Analysis of the Proposed Competition and Antitrust Law Enforcement Reform Act of 2021

Senator Amy Klobuchar (D-MN) introduced the Competition and Antitrust Law Enforcement Reform Act of 2021 on February 4, 2021 in an effort to, in her words, comprehensively "overhaul[] and moderniz[e]" US antitrust laws. The legislation is far more expansive than the comparatively narrow Anticompetitive Exclusionary Conduct Prevention Act of 2020, which Senator Klobuchar introduced on March 10, 2020. The current legislation presents the Senator's opening salvo in what could be an active legislative agenda for the new chair of the Senate Judiciary Committee's Antitrust Subcommittee. Cosponsors of the 2021 bill include Judiciary Subcommittee on Antitrust and Commerce Committee members Richard Blumenthal (D-CT), Cory Booker (D-NJ), Ed Markey (D-MA), and Brian Schatz (D-HI). While a number of Republicans have called for increased antitrust enforcement, particularly against technology companies, the bill currently has no Republican cosponsors.

The bill proposes many major changes to existing antitrust laws, including most notably:

• Lowering the threshold to find a merger or acquisition unlawful from the current "where the effect of the acquisition may be substantially to lessen competition" to a new and lower threshold barring deals that "create an appreciable risk of materially lessening competition."
• Shifting the burden of proof in cases brought by the Department of Justice (DOJ), Federal Trade Commission (FTC), or state attorneys general to the merging parties to prove that a proposed transaction would not materially harm competition for those transactions "that either significantly increase concentration or are extremely large."
• Adding a new provision to the Clayton Act prohibiting dominant firms from engaging in "exclusionary conduct that presents an appreciable risk of harming competition."
• Granting the DOJ and FTC new authority to seek substantial civil monetary penalties for antitrust violations.
• Providing additional structural and financial resources to the DOJ and FTC to enforce the antitrust laws, including doubling their budget appropriations.

The bill sets forth a number of congressional "findings" that underlie the proposed statutory changes, including that the "presence and exercise of market power is substantial and growing" in the United States, and not only has negative effects on competition, in the form of higher prices, decreased quality, increased barriers to entry, and lessened innovation, but also depresses wages, increases economic inequality, helps consolidate political power, and hinders small business startups.

These findings are broadly consistent with the House Judiciary Committee's report from 2020 investigating competition issues relevant to large technology platforms, which identified similar problems. The legislation would significantly change the legal standards applicable to both mergers and single-firm conduct in ways that would make violations of the Clayton, Sherman, and FTC Acts easier to prove, while granting US antitrust enforcement agencies more tools, resources, and penalties to employ in enforcing the antitrust laws.

Major Provisions of the Legislation

Lower the Standard to Find Acquisitions Unlawful Under § 7 of the Clayton Act

The legislation¹ would amend Section 7 of the Clayton Act² to make it easier for federal or state enforcers to establish that a merger or acquisition is unlawful. When government enforcers sued, the bill would shift the burden of proof to the merging parties to show that their transaction does not "create an appreciable risk of materially lessening competition" (where "materially" is defined as "more than a de minimis amount" for any merger where):

• the merger or acquisition significantly increases market concentration in any relevant market;
• either party's market share is more than 50% or either party has "significant" market power in any relevant market (where the parties are actual or potential competitors);
• the acquisition would likely combine competitors in a relevant market, and one of the merging parties limits or prevents coordinated interaction among competitors;
• the acquisition would enable the acquiring entity to exercise market power or increase the probability of coordination among competitors;
• except for transactions exempt from Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act)³ filings (such as acquisitions solely for purposes of investment and acquisitions of goods and real property in the ordinary course of business), the acquisition is valued in excess of $5 billion or at least one of the parties has assets, net annual sales, or market capitalization greater than $100 billion and the acquisition results in assets over $50 million.

The current standard, prohibiting mergers the effect of which may be "substantially to lessen competition, or to tend to create a monopoly,"⁴ would continue to apply in cases brought by private plaintiffs, who would also continue to bear the burden of proof. It is not clear what impact the burden-shifting in government cases would have as a practical matter. If the facts above are shown, e.g., that the acquisition would enable the acquiring entity to exercise market power, the transaction is likely to be blocked anyway. While the parties could argue that the efficiencies outweigh the market power concerns, no court has ever found that efficiencies saved an otherwise anticompetitive transaction.

