U.S. and EU Antitrust: Expect Robust Enforcement in 2021

U.S. Antitrust: Developments and Outlook

Antitrust was front-page news in 2020: regulators sued Google and Facebook in some of the biggest antitrust enforcement actions in recent decades. Robust antitrust enforcement can be expected to continue under a Biden administration.

Big Tech Lawsuits

In October, the U.S. Department of Justice and 11 states sued Google, alleging its conduct relating to search and search ads violated Section 2 of the Sherman Act. The DOJ alleged that Google achieved its lead in online search, where Google accounts for nearly 90% of all U.S. queries, through exclusionary agreements requiring Google to be the default search engine on devices, and then used those revenues to reinforce its monopoly. The DOJ alleged Google’s practices have foreclosed other search engines from meaningfully competing in the United States, harmed consumers by reducing privacy and suppressed competition in advertising. In addition to an injunction against these practices, the DOJ seeks unspecified structural relief. In December, two separate state lawsuits were filed against Google. First, Texas and nine other states filed a suit alleging that Google manipulated digital advertising markets in violation of antitrust laws. The complaint alleges that Google entered into an agreement with Facebook to limit competition in return for special treatment in Google-run ad auctions. A few days later, Colorado and 37 other states sued Google, alleging it leveraged its monopoly in search to limit consumer choice and foreclose competition from specialized search engines. Google has strongly denied all the claims against it and is vigorously litigating in defense of these cases. Three additional states later joined the suit.

In December, the Federal Trade Commission and 48 states sued Facebook, accusing it of abusing its monopoly in personal social networking to swallow up smaller competitors. The FTC alleges that Facebook targeted potential competitive threats to its dominance with its acquisitions of Instagram in 2012 and WhatsApp in 2014, though both deals were cleared by the FTC at the time. The complaint also alleges that Facebook imposed anticompetitive conditions on third-party developers’ access to its application programming interfaces. The FTC seeks remedies that could include a mandated divestiture of Instagram and WhatsApp.

Other investigations are ongoing and may result in additional lawsuits against “Big Tech” platforms like Apple and Amazon. Notably, after a year-and-a-half investigation, a Democratic-led House panel recently concluded that Google, Facebook, Apple and Amazon all wield monopoly power and urged greater antitrust enforcement. A potential flood of private suits following any government action is another source of concern for these companies – numerous such suits have already been filed, and more are likely.

Tech-focused enforcement is not limited to these four household names. In April 2019, the FTC launched a major antitrust case against Surescripts, a leader in the e-prescriptions market. The FTC alleged that the company used anticompetitive agreements to maintain its monopoly in the routing of prescriptions to pharmacies and the market for determining eligibility for prescription coverage and ultimately denying patients the benefits of competition. The FTC’s case survived a motion to dismiss and is in discovery. In November, the DOJ sued to block Visa’s $5.3 billion acquisition of Plaid Inc., an innovative fintech firm. According to the DOJ, as a monopolist in online debit services, Visa is attempting to acquire a nascent competitor developing a lower-cost option for online debit payments. As a leading data aggregator, Plaid planned to leverage its connections to build a payments network that would disrupt Visa’s collection of processing fees. Despite the lack of apparent overlaps between the companies, the complaint relied heavily on Visa’s own emails and other internal documents, which DOJ argued revealed the company’s plans to roll back Plaid’s development of a cheaper alternative debit service.

In December, the FTC also issued orders under Section 6(b) of the Federal Trade Commission Act to nine social media and streaming companies ordering them to provide data on how they gather and use personal information and their advertising practices, including how those affect children and teens.

Beyond tech, state regulators continued to take an active role in antitrust. Most notably, 14 states filed a challenge to the T-Mobile and Sprint merger, even though it had received DOJ and FCC clearance. This unusual suit was publicly opposed by DOJ and ultimately defeated in early 2020.

Enforcement in the Biden Administration

Looking forward, stepped-up merger and conduct enforcement should be expected from the DOJ, while the current aggressive levels of FTC enforcement will likely continue, with perhaps a slight uptick and a particular focus on pharmaceutical mergers. However, a major swing toward progressive antitrust enforcement is unlikely.

Similarly, legislative changes will likely be incremental rather than radical. While the Democrats have won control of the Senate, that control is marginal (depending on the Vice President breaking ties), and is far from a filibuster-proof majority. Thus, support from moderate Democrats and Republicans will be necessary to pass legislation. Legislation that is more likely to garner such support includes increasing agency funding, addressing recent adverse court decisions involving the FTC’s jurisdiction and remedial authority and other marginal changes. Sweeping proposals such as those considered in the House Judiciary Majority Staff Report on the technology industry mentioned above are not likely to advance (though some of the more modest proposals directed at the tech industry may garner bipartisan support).

