Antitrust Changes Could Hinder M&A

litigation and policy. This is the third of the Votes and Verdicts podcast series focused on anti trust issues, and for this anti trust episode, I'm really excited to be joined by mort Skrosure, the Senior Director for Technology Competition Policy at the Software and Information Industry Association, which is a mouthful, so I'll be calling it SIIA if we

mention it going forward now. Prior to his current role at SIIA, Moret was a non resident Senior Fellow at the Atlantic Council's Europe Center, and he served for more than a decade as counsel and senior advisor to a foreign ambassador in Washington, DC. Earlier in his career, he worked in Europe as a government official and as chief of staff to a political leader. He holds an LLB and an LM from the University of Copenhagen, where he studied under a former chief Justice of the European Court

of Justice and specialized in EU competition law. Now he also has a jd from the Washington and Lee University School of Law, so he's also well versed in US anti trust law. More, thank you so much for joining me for this podcast.

good for a podcast, So here we go. So mort and I are going to be talking about some propose changes the Federal Trade Commission and Department of Justice Anti DRUSS Division are making to rules and guidelines, and these changes are going to have a significant, in my mind at least a significant impact on merger and acquisition activity if the changes are implemented as they are proposed today. Now, as I mentioned, More represents a trade association that's comprised

of technology and software companies. But how he thinks about these initiatives and analyzes them really generally applies to any industry impacted by the activities of the agencies. But we are also going to take advantage of Mort's deep experience with EU competition laws to discuss some legislation in New York that may actually result in New York enacting anti dress laws that are similar to those in the EU and quite different from what we've been the framework we've

had in the US. So, but before we jump into these topics, Mort, can you tell us a little bit more ABOUTASIIA, still a mouthful and your role with the association?

we're dedicated to the business of information. We represent about three hundred and fifty large and small companies across the industry. Our members provide the platforms, data, content and information that drive the global economy, informs financial networks, and connects students and educators. And to give you just a couple of examples, policy Division of which I'm a part. We work to shape technology and information policies to foster innovation and protect

consumer welfare. Our Financial Information Services Division or PHIZZZ, on the other hand, it is the global form of choice for financial information services companies and professionals UH and where they can engage on trends in their industry. Great.

policy is can impact tech companies. But that same policy and the way it could impact a tech company will impact any industry that is basically engaging in m and A mergers and acquisitions activity and has to file before the Federal Trade Commissioner, Department of Justice, and deal with a potential following investigation. So let's move into this. I mentioned that there are these initiatives at the FTC and DJ and in my mind, for all intents and purposes,

it's really intended to combat consolidation across many industries. The antitrust enforcers appointed by the Bid Administration have made it really clear that they're going to aggressively seek to slower stop consolidation, and we've definitely seen a lot of activity aligned with this goal. So what I'm going to start with are something a lot of people probably have never even heard of, but they are proposed changes to the heart Scott Redino filing rules sometimes called HSR filing rules.

So let's start just with background more. Do you just want to explain what HSR is and what HSR notification rules are?

already closed and asked for a breakup. Order to remedy that, Congress passed the HSR Act that you reference before, and the HSR Act imposed an obligation to notify the agency the agencies before con consummating mergers over a certain size, and that number deal size is adjusted every year and after the last adjust deals over with a value of over four hundred and forty five point five million dollars must always be notified, and deals with a value of

over one hundred and fourteen point five million dollars must be notified if certain conditions are met. And in addition, the HSRX set a timeline for merger reviews, so if these requirements are met, the parties must file what is called a merger notification and they along with that notification, they must submit some basic information about their deal. The notification also starts what is called an initial waiting period, during which the agencies conduct an initial review, and it

also bars the parties from closing the deal. At the end of that initial waiting period, the agencies can decide to do nothing, which then frees up the parties to close their deal, or they can issue what is called a second request, which requires the parties to submit a substantial amount of additional information, and the second request also, or the issuance of a second request also starts a new waiting period.

ahead and start to prepare the materials. That's back when I practiced, that's a little bit of what I did, or at least I helped the sort of the primary people in our law firm that did that to pull those together and think about that, you know. And the thing is really, at least at this point, the majority of deals filed generally close after the first thirty days the initial waiting period, right, and rather than as important to that in depth or view.

