Antitrust Agency Insights: Developments at the U.S. Antitrust Enforcement Agencies — Second Quarter 2023

Successfully navigating antitrust agency investigations requires a familiarity with Department of Justice and Federal Trade Commission processes, as well as insight into those agencies and their leaderships’ current priorities for enforcement and competition policy. This newsletter will provide periodic updates on both, offering an analytical look at how the antitrust agencies are approaching important competition issues and what current investigations may mean for potential future enforcement. We hope our experience — both inside and outside these agencies — will provide insights that help you make more informed decisions for your business.

Letter From the Editors

Challenges to the FTC’s Use of Compulsory Process Face Uphill Battle

The U.S. authorities’ focus on aggressive antitrust enforcement has led to increasingly broad demands for documents and information from the targets of their investigations, but also from third parties that the agencies believe may have relevant information. In August 2022, the Federal Trade Commission (FTC or the Commission) announced that it had approved a series of omnibus resolutions permitting FTC staff to more freely use compulsory process to investigate potential violations of federal antitrust laws without first obtaining approval of the full Commission.¹ The FTC uses compulsory process in its investigations through the issuance of civil investigative demands (CIDs) or subpoenas. Historically, FTC staff needed the Commission to vote to issue a resolution specific to the investigation to authorize the use of such requests but now can do so with authorization from only the Chair (or another Commissioner).² These omnibus resolutions, therefore, now provide the Chair extraordinary latitude to issue compulsory requests without a full Commission vote.³ With potentially greater use of compulsory process, we have also seen attempts by CID and subpoena recipients to limit the scope of the FTC’s requests. However, recent decisions have shown how challenging this can be.⁴

Total Wine & More’s Petition to Limit

In February 2023, the FTC issued a CID to Total Wine & More (TWM), an alcohol retailer, in connection with the FTC’s investigation into alleged Robinson-Patman Act violations by the alcohol distributor, Southern Glazer’s Wine and Spirits, LLC (Southern).⁵ Although TWM was not the target of the investigation, the FTC sought documents and data spanning a five-year period and included 19 different specifications with nearly 100 separate subparts in TWM’s CID.⁶ According to TWM, the FTC’s CID would have required it to produce highly sensitive material like TWM’s gross and net profits, operating margins, and general business strategies.⁷ Moreover, in the CID, the FTC defined “distributor” to mean any distributor or any wine or spirit and “relevant products” as any wine or spirit TWM has purchased or sold.⁸ Thus, the requests were not specifically limited to TWM’s transactions with Southern; instead, the FTC sought documents and data related to TWM’s business with any distributor, regarding any product. Accordingly, TWM argued that “the FTC has effectively asked TWM to turn over all data and documents in its possession regardless of whether such data or documents have any connection to Southern.”⁹

A month and a half after receiving the CID, TWM filed a petition to limit the CID on April 7, 2023.¹⁰ In TWM’s petition, the company argued that the FTC’s requests bore no relevance to the FTC’s investigation into Southern and that the CID was overly expansive and unduly burdensome.¹¹ TWM claimed that, “[s]imply put, an administrative investigation into a target company does not give the agency free rein to obtain whatever it wants from innocent third parties who transact business with the target company, nor does it reasonably permit an agency intrusion into business transactions with unrelated entities.”¹² Despite TWM’s objections, the FTC denied the petition, ordering TWM to fully comply with the CID and each specification.

In the FTC’s Order, the Commission cited well-established precedent that compulsory process is proper if (1) the inquiry is within the authority of the agency, (2) the demand is not too indefinite, and (3) the information sought is reasonably relevant to the investigation.¹³ The Commission explained that in an administrative investigation, a broader and “more relaxed” standard of relevance applies.¹⁴ Specifically, the Commission explained that the “demands in a CID need not be limited to the information necessary to prove a specific charge; instead, it can call for any documents or information relevant ‘to the investigation,’ whose boundaries may be broadly defined by the Commission.”¹⁵ With this reasoning, the Commission rejected TWM’s arguments and ordered the company to fully comply with the FTC’s CID.

