March 25, 2021
Donald I. Baker and Amber L. McDonald
A recent influx of proposed federal and state legislation seeks to strengthen and modernize the antitrust laws and expand antitrust enforcement. The political momentum behind these attempts reflects noisy bipartisan support for legislators to do something about the ever-growing economic power and political influence of Google, Facebook, Amazon and other so-called “tech giants.” Similar to the 1970s, when the political concerns caused by a combination of the Organization of the Petroleum Exporting Countries, inflation and the Watergate scandal caused Congress to make Sherman Act offences serious felonies and establish pre-merger antitrust review of significant mergers, today’s proposed legislative ‘solutions’ may go well beyond the original causes of political concern. The scope of the proposed bills is much broader than big tech and, even if only partially enacted, the bills could substantially affect companies of every type, across geographies and from both state and federal perspectives.
Although some new anti-monopoly legislation seems likely to pass as a result of broad public concerns about tech giants, the business community has an important stake in which, if any, of the broader proposals make it into law. At the federal level, Chair of the Senate Judiciary Committee’s Antitrust Subcommittee Amy Klobuchar (Democrat-Minnesota) recently introduced the proposed Anti-competitive Exclusionary Conduct Prevention Act. Klobuchar’s bill proposes a variety of changes, ranging from a likely-to-pass proposal for additional funding for the Federal Trade Commission (FTC) and the Department of Justice (DOJ) to more extreme measures that seem unlikely to gain sufficient bipartisan support. Nonetheless, even Klobuchar’s more modest proposals could dramatically change the state of US antitrust enforcement from what it was under the Trump administration. For example, while Trump favored deregulation, strengthened enforcement agencies, bolstered by additional funding, would mean more government investigations.
While much attention has been focused on Klobuchar’s bill, there are also important legislative developments happening at the state level. Perhaps the most significant of these is the Twenty-First Century Antitrust Act, a proposed amendment to New York’s state antitrust law that is intended to target technology companies, but goes much further. The bill was reintroduced by State Senator and Deputy Majority Leader Michael Gianaris (Democrat-Queens, New York) after it was first introduced in the prior legislative session. Gianaris was one of the principal figures in keeping Amazon’s HQ2 out of his district. He is skeptical of big business and his bill, if passed, will be one of the most aggressive state antitrust laws in the nation, potentially affecting any company that conducts business in New York. Further, New York is a legally prominent state and, if Gianaris’s bill is enacted – which the Democrat supermajority in the New York legislature makes more likely – similar or lesser versions of it may begin to appear in state legislatures elsewhere.
The likely increases in DOJ and FTC budgets, as proposed by Klobuchar, will have practical effects on businesses across the country. Armed with more money and enlarged staff resources, the agencies can be expected to conduct more grand jury investigations of suspected cartels in more localized markets and more aggressive merger investigations. Having more resources will likely enhance the agencies’ ability to take more cases to trial, thus strengthening their willingness to bargain harder in settlement negotiations.
As Klobuchar has a serious interest in promoting antitrust reform and will release a book on the subject in April 2021, it is unsurprising that she is proposing major substantive reforms that go well beyond what might be needed to curb the activities of a few dominant digital platforms. Accordingly, Klobuchar’s bill includes new legal presumptions designed to strengthen the government’s anti-monopoly enforcement. Thus, the bill defines illegal ‘exclusionary conduct’ as anything that “materially disadvantages… actual or potential competitors” or “tends to foreclose or limit the ability or incentive of… potential competitors to compete”. The existence of exclusionary conduct can be presumed when caused by any enterprise that “has a market share of greater than 50 percent as a seller or buyer” or “otherwise has significant market power in the relevant market”. As presently drafted, the bill contains no dollar floors that would prevent the application of this new exclusionary conduct prohibition to small firms that dominate small or local markets. It will be critically important for many businesses to watch how far these anti-monopoly remedies may be trimmed back, particularly as there is bipartisan support for tougher rules to take on the digital giants.
Klobuchar’s bill also introduces a new civil penalties remedy that would enable the FTC or the DOJ to recover significant sums of money for the US Treasury for violations of the proposed new anti-monopoly rules, presumably to deter future exclusionary conduct. The proposed penalties could be substantial – up to 15% of the offending company’s total US revenues for the previous calendar year or 30% of US revenues in the areas affected by the exclusionary conduct during the period of such conduct.
In addition, Klobuchar’s bill appears to substantially expand the scope of private antitrust litigation, and it does so without even mentioning this subject explicitly. By defining the ‘antitrust laws’ to include the bill’s proposed new anti-monopoly provisions and ‘unfair methods of competition’ in Section 5 of the Federal Trade Commission Act (15 US Code Section 45), any alleged victim of exclusionary conduct could sue for treble damages and litigation costs under Section 4 of the Clayton Act or for an injunction action under Section 16 thereof. Thus, this seemingly ‘technical’ change could convert many ordinary common law business disputes into treble damage antitrust cases.
New York state legislation
Gianaris’s Twenty-First Century Antitrust Act would make it illegal for “any person or persons with a dominant position in the conduct of any business, trade or commerce or in the furnishing of any service in [New York] to abuse that dominant position”. While this standard would be a unique addition to the antitrust rules in the United States, it mirrors a concept extensively enforced in the European Union and several countries following the EU approach to competition law. However, unlike the governing EU prohibition on this misconduct, Gianaris’s bill does not define what constitutes a ‘dominant position’ or ‘abuse’. Instead, the bill leaves it to New York’s attorney general to define the critical terms. Opponents of the bill understandably fear that abuse of a dominant position could come to encompass offences well beyond those traditionally within the antitrust realm, such as unfair employee payment practices.
Moreover, the Twenty-First Century Antitrust Act would raise the limits of penalties from $100,000 to $1 million for individuals and from $1 million to $100 million for corporations. Gianaris’s bill also explicitly expands the scope of private antitrust litigation. Specifically, the bill would allow for private antitrust class action lawsuits, which are not permitted under New York’s current antitrust law.
In addition, Gianaris’s bill would create a first-of-its-kind state merger notification requirement. Specifically, the bill would require any person subject to the jurisdiction of the New York courts to file a notification with the New York attorney general at least 60 days before acquiring, directly or indirectly, any voting securities or assets if “as a result of such acquisition, the acquiring person would hold an aggregate total amount of the voting securities and assets of the acquired person in excess of eight million dollars”. As such, any company that conducts business within New York could be required to file a pre-merger notification with the New York attorney general.
Pending legislative proposals in Washington DC and Albany could dramatically change the US antitrust landscape, even if only partially enacted. Although nominally aimed at reining in the tech giants, the bills currently have no floors limiting the sizes of enterprises or the markets to which the new rules would extend. Counsel for companies of all types would be well advised to keep a wary eye on these bills to see whether, and how much, they are narrowed as they work their way through the legislative process.