On February 11, the Federal Trade Commission (FTC) announced that it issued Special Orders to five large technology companies requiring them to submit information related to their acquisitions during the past decade that were not reportable under the HSR Act. According to FTC Chairman Joe Simons, the study will afford the Commission an opportunity to take a broader view of deals in the technology sector and “evaluate whether the federal agencies are getting adequate notice of transactions that might harm competition.”
While the technology sector is the target of this study, companies in other industries should take note. The study’s findings will help the FTC consider whether premerger notification requirements are sufficient or should cover additional transactions. And two FTC Commissioners, Christine Wilson and Rohit Chopra, issued a separate statement calling for studies of non-HSR reportable transactions in other industries, such as healthcare.
Section 6(b) of the FTC Act authorizes the FTC to issue Special Orders for the purpose of conducting wide-ranging studies that do not have a specific law enforcement purpose. Special Orders are the equivalent of broad discovery requests. The FTC published a sample Order, which contains 24 Specifications, many with subparts. The requests in the sample go far beyond information that would be supplied in an HSR filing for each transaction. For example, the Order calls for information related to employee hiring and restrictive covenants, product price changes, the creation or modification of products, and whether the acquirer took a controlling or minority stake in the target.
At this point, the precise number of transactions subject to the FTC’s study is unclear – acquisitions reported under the HSR Act or subject to certain exemptions fall outside the study’s scope – but it is likely in the hundreds. Thus, this will likely be a very burdensome and time consuming exercise for the recipient companies.
Responding to the Special Orders is not optional. The FTC may seek a court order requiring compliance, and defaulting parties are liable for civil penalties for non-compliance under Section 10 of the FTC Act.
The FTC has not yet committed to releasing its findings, though the Commission will typically authorize staff to issue a report following a Section 6(b) study. In addition, while the FTC’s authority under Section 6(b) is limited to studying the transactions, the FTC could open law enforcement investigations into specific, previously consummated transactions. As the Director of the FTC’s Bureau of Competition recently noted, the FTC has an expansive remedial toolbox to address antitrust violations in a consummated merger context.
But, the FTC will likely not be in a position to share its findings anytime soon. Recent Section 6(b) studies on merger remedies and patent assertion entities took two and three years, respectively, to complete. The merger remedy study, which analyzed 89 FTC-approved transactions, had a smaller scope than the current study likely contemplates. Although the FTC said that it wants to move quickly with the present study, given the breadth of these current requests to multiple companies, the FTC is unlikely to complete its studies much quicker.
Companies outside the technology sector should take note of these Special Orders for a few reasons:
First, studies in other industries may follow. Commissioners Wilson and Chopra urged the Commission, in their joint statement, to conduct similar studies in other industries. In particular, their statement highlighted the pharmaceutical and hospital markets as areas prone to patterns of stealth consolidation.
Second, the Special Orders indicate that the FTC is taking note of these technology companies’ minority acquisitions and the strategies behind these transactions. The FTC may be using these Special Orders, in part, to evaluate whether the purpose of some acquisitions was to eliminate nascent competition that could eventually emerge to threaten incumbents. Minority investment and common ownership are not new to the FTC’s radar. Investors’ common ownership of competitors and whether this strategy produces anticompetitive effects was the subject of an FTC hearing last year. Including requests in the Special Orders related to minority investments and the purposes behind those transactions signals the FTC’s continued interest in this issue.
 Diana L. Moss, New Analysis from AAI Shows a Weak Record of Antitrust Enforcement in Bigh Tech – Calls for Stronger Presumptions for Acquisitions of Smaller, Potential, and Nascent Rivals, Am. Antitrust Institute (July 9, 2019), https://www.antitrustinstitute.org/work-product/new-analysis-from-aai-shows-a-weak-record-of-antitrust-enforcement-in-big-tech-calls-for-stronger-presumptions-for-acquisitions-of-smaller-potential-and-nascent-rivals/.