By historical standards, DOJ merger enforcement levels have been relatively low under Assistant Attorney General Makan Delrahim, with the notable exception of a set of high-profile cases such as the unsuccessful challenge to AT&T’s acquisition of Time-Warner. That will likely change. Even with marginal control of Congress, any Biden nominee for AAG will probably have to come from the mainstream antitrust tradition of the Democrastic party, but that still leaves room for more aggressive merger enforcement. Expect current cases to continue, and mergers to receive more probing scrutiny, with enforcement levels possibly similar to those of the recent FTC. Criminal enforcement may also increase, though the decline in cartel cases we have observed is not limited to the U.S., and so may not result from administration policy. It is also reasonably likely that the Biden DOJ will reverse or step back from the strongly pro-IP “New Madison” approach to IP/antitrust issues advanced by AAG Delrahim, rebalancing toward antitrust enforcement in the IP context. On the other hand, new leadership at the DOJ may continue the aggressive “statement of interest/amicus” program AAG Delrahim developed, which resulted in historically high levels of DOJ court filings (though probably with somewhat different content).

The FTC has been very aggressive in recent years, including in 2020 breaking a record for merger enforcement actions that had stood since 2000. While there will be pressure to be even more aggressive, the FTC’s current activity levels do not leave huge amounts of room (or resources) for drastic increases. Also, as with the DOJ, any chairman President Biden might appoint, and the Bureau directors that chairman will select, will likely come from the mainstream of the Democratic antitrust community, which also suggests that FTC enforcement will not change radically. We do expect increasing scrutiny of pharmaceutical transactions, as the current Democratic commissioners’ objections to FTC merger decisions have disproportionately focused on that industry, and perhaps more skepticism of vertical mergers. There’s an open question as to how long it will take the FTC to switch to Democratic control. It is technically possible for Republicans to retain voting control of the agency until 2023. We do not believe that will occur, but it may take time – perhaps well into the middle of 2021 – for Democrats to take control of the FTC. However, even if Republicans remain in control of the FTC for a transition period, the FTC’s independence and existing policy priorities should mean that the FTC will sustain its current high level of antitrust enforcement.

Potential HSR Rule Changes

In September 2020, the FTC published two documents related to potential Hart-Scott-Rodino rule (HSR Rule) changes: (i) a Notice of Proposed Rulemaking (NPRM) and (ii) Advance Notice of Proposed Rulemaking (ANPRM).

While these rules have not yet been adopted, and the timeline for adoption is unclear, if implemented, they may significantly increase the burden of the HSR Rules, particularly for investment firms. The NPRM, as drafted, would expand the definition of “person” to attempt to capture information about different investment funds that are under common management. It would also add a new exemption for acquisitions of less than 10% of the voting securities of an issuer provided that the acquirer is not a competitor, does not own more than 1% of any competitor, is not a major supplier or customer of the company and is not an officer/director/principal/agent of the company. While this would seem to be a beneficial new exemption in addition to the existing “investment only” and “institutional investor” exemptions, in practice the new proposed exemption may be difficult to use. Moreover, the ANPRM suggests that the FTC is rethinking its approach to these exemptions on a going forward basis.

As 2021 continues, it will be important to watch these potential changes and consider their impact, especially in the context of corporate investments.

Key Takeaways

There is little indication that antitrust enforcement will abate under a Biden administration. In pursuing actions against “Big Tech,” federal and state regulators have shown unprecedented willingness to challenge already consummated deals as well as the acquisition of nascent competitors. In other sectors, enforcement by both DOJ and the FTC can be expected to be even more aggressive as well, particularly in the pharmaceutical space, though Biden appointees will likely come from the mainstream of Democratic antitrust community.

EU Antitrust: Developments and Outlook

Despite the COVID-19 pandemic, 2020 was another active year for antitrust enforcement in Europe, with continued robust enforcement expected for the year to come.

European Commission Vice President Margrethe Vestager, having just completed her first year in her new role as Commissioner responsible for the Commission’s Digital Agenda and the first year of her second five-year term as Competition Commissioner, has fully embraced Commission President Ursula von der Leyen’s call to further strengthen the Commission’s antitrust enforcement efforts. This has been particularly true in new and emerging markets that the Commission views as shaping European economies and society.

Big Tech and Abuse of Dominance Investigations

After blockbuster fines against Google (in the Shopping, Android and AdSense cases) and an e-commerce sector inquiry that led to various Big Tech investigations in Vice President Vestager’s first term as Competition Commissioner, the Commission’s focus on Big Tech has continued in 2020 and will continue into 2021.

