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Challenging the 2023 Draft Merger Guidelines: SIIA’s Key Concerns and Recommendations

In response to the Department of Justice (DOJ) and the Federal Trade Commission’s (FTC) request for comments on the Draft Merger Guidelines, the Software & Information Industry Association (SIIA) has highlighted several key concerns and observations:
  1. Role of the Merger Guidelines: SIIA emphasizes the importance of merger guidelines in helping to explain merger law and provide guidance to the public. While the courts have traditionally considered these guidelines persuasive, it’s crucial for the agencies to exercise caution and not extend their authority beyond what is supported by the law.
  2. 2023 Draft Merger Guidelines: SIIA acknowledges the Agencies’ goals with the 2023 Draft Guidelines, including reflecting the law as written, being transparent, and adapting to the modern economy. However, SIIA raises concerns about the guidelines’ effectiveness, suggesting that they may not align with the changes in antitrust law over the years.
  3. General Comments on the 2023 Draft Merger Guidelines: SIIA highlights the need for the guidelines to reflect the significant shift in antitrust law toward focusing on consumer welfare and market power. They express concern that the Draft Guidelines exhibit an anti-merger bias, potentially leading to more challenges for mergers.
  4. Comments on Specific Guidelines:
    • Guideline 4: SIIA believes that Guideline 4, which deals with potential entrant elimination, may create significant uncertainty and subject numerous mergers to increased scrutiny.
    • Guideline 6: SIIA argues that Guideline 6, which establishes a foreclosure share presumption, has dubious legal support and may capture mergers that historically raised no anticompetitive concerns.
    • Guideline 7: SIIA expresses concerns that Guideline 7’s evaluation of mergers involving dominant firms may lack clarity and alignment with the consumer welfare standard.
    • Guideline 9: SIIA recommends a more precise articulation of Guideline 9 and the introduction of a clear limiting principle regarding multiple small acquisitions.
    • Guideline 10: SIIA questions the authority for Guideline 10’s platform-based approach to assessing mergers and the use of the term “conflict of interest.”
SIIA appreciates the opportunity to provide comments and looks forward to further engagement with the Agencies on this crucial issue of antitrust guidelines and their potential impact on the software and digital information industries.
Media Library (92)

TECH& with Sruthi Thatchenkery, Assistant Professor of Strategy, Vanderbilt University

Join Morten Skroejer and Sruthi Thatchenkery in this engaging Tech& discussion as they delve into the effects of antitrust actions on large online platforms. The discussion highlights the need for careful consideration of specific outcomes and effective regulatory measures in the digital economy. Don’t miss this engaging conversation on the evolving landscape of antitrust in the digital age. Gain a deeper understanding of the challenges and potential solutions for ensuring fair competition and innovation in today’s digital markets.

Watch the full conversation here

Media Library (28)

FTC Overreach is Not the Way to Change the Antitrust Laws

By Morten Skroejer, Senior Director for Technology Competition Policy, Software & Information Industry Association

As someone wise in the exercise of power has counseled, “[p]reach the need for change, but never reform too much at once.” Every administration seeks to put its stamp on antitrust policy and enforcement. But astute agency leaders recognize that their time is limited, and that they are more likely to succeed if they seek incremental rather than wholesale change. The Federal Trade Commission (FTC) under Chair Khan is not heading that wisdom.

On a party line vote, the FTC last November issued a policy statement purporting to provide guidance on the scope of “unfair methods of competition” (UMC) under section 5 of the FTC Act. The guidance is sweeping, asserting the authority of a majority of the Commission to declare “unfair” business practices with which they disagree.

According to the statement, the “unfairness” determination will be made according to a two-part test. A first step will seek to determine whether the conduct in question is “coercive, exploitative, collusive, abusive, deceptive, predatory, or involve[s] the use of economic power,” or “otherwise restrictive or exclusionary.” After that, the inquiry will explore whether “[t]he conduct…tend[s] to negatively affect competitive conditions” by “affecting consumers, workers or other market participants.” These factors will then be “weighed according to a sliding scale,” and can include conduct that “may or may not be covered by the literal language of the antitrust laws or that may or may not fall into a “gap” in those laws.” The end goal seems to be something akin to the EU, where the Commission has substantial flexibility to go after companies on the basis of a hodgepodge of factors, most of which would not pass muster under U.S. antitrust law.

Since the statement is devoid of any attempt at defining the above-mentioned terms, no one, perhaps with the exception of Chair Khan and Commissioners Bedoya and Slaughter, knows what this would mean in practice. Nor is it clear if meeting the first part of the test would render the second part of the inquiry moot. What is clear is that the statement abandons the consumer welfare standard, which has been the lodestar of antitrust enforcement for the past four-plus decades. It also does away with the rule of reason standard, thereby eliminating the need for the agency to balance an agreement or conduct’s pro- and anti-competitive effects before rendering a decision.