we're going to talk about later. So specifically as it relates to the HSR or the proposed changes to the hs ARE rule, the reason the agencies are proposing these changes is that, according to them, the information collected under the current rules and in the initial phases of an investigation doesn't allow them to conduct an effective and initial, effective and efficient initial review of a proposed merger. So what are they trying to do or what are they

proposing to do? So if if these changes are adopted in their current form. The changes would substantially and I mean substantially, expand the scope of documents that the parties would be required to submit at the outset, including all

agreements related to the transaction. But more important than that, actually the parties would be required to submit narrative explanations of their not only of their current business operations, but they're rationale for the proposed transaction, something that we don't have in the US, but which is fairly and in you know, in in the EU, it's fairly common in the in the UK if you notify a transaction, I should say in the UK, parties are under no obligation

to notify transactions, but if they do, they're often asked to submit these narrative explanations. In essence, what the proposal would mean is that it would frontload, front load the current the current process and require the parties at the outset a lot of information that you know, they would only under the current rules they would only be required to produce if a second request is issued, and that is, you know, second requests are only issued if a deal

after an initial review raises potential anti competitive concerns. It's also important to UH to point out that the agencies acknowledge that the proposed changes would increase the burden on all filers UH, and that some of these changes would increase the burden substantially on some filers.

And right, and companies even agree in their merger agreements, we're going to get this filed within you know, a week or ten business days or two weeks of signing the agreement, which is, you know, pretty fast work. When it comes to lawyers, I think this changes a lot of things. I mean I think this really and also I think there was no need, at least at that

point in time to start to strategize. I mean, lawyers might already be internally strategizing about the deal and in whether they're might need to be some anti trust defense to the deal constructed, and what kind of arguments could be made that the deal is pro competitive. But here you may have to start thinking about that much earlier on before actually getting the deal notified at all, which is, as you mentioned, a little bit more like the way it's done in the EU. I mean, I think this

is a really big change. I know you do too. On behalf of SIIA. You did submit some comments to the FTC and you outlined your thoughts and some concerns about these proposed rules. So why don't we walk through those because I thought, you know, they had a lot of merit when I look through what you all had proposed and submitted, and there are concerns that companies should have today.

or delays. That's almost an exact quote from the relevant Committee during its markup of the HSR Act. As far as the Paperwork Reduction Act is concerned, the purpose of that act or that law is to minimize the paperwork burden for, among others, businesses, and to maximize the utility of information collected and used by the federal government. In this specific case, as it relates to the HSR Actor,

the proposed changes to the hs are rule. If you look at the agency's own estimates, I said at the outset that they recognized that it would be you know, it would increase the burden on filers. And they they say that a run of the mill, their own estimates say that a run of the mill filing under the proposed rule would take one hundred and forty four hours

to complete. That is four times the current average and therefore not a trivial trivial increase, but even more than that, A recent survey of in house councils and law firm antitrust practitioners actually put the number closer to three hundred and thirty hours. And that is to say, nothing of the you know, the substantial additional cost that compliance for

companies would entail. On the agency side of the lecture, there's also, I think a question of whether, as a purely practical matter, they would even have the time to review and process, or in the words of the Paperwork Reduction Act, utilize all this additional information as part of

their initial review. In its most recent budget requests, the FTC requests that a large increase in funding for its Bureau of Competition, which is the bureau within the FTC that handles mergers, just to be able to maintain its current performance level and so on the basis of that, I think the answer would appear to be that the agencies actually would not be able to really take advantage of or utilize this additional information so early in the process.

Together with the proposed changes to the merger guides that we're going to talk about later, were concerned that these changes or these proposed changes would have a chilling effect on merger activity more broadly, which would in our mind, deter innovation and hamper economic growth and those that are likely to be hit the hardest, or actually small companies and startups whose business models often are designed to maximize

exit options. So our bottom line is this, there may be good reasons to update the current merger notification regime, like you talked about, Jen, you know, it hasn't been updated in many, many years, I think over forty years. But we do not believe that the agencies have provided a compelling or even a sufficient reason to justify the imposition of substantial new burdens without any benefit for the vast number of transactions that raise no concerns.

a couple different ways. One try to stop what they call potential competition deals where an incumbent buys up a small startup. I intended just sort of quelch the competition that might be posed in the future by that startup, And you know, it makes it very difficult for those startups that really intend to ultimately get sold for a lot of money to some bigger company. This really gets in the way and it does add a lot of burdens for that startup, and I think that really impacts

the tech industry. I mean, we saw the FTC challenge Meta when it tried to acquire within which sort of falls within this category, and we've seen it in the pharmaceutical area too, So you know, this this adds a burden and it could actually in some ways dampen certain kinds of innovation.