The bill⁵ would also amend Section 7 of the Clayton Act⁶ to expressly provide that mergers tending to create a monopsony power in the hands of a buyer are unlawful to the same extent as those creating monopoly power in the hands of a seller. The rationale is not clear as the agencies and courts already treat Section 7 as reaching monopsony concerns. Both the FTC and DOJ have brought cases and obtained remedies where monopsony power was at issue, such as in insurance and agricultural markets.⁷

Additionally, the legislation⁸ would add a new definition to Section 1(a) of the Clayton Act,⁹ defining "market power" as the ability of an entity to profitably impose conditions on counterparties, affecting a transaction, that are more favorable to the entity than what they would obtain in a competitive market. Such conditions may include "terms regarding price, quantity, product or service equality, or other terms affecting the value of consideration exchanged in the transaction."

Prevent Exclusionary Conduct

The bill¹⁰ would amend the Clayton Act¹¹ by adding a new provision prohibiting dominant entities from engaging in "exclusionary conduct that presents an appreciable risk of harming competition" within a relevant market. The bill defines exclusionary conduct as conduct that materially disadvantages an actual or potential competitor, or tends to limit their ability or incentive to compete. The bill would create a presumption that the conduct may present the required "appreciable risk" whenever the firm or firms engaging in the conduct have a share of 50% or more or otherwise have significant market power. Unlike the change to burdens of proof in merger cases, the burden would shift in exclusionary conduct cases brought by private plaintiffs as well as the government. To rebut the presumption, defendants would need to establish by a preponderance of the evidence that "distinct procompetitive benefits of the exclusionary conduct in the relevant market eliminate the risk of harming competition presented by the exclusionary conduct," that recent entry or expansion by other competitors eliminates the risk of harm, or otherwise prove that the conduct would not present an appreciable risk of harming competition.

The bill would specifically reverse established antitrust principles for finding conduct exclusionary in a number of areas:

• The bill would overturn the Supreme Court's decision in Trinko¹² and its lower court progeny by eliminating the requirement that plaintiffs in unilateral refusal to deal cases show that the defendant terminated a prior course of dealing.
• The bill would overturn the Supreme Court's decision in Brooke Group¹³ by eliminating the requirement in predatory pricing cases that prices were "below any measure of the costs to the defendant" and that the defendant is likely to recoup its investment in below-cost prices, or that the conduct otherwise makes "no economic sense." This would have the effect of outlawing low prices by dominant firms that harm competitors, even when those low prices are good for consumers.
• The bill would overturn the Supreme Court's decision in American Express¹⁴ requiring a consideration of competitive benefits and harms to both sides of a two-sided market.

The combined effect of the definition of exclusionary conduct as conduct that harms competitors (not competition) and the presumption of harm to competition when firms with high shares engage in exclusionary conduct would represent a departure from current law, which is focused on consumer harm rather than harm to competitors. This is particularly the case in the bill's proposed changes to the law of predatory pricing. Consumers benefit from low prices, even if they harm competitors, and are harmed only if the defendant will be able to raise prices after forcing competitors from the market. By eliminating the requirement that a plaintiff show a likelihood of recoupment, the bill would protect competitors from aggressive price competition even where that competition benefits consumers.

Civil Penalties for Antitrust Violations

The bill¹⁵ would authorize the FTC and DOJ to seek civil penalties for violations of Sections 1 and 2 of the Sherman Antitrust Act¹⁶ and the new Section 26a of the Clayton Act (prohibiting exclusionary conduct that presents an appreciable risk of harming competition), up to the greater of (a) fifteen percent of the entity's total prior year US revenues, or (b) thirty percent of the entity's revenues in any line of commerce affected by the unlawful conduct while the conduct persisted. These penalties are significant because, unlike in criminal cases where large fines have long been common, US enforcement agencies have generally sought only injunctive relief in civil antitrust cases. While the FTC has sought disgorgement, the Supreme Court is currently considering the FTC's authority to do so. The DOJ has on rare occasions settled civil antitrust cases with consent decrees requiring disgorgement.