The Commission’s Directorate General for Competition now has a number of significant ongoing investigations in the sector, several of which involve novel issues or theories of harm. These include:

• Amazon Marketplace. Following an investigation initiated almost two years ago in the wake of the Commission’s e-commerce sector inquiry, the Commission in November 2020 issued Amazon a statement of objections, alleging the misuse of its Marketplace’s independent sellers’ data. Specifically, applying a novel theory of harm, the Commission is alleging that Amazon is misusing large quantities of non-public and sensitive business data of third-party sellers to the benefit of its own retail activities and thus leveraging its dominance in the market for the provision of marketplace services into various retail markets. These data inform strategic decisions, including product launches and targeted discounts, and allow it to focus its own offers on best-selling products (while other retailers have no such advantage).
• Amazon – Buy Box. When issuing its statement of objections in the Marketplace investigation, the Commission also formally opened a separate investigation into Amazon’s business practices that might artificially favor its own retail offers and offers of marketplace sellers that use Amazon’s logistics and delivery services. In particular, the Commission is examining the manner in which Amazon selects sellers that appear in the “Buy Box,” Amazon’s direct purchase feature through which the bulk of Marketplace transactions are conducted. The Commission is concerned that Amazon may be leveraging its dominant position in marketplace services across to the logistics markets or the retail markets in which it is active.
• Apple – App Store Practices. Earlier in 2020, and following complaints by Spotify and an e-book distributor, the Commission opened three formal investigations targeting Apple’s App Store rules applicable to music streaming, e-books/audiobooks and apps that compete with Apple offerings. All three investigations appear to be focused on the same theory of harm, namely that Apple-imposed contract terms disadvantage app developers that compete with Apple’s own apps. In particular, the Commission is concerned with Apple forcing rival app developers to use Apple’s own in-app purchase system, through which it charges a 30% commission, and with Apple preventing those developers from informing users of alternative purchasing possibilities for their apps.
• Apple Pay. At the same time, the Commission also opened a separate investigation into Apple’s practices regarding Apple Pay. The investigation is focused on whether Apple is foreclosing rival providers of mobile payments from offering their solutions to users of iOS devices. In particular, the Commission is reviewing (i) “Apple’s terms, conditions, and other measures” related to the use of Apple Pay for purchases made on merchant apps and websites accessed from iOS devices; and (ii) the alleged favouring of Apple Pay by making it the only solution with access to so-called “tap and go” technology embedded in iOS mobile devices.

While proceeding with these investigations, the Commission in parallel is also pursuing a sector inquiry of the Internet of Things (IoT) space and advancing planning for a new ex ante regulatory instrument for platforms acting as so-called digital gatekeepers:

• IoT sector inquiry. In July 2020, the Commission kicked off a sector inquiry into the nascent IoT space. In doing so, it expressed concern that the IoT sector, as it grows, presents so-called “tipping risks” that might leave certain players with an unfair advantage. In that context, the ongoing inquiry is focusing on potential restrictions on data access and interoperability, as well as certain forms of favoring and practices linked to the use of proprietary standards. The sector inquiry covers products such as wearable devices (e.g., smartwatches or fitness trackers) and connected consumer devices used in the smart home context, such as refrigerators, washing machines, smart TVs, smart speakers and lighting systems. The sector inquiry is also collecting information related to services available via smart devices, such as music and video streaming services, and the voice assistants used to access them. Based on the findings of the sector inquiry, the Commission may later initiate more targeted antitrust investigations, as it did with its e-commerce investigation.
• Digital Markets Act. In December 2020, the Commission also released a legislative proposal that would create ex ante regulatory enforcement capabilities targeted at platforms that act as “gatekeepers” in the digital sector and thus have a disproportionate impact on the functioning of the internal market. The rules, if passed, would address issues such as interoperability, one-sided data access or favoring, and would apply to companies providing specific pre-defined “core platform services.” The new regime would be administered by the Commission, although it remains unclear whether by the Directorate General for Competition or the Directorate General for Communications Networks, Content and Technology. It would also give the Commission powers to impose fines and remedies in the event of noncompliance. The proposal will flow through the European legislative process and is on a path that could see it adopted in or around 2023.

National Competition Authorities in Europe too have focused (and are expected to continue to focus) their enforcement efforts on Big Tech. Most notably, this has included multiple competition authorities’ investigations into conduct by Amazon, the German Federal Cartel Office’s investigation of Facebook’s data practices as well as legislative proposals, such as in Germany and the UK, targeted at Big Tech companies.

