MoFo Perspectives Podcast
In this episode of the Above Board podcast, Morrison & Foerster partner and host Dave Lynn speaks with Megan Gerking, Washington, D.C.-based partner and former trial attorney in the DOJ’s Antitrust Division, on the potential watershed moment in antitrust enforcement as we know it today. In this rapidly evolving regulatory landscape, it is important for boards of directors to recognize the benefits of a comprehensive antitrust compliance program. Further, as companies expand their focus on environmental, social and governance matters, boards and management must be particularly cognizant of antitrust compliance considerations.
Speaker: Welcome to MoFo Perspectives, a podcast by Morrison & Foerster, where we share the perspectives of our clients, colleagues, subject matter experts, and lawyers.
Dave Lynn: Hello, I’m Dave Lynn, and I’m a partner at Morrison & Foerster based in the Washington D.C. office. And I’m pleased to be joined today by my colleague, Megan Gerking, who is a partner in Morrison & Foerster’s Global Antitrust Law practice. Megan’s practice is focused on government-facing antitrust matters, and she previously served as a trial attorney in the DOJ’s Antitrust Division, where she investigated and prosecuted antitrust violations and international cartel cases. Megan, thank you very much for joining me today.
Megan Gerking: Thank you for having me, Dave.
Dave Lynn: We’ve certainly heard a lot of discussion about antitrust enforcement in the media lately. Could you help us understand the latest developments?
Megan Gerking: Absolutely. It’s certainly been an interesting couple of years and now even more recently, couple weeks in June, in the area of antitrust enforcement. And I actually think that we’re in a potential watershed moment in antitrust as we know antitrust today. There is a real possibility for reform of antitrust laws to become more restrictive for businesses and also for antitrust enforcement in the U.S. to become much more aggressive. For several years, critics of big tech have been advocating for the breakup of big tech companies saying that they’ve been allowed to get too big through mergers and acquisitions, particularly of nascent competitors. And through other practices that critics say make it harder for other companies to do business with these companies and also that they self-preference for their own goods. This has been a rare, unifying topic for Democrats and Republicans in this environment. There’s actually bipartisan support for reform.
Megan Gerking: And while we have seen U.S. enforcers become more active in this space, for example, the DOJ, FTC, and state AGs have brought cases against a few of the tech companies in the past year, a few events that have been playing out very recently suggest there could be major change ahead. Specifically, on June 15th, Lina Khan was named chair of the FTC after she was confirmed by the Senate. This came as a surprise, not only to the antitrust community, but as reports suggest, to the Senate and potentially also to Khan, herself. This was also contrary to customary practice. While the president nominated Kahn to be one of the five commissioners, it was not known until after she was confirmed that she would be named chair. Typically, when the president nominates someone for the chair position that would be done at the very outset so that the Senate would be aware that the person was going in as the head of the FTC. At the same time, just on Friday, last week, there were five new bills that were introduced in the House that would make it harder for tech companies to complete acquisitions and make it more difficult to preference their own products.
Megan Gerking: I think both of these parallel developments are very significant. Khan has been an advocate herself for breaking up the big tech companies, and with her at the helm of the FTC, we could see some very aggressive enforcement, particularly in areas of mergers and acquisitions that we have not seen before. She’ll also be driving policy. It’s possible that she could advocate for rulemaking in this area as well, even if Congress does not act itself.
Dave Lynn: And any sense for what might happen next, particularly on the enforcement front, as a result of these many late-breaking developments?
Megan Gerking: You know, it’s difficult to say. There are still some unknowns that will absolutely impact the potential effect of Khan being named to chair, and on the legislation, there’s still some distance to go. First, on federal antitrust enforcement, there’s not been a named DOJ Assistant Attorney General yet in the Biden administration. This is also somewhat unusual. I think in past administrations, an AAG of the antitrust division has been named no later than spring. So this is very late in the game. There’s also some potential limitations by the courts. The FTC has suffered some big losses recently, and the Supreme Court also stripped the FTC of its ability to seek discouragement or financial remedies just in April. And finally, one other relevant factor is there are three democratic commissioners named to the FTC and two Republican commissioners. One of the three current democratic commissioners, Rohit Chopra, was named to head the CFPB, but his confirmation process has been deadlocked. And so confirmation has not been scheduled. So the timing of when he moves is uncertain. It’s also not clear who will replace him. So there are absolutely some unknowns for the FTC and more broadly for federal antitrust enforcement trends. But I do think that these are all trends that are going in the direction that companies and boards, especially considering mergers and acquisitions, need to consider these developments. Stay up to date because they have the potential to be potentially very significant.