Such substantial civil fines on top of treble damages for injured private plaintiffs would result in payments many times the profits earned by the challenged conduct. While high fines and treble damages would serve as a deterrent to anticompetitive conduct, they might also have the effect of discouraging procompetitive conduct, because the line between procompetitive and anticompetitive conduct is often difficult to discern—something that would be particularly true if the bill were enacted. While the bill would provide for maximum penalties, it would require the DOJ and FTC to issue joint guidelines outlining policies, practices and analytical techniques related to agency enforcement under Section 26A of the Clayton Act. The bill provides no guidance as to how actual civil penalties should be set.

Limits on Implied Immunity

A few statutes expressly provide antitrust exemptions, and consistent with the Supreme Court's caution that "repeals of the antitrust laws by implication from a regulatory statute are disfavored,"¹⁷ courts have generally been reluctant to find "implied immunity" from the antitrust laws outside of conduct in securities markets regulated by the Securities and Exchange Commission (SEC).¹⁸ The Supreme Court has found an implied exemption from the antitrust laws only where enforcing the antitrust laws would "disrupt" or "be repugnant to" a pervasive regulatory scheme. In so doing, it has required that a regulatory authority has the power to and actually does supervise the challenged activity and that the regulatory scheme and antitrust laws "would produce conflicting guidance, requirements, duties, privileges, or standards of conduct."¹⁹

The bill²⁰ would impose limits on implied immunity that are largely consistent with this precedent. Specifically, the bill would preclude any court from finding implied immunity unless: (1) a federal agency actively regulates the conduct under federal statute; (2) the federal statute does not include provisions preserving the rights, claims, or remedies under the applicable antitrust laws; and (3) federal agency regulations explicitly require or authorize the defendant to undertake the conduct.

The bill also would preclude a court from applying antitrust laws more narrowly, or in a qualified and limited way, on account of the existence of other federal rules or regulations unless application of the antitrust laws is precluded or limited by: (1) an explicit exemption from the antitrust laws; or (2) an "implied immunity" meeting the criteria described above. This appears to be a reaction to the Supreme Court's decision in Trinko, in which it found that the existence of a regulatory scheme militated against expanding traditional antitrust concepts to create a new duty to deal.²¹

Eliminate Market Definition Requirements           

Except for those agreements among competitors deemed illegal per se, courts have generally required antitrust plaintiffs to prove that the challenged conduct harms competition in a properly defined relevant market. These judicial decisions recognize that a definition of the relevant market is necessary to determine whether a defendant has market power such that its conduct plausibly poses a risk to competition.

The bill²² would remove the current requirement to define a relevant market to establish liability under the antitrust laws, except where a statute explicitly references "relevant market," "market concentration," or "market share." Because Sections 1 and 2 of the Sherman Act and Section 7 of the Clayton Act do not contain those terms, there would be no requirement to prove a relevant market to prevail in most antitrust cases. Rather, those terms are added only to the sections of the bill that describe defenses on which the defendant has the burden of proof. In other words, plaintiffs in antitrust cases would not have the burden of establishing a relevant market, but defendants sometimes would.

While the courts have allowed "direct evidence" of harm to competition in antitrust cases under the rule of reason in lieu of proof of a relevant market and market power,²³ no such shortcut to liability exists under Section 2 of the Sherman Act or Section 7 of the Clayton Act. The Supreme Court has been clear that market definition is required in Section 2 cases, because "[w]ithout a definition of that market there is no way to measure [a defendant's] ability to lessen or destroy competition."²⁴ And likewise, the Court has held that "[d]etermination of a relevant product and geographic market is a necessary predicate" to a claim under Section 7.²⁵

It is not clear whether the bill is intended to eliminate the "monopoly power" or "dangerous probability" requirements to establish liability under Section 2, or what those requirements could mean if divorced from power in a relevant market. It is likewise not clear what it would mean under the bill to show a lessening of competition in a "line of commerce" under Section 7 if it does not mean a relevant market.

Further, the bill would prohibit the federal courts and FTC from requiring a market definition if direct evidence in the record is sufficient to prove likely harm to competition, an appreciable risk to competition, or that an acquisition may create an appreciable risk of materially lessening competition.