The FTC has taken the same approach in other recent matters. For example, in January 2023, the FTC issued a CID to Abbott Laboratories (Abbott), a manufacturer of infant formula.¹⁶ Although the FTC is investigating alleged anticompetitive conduct with respect to contracts for the U.S. Department of Agriculture’s Special Supplement Nutrition Program for Women, Infants, and Children (WIC), the Commission sought data and documents concerning Abbott’s WIC and non-WIC contracts.¹⁷ Abbott objected to producing non-WIC information given the focus of the FTC’s investigation was purportedly regarding WIC sales. However, the Commission found that “non-WIC business information is relevant to understanding the market relationship between WIC contracts and non-WIC sales, including any spillover effects between WIC contracts and non-WIC sales.”¹⁸ Accordingly, the Commission denied the petition in full, holding the requested documents were reasonably relevant to the FTC’s investigation.¹⁹

Key Takeaways

The Commission’s Orders in these cases are significant: when parties oppose CIDs on the grounds that the requested documents lack relevance to the FTC’s investigation or that such productions are unduly burdensome, the Commission has made clear that such objections are rarely successful, particularly given the relaxed standard for relevance in the administrative context. Although the FTC claims that staff “are always willing to work with parties and their counsel to determine the scope of the agency’s subpoena or CID and a timeframe for compliance,”²⁰ the grounds for challenging CIDs are limited. As a result, individuals and businesses subject to compulsory process may take on significant obligations when responding to a CID.

Given the uphill battle in challenging CIDs or subpoenas in the FTC’s adjudicative process, companies subject to the FTC’s compulsory orders should engage with the Commission staff quickly and regularly to identify the actual needs of the investigation and explore alternative approaches to relieve burden. Although the FTC is generally amenable to granting extensions for cooperative parties, under the FTC’s Rules of Practice, parties only have 10 days to file a petition to limit or quash. Thus, it is critical that practitioners engage in such discussions as soon as possible after receiving a CID or subpoena. Early advocacy and open communication with the Commission may provide valuable insight into the investigation and assist the parties in identifying priority requests. Once substantive areas of concern are addressed, parties may be more successful in limiting the scope of a CID. Such dialogue may help the parties agree to narrow relevant markets implicated in the investigation, lessening burden on the target of the investigation or on non-parties.

*          *          *

In another change from historic practice, the FTC modified its Rules of Practice so that administrative law judges (ALJs) issue “recommended” decisions that are reviewed automatically by the Commission, as opposed to issuing “initial” decisions that can be appealed.²¹ While the FTC has rebuffed criticism that its administrative process violates the U.S. Constitution, this modification may be a response to the U.S. Supreme Court’s decision in Axon Enterprise Inc. v. FTC²² (discussed below), which permits respondents in FTC administrative proceedings to raise constitutional challenges to those proceedings in federal court before exhausting the administrative process. By characterizing ALJ decisions as “recommended” decisions, the FTC may be attempting to insulate those decisions from critique that they are binding decisions made by an executive branch officer whom the president cannot remove and therefore potentially unconstitutional. The practical impact of this change is unclear as ALJ decisions are reviewed by the full Commission before they can be appealed to a federal appeals court today, but (as with the omnibus compulsory process resolutions discussed above) it is yet another way in which the current Commission appears to be attempting to increase its control within the traditional FTC structures.

Additional Agency Updates

The U.S. Supreme Court Allows Constitutional Challenges to the FTC in District Court

• On April 14, 2023, in a 9-0 consolidated opinion, the Supreme Court held in Axon Enterprise Inc. v. FTC and SEC v. Cochran that respondents in federal administrative proceedings have the ability to raise constitutional challenges to those proceedings in federal court before exhausting the administrative process.²³ In both cases, respondents argued that the SEC’s and FTC’s tenure protections of their administrative law judges (ALJs) rendered them “insufficiently accountable to the President, in violation of separation-of-powers principles.”²⁴ Typically, a party makes its claims first within the FTC or SEC, and then, if necessary, in a federal court. The parties in this consolidated case sought to sidestep the administrative process and instead raise their claims in federal district court. The Court held that district courts have jurisdiction to hear suits that call into question the Commissions’ constitutionality. This may pose foundational challenges to the FTC and SEC.²⁵
  • Read the Opinion
  • Read our Advisory

FTC Cases and Proceedings

• By 3-0 vote, the FTC sues to block Amgen Inc. from acquiring Horizon Therapeutics plc. On May 16, 2023, the FTC filed a lawsuit in the Northern District of Illinois, seeking a temporary restraining order and preliminary injunction enjoining Amgen Inc. (Amgen) from completing its nearly US$28 billion acquisition of Horizon Therapeutics plc (Horizon). Under Section 13(b) of the Federal Trade Commission Act, the Commission is authorized to seek preliminary injunctive relief in district court until the Commission has had an opportunity to issue an administrative complaint. The Commission alleges that the transaction would enable Amgen to use bundled rebates to pressure insurance companies and pharmacy benefit managers into favoring Horizon’s Tepezza and Krystexxa products.
  