next year. We don't really know when. But still it's a warning that you know, companies need to think about, and it may be maybe why I mean, I feel like I'm kind of seeing an uptick in mergers now, and it may be because of companies trying to get these easier HSR filings in now before these rules change. Absolutely, let's move over to the merger guidelines because I think

that's an even bigger deal in my mind. Maybe it'll impact fewer deals than the HSR changes do it, but it's a big change and also add to the burden imposed on companies to certain deals at least. So let's start again like we did with AHSR. Let's look at background. Just for people who may be listening to aren't attorneys don't really have a background in how this all works? Do you want to at least explain more what the merger guidelines are?

that today governs mergers and acquisition activity in the United States. Traditionally, the merger guidelines have provided a consensuve view of what the law is, and through the guides, the agencies have advised the business community, the courts, and the broader public of how they so. In other words, the agencies that the enforcement agencies intend to apply the law to individual cases.

This has allowed businesses to predict, predict with a fairly high degree of certainty, what if any, actions the agencies might take in response to a proposed merger. It's important to understand also that the merger guides are what is called a policy statement, which means that they are not binding on the courts in order the courts owe them

any any deference. But the courts in general have found the guides to be very helpful and have you know, are using them or have been using them fairly extensively.

and framework. I mean I am very intimately familiar with what the guidelines say because that was my main area of practice when I was a lawyer, was basically working on M and A, dealing with those guidelines and walking through them to say to the companies, hey, here is how the agencies are going to evaluate your deal. And you know, for people not familiar with the guidelines, look, they talk about competitive conditions resulting from a merger, how

they might change. They look at markets, they look at competition, they look at concentration in markets, they look at potential entry, they look at coordination on price or output. Essentially, you know the competitive conditions in an industry and how those

can dotions may change by virtue of a merger. So similar to the HSR changes, I think that the agencies, with some of the changes they're proposing and more you're going to get into those in a minute, are again sort of making it not only trying to sort of hamper merger activity at the outset, making it a lot scarier, let's say, to jump into one, but they're also trying to identify mergers, making it easier to identify mergers that have any trust problems easier to investigate them and potentially

ease their path in court as well when they try to block those deals. So let's dig into these merger guidelines changes, so more talk to us about what the changes are trying to address.

they're looking to achieve three primary objectives. So they want the guides to reflect the law as written by conguerors and interpret it by the courts. I think there's definitely disagreement over whether their interpretation of what the law says and what the courts have said fifty years ago exactly exactly,

But that's one of their goals. So a second goal is that they want the guides to be more accessible and transparent, and they they're also looking to provide a framework that again and their you know, in their view of reality, reflects the realities of the modern economy. They also introduce thirteen principles or guide lines, some of which we can discuss a little more in depth later, that they that the agencies quote unquote may apply in making

their determination about whether a merger is anti competitive. Yeah.

your thoughts about these rules. So why don't you talk through you know, how you're looking at these what your concerns are.

and what have you. You know, in this specific case, the horizontal guidelines were last updated in twenty to ten, so it's you know, it's certainly not unreasonable to expect or to suspect that, you know, that some updates might be needed. That said, from our perspective, the draft Guidelines raise a number of issues, some of which are likely

to adversely affect their persuasive value. You know, I mean, I completely agree with you, they do not really you know, the draft does not really provide much in the you know, the sense of guidance for you know, for companies and their legal advisors, and I and I suspect the you know, that will be an issue you know, for the courts as well. So but you know, among our concerns are you know, first, they primarily, as you also alluded to before,

rely on old case law. The average age or the average year of the cases cited in the guides or the draft guidelines is nineteen eighty two, and the average year by number of sites is nineteen seventy five. But and I trust law today is in a completely different place than it was forty or fifty years ago. Since at least the early nineteen eighties, and I trust agent enforcement has been focused primarily on price effects and whether a proposed merger would harm consumers in a given market.

