On Feb. 4, 2021, Sen. Amy Klobuchar (D-MN) introduced sweeping legislation to amend the federal antitrust laws. The 56-page Competition and Antitrust Law Enforcement Act would, among other things, strengthen pre-merger review, prohibit exclusionary conduct, increase civil penalties, create whistleblower protections and reverse several significant judicial precedents thereby reaching a broader swath of conduct. Klobuchar, who chairs the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights, stated: “Competition and effective antitrust enforcement are critical to protecting workers and consumers, spurring innovation, and promoting economic equity. While the United States once had some of the most effective antitrust laws in the world, our economy today faces a massive competition problem. We can no longer sweep this issue under the rug and hope our existing laws are adequate.”
The following is a section-by-section analysis of this complicated and sweeping legislation.
Sec. 1: Short Title
This Act is titled the ‘‘Competition and Antitrust Law Enforcement Reform Act of 2021.”
Sec. 2: Findings and Purposes
Congress finds that:
- Competitive markets are critical to economic opportunity;
- Competition results in higher-quality goods and services;
- Competition fosters small business growth, reduces economic inequality and spurs innovation;
- Market power in the U.S. is substantial and growing;
- Market power makes it difficult for people to start their own business, depresses wages and increases income inequality;
- Market concentration contributes to the concentration of political power;
- Anticompetitive effects include higher prices, lower quality, lessened choice, reduced innovation, foreclosure of competitors and entry barriers;
- Monopsony power allows a firm to force suppliers to accept below-market prices or force workers to accept below-market wages;
- Horizontal and vertical consolidation and conglomerate mergers have potential to increase market power and cause anticompetitive harm;
- Consolidation threatens the American Dream;
- Since 2008, firms in the U.S. have engaged in over $10 trillion in mergers and acquisitions;
- The acquisition of nascent rivals presents long-term threats to competition and innovation;
- Section 7 of the Clayton Act is the primary line of defense against anticompetitive mergers;
- Some courts have recently limited the vitality of the Clayton Act by (1) discounting previously accepted presumptions that certain acquisitions are anticompetitive, (2) focusing inordinately on the effect of an acquisition on price in the short-term to the exclusion of other potential anticompetitive effects, (3) underestimating the dangers of mergers on quality, choice and innovation and (4) requiring the government to prove harmful effects of a proposed merger to a near certainty;
- Anticompetitive exclusionary conduct constitutes a particularly harmful exercise of market power;
- Exercising market power harms buyers through price increases, suppliers through underpayments and employers through low wages;
- Antitrust enforcement has been impeded when courts rely on inaccurate economic assumptions;
- Courts have improperly implied immunity based on federal regulatory statutes;
- Civil remedies currently available to cure violations have not proven sufficient;
- Effective deterrence requires the imposition of civil penalties, including structural relief, behavioral relief, private damages and equitable monetary relief, including disgorgement and restitution; and
- Federal antitrust enforcement budgets have failed to keep pace.
The purposes of the Act are to:
- Strengthen antitrust enforcement by the FTC and DOJ;
- Revise the legal standard under Section 7 of the Clayton Act to better enable enforcers to arrest the likely anticompetitive effects of harmful mergers in their incipiency;
- Amend the Clayton Act to clarify that an acquisition that tends to create a monopsony violates the Clayton Act;
- Establish simple, cost-effective decision rules that require parties to certain acquisitions that either significantly increase concentration or are extremely large bear the burden of establishing that the acquisition will not materially harm competition;
- Prohibit and deter exclusionary conduct that harms competition;
- Enable DOJ and the FTC to seek civil monetary penalties for violations of the Sherman Act;
- Give DOJ and the FTC additional financial resources to enforce tools to craft remedies for individual violations to deter future unlawful conducts;
- Provide protections for those who give evidence of anticompetitive conduct and potential financial rewards for whistleblowers; and
- Grant antitrust plaintiffs the right to obtain prejudgment interest on damages awards to deter anticompetitive conduct and more fully compensate injured parties.
Sec. 3: Definition
- The term “antitrust laws” has the same meaning given the term in the first section of the Clayton Act and includes Section 5 of the Federal Trade Commission Act relating to unfair methods of competition.