The statement, by itself, is not legally binding since none of the procedural requirements that agencies must satisfy to establish “rules” were followed. That said, the guidance might still be used to extract concessions that the agency ordinarily would not be able to obtain, or get parties to abandon mergers that otherwise would have been approved. So, whether binding or not, the statement would clearly have a chilling effect, which is likely part of what is intended. A related question is whether the FTC possesses any substantive antitrust rulemaking authority at all.

It seems clear that FTC Chair Lina Khan intends for her statement to be more than a mere stunt that her supporters can hype on social media. Why else would she expend valuable political capital to publish something that has resulted in criticism from both the antitrust bar, where many have been left less than impressed? The most plausible explanation is that Chair Khan hopes to use the guidance to inform the FTC’s deliberations regarding future enforcement decisions and to engage in substantive UMC rulemaking. As a practical matter, however, that approach is unlikely to work.

Antitrust litigation is highly fact-specific, and any individual enforcement decision will therefore stand or fall on its own merits. In that sense, well-thought-out agency guidance can be helpful to those whose behavior it seeks to regulate. But the courts have been clear that the relevant test is whether the guidance provides at least “an inkling as to what they can lawfully do [and not leave them] in a state of complete unpredictability.” Given how vague the policy statement is about what section 5 actually means, it plainly fails to clear that bar.

A separate but related question is whether sections 5 and 6(g) of the FTC Act authorize the FTC to issue substantive antitrust “rules” or regulations. Based on its policy statement and the recent notice of proposed rulemaking on the use of non-compete clauses in employment contracts, the FTC’s current majority clearly thinks that it does. For at least three reasons, they are almost certainly wrong.

First, the FTC has only used its supposed antitrust rulemaking authority once. This happened in 1967, more than fifty years after the agency was established, when it promulgated the so-called “Tailored Clothing Rule,” a rule that was never enforced and later repealed. While not conclusive proof, the fact that no commissioner in the first half century of the FTC’s existence seems to have thought it could issue substantive antitrust rules, and no rulemaking has been tried since, creates a strong presumption that this claimed authority does, in fact, not exist.

Second, even assuming that Chair Khan’s mastery of the canons of statutory interpretation is such that she can discern authorities in the FTC Act and from the Congressional Record that virtually no past FTC commissioner, the courts, or others who have grappled with this issue have found, any substantive UMC rulemaking is likely to run headlong into what is known as the non-delegation doctrine. At its core, this doctrine holds that Congress cannot delegate its own legislative powers to a government agency, like the FTC, without providing some guidance (an “intelligible principle”) as to what a future rule must look like. Admittedly, the non-delegation doctrine has been sparsely used, but with the current makeup of the Supreme Court a revival is likely on the cards. And given the dearth of guidance on UMC rulemaking provided in the FTC Act, any action by the Commission in this area would be a ripe target.

Finally, if the FTC somehow found a way to overcome the first two objections to its substantive UMC rulemaking authority, the final, and likely insurmountable, challenge would be the Supreme Court’s newly robust application of the major questions doctrine. Like the non-delegation doctrine, major questions is a Court-developed doctrine that aims to protect the separation of powers. The Court recently defined the applicable standard as an expectation that “Congress … speak clearly when authorizing an agency to exercise powers of vast economic and political significance.”

Among the factors that a court must look at when deciding whether the doctrine applies are the scope of asserted rulemaking authority, whether the authorizing language is clear or ambiguous, and whether the agency has a history of using the claimed authority. In this instance, the policy statement claims sweeping powers that have only been asserted once in more than a century, based on, at best, ambiguous language. While a desire for wide latitude is understandable, it is both unwise and unlawful for an agency to try to stretch its mandate far beyond what Congress intended. Because of this, any attempt at substantive UMC rulemaking seems overwhelmingly likely to fail.

The FTC under Chair Khan is on a mission to fundamentally alter the focus of antitrust law from protecting the competitive process and the interests of consumers to include myriad competing, and at times inconsistent, priorities. Protecting workers, less efficient companies, and other equitable interests may be laudable and serve legitimate societal ends, but those are not factors that are relevant to a determination of whether the antitrust laws, including section 5 of the FTC Act, have been violated. Moreover, opining on these issues falls well outside the scope of the FTC’s experience and expertise. For all of these reasons, the FTC should rescind the policy statement and focus on its proper antitrust role, which is to enforce the law as it is.