Merger Control

With respect to merger control, boards should expect continued vigorous enforcement in Europe. In recent years, this has entailed more resources devoted to complex cases, along with longer pre-notification periods, a greater use of sophisticated quantitative tools and economic analyses, more requests for a greater range of internal documents and more wide-reaching remedies in complex cases.

If anything, the European General Court overturning the Commission’s prohibition of the UK’s Three/O2 mobile telephony transaction in May 2020 will only make complex merger control review more demanding and resource-intensive in complex cases in the years to come, as Commission case teams work harder to insulate future decisions from judicial scrutiny.

In 2020, the Commission also outlined a few specific initiatives in the merger control field:

• Referrals. As part of an effort to close the enforcement gap for so-called “killer acquisitions” and other transactions involving nascent targets with no or limited revenues, Vice President Vestager suggested that the Commission change its approach to referrals from National Competition Authorities in Europe, to encourage referrals, even when relevant national thresholds are not met. The Commission expects this new policy could come into effect by mid-2021 and, while it remains to be seen how it will be implemented in practice, it could lead to significant legal uncertainty if the Commission were suddenly, through this loophole, able to review transactions that do not trigger review thresholds anywhere in Europe.
• Market Definition. Separately, the Commission is also reviewing its 1997 Market Definition Notice to assess whether the Notice needs to be updated to better capture cases in digital markets, as well as mergers in markets where competition takes place globally. It expects to publish the results of its evaluation in 2021.

Restrictive Practices

With the Vertical Block Exemption Regulation set to expire in May 2022, the Commission in September 2020 published a report on its views of the functioning of the Regulation and accompanying Vertical Guidelines. While it largely concluded that the Regulation and Guidelines had worked effectively for the past (almost) 10 years, it also noted there is a need for targeted updates to both documents as a result of the growth of online sales and new market players (such as online platforms).

Specific areas for improvement identified by the Commission include:

• tackling diverging interpretations by National Competition Authorities in Europe,
• providing further guidance on the assessment of retail parity clauses and restrictions on the use of price comparison websites, and
• when possible, reducing the burden on the businesses associated with self-assessment.

The Commission intends to publish a draft new Regulation and Guidelines in the course of 2021 for public consultation.

With regard to cartel enforcement, notwithstanding the drop in immunity and leniency applications in recent years, boards should continue to expect the Commission’s rigorous pursuit of cartel activity. In particular, purchaser-side cartels have been a focus for the Commission in the last year, with the Commission fining three ethylene purchasers a total of €260 million for cartel conduct in July 2020, and with a number of other purchasing cartel investigations ongoing.

Green Agenda

Throughout 2020, President von der Leyen and others on the Commission have said on several occasions that they expect competition policy to be one pillar supporting the European Green Deal. While acknowledging that competition policy cannot replace environmental laws and regulation, or green investments, the Commission does believe there is room for EU competition law to complement the proposed Green Deal legislative package.[1]

In a March 2020 speech, Commissioner Vestager signaled, for example, that State aid rules could be reviewed to better take into account sustainable objectives. Similarly, the Commission has suggested it is considering whether horizontal and vertical agreements pursuing Green Deal objectives should benefit from special treatment under the antitrust rules, or whether merger control rules should take into account sustainability objectives as relevant merger specific effects.

The Commission, in October 2020, called for contributions and views from all business sectors on ways in which the competition rules might further the Green Deal, with a conference planned to take place in early 2021 to bring together the different perspectives on this topic. The topic raises the somewhat controversial question whether harm to the climate or the environment should be included in the notion of “consumer welfare” that drives current competition law enforcement.

Brexit

The Brexit transition period ended on December 31, 2020, and EU competition law as such has ceased to apply in the UK. In practice, this means that mergers not notified before the end of 2020 are no longer subject to the EU one-stop-shop principle, and merging companies could be faced with parallel reviews in the EU and UK. Similarly in antitrust enforcement, the Commission no longer has jurisdiction to apply Articles 101 and 102 TFEU to practices (not already under investigation) having an effect in the UK.

However, UK businesses could continue to be investigated and potentially fined by the Commission for infringements that relate to the remainder of the EU, in the same way as companies based in countries outside the EU have been to date.

Outlook on Antitrust Enforcement

Despite the COVID-19 crisis and its impact on the European economy, the pandemic had minimal impact on EU antitrust enforcement as the Commission has continued to advance its cases in a timely manner. In 2021, boards should expect a continuation of the vigorous enforcement and keep an eye on the various, ongoing policy debates, which could greatly influence European antitrust rules in the years to come.

[1] For more information on the Green Deal and other EU environmental and sustainability developments, please see Progress Since Paris: Sustainable Policy in Europe in 2020 and Beyond, in this memo.