Sec. 4: Unlawful Acquisitions
- Adds the following to Section 1(a) of the Clayton Act:
- “Market power” means the ability of a person, or group of persons acting in concert, to profitably impose terms or conditions on counterparties, including terms regarding price, quantity, product or service quality, or other terms affecting the value of consideration exchanged in the transaction, that are more favorable to the person or group of persons imposing them than what the person or group of persons could obtain in a competitive market.
- Unlawful Acquisitions. Section 7 of the Clayton Act (15 U.S.C. 18) is amended—
- By replacing the phrase “substantially to lessen” with a lower legal standard: “to create an appreciable risk of materially lessening” competition.
- “Materially” is defined to mean “more than a de minimis amount.”
- By shifting the burden to the acquiring company to prove, by a preponderance of the evidence, that the effect of a qualifying acquisition will not create an appreciable risk of materially lessening competition or tend to create a monopoly or a monopsony.
- “Qualifying” acquisitions subject to burden-shifting are:
- acquisitions that significantly increase market concentration;
- acquisitions of entities that have a reasonable probability of competing with an acquiring entity, where the acquiring entity has a market share of greater than 50% of a relevant market, as a buyer or seller, or possess significant market power;
- acquisitions of a disruptive competitor;
- acquisitions that would enable the acquiring firm to unilaterally exercise market power as a buyer or seller;
- acquisitions in which the acquiring firm would hold aggregate total voting securities of an acquired firm in excess of $5 billion;
- acquisitions in which the acquiring firm has assets, net annual sales or a market capitalization greater than $100 billion and the acquisition would grant the acquirer aggregate voting securities in the acquired firm in excess of $50 million.
Sec. 5: Post-Settlement Data
- Section 5 would amend Section 7A of the Clayton Act to require firms that enter settlements with the FTC or DOJ to provide to the FTC or DOJ with five years of post-settlement data to “assess the competitive impact of the acquisition.”
- The data firms must report includes: (A) pricing, availability, and quality of products or services in any market covered by the agreement; (B) the source and resulting extent of any cost-saving efficiencies or any benefits to consumers or trading partners claimed as a benefit of the acquisition, and the extent to which any savings were passed on to consumers or trading partners; and (C) the effectiveness of divestitures or any conditions placed on the acquisition in restoring competition.
- Any agreement to resolve claims brought by the FTC or DOJ must include the requirement for the firm to provide the information described above.
Sec. 6: Federal Trade Commission Study
- Within two years of enactment, the FTC, in consultation with the Securities and Exchange Commission, shall study (1) the extent to which institutional investors have ownership or control interests in competitors in moderately concentrated or concentrated markets; (2) the economic impacts of such overlapping ownership; and (3) the mechanisms by which an institutional investor could affect competition among such companies.
Sec. 7: GAO Studies
- Within 18 months of enactment, the Government Accountability Office (GAO) shall conduct a study to assess the success of DOJ and FTC consent decrees entered into for six years prior to enactment. The study shall (1) examine the impact on maintaining competition, (2) provide a comparison of structural and (3) conduct remedies.
- Within 18 months of enactment, the GAO shall conduct a study on the impact of mergers on wages, employment, innovation and new business formation.
- The studies shall be updated three years and six years after enactment.
Sec. 8: Creation of the Office of Competition Advocate
- The Competition Advocate shall:
- be appointed by the FTC Chair with the agreement of a majority of FTC Commissioners, including one from the minority; and
- report to the FTC Chair;
- not serve during the two-year period ending on the date of appointment as Competition Advocate or during the five-year period beginning on the date on which the person ceases to serve as the Competition Advocate.
- Duties and Powers. The Competition Advocate shall:
- Recommend processes that will allow the FTC and DOJ Antitrust Division to improve the agencies’ ability to solicit reports from consumers, small businesses and employees about possible anticompetitive conduct;
- Provide recommendations to agencies about administrative actions that could have anticompetitive or procompetitive effects;
- Publish periodic reports on market competition and its impact on socioeconomic groups and the success of DOJ and FTC remedies in consent decrees.
