Changes are Coming: What You Need to Know About Antitrust Issues

 

 

Antitrust law, also known as competition law, focuses on protecting the competitive process.  One way it does this is by prohibiting agreements between market participants that can be considered restraints of trade or commerce.  Under the antitrust laws, conduct that is deemed to have no procompetitive benefits, such as price-fixing, bid-rigging, monopolization, and market allocation is always illegal because the purpose of such activities is to prevent or exclude others from the market.  Additionally, contracts, combinations, and conspiracies that unreasonably restrain trade are also unlawful, even if some procompetitive benefits exist.  In contrast, restraints that promote competition, and are therefore considered to be in consumers best interests, are permissible.

The Federal Trade Commission (FTC), the Department of Justice (DOJ), and state Attorneys General are the government entities responsible for enforcing the antitrust laws.  All of these entities have investigatory power, and can use tools like subpoenas and civil investigatory demands to determine whether to bring an enforcement action against corporations and/or individuals.  While both the DOJ and most state Attorneys General have the ability to both civilly and criminally prosecute violations of the antitrust laws, the FTC may only bring civil enforcement actions.  Corporate defendants that are found liable for violating the antitrust laws may face civil penalties, treble damages, restitution, legal fees, business disruption, reputational harm, disqualification from the industry, and prohibitions or conduct restraints with respect to future practices.  Similarly, individuals who violate the antitrust laws may also face fines and potential jail time.

Due to heightened levels of antitrust enforcement at both the state and federal level, it is essential that insurers across all industries understand the potential antitrust implications that may arise.  For example, insurers that focus on employment practice liability, executive liability, and financial institutions professional liability, need to understand the antitrust risks posed by mergers and acquisitions, price-fixing agreements, bid-rigging conduct, no-poach agreements, wage fixing agreements or other agreements that may restrict employee mobility, and agreements surrounding common ownership.  Similarly, insurers in the healthcare sector need to understand the potential antitrust issues surrounding joint ventures, joint-purchasing agreements, exclusive and selective contracting, pay-for-delay agreements, and mergers and acquisitions.  Below is a list of some of the primary antitrust implications that professional liability insurers should keep in mind:

1. President Bidens Executive Order on Promoting Competition in the American Economy: On July 9, 2021, President Biden signed a wide-ranging Executive Order that announced a whole-of-government effort to promote competition in the American economy.  The Executive Order seeks to address competition issues across industries by directing more than a dozen federal agencies to work together to tackle some of the most pressing competition problems in our economy.  Specifically, the Executive Order encourages both the DOJ and the FTC to enforce the antitrust laws vigorously, and to focus their enforcement efforts on key markets, including labor markets, agricultural markets, healthcare markets (including prescription drugs, hospital consolidation, and insurance), and the tech sector.  In addition to enforcing the antitrust laws in relation to new antitrust matters, the Executive Order also acknowledges that previously approved mergers might have anticompetitive consequences, and recognizes that the FTC and the DOJ can challenge prior  mergers that fit within those parameters.  Overall, the Executive Order demonstrates that antitrust is a priority of the Biden Administration and portends increased levels of antitrust enforcement at the federal level.
2. Trends in Enforcement by the FTC and DOJ: In conjunction with the Biden Administrations focus on antitrust, we have observed increased enforcement activity by both the DOJ and the FTC.  In September 2021, the FTC passed a resolution that expanded the agency staffs powers to use compulsory processes, such as subpoenