Antitrust: A changing of the guard
“I don’t think we spend nearly enough time focusing on antitrust measures. And the truth of the matter is, I think it’s something we should take a really hard look at,” said Joe Biden in an Associated Press interview in 2019.
Tough words, certainly. But in the immediate wake of the US election, a question mark hung over President Biden’s stance on antitrust issues and its potential implications for IP. Unlike fellow Democrat candidates Elizabeth Warren and Amy Klobuchar, Biden did not make antitrust a central tenet of his campaign platform. And at the time of writing this article, he is yet to appoint a new assistant-general of the Department of Justice (DoJ)’s antitrust division.
The new US president’s record on antitrust is mixed. In 1976, Biden voted for the Hart–Scott–Rodino (HSR) Act, creating a premerger notification programme requiring companies to file with the DoJ and the Federal Trade Commission (FTC) if a deal’s value meets a set threshold. This allows the agencies to identify and challenge transactions that may contravene antitrust law.
Three years later Biden dismayed fellow Democrat senators when he joined Republicans in opposing a bill that would have reversed a Supreme Court decision in Illinois Brick v Illinois (1977). Consequently, the controversial ruling—holding that indirect purchasers of goods or services along a supply chain can’t seek damages for antitrust violations committed by the original manufacturer or provider—remained in place.
Gathering momentum
Now the Democrats have their hands on the levers of power, there are signs that Biden’s three-year-old soundbite was a portent of his administration’s tough antitrust stance.
On February 4, the DoJ and FTC suspended the early termination of merger reviews and made a rare cut to the threshold for merger notifications, allowing them to challenge more transactions that may violate antitrust law.
On the same day, Senator Klobuchar, chair of the US Senate Judiciary subcommittee on antitrust, unveiled a wide-ranging bill, the Competition and Antitrust Law Enforcement Reform Act.
If enacted, the bill promises sweeping antitrust enforcement and laws and, so far, has the support of four other Democratic party senators: Richard Blumenthal, Cory Booker, Ed Markey, and Brian Schatz.
“US antitrust law enforcement against powerful firms has lagged efforts in other developed countries, particularly when it comes to enforcement against the dominant digital platforms and other large corporations,” Klobuchar said upon announcing the bill.
The interventions build on what appears to be an increasingly pro-antitrust sentiment developing on Capitol Hill, on both sides of the political divide.
“The FTC and DoJ’s elimination of early termination of HSR filings is a huge step because that has been there for a long time.” DJ Healey, Fish & Richardson
Last year, US House Antitrust Subcommittee chairman David Cicilline urged extensive reforms following an investigation into Amazon, Apple, Facebook, and Google, generating a 450-page report on the companies’ alleged monopoly power and suggested reforms to the digital market.
In a further boost to these proposals, Republicans on the House subcommittee—while baulking at some of the provisions—have mostly agreed on the need for some reform of these markets.
According to DJ Healey, a senior principal at Fish & Richardson in its Houston, Texas, office, these developments could have “far-reaching implications” for IP.
“It appears from early indications that the Biden administration is likely to get tougher on antitrust issues and Congress is looking at a crack-down as well. There is a feeling that some big corporations and businesses have a need for more regulation,” she says.
A strong message
The FTC has confirmed that the suspension of early terminations will be in force until both agencies are able to review the processes and procedures used to grant early termination to filings made under the HSR Act. During the preliminary review of mergers, companies must wait 30 days before closing their deal.
However, until now, the agency had the option of terminating the waiting period, allowing the parties to complete their transaction—known as an “early termination”.
“The FTC and DoJ’s elimination of early termination of HSR filings is a huge step because that has been there for a long time. That sends a strong message,” confirms Healey.
“The proposal to define ‘market power’ under the Clayton Act and the amendments to what qualifies as an unlawful acquisition may have an impact on antitrust proceedings.” Cecilia Sanabria, Finnegan
The agency’s unusual move in cutting the threshold for the monitoring of mergers from $94 to $92 million also heralds a stronger antitrust stance, notes Healey. HSR reporting thresholds last dipped only in 2010, following the US economy’s contraction a year earlier.
For 2021, the size-of-transaction threshold for reporting proposed mergers and acquisitions under section 7A of the Clayton Act will adjust from $94 million to $92 million.
“Every year, the FTC adjusts the thresholds for the size of the transaction and every year it goes a few percent, just like clockwork. This year it cut it, which brings more transactions in for review. It’s only the second time in history that this has happened,” says Healey.
Tide has turned on big tech
Ted Claypoole, partner at Womble Bond Dickinson, in Atlanta, Georgia, believes these developments show that the “tide has turned” on large tech companies. “We may be reaching a point where antitrust enforcement is generally back in vogue. These attacks, which seemed off-limits in the US just a few years ago, are being welcomed by regulators, politicians and the public,” he says.
Claypoole adds that as pressure mounts for digital and tech markets become more “legally defined”, then states, federal regulators and competitors will increasingly probe dealings involving IP.
The DoJ’s landmark litigation against Google over its exclusive contract with Apple in US v Google (2020), could lay the groundwork for similarly focused litigation in the future, he explains.
“The Google/Apple exclusive licensing deal that emerged from the Google antitrust case will likely be the basis for many more actions—private and public. But the details had been kept quiet and it only came to light in discovery. We will see more scrutiny of under-the-table licensing of IP,” Claypoole adds.
Others strike a more cautious note. “There is a lot of speculation around what the Biden antitrust policy is going to look like with respect to IP issues. There is a lot of guesswork, but we have very little knowledge at the moment,” argues Jeffrey Kessler, partner at Winston & Strawn’s New York office.
But he agrees that the new presidential administration coincides with a heightened focus on antitrust. “There seems to be more bipartisan consensus that something should be done regarding some of the big platform companies such as Apple and Google. I am not ruling out the possibility that there could be significant changes,” says Kessler.
Increased scrutiny
As the momentum gathers for a much-anticipated upheaval in antitrust enforcement, IP lawyers are warning that large companies should be braced for intensified scrutiny.
For example, under Klobuchar’s bill, the test for challenging mergers or IP acquisitions is lowered from those which “substantially lessen” competition “to those which create an appreciable risk of materially lessening” competition.
Transactions can also be challenged if they would give a competitor market power that “can be profitably exercised or foster anticompetitive collaboration” among competitors.
“If some of the bill’s proposals are passed, it will become easier to attack all transactions, including IP acquisitions and technology-driven mergers and it would become harder for some big tech companies to acquire other companies and IP,” predicts Healey.
Cecilia Sanabria, partner in Finnegan’s Washington DC office, agrees that this could put the spotlight on companies and their activities, including their sale and acquisition of IP.
“There seems to be more bipartisan consensus that something should be done regarding some of the big platform companies such as Apple and Google.” Jeffrey Kessler, Winston & Strawn
Under Klobuchar’s amendments, if the acquiring party is valued at $100 billion, a deal valued at $50 million—almost half of the 2021 HSR reporting thresholds—the burden will shift to the acquiring party to show why the acquisition will not create an appreciable risk of materially lessening competition, explains Sanabria.
“Klobuchar’s proposal to lower the standard for what is considered an unlawful acquisition and the burden shift may result in higher scrutiny and more enforcement proceedings for large deals and players involving patents,” she says.
If enacted, HSR guidelines may be eventually amended to require the reporting of more transactions that fall under the burden shifting provisions of the bill, which could have an impact on big tech or big pharma’s appetite for acquiring or exclusively licensing patents valued at over $50 million, she adds.
These proposals would exert a “chilling effect” on business, future mergers, acquisitions and commercial contracts, believes Claypoole.
“Companies will know they are being watched and will be more careful not to enter into agreements that can lead to government litigation. Until now, with no significant enforcement or laws that address the peculiarities of the digital business word, pushing these boundaries and paying fines was just looked on as a cost of doing business. A major change in costs and enforcement can change that,” he explains.
A sea-change for US patent owners?
Such measures could herald a sea-change for patent owners and patent pools, including holders of standard-essential patents (SEPs). As a general rule, non-exclusive licences are not reportable under HSR, so the revised monetary limits triggering notification of mergers are unlikely to affect SEPs, since fair, reasonable and non-discriminatory (FRAND) commitments prevent SEP owners from granting exclusive licences.
However, Klobuchar’s proposals could forecast a change in direction for antitrust proceedings involving SEPs.
The DoJ, under Trump appointee assistant general Makan Delrahim, adopted a distinct approach to antitrust enforcement when it came to IP. According to Vishal Mehta, a partner in Morrison & Foerster’s office in Washington DC, the agency held that patent holdup—when a patent holder makes an intentionally false promise to license technology on FRAND terms and then breaches that promise—should not be viewed as an antitrust issue.
“The agency’s ‘New Madison’ approach recast SEP hold-up as fundamentally a contract, rather than antitrust, problem. It emphasised the risk of hold-out by implementers, reinforced the right to exclude inherent to patent rights, and aligned this with the right to unilaterally refuse to deal under the antitrust laws,” Mehta says.
“These principles represented a significant policy shift in favour of patentees.”
The DoJ under Trump’s administration was prepared to wade into court proceedings to reinforce this antitrust stance. In February 2020, the agency submitted a statement of interest, after car manufacturer Continental sued patent pool Avanci, accusing it of violating antitrust laws when it negotiated licence agreements for SEPs with car makers, instead of component makers. The DoJ outlined its position that antitrust law should not play a role in policing FRAND disputes and the US District Court for the Northern District of California subsequently found against Continental.
Market power, not monopoly power
Crucially for SEP owners, Klobuchar’s bill seeks to broaden the definition of “market power,” which could expose more companies and transactions to antitrust scrutiny, and it would also prohibit “exclusionary conduct that presents an appreciable risk of harming competition”.
“The proposal to define ‘market power’ under the Clayton Act and the amendments to what qualifies as an unlawful acquisition may have an impact on antitrust proceedings for patents,” says Sanabria.
This measure, if implemented, could lead to more SEP owners being exposed to antitrust litigation.
“Antitrust claims surrounding patent misuse, improper tying arrangements, and violations of FRAND obligations for SEPs, involve an inquiry into whether there has been unreasonable exclusionary conduct by a person with market power,” she explains.
In further ambitious proposals, the bill calls for an additional $600 million in funding to the US antitrust enforcement agencies, and the creation of an independent office of the competition advocate within the FTC to conduct market analyses. It also requires merged companies to update agencies on the outcomes of their deals and to study past mergers, as well as extending incentives to whistleblowers who are willing to highlight potential antitrust violations.
While Logan Breed, partner at Hogan Lovell’s Washington DC office, argues that some parts of the bill are more likely to pass than others, he believes its emphasis on strengthened enforcement is likely to attract substantial backing.
“One thing that does have bipartisan support is increased resources for the antitrust division DoJ and FTC, which coupled with policy change by the new leadership, could result in significant change to antitrust IP enforcement.”
As Healey warns, a watered-down version of the bill could still “pack a considerable punch” given its extensive recommendations, and a tougher new antitrust enforcement climate could harken back to more stringent times.
In the 1970s, the antitrust division of the DoJ announced a “watch list” of specified licensing practices that the division viewed as anti-competitive. By the late 1980s these guidelines had fallen out of favour as the agency came to the view that unconstrained patent licensing increased the value of patents and encouraged licensing and innovation.
Notes Healey: “50 years ago, US IP lawyers had to learn the ‘nine no-nos’ of licensing law. Those informal rules disappeared long ago, but if something similar to the proposed bill passes, there will be a whole new set of rules to learn.”
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