- Subpoena Authority. The Competition Advocate may require and accept reports from companies to assess competition and its impact on socioeconomic groups. However, before requiring a report, the Competition Advocate shall rely on other agencies and publicly available information.
- Creation of Data Center. The Data Center shall:
- collect, validate and maintain data from agencies, commercial data providers, publicly available data sources and covered companies; and
- publish (1) a concentration database, (2) a merger enforcement database and (3) any other necessary databases.
- The Data Center may not disclose any confidential data collected.
- Creation of Division of Market Analysis. The head of the Division shall report to the Competition Advocate and be appointed with the agreement of a majority of FTC Commissioners, including one from the minority.
- Duties and Powers. The Division shall investigate industry sectors to analyze the competitive conditions and effects of market concentration, mergers and acquisitions and other agreements on competition, consumers and innovation.
- The Division shall investigate the competitive effects of acquisitions within the previous two years and provide recommendations on the appropriate enforcement actions.
- The Division shall report as to whether the acquiring person complied with FTC obligations or state law enforcement authorities and achieved measurable, transaction-specific efficiencies, which did not arise from anticompetitive reductions of output, as a result of the acquisition.
- The Division shall determine whether any agreements with the FTC or the United States were effective in resolving an antitrust proceeding.
- Sec. 9: Exclusionary Conduct
- This section amends the Clayton Act to make clear that it is unlawful “for a person, acting alone or in concert with other persons, to engage in exclusionary conduct that presents an appreciable risk of harming competition.”
- Exclusionary Conduct. The term “exclusionary conduct” means that which (1) materially disadvantages at least one potential competitor or (2) tends to foreclose or limit the ability or incentive of at least one potential competitor.
- The following shall not alone constitute exclusionary conduct, but may be evidence of a course of illegal exclusionary conduct:
- Applying for or enforcing a patent, trademark or copyright, unless enforcement actions are baseless or made in bad faith;
- That which is necessary to comply with federal or state law.
- Exclusionary conduct shall be presumed to present a risk to competition if the exclusionary conduct is undertaken by a person or group that (1) has a market share of greater than 50% as a seller or buyer in the relevant market or (2) otherwise has significant market power in the relevant market.
- The presumption shall not apply if the defendant establishes any of the following:
- Distinct procompetitive benefits of the exclusionary conduct;
- Actors have entered or expanded their market presence in the market; or
- The exclusionary conduct does not present an appreciable risk of harming competition.
- If the presumption does not apply, whether or not the exclusionary conduct presents an appreciable risk of harming competition shall be based on the totality of the circumstances, which may include consideration of:
- Whether any distinct procompetitive benefits of the exclusionary conduct eliminate the risk of harming competition;
- Whether participants have entered or expanded their market presence in the market.
- Although the following circumstances may constitute evidence of exclusionary conduct, violations do not require finding that:
- unilateral conduct of the defendant altered or terminated a prior course of dealing between the defendant and a person subject to the exclusionary conduct;
- the defendant treated persons subject to the exclusionary conduct differently than other persons;
- any price for a product or service was below any measure of the costs to the defendant of providing it;
- the defendant has or is likely to recoup the losses it incurred from below-cost pricing;
- the conduct makes no economic sense apart from its tendency to harm competition;
- the risk of harming competition presented has been quantified or proven with quantitative evidence;
- when a defendant operates a multisided platform, its conduct presents an appreciable risk to competition on more than one side of the platform.
- Civil Penalties for Exclusionary Conduct. Any person who engages in exclusionary conduct may be subject to civil action brough by the Attorney General or FTC and may be liable for up to the following: 15% of total U.S. revenues for the previous calendar year or 30% of U.S. revenues in any line of commerce affected or targeted by the unlawful conduct.
- The FTC and DOJ shall issue joint guidance within one year of enactment outlining the policies, practices and analytical techniques related to enforcing section 26A of the Clayton Act as amended by this section (relating to exclusionary conduct). The guidance shall be updated as needed, and at least once every five years.