  • Read the Complaint
  • Read the Press Release

• By 3-0 vote, the FTC approves final order requiring Mastercard to stop blocking the use of competing debit payment networks. On May 30, 2023, the FTC finalized a consent order settling claims that Mastercard allegedly forced merchants to route debit card payments through the company’s own networks. Under the Order, Mastercard must provide competing networks with customer account information so that rival networks can process debit payments.
  • Read the Order
  • Read the Press Release

• By 3-0 vote, the FTC approves final order requiring Anchor Glass Container Corp. to drop noncompete restrictions. On June 2, 2023, the FTC finalized a consent order that Anchor Glass Container Corp. (Anchor Glass) imposed unlawful noncompete restrictions on more than 300 workers. Under the Order, Anchor Glass was required to deliver a letter to each of its employees that it was no longer subject to a Noncompete Agreement.
  • Read the Order
  • Read the Press Release

• FTC continues its inquiry into pharmacy benefit managers (PBMs). As of June 8, 2023, the FTC issued compulsory orders to six of the largest PBMs in the U.S., as well as two PBM-affiliated group purchasing organizations. Recently, the FTC issued a compulsory order to Emisar, a company that negotiates rebates with drug manufacturers on behalf of PBM OptumRx.
  • Read the Press Release

• FTC seeks injunction to prevent Microsoft and Activision Blizzard from consummating a proposed transaction. On June 12, 2023, the FTC filed a complaint for a temporary restraining order and preliminary injunction in the U.S. District Court for the Northern District of California to stop Microsoft from completing the acquisition during the pendency of the FTC’s administrative challenge to the transaction. On June 13, 2023, the district court granted the FTC’s request for a temporary restraining order, while the court considers whether a preliminary injunction is warranted. Microsoft has filed an appeal in the Ninth Circuit.
  • Read the District Court’s Order

• By 3-0 vote, the FTC filed an amicus brief in Bystolic Antitrust Litigation supporting competition in the hypertension drug market. On June 20, 2023, the FTC filed an amicus brief in the Second Circuit, clarifying the legal standards that apply in reverse-payment settlement cases. In this case, plaintiffs (purchasers of Bystolic), claim that Forest Laboratories Inc. used certain business deals as a pretext for reverse payments to six generic rivals. The district court dismissed the case; on appeal, the FTC filed an amicus brief supporting the argument that plaintiffs successfully pled market power and facts from which a court can infer a significant, unjustified, reverse payment was tendered.
  • Read the Press Release
  • Read the Brief

DOJ Cases and Proceedings

• DOJ’s civil lawsuit and settlement with Activision. On April 3, 2023, DOJ filed its civil antitrust action against and settlement with Activision Blizzard Inc. (Activision) for imposing rules that suppressed wages in esports leagues for Overwatch and Call of Duty, two popular video games. In those leagues, Activision implemented a “Competitive Balance Tax,” which penalized teams if their compensation exceeded a threshold set by Activision. Activision settled with DOJ, ensuring that the company would not impose a salary cap or any other rule that would limit the compensation of its esports players.
  
  • Read the Complaint
  • Read the Stipulation and Order
  • Read the [Proposed] Final Judgment
  • Read the Press Release
  • Read the Competitive Impact Statement

Policy — FTC

• New FTC rules of practice classify administrative law rulings as recommendations. On June 3, 2023, the FTC revised its rules of practice to allow administrative law rulings to be automatically reviewed by the full Commission, designating such rulings as “recommended decisions” rather than “initial decisions.” The Commission may affirm the recommended decision in full or may reject the ALJ’s recommendation in full or in part and issue its own decision adopting different findings of fact or conclusions of law.
  • Read the Notice
  • Read the Press Release

• The FTC publishes a statement regarding contracts that impede the FTC’s Bureau of Competition’s investigations. On June 15, 2023, the Bureau of Competition Office of the Director published a legal analysis on the enforceability of certain contractual provisions that have been invoked to impede the Bureau of Competition’s investigations, primarily by prohibiting market participants from engaging in voluntary interviews. The FTC asserts that such contractual requirements and limitations are contrary to public policy and therefore unenforceable. The analysis covers specific contractual provisions (e.g., confidentiality agreements, nondisclosure agreements, and notice-of-agency-contact provisions) that may impede its investigations because they have a chilling effect on potential witnesses, which is against public policy and, thus, unenforceable.
  
