On the latest episode of Line of Defense, Womble Bond Dickinson Partners David Hamilton and Britt Biles spoke with Christina DePasquale, Ph.D., an Associate Professor at Johns Hopkins University’s Carey Business School, about the Biden Administration’s priorities in antitrust enforcement and the philosophy behind those priorities. The following article is based on that conversation.
Whenever a new Administration takes over in Washington, regulatory priorities are among the first and most noticeable changes. This certainly has been true with the Biden Administration, as in the past year-plus, antitrust and anticompetitive enforcement have been a point of priority.
But some of these enforcement efforts began under the Trump Administration and indicate a philosophical shift on antitrust enforcement that goes beyond simple party lines. The diminution of the Consumer Welfare Standard is a key point underlying this shift, and senior-level federal appointments and a sweeping Executive Order have broadened the scope of antitrust enforcement.
In general, companies are under increased pressure to show their actions comply with antitrust law—and federal regulators are stepping up enforcement actions and raising the stakes for non-compliance.
Consumer Welfare Standard in Decline
For 40 years, the Consumer Welfare Standard served as the test for measuring competitive activity. But around 2016-17, many economists and others started to see the Consumer Welfare Standard as outdated and inadequate in the modern marketplace.
Dr. DePasquale said, “The Consumer Welfare Test says low prices are the end goal, no matter how we get there—even if that comes from one giant firm producing those low prices. In recent years, many people, mostly on the public policy side, are saying this shouldn’t be how we measure competition.”
This approach is rooted in the idea that low prices may mean some producers or employees suffer – in other words, low prices alone are note the end-all/be-all of antitrust concerns.
“The Consumer Welfare Test says low prices are the end goal, no matter how we get there—even if that comes from one giant firm producing those low prices. In recent years, many people, mostly on the public policy side, are saying this shouldn’t be how we measure competition.”
Traditionally, the Consumer Welfare Standard asked three questions:
- Does the challenged conduct result in increased prices?
- Does it decrease output?
- Does it reduce the quality of goods and services?
But in abandoning that test, Hamilton said federal antitrust regulators are left without an objective measuring stick. The new standards look at the result of conduct and determine if it is good for the market—a more subjective “Big is Bad” test, Hamilton said.
The new philosophical approach holds that low prices are not the end goal if they come at the expense of competition. For example, Dr. DePasquale said the Administration now takes a dim view of large corporations stifling small businesses, even if the end result isn’t higher prices for consumers.
“That does go against basically 40 years of competition analysis. If you were to ask the average economist, I think they would say this is a complex issue and the Consumer Welfare Standard is a component of that complex issue,” she said. Low prices from a single company may or may not be harmful to the nation’s overall economic health, Dr. DePasquale said, and should be examined on a case-by-case basis, rather than with a blanket approach.
Federal agencies are being more aggressive in filing anti-competition cases, leading Biles to ask, “In this current climate, how do you keep those cases from being filed when you are advocating for a client?” Hamilton said it is too early to tell and more clarity from the federal courts is needed.
Recent Federal Appointments, 2021 Executive Order Drive New Antitrust Direction
Hamilton points to two watershed events following the 2020 Presidential Election that are shaping the current federal antitrust direction.
- The appointment of Tim Wu to the National Economic Council, Lina Khan as Chair of the Federal Trade Commission, and Jonathan Kanter to lead the Department of Justice’s Antitrust Division. All three are seen as antitrust hawks who favor strong federal action to curb the power of larger corporations.
- The Biden Administration’s July 2021 Executive Order on Promoting Competition in the American Economy, authored by Wu. The Executive Order includes 72 initiatives across a dozen federal agencies to limit the power of large corporation. “It was a pretty broad ranging EO. It’s not law, but it certainly sets out the policies and ambitions of the Biden Administration,” Hamilton said.
“It certainly set the tone for what the Biden Administration hopes to do in terms of antitrust enforcement,” Dr. DePasquale said. “That Executive Order laid the groundwork for their antitrust enforcement plan, and they followed through on it.”
In particular, she said the Administration has been particularly aggressive in pursuing wage-fixing, price-fixing and no-poach employment agreements. The Executive Order also pointed out the sectors the Administration is focused on in the antitrust arena, namely tech, life sciences/pharma and agriculture.
“The way the Administration has chosen to enforce this is through the traditional ‘Three Weapon’ process—to litigate, to legislate and to regulate. Regulation occurs through the FTC and DOJ, and there have been a number of indications that there will be a significant overhaul of guidelines from these agencies,” Hamilton said.
“The way the Administration has chosen to enforce this is through the traditional ‘Three Weapon’ process—to litigate, to legislate and to regulate. Regulation occurs through the FTC and DOJ, and there have been a number of indications that there will be a significant overhaul of guidelines from these agencies.”