Sec. 10: Civil Penalties for Sherman Act Violations
- Civil Penalties. Violators of Section 1 or 2 of the Sherman Act shall be subject to of not more than the greater of:
- 15% of total U.S. revenue for the previous calendar year;
- 30% of U.S. revenues of the person in any line of commerce affected or targeted by the unlawful conduct during the period of unlawful conduct.
- Enforcement Guidelines. Within one year of enactment, the Attorney General and the FTC shall issue joint guidelines outlining policies, practices and analytical techniques relating to agency enforcement under Section 5 of the Federal Trade Commission Act, as added by this Act. The guidelines should be updated at least once every five years.
Sec. 11: Joint Civil Penalty Guidelines
- Within one year of enactment, the Attorney General and the FTC shall issue joint guidelines reflecting agency policies for determining the appropriate amount of civil penalty as added by this Act.
- In establishing the guidelines pertaining to the calculation of appropriate civil penalties, which shall be updated at least once every five years, the following shall be taken into consideration:
- The volume of commerce affected;
- The duration and severity of the conduct;
- The intent of the person;
- The extent to which the conduct was egregious;
- Whether the penalty is to be applied alongside other remedies, including structural remedies, behavioral conditions or equitable disgorgement;
- Whether the person previously engaged in anticompetitive conduct; and
- Whether the person violated a preexisting consent decree or court order.
Sec. 12: Federal Trade Commission Litigation Authority
- Makes clear that the FTC has authority to recover civil penalties, an issue currently under review by the Supreme Court.
Sec. 13: Market Definition
- Establishing liability does not require the definition of a relevant market, except when it is required to establish a presumption or to resolve a claim, under a statutory provision that explicitly references the terms “relevant market,” “market concentration” or “market share.”
- Direct Evidence. Neither the FTC nor a relevant court shall require definition of a relevant market if direct evidence is sufficient to prove actual or likely harm to competition.
Sec. 14: Limitation on Implied Immunity from the Antitrust Laws
- No court or adjudicatory body may find that a federal statute implicitly precludes the application of the antitrust laws unless:
- A federal agency actively regulates the conduct under the federal statute;
- The federal statute does not include any provision preserving the rights, claims or remedies under the applicable antitrust laws; and
- Federal agency rules or regulations explicitly require or authorize the defendant to undertake the conduct.
- Existing Federal Regulation. The antitrust laws shall not be defined more narrowly on account of existing regulations unless their application is precluded or limited by:
- An explicit exemption from the antitrust laws under a federal statute; or
- An implied immunity that satisfies the requirements above.
Sec. 15: Authorization of Appropriations for Fiscal Year 2022
- Antitrust Division. Authorizes $484.5 million for DOJ’s Antitrust Division.
- Authorizes $651 million for the FTC.
Sec. 16: Whistleblower Protections
- Prevents employers from firing, demoting, suspending, threatening, harassing or otherwise discriminating against individuals providing the government information of potential anticompetitive conduct or otherwise assisting the government.
- Limitation on Protections. The protections shall not apply if the individual:
- Planned and initiated a violation of antitrust or criminal laws; or
- Planned and initiated to obstruct an investigation of antitrust laws.
- Enforcement Action. An individual alleging discrimination by an employer may seek relief by filing a complaint with the Secretary of Labor. The complaint shall be filed no later than 180 days after the date on which the violation occurred.
- Compensatory Damages. Relief shall include (1) reinstatement with same seniority status; (2) amount of backpay with interest; and (3) compensation for any special damages, including litigation expenses.
- Whistleblower Reward. For any activity that results in criminal fines exceeding $1 million, a reward is provided to individuals who provide information to DOJ relating to a violation of the antitrust laws. The reward shall not equal more than 30% of what has been collected of the criminal fine.
Sec. 17: Prejudgment Interest
- In addition to being able to recover threefold the damages sustained, the cost of the suit, including reasonable attorney’s fees, any person injured by an antitrust violation may also recover simple interest on threefold the damages sustained for the period beginning on the date of service of such pleading and ending on the date of judgement.
This document is intended to provide you with general information regarding the Competition and Antitrust Law Enforcement Reform Act. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.