Absent a showing of such harm, the agencies and the courts have been disinclined to condemn business conduct as anti competitive. And you know, from our perspective, any statement of existing law needs to acknowledge and reflect and the draft line, the draft guidelines don't.

more detailed law has been developed over many years. And most think over time, you know, as economic analysis as it applies to anti trust has been developed and honed, and as courts have looked at these issues more and more, that the law has become more sophisticated. That is, it has advanced in a way that's been good for the economy. Now,

not everybody thinks that. Some people think that. Some people think it's gone in completely the wrong direction and become far too business friendly and far too antagonistic toward the anti trust laws and what the agencies are trying to do. But the the issue with using this older law and basing some of these guidelines on the older law is that we have all these new opinions that aren't necessarily aligned in new opinions that the Supreme Court may be

more aligned with as well. Sir, I did mean to an interrupt it, go on with what you were saying.

for that assertion. Add to this that the ft TC herself, in a recent interview, set that ninety eight percent of mergers rate raise no anti competitive concerns and that only a fraction of the remaining two percent merit legal challenge. And third, we also believed it is deeply troubling that the draft guidelines suggests that the agency is enjoy essentially

unlimited discretion in their review of proposed deals. Merger review, as you know better than anyone, JEN is not an exact science, and so it is necessary for the agencies to have some lead when they're making decisions in individual cases. But that is very different from saying that there is no limit on that discretion, you know.

about specific of those thirteen guidelines. We're not going to go through all of them. We're just going to highlight the ones I think and I agree with what you've pulled out in our discussions about sort of the ones that are of the greatest concern to companies and industries. So why don't you go ahead and talk through those guidelines that for which you have concerns.

entering the market. But for the merger, we think there are a couple of problems here. You know, one, a large number of pro competitive mergers involved a company buying a complementary serve as a product, or, as we talked about before, a startup that augments its existing offerings in

order to better serve the needs of their customers. What's more, expanding the potential competitor theory in this way would allow the agencies to conjure a virtually unlimited number of scenarios where a merger could be deemed anti competitive.

they wanted to get into it. I should say that what Within had was a virtual reality app for fitness purposes that was very popular, and they said, if Meta wants to get into virtual reality apps for fitness, they could do this on their own. They have the means, and you know, at one point in time they kind of thought about it, and the judge said, look, you know that's not really enough. I mean, you didn't really show that there there is actually the illumination of a

potential entrant here. There just wasn't sufficient evidence that Meta could or you know, no matter how many resources it had, or would actually do this, and it was simply intending to expand what it offered with respect to virtual virtual reality types of apps by moving into fitness, by buying within And certainly, you know a company has a right to expand its product offerings non organically. You know, there is no rule of law that says that companies have to do everything organically.

at least a thirty percent market share. So the thirty percent market share in particular is really puzzling because that is not the threshold that is usually used to determine dominance under US law. The guideline is also written in a way that would allow the agencies to challenge essentially any merger where a company of non trivial size seeks to merge with another company. And what is left unexplained is how this guideline fits with the consumer welfare standard

that I referenced earlier. The whole point of what is called competing on the merits is that companies seek to gain an advantage on their rivals. As long as the post merger firm generates business benefits that are crue to consumers, we believe the mergers should be presumptively legal.

connection to that term's traditional meaning legal meaning. Here it is used to describe the very common practice where a company gives preference to its own products or services over those of its competitors. And I think it's important to point out here that you know, only in very rare circumstances is that considered a violation of the anti trust laws. But even more importantly, it is not a recognized element

of merger review. And so it really is a very strange guideline to throw in there, although of course it's you know, it sort of fits with the overall sort of tenor of what they're trying to do. And certainly, you know, one of their animating uh you know forces, or one of the animating forces behind this whole exercise, of course, is to to go after, you know, a tech merger.

was brought, that wasn't part of it. So there's some so this is a way to sort of, I don't know, insert that into the law in my mind, or at least connect it to merger activity and stop mergers on that basis. And you know, again it's this one to me is pretty vague, you know. And so these are just three of the thirteen principles. And there are actually, you know, many others in the anti trust community that aren't necessarily aligned with what the FTC and DJ are

doing here have expressed concerns about other principles. These aren't, by any event, you know, the only ones that could cause an impact on big companies. But the three I think that mort had really wanted to highlight, and I agree with that. But let's talk about you know, let's just assume, I mean, these are still all proposed, their comments are being accepted. They may not be implemented as written. We don't know necessarily exactly what the final product will

look like. But just assuming that they are implemented as proposed. Now, from a practical standpoint for companies that are going to be trying to do transactions going forward, what do you think the biggest impact is going to be.

is it's going to be quite significant. Uh if these uh, you know, if they end up promulgating no guides that are anywhere close to, uh, what the proposal is. But we also believe that the closer that the new guidelines are to the draft, and as we talked about earlier, its departure from existing law, uh, the higher the likelihood that they will be subject to a pre application judicial review and a possible injunction. Ah.

to be quite persuasive. But with such a big change, and it clearly seems to be pushing a view of the law that the FDC would like to see, would like to see, rather than probably what exists today, I'm not really sure how they'll be received by judges who are looking at these deals.