The advantage of a regulation-focused approach is that the Administration can act without Congressional support. But Congress also has introduced many antitrust bills in recent years.
The most prominent current piece of legislation is Senate Bill 2992, a pro-competition bill that challenges Google’s free search and Amazon’s free shipping policies. But Dr. DePasquale said there is little public demand for such legislation—consumers like these policies and don’t want them to change. She points to this bill as an example of federal officials seeking to address activity perceived as anti-competitive, even when the activity in question isn’t harming consumers and, in fact, may benefit the average American.
“Senate Bill 2992 is hung up because we’ve got mid-term elections coming up this year,” Hamilton said. “Those elections could change the hand that holds the gavel and take us in a different direction—or in the same direction.” It may get a vote before the mid-term elections but that’s uncertain.
Despite Aggressive Antitrust Stance, Feds Seeing Disappointing Litigation Success
Federal agencies have ramped up enforcement efforts, with 150 ongoing lawsuits, numerous grand jury investigations and other activity. But to date, federal agencies have not had a great deal of success in prosecuting these cases, Dr. DePasquale said.
For example, in August, the DOJ lost a high-profile no-poach case against DaVita, a large healthcare services provider. The DOJ had brought criminal charges against DaVita and its CEO, alleging the company had conspired with competitors to restrict the movement of employees in violation of the Sherman Antitrust Act. Had they been convicted, the company could have faced hundreds of millions of dollars in fines and the CEO could have been sentenced to 10 years in prison. But a Denver jury acquitted the defendants in a significant blow to the Administration’s new antitrust enforcement direction.
Dr. DePasquale said an aggressive approach to no-poach employment agreements makes sense for highly specialized jobs where employment opportunities are limited. But in the DaVita case, there were numerous other healthcare providers offering similar jobs within the area, meaning the government had an uphill road to prove that employee movement was limited.
Antitrust Challenges in M&A Transactions
Hamilton said antitrust issues in mergers, acquisitions and other corporate transactions also are under the federal microscope.
“For companies that meet Hart-Scott-Rodino filing requirements, it feels like every tech transaction is being flagged for analysis,” he said. Federal regulators have indicated they will block mergers or even unwind already completed mergers if they find antitrust concerns.
“For companies that meet Hart-Scott-Rodino filing requirements, it feels like every tech transaction is being flagged for analysis.”
Dr. DePasquale said the Biden Administration’s current position seems to be that there are no pro-competitive benefits to merger—a position in line with European Union thinking. But she said the reality is more nuanced.
For example, Rhode Island’s two largest healthcare systems abandoned a planned merger after the FTC sued to block the transaction. But the proposed merger was popular with the Rhode Island public at large, who felt it would expand healthcare offerings in the state. The union representing nurses supported the proposed merger, and public protests took place once the merger plans were abandoned.
But Hamilton said he expects even more federal antitrust challenges to proposed M&A activity in the near future. And a very significant focus on the impact of mergers and acquisitions on labor forces is a heightened concern. The antitrust enforcers now use the vernacular “competitive harm” in describing consolidation and reductions in work forces when the business parties would describe that effect as “creating efficiencies.”
Finding a Way Forward in an Uncertain Regulatory Environment
So how should companies operate in this new and changing regulatory landscape?
Hamilton said the first step is to craft a compliance plan focused on flagging, correcting and preventing behavior that could result in non-compliance. For example, he said in-house counsel should examine employment agreements for possible no-poach arrangements. In addition, companies should train salespeople on what they can and cannot say regarding pricing.
“College athletic staffs have a Compliance Director (for NCAA rules compliance). Companies probably should have this to meet antitrust compliance,” Dr. DePasquale said.
Federal regulators also are using the threat of criminal indictments to enforce corporate antitrust compliance.
Traditionally, the government has not brought criminal indictment on per se violations in conduct enforcement actions, Dr. DePasquale. But the government did so in a recent Texas case. The defendants in United States v. Jindal et al. won at trial on the substantive antitrust claims. However, the company’s owner was convicted of obstructing the government’s investigation. Hamilton said per se violations, which target the individual in addition to the organization, will be a major tool for regulators going forward.
Above all, in-house counsel need to keep in mind that they are now in choppy waters regarding antitrust and regulatory compliance must be a priority.
The seminal event for antitrust lawyers is the ABA Antitrust Meeting every April in Washington, D.C. Federal regulators come in and discuss the lay of the land in antitrust enforcement.
Hamilton said the April 2022 meeting “was a sobering event to hear regulators talk about their philosophy, their attempts to change the Consumer Welfare Test, and the changes they want to make to the Corporate Leniency Program.”
“You can’t say they haven’t warned us, but the warnings are pretty dire,” he said.