pipeline and what can we see coming in the weeks and months ahead?
Richard Powers: First, as a career prosecutor, let me start by saying how proud I am of the work being done by our teams under incredibly difficult circumstances, especially in the past year—and by that of course I mean the pandemic—and given our severe resource constraints.
As your question indicates, the Division’s criminal program is busy investigating and prosecuting cases on behalf of American consumers, workers, and taxpayers. Last fiscal year, despite the pandemic, the Division obtained over $529 million in criminal fines and penalties. This included three defendants that paid fines and penalties of over $100 million for crimes affecting cancer patients and purchasers of generic drugs.
In the last fiscal year we charged 22 individuals and 11 companies, including a number of high-level executives, and we obtained guilty verdicts in two trials, including the trial of a former CEO who was later sentenced to forty months in prison.
On the international front, we secured the second and third extraditions ever on Sherman Act charges.
2021 has continued to be busy. Pilgrim’s Pride, as you alluded to in the question, recently pled guilty to conspiring to fix prices on chicken and was sentenced to pay a $107 million criminal fine.
Looking forward, the pipeline is full. The Division currently is preparing for 13 criminal trials against six companies and 24 individuals. For those who know the complexity of our cases, that’s a lot of trials and that’s a lot of trial work for us.
We have indicted nine cases totaling 25 defendants since the start of the pandemic, which is a testament to the skill and dedication of our criminal sections.
In addition to the significant number of trials, the Division has the highest number of ongoing grand jury investigations in the last decade.
We also remain focused on protecting taxpayer money that funds government spending projects, including through our work spearheading the Procurement Collusion Strike Force. In the last month we have announced two indictments and three guilty pleas involving schemes to defraud the government and subvert the public procurement process both at home and abroad.
Finally, detecting and prosecuting collusion affecting American workers has been and remains a top priority for us. We recently filed two indictments to protect workers in the health care sector, one charging an individual for a wage-fixing agreement and one charging a company for its role in an employee- allocation agreement. The crimes we charged in those indictments are per se violations that are indistinguishable from price-fixing and market allocation conspiracies in output markets. Labor market crimes result in tangible harm to workers, whether in the form of lower wages, reduced mobility, or by depriving them of the ability to bargain for better terms of employment.
I can assure you these investigations and cases remain a significant part of our docket. As I think I’ve said before, I fully expect to bring more labor market cases this year.
Brian Grube: One follow-up, Richard. I know that this year we also saw renewal of the Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA) statute that does some service on the civil damages side but also aids in your agenda. We also saw a new law passed, the Criminal Antitrust Anti-Retaliation Act. How will those two statutes factor into your prosecutions going forward?
Richard Powers: Let me start by expressing my appreciation for Congress’s recent focus on the antitrust laws and the Division’s mission. The two pieces of legislation that you mentioned are of particular importance to our criminal program.
The Criminal Antitrust Anti-Retaliation Act that was signed into law back in December encourages witnesses of criminal antitrust violations to come forward and report them without fear of reprisal from their employer. Complaints of retaliation by an employer will be investigated by the Department of Labor—the Whistleblower Division of the Occupational Safety and Health Administration (OSHA). I can tell you that Division leadership has already met with and begun working with OSHA on this. The Whistleblower Act complements the leniency program, and together they provide protection and incentives to employees and corporations that self-report antitrust crimes.
It also creates another incentive for companies to invest in antitrust compliance and promote a culture of compliance by encouraging employees to report possible antitrust violations. One of the factors the Division considers in evaluating the effectiveness of a company’s antitrust compliance program is whether the company has a reporting mechanism, including whether that mechanism permits employees to report or seek guidance regarding potential criminal conduct without fear of retaliation. As a result, as companies and their counsel assess and implement antitrust compliance programs, I would strongly encourage them to educate their employees on the protections available under the Whistleblower Act.
