FTC Restores an Old Fence With Restoration of Prior-Approval Policy for Future Mergers by Anticompetitive Dealmakers
The FTC announced this week that it is restoring a prior-approval policy that requires firms subject to FTC orders resolving anticompetitive mergers to obtain prior approval from the FTC before closing future transactions.
Companies settling an anticompetitive deal by entering into a consent order with the FTC will need the agency’s blessing to close any further acquisitions in each affected market for at least the next 10 years.
This policy change is hardly a surprising turn for the newly-reinvigorated Commission led by Chair Lina Kahn. In July, the agency rescinded a 1995 Policy Statement, which had ended the Commission’s long standing practice of requiring such prior approvals of future acquisitions by settling parties as a routine matter. At the time, then-FTC Commissioner Mary Azcuenaga, an independent, dissented from the agency’s decision abandoning the policy, stating that the FTC’s elimination of “straightforward, modest, fencing-in relief for unlawful mergers is mystifying,” and noting that imposing prior approval requirements on firms that had already attempted unlawful acquisitions was “less costly than a new investigation of a proposed transaction and a second challenge under the law.”
Expense and resource conservation again seem to be at the heart of the matter, as the Commission stated that is it less likely to pursue such fencing-in provisions against parties that abandon their transaction prior to compelling the FTC to proceed with a Second Request or Civil Investigative Demand. This language in the official Commission Statement signals that it may be more beneficial to abandon an anticompetitive transaction before the FTC staff has to spend significant resources investigating the matter.
The prior approval language will be a routine part of all merger divestiture orders going forward for every relevant market where harm is alleged to occur. Indeed, the agency included the provision in its recent proposed settlement with DaVita, Inc. related to the company’s attempted acquisition of the University of Utah Health’s dialysis clinics. Notably, the DaVita consent decree makes clear that the agency will extend its prior approval requirement to additional product and geographic markets not impacted by the settlement transaction on a case-by-case basis. In the case of DaVita, the proposed settlement requires prior FTC approval for any transaction involving outpatient dialysis clinics across the state of Utah, not just in the more limited geographic market alleged in the Complaint.
Prior approval provisions shift the burden of proof to the affected party to demonstrate that any future transaction—even one that is unreportable under the Hart-Scott Rodino Act—is not anticompetitive. By contrast, in an enforcement action, the FTC has the burden under Section 7 of the Clayton Act of proving that a transaction will substantially lesson competition during the course of an enforcement action. Critics of the restoration of the prior-approval policy, including Commissioner Noah Phillips, have argued that it will discourage parties from settling with the FTC and lead to more litigated—and hence more expensive—merger challenges, and will deter even procompetitive transactions by shifting the burden of proof for all deals.
However, the principles supporting the inclusion of prior-approval provisions in all settlement agreements certainly seem in line with the approach the Commission took in crafting its recent complaint against Facebook. There, the FTC proposes a monopoly maintenance theory based on an aggregated view of prior acquisitions, even unreportable ones.
A stricter assessment of all transactions undertaken by known antitrust offenders could prevent illegal monopolies from occurring right under the nose of the federal watchdog that is tasked with ensuring a vibrant marketplace through investigations and enforcement.
Edited by Gary J. Malone