  • Read the Press Release
  • Read the Legal Analysis

• The FTC publishes post regarding potential unfair methods of competition in the generative artificial intelligence (AI) industry. On June 29, 2023, the FTC published a blog post regarding potential antitrust concerns in the generative AI industry. The FTC stated that, given the technology’s emerging status, the Commission is focused on enforcing antitrust laws to ensure that unfair methods of competition do not squash competition and undermine the potential benefits of generative AI.
  • Read the Post

Policy — DOJ

• DOJ updates its Leniency Policy. On April 4, 2023, the DOJ announced an update to its Leniency Policy, which allows the first individual or company to self-report its involvement in an antitrust cartel to avoid prosecution if it cooperates with the DOJ’s investigation and meets other conditions. The updated policy now requires that a corporate applicant promptly self-report after discovering its wrongful conduct and undertake remedial measures to prevent reoffending.
  
  • Read the Press Release

Inter-Agency Initiatives

• FTC, DOJ, CFPB, and EEOC publish joint statement on artificial intelligence. On April 25, 2023, the FTC and DOJ, in collaboration with the Consumer Financial Protection Bureau (CFPB) and the Equal Employment Opportunity Commission (EEOC) released a joint statement on each agency’s commitment to enforce their respective laws and regulations despite the advent of artificial intelligence.
  • Read the Press Release
  • Read the Joint Statement

• By 3-0 vote, the FTC proposed changes to HSR form for merger review with concurrence from DOJ. The FTC, with concurrence of the Assistant Attorney General Kanter, is proposing changes to the premerger notification form and associated instructions, as well as certain premerger notification rules implementing the Hart-Scott-Rodino (HSR) Act.
  • Read the Press Release
  • Read our Advisory

FTC Speeches

• Remarks of Chair Lina Khan at the Small Business Majority Event on Non-Compete Agreements. On April 13, 2023, Chair Lina Khan provided remarks on the Commission’s proposed rule to ban employers from imposing noncompete clauses on their workers. During the speech, Chair Khan discussed the economic harms of noncompete clauses, which may restrict employment opportunities, stifle innovation, and restrain fair competition. Regarding trade secrets, Khan explained that “targeted alternatives, such as trade secret law and nondisclosure agreements, can achieve the same goal without imposing such a burden on the economy.”
  • Read the Speech

• In 3-0 vote, FTC approved testimony before the House Appropriations Subcommittee. On April 27, 2023, Chair Khan described how the Commission was utilizing its current funding to address various issues ranging from data practices to corporate mergers. For 2024, the FTC is requesting a budget of US$590 million, which would enable the FTC to fund an additional 310 employees to address the increased demand on agency staff.
  
  • Read the Press Release
  • Read the Testimony

DOJ Speeches

• Deputy Assistant Attorney General Michael Kades of the Antitrust Division Delivers Remarks at the University of Virginia School of Law: Virginia Law and Business Review 2023 Symposium. On April 7, 2023, Michael Kades, Deputy Assistant Attorney General, gave remarks at the University of Virginia School of Law about the intersection of antitrust and the tech sector, particularly with respect to refusals to deal.
  • Read the Speech

• Deputy Assistant Attorney General Manish Kumar Delivers Remarks at Global Competition Review Live: Cartels 2023. On June 7, 2023, Deputy Assistant Attorney General Manish Kumar gave remarks at the Global Competition Review, which included discussion on DOJ’s revised Leniency Policy. According to Kumar, the purpose of the revisions were to “increase transparency and predictability for everyone” and that the substantive revisions reflected instances where DOJ’s practices had started to diverge from the written policy.
  • Read the Speech

• Assistant Attorney General Kanter delivers keynote address at the Brookings Institution’s Center on Regulation and Markets Event “Promoting Competition in Banking.” On June 20, 2023, Assistant Attorney General Jonathan Kanter delivered the keynote address on merger enforcement 60 years after Philadelphia National Bank, a case known for its application of Section 7 of the Clayton Act to bank mergers. Kanter stated that the case “looms large” as DOJ revises its general merger guidelines and considers whether the 1995 Bank Merger Guidelines “sufficiently reflect current market realities.”
  • Read the Speech
  • Read our Advisory

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This newsletter 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.