Protections for Whistleblowers

The legislation²⁶ amends the Clayton Act²⁷ by providing whistleblower protections for employees, contractors, subcontractors, and agents who report antitrust violations to a supervisor or to the federal government or who assist in a federal antitrust enforcement action. Whistleblowers would be entitled to "any relief necessary" to be made whole, including compensatory damages, reinstatement of seniority, back pay, and compensation for special damages sustained as a result of the discrimination. The bill also amends the Antitrust Criminal Penalty Enhancement and Reform Act of 2004 (ACPERA)²⁸ by adding incentives for whistleblowers. For example, DOJ would be able to award a whistleblower whose information led to a successful antitrust enforcement action up to 30 percent of the criminal fine imposed in the enforcement action—a significant added whistleblower incentive.

Structure and Organization of the FTC

The bill²⁹ would establish an Office of the Competition Advocate within the FTC, which would make recommendations to the DOJ and FTC, provide recommendations to federal agencies about administrative actions that might harm or improve competition, and collect data and publish reports on competition. The Competition Advocate would have subpoena power to gather information for its reports. The bill would create a Data Center within the Office of the Competition Advocate responsible for gathering and publishing reports on industry concentration, merger enforcement and other topics. The bill would also create a Division of Market Analysis within the Office responsible for conducting investigations of markets to analyze competitive conditions and the effects of consummated mergers.

Post-Merger Reporting Requirements           

The legislation³⁰ would amend the HSR Act³¹ to require parties that entered into merger consent decrees in reportable transactions to report data for a five-year period post-merger sufficient to assess whether the merger was anticompetitive. The entity must report data on pricing, quantity, quality, and inputs pertaining to the relevant markets addressed by the consent decree. The entity must also report on resulting efficiencies and the effectiveness of any behavioral or structural remedies that were conditions to closing the transaction.

Required Studies

The legislation³² would require the government to conduct new studies to help guide competition policy. There has been significant academic debate over the effects of "common ownership"—when an institutional investor such as a mutual fund holds minority stakes in competing firms—on competition. Some economists purport to have found that common ownership is associated with reduced competition, even absent evidence of direct coordination (via the common owner or otherwise), while others claim to have rebutted those studies.³³ Within two years after enactment, the FTC and the SEC must conduct and publish a study on common ownership by institutional investors in concentrated markets, its economic impact and both how and the degree to which these investors go about affecting competition within their relevant markets. Additionally, within eighteen months after enactment, the US Comptroller General would be required to conduct studies on: (a) the success of merger remedies required by the DOJ or FTC in prior consent decrees, and (b) the effect of mergers and acquisition on wages, employment, innovation, and new business formation.

Authorization of Appropriations

The legislation³⁴ would approximately double appropriations to the DOJ Antitrust Division and FTC in fiscal year 2022 to carry out their missions. It authorizes $484.5 million for the DOJ's Antitrust Division, up from $166.8 million in 2020 (and a $188.5 million budget request in 2021). The bill also authorizes $651 million for the FTC, up from $331 million in 2020 (and a $330.2 million budget request in 2021).

Prejudgment Interest

The bill³⁵ includes a new provision granting successful antitrust plaintiffs the right to obtain prejudgment interest on damage awards. This provision is intended to deter anticompetitive conduct and more fully compensate injured parties. Plaintiffs would be able to recover treble damages, legal fees and simple interest on the treble damages.

Significant Differences From the Anticompetitive Exclusionary Conduct Prevention Act of 2020

On March 10, 2020, Senator Klobuchar introduced the Anticompetitive Exclusionary Conduct Prevention Act of 2020, an antitrust reform bill that was the precursor to the legislation introduced in 2021. Both bills propose changes to existing antitrust laws, but the 2021 bill is more comprehensive, while incorporating the provisions Senator Klobuchar proposed in 2020. Like the 2021 bill, the 2020 bill³⁶ proposed making it unlawful for one or more entities to engage in exclusionary conduct that presents an appreciable risk of harming competition under Section 5 of the FTC Act,³⁷ and such violations would be subject to civil penalties of either fifteen percent of the entity's prior year revenues or thirty percent of the entity's revenues during the unlawful conduct. The 2020 bill³⁸ also imposed civil penalties for violating Section 26a of the Clayton Act, like the 2021 bill, but it did not impose civil penalties for violating Sections 1 and 2 of the Sherman Act, as the 2021 bill does. The 2020 legislation³⁹ required the DOJ and FTC to issue joint guidelines outlining policies, practices and analytical techniques related to agency enforcement under Section 26A of the Clayton Act to promote transparency and deter antitrust violations. Unlike the 2021 bill, the 2020 bill⁴⁰ provided penalty considerations to be included in the joint guidance that the DOJ and FTC should note when calculating an appropriate civil penalty for a particular violation. Like the 2021 legislation, the 2020 bill⁴¹ would remove the requirement of defining a relevant market to establish liability under antitrust law, unless required under law explicitly referencing "relevant market," "market concentration" or "market share." Finally, the 2020 bill⁴² included the same provision as the 2021 provision limiting implied immunity.