Dave Lynn: Yes, certainly all this activity points to the importance of having in place an antitrust compliance program. In addition to preventing and detecting potential antitrust issues, are there other potential benefits for putting in place strong compliance program?
Megan Gerking: Yeah, absolutely. Shifting gears slightly, in addition to prevention and detection of antitrust issues and ensuring that your business practices are in compliance, the DOJ antitrust division announced a significant policy change actually almost two years ago at this point in July, 2019, that it would take into account company’s compliance programs at both the charging and sentencing phases of criminal antitrust investigations. This was a significant change. It’s been a longstanding policy of the division that compliance programs were only really taken into account at the sentencing phase. So now, companies that meet the division’s criteria could potentially be eligible for reduced charges, no charges, or even a Deferred Prosecution Agreement, or a DPA. The DOJ criminal division has long since considered corporate compliance policies and exercising its prosecutorial discretion. But this is new ground for the DOJ antitrust division. Since 2019, when the policy went into place, the antitrust division has issued DPAs showing that this new policy is having an impact on enforcement.
Dave Lynn: Has the DOJ said what makes an effective antitrust compliance program?
Megan Gerking: Alongside with the policy announcement, the DOJ antitrust division issued guidelines discussing how they plan to evaluate antitrust compliance programs. In its guidance, the Division sets out three main questions as prosecutors should consider: is the antitrust compliance program well designed? Is it being applied earnestly in good faith? And does the compliance program work? They also outline a number of factors or criteria that it would consider when determining whether it is well designed and whether it works. And the AAG at the time, Makan Delrahim, cautioned that these nine elements, it’s not a checklist, and companies’ antitrust compliance programs should be risk based, but some of the factors are considering whether the program is well designed and comprehensive. Does the corporation have a meaningful culture of compliance? Who in the corporation has responsibility for the compliance policy and the program? And does it report to, for example, the board? Whether the program incorporates risk assessments that are reevaluated? How the company trains and communicates about its antitrust compliance policy? Whether there is a reporting protocol as part of the program? What incentives and discipline measures are in place? And also remediation efforts after discovery of a potential violation.
Megan Gerking: So these are, again, all factors that are relevant, that the DOJ will consider, but important for everyone to know that it’s not just a checklist; that effective antitrust compliance programs should evaluate the unique risk that each company faces and be tailored to those risks.
Dave Lynn: Are there any other antitrust compliance trends that boards should be aware of?
Megan Gerking: Yes, Dave, one topic that I have heard discussed recently and its potential for impact on antitrust risk are efforts related to environment, social, and corporate governance issues, or ESG. I know that those are becoming more top of mind to companies and that there are significant efforts underway to achieve those objectives. Satisfying those related demands can often frequently lead to a push for coordinated efforts among companies in the same industry to discuss the best way to achieve certain goals. For example, through benchmarking, sharing information, and ensuring things like purchasing or energy efficiency standards are adopted. These are very worthy objectives and should be pursued, but they do require boards and corporate council to be vigilant in their oversight and appreciate that regardless of the goal, regardless of the objective, that antitrust guidelines are followed. This is because working together with other companies within an industry, especially your competitors, regardless of the goal, can implicate the antitrust laws. And we have seen at least one related investigation by the DOJ in recent years. So this is one issue that I think it’s important for boards and companies to consider as they pursue ESG objectives.
Dave Lynn: Great. Thank you, Megan, for joining me, and thank you for providing all those insights on a very dynamic area.
Megan Gerking: Thank you very much for having me today, Dave.
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