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The EU Data Act – A Good Idea That Needs More Work

SIIA supports the overall objective of the Data Act to unlock the value of data and foster innovation. In its current form, however, we believe that it would lead to unintended consequences and, therefore, would be likely to do more harm than good—both to European interests and the broader digital economy.

Read More Here

Media Library (51)

The American Innovation and Choice Online Act — A Bill Not Ready for Primetime

Proponents and opponents of the main tech-oriented antitrust bills currently before Congress all agree on one thing: To have a chance of passing before the midterms, a floor vote will likely need to happen before Congress starts its August recess. Whether born of desperation or a desire to test-run novel approaches to legislative PR, bill proponents have enlisted the help of, among others, an online tabloid news outlet and a British comedian in their efforts to sell voters on the merits of the American Innovation and Choice Online Act (AICOA).

But legislatively overruling decades of legal precedent, which is what supporters of the bill are proposing to do, is no laughing matter. This legislation has wide-ranging potential consequences and thus requires careful deliberation, not a rushed vote. Neither AICOA nor its companion bill in the House has had a single hearing, where experts have been questioned about any collateral repercussions that might result from them. And make no mistake. AICOA is rife with potentially serious unintended consequences. Below is a sample of issues related to AICOA in its current form.

For decades, the overriding goal of the antitrust laws in the United States has been to protect the interests of consumers. The consumer welfare standard, and its attendant focus on economics in evaluating the relative benefits and harms of corporate actions, has worked extraordinarily well. This is particularly true in the tech space, where it has helped unleash a level of innovation that is the envy of the world. Remarkably, this has led some to surmise that antitrust law is in need of a major overhaul.

AICOA seeks to deliver on this promise by overturning years of antitrust precedent. While Congress can do that, to do so based on legislation that has never been properly vetted, is overbroad, and leaves foundational terms undefined, will create great uncertainty for consumers, businesses, the enforcement agencies, and the courts.

Take, for example, the ban on “self-preferencing” in section 3(a)(1). Looking at the text, the provision seems to ban companies that are covered by the bill from selling or promoting their own products or services if they are in competition with those of their direct competitors. But this interpretation is subject to uncertainty. Not only is the proposal itself silent on what it means by terms like “preference” and “materially harm competition,” these terms are also undefined in existing antitrust law. And this is to say nothing of the practical challenges associated with implementing the rule, even if the above interpretation eventually is confirmed by the courts. A list of search results, after all, must place someone or something first, and deciding which product or service “is the best” is inherently subjective.

Another example of the proposal using language that is woefully unclear centers on the issue of content moderation. Section 3(a)(3) prohibits “discrimination in the application or enforcement of the terms of service.” The Democratic bill drafters, Senator Amy Klobuchar (MN) and Representative David Cicilline (RI), have made clear that, as they see it, the sole goal of the bill is to regulate commercial practices, and they dismiss out of hand any connection to content moderation. The lead Republican sponsors, Senator Charles Grassley (IA) and Representative Ken Buck (CO), on the other hand, are just as adamant that they see AICOA as a helpful tool in fighting what they contend is a liberal bias among digital platforms, and that their support for the bill is contingent on this interpretation.

Irrespective of which side ultimately might prevail, their incongruent understandings of what the bill is meant to do make two things plain. First, whether the Democrats agree or not, since Republican lawmakers have made clear that their support for the bill is conditioned, at least in part, on content moderation concerns that will be part of its legislative history, which could well affect how a court would rule if an appropriate case should come before it. Second, given the importance of the issue, not least in the aftermath of the Supreme Court’s recent decision in Dobbs, it would be almost reckless not to get more clarity on what the bill actually is intended to do in this area before moving it forward.

Beyond these specific examples, however, the bill more broadly gives the Department of Justice and the Federal Trade Commission tremendous leeway to decide what is lawful, which companies are covered, whether such a designation applies to the company’s entire business or only a part of it, and for how long a designation remains in effect. And while section 4(a) states that the enforcement agencies “shall jointly issue agency enforcement guidelines outlining policies and practices … with the goal of promoting transparency …,” the very same provision also says that these “guidelines … do not … bind…” those same enforcement agencies. How the legislative text will be interpreted and implemented, in other words, is left to the whims of whoever oversees the enforcement agencies at any given time.

It would be unreasonable and impractical to demand that a legal text be fashioned with such precision as to leave no room for doubt. That said, the operative language in AICOA is so unclear and malleable that it would be highly vulnerable to shenanigans and political abuse. Because of this, it would behoove bill proponents to find some agreement about what they are trying to accomplish before attempting to push this bill across the finish line.