Next Steps: Antitrust Legislation in the 117th Congress

Introduction of the Competition and Antitrust Law Enforcement Reform Act of 2021 reflects progressive-oriented arguments that US competition law has not kept pace with market realities. To some extent, the legislation also reflects a number of recommendations posed by the Democratic National Convention's platform and the Biden-Sanders Unity Task Force, which recommended strengthening antitrust laws by providing enforcers additional authorities and budgetary resources. Perhaps more importantly, the legislation appears to find inspiration in the House Judiciary Committee's "Investigation of Competition in Digital Markets" and the Majority Staff Report and Recommendations published in the fall of 2020. That comprehensive report recommends an overhaul of antitrust laws similar to what Senator Klobuchar's legislation proposes, but goes further by recommending imposition of structural separations, requirements for nondiscrimination, interoperability, and data portability. The report also recommends that Congress clarify that the antitrust enforcement standards focus not only on consumer welfare but also on advancing protections for workers, entrepreneurs, independent businesses, open markets, a fair economy, and democratic ideals.

There is no House companion legislation to compare against Senator Klobuchar's recently introduced bill. The text, however, suggests that Senator Klobuchar may be positioning her legislation as a compromise between and anticipated introduction of more aggressive House Democratic legislation and more restrained approaches that may be offered by Republicans, including new House Antitrust Subcommittee Ranking Republican Rep. Ken Buck (R-CO) and other GOP members who have indicated a willingness to support limited reform principles. The White House has not commented on the bill or any of its specifics. We expect that any comments will come only after the confirmation of Attorney General nominee Merrick Garland and the nomination and confirmation of leadership at the Antitrust Division.

In any event, Senator Klobuchar appears to have work to do in order to secure support from her Republican colleagues on the Senate Judiciary Committee. On February 16, 2021, Senate Judiciary Antitrust Subcommittee Ranking Republican Senator Mike Lee (R-UT) issued a statement suggesting he is not prepared to join the Chair in support of her legislation. He agreed with Senator Klobuchar that the status quo regarding antitrust policy "isn't working," and emphasized the need for a bipartisan "approach to improving antitrust enforcement for the 21st century." Senator Lee stated that he had "repeatedly warned of the dangers posed by Big Tech," and that, in his view, antitrust policies should spur innovation and not encourage monopolies. Yet he cautioned against adopting a "big is bad" approach and argued that antitrust laws should enforce what he describes as "the consumer welfare standard," which focuses on conduct as opposed to the size of the actors, and ultimately benefits consumers, maintains free markets and prevents judges from "usurping Congress's legislative role." Ultimately, Senator Lee believes that existing antitrust laws are sufficient, and that government resources would be better spent "ensuring that [the government is] adequately enforcing existing laws, rather than pursuing drastic changes with unintended consequences." Thus, Senator Lee confirmed his intent to reintroduce the One Agency Act, which would place all of antitrust enforcement under the purview of the DOJ.

Forthcoming hearings will likely shed additional light on the direction House and Senate leaders will take as they approach competition policy in the new Congress. For now, however, we anticipate that Senator Klobuchar and her Democratic counterparts in the House will proceed somewhat deliberately to build the case for reform. There may be a bipartisan appetite for antitrust reform in both chambers. However, there remains a significant chasm between Senator Klobuchar's approach and those of (1) Senate Republican leaders like Senator Lee, (2) House GOP antitrust leaders who are uncomfortable with reform proposals, including the notion that a shift in the burden of proof in merger proceedings is appropriate, and (3) Democratic leaders who will certainly push for more aggressive measures. Whether House and Senate committee leaders can navigate this terrain remains to be seen, even with Democratic control of both chambers.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.