The Antitrust Criminal Penalty Enhancement and Reform Act also complements our leniency program. ACPERA was enacted in 2004 to incentivize self-reporting and cooperation under the Division’s leniency policy by limiting damages in follow-on civil litigation for successful leniency applicants.
In October of this past year Congress reauthorized ACPERA and repealed its sunset provision. In doing so Congress added its findings that “conspiracies among competitors to fix prices, rig bids, and allocate markets are categorically and irredeemably anticompetitive and contravene the competition policy of the United States.”
Together the passage of the Whistleblower Act and ACPERA support our ability to detect, investigate, and prosecute categorically and irredeemably anticompetitive crimes.
More broadly, as I said, we very much appreciate Congress’s interest in our important work enforcing the nation’s antitrust laws and we look forward to working with them going forward.
Melanie Aitken: We are going to just quickly touch on one last topic that I think is of interest to a lot of us and we hope there will be opportunities to hear more in the coming days. As everybody knows, last week the FTC, DOJ, EC, Canadian Competition Bureau, U.S. State AGs, and the U.K. CMA all announced the formation of an international working group to update the analysis of pharmaceutical mergers. Margrethe, I wonder if you could just give us a quick sense of what was behind and what gave rise to the formation of this working group?
Margrethe Vestager: I think we have all dealt with pharmaceutical mergers. Over the last five to ten years we have seen the concentration of this sector. We have also seen how analyses have developed. We have new supportive theories of harm when it comes to innovation—for instance, for a divestiture to be viable, innovations in the pipeline are also to be divested. So a lot of developments that have been ongoing.
Since this becomes more and more of a global issue, coming together seems to be a really good thing to do. I am quite happy with the positive feedback that we get. That is also, I think, reflected in the priority also on the antitrust side of pharmaceuticals that I think is important for everyone now in the pandemic. Obviously the pharmaceutical sector is in the spotlight for good.
Still on the antitrust side of things we also finalized the Aspen case on excessive pricing. This week we won at the European Court of Justice the Lundbeck case, which is a pay-for-delay case.
So it is a high priority for everyone, and I think constructively to engage with colleagues here—we are really looking forward to this and are really happy with the fact that we can do this kind of work together.
Brian Grube: Becca, we are coming up on our witching hour, or hour and a quarter, but we’ll give you the last word. You have expressed particular concerns in some of your dissenting opinions about the adequacy of the FTC’s current analysis of pharmaceutical cases. Is this task force an opportunity for you to address those concerns?
Rebecca Kelly Slaughter: Yes, that’s exactly the idea. I think the FTC is really good at the analysis that we have developed over the last several decades of pharmaceutical mergers in terms of identifying competing products and pipeline products and requiring divestitures. But I have been concerned for a while that that analysis may not capture the entirety of the competitive implications of pharmaceutical transactions. In particular—I think Margrethe pointed it out well—we right now are really appreciating the importance of vital development of new drugs and new vaccines in the pharmaceutical industry and making sure that there is the incentive for companies to innovate, that there is the opportunity for them to enter, to bring new products to market, is really important.
Building our analytical toolbox not just on a domestic scale but on an international basis is really important. The idea is to bring everybody’s brightest minds and best skill sets and depth of experience to bear together. I think this project is really reflective of what you have heard all of us talk about throughout this panel of not only the value of but commitment to cooperation among enforcers across the globe right now. I am really excited about the reception it has gotten and about the work that I know it can build to, to make sure that we are fully capturing the important questions and innovating our theories and evolving our theories with the facts on the ground in an extremely important market.
Gary Zanfagna: It has been another great Enforcers Roundtable program. Thank you so much for your contributions.
This marks the end of the 69th Annual Spring Meeting. I am delighted to call an end to it. I am glad to thank everybody who participated in all the panels and all the work that went in by the staff. Thank you so much. An unbelievably terrific virtual experience for everybody. And obviously I want to thank all of the participants who attended the four-day program that we had.