problems but then determined don't. But it seems to me that the FTC and d o J are both really really at the limit of their resources today with respect, and I'm not sure how they handle that.

what they can do. But that of course does not change the fact that you know, it will inject a lot of uncertainty uh companies because you don't know and you know, like we talked about before, I mean, how

much guidance do these guides really provide. And so you don't know as a company, as a as a law firm that's advising these companies, I mean you don't know what you know, what specific deals they're gonna you know, zero in on and and and and so that that uncertainty alone, we believe will have a significant chilling effect on on m an A activity.

bring if you know, if you know they pursue. Uh, you know, these theories that are sort of enunciated in

the guides. You know, a lot of you know, it's questionable how many courts will actually buy into them, and so and so they're you know, there is a fair likelihood that you know, that the that the agencies at the end of the day are going to end up shooting themselves in the foot by bringing cases that they can't win and so, you know, wasting resources and also is you know, essentially you know, uh, losing credibility in

the process. So so that's I mean, that's certainly one, you know, one potential avenue.

really interesting to see how this all plays out. But we are getting close on time, and I did have one more topic because it's really interesting, and you brought this up more to something you wanted to talk about and I think it's interesting because not that many people are talking about it. But we've seen over the last couple of years that state anti trust enforcers that really have just as much power as the FDC and DJ to go after companies have really stepped up. They've become

more aggressive. They're taking things matters into their own hands. And not only are they bringing enforcement actions or joining enforcement actions with the federal agencies, but they're also talking about their own life legislation. And part of that is because and you and I talked a whole lot last year about some legislation that was pending in Congress that actually looked like it was coming close that would have had a serious impact on some of the clients of SIIA.

about some legislation that's very interesting. I think it goes pretty far. Do you want to talk about what that is? Mart?

be higher prices, it can be lower input, which is not typically how you would try to prove monopolization under the Sherman Act, or indirect evidence in the form of market shares. But the threshold that are suggested in the bill, which are forty percent for sellers and thirty percent for buyers, is a centric but it is substantially lower than what is required under the Sherman Act and the bill, So that's the abuse part of it, the dominance part of it.

The bill has a non exhaustive list of what you know of what might constitute abuse, but it includes several practices such as refusal to deal that are not illegal under a federal law and and proof of pro competitive effects. Unlike under a traditional Sherman Sherman Acts Section two rule of reason analysis would not be a defense. So that's

also you know, fairly fairly significant. I think it's also really really important to understand that the abuse of dominant standard as it's used in Europe UH is you know, was created in and has been applied in enforced in circumstances that are vastly different than what we have here. So for one, it is enforced by an administrative agency, so in the EU would be the EU Commission, or it could be a an enforcement agency and a member EU member state which is under an obligation to act

only in the public interest. So that would be the same as obviously the FTC here the dog and a trust division or a state and I trust in enforcement agency. But here, you know, the New York bill UH would open you know, would essentially open this to the enforcement of the abuse of dominance standard to private enforcement actions

by actors whose sole responsibility is to their shareholders. And it would permit class actions, and it would permit recovery of trouble damages, none of which are available to a claim if in Europe. And because of this, we urge, you know, great caution before sitting down this path, because we believe that the risks of series unintended consequences is quite high.

bit broader. So, for instance, when Epic Game sued Apple and that went through trial in the Northern District of California, even though the judge found that Apple hadn't violated any federal anti trust laws by its conduct, it did find that at least one aspect of something Apple was doing violated a California state law against unfair competition, And so that was sort of a sword of a slightly broader interpretation, and so it puts companies really at risk when the

cases are brought under both the state law and the federal law. Absolutely, all right, now we've been really sufficiently nerdy. We've been very nerdy. You cannot be nerdy when you're talking about anti trust. So I'm going to do something. We're going to do something here that's also nerdy, but in a very different way, more fun. So it's your last question, and that question is if you were stranded

on a desert island, what music would you want with you? Now, I'm not going to put any pressure on you here, but from Mick mulvaney, who was a guest in one of the very first Votes and Verdicts podcast episodes, he said, very interestingly Dire Straits, the Beatles, White Album, Mozart, and pet Shop Boys. So more, what's your list?

York Philharmonic and around the holidays. I also I also really enjoy listening to a choral piece by my name, say my namesake, Morton Lawrence called Omagnum Mysterium. So I mean I can think of others too, but those would definitely be my top four.

interesting too. And with that we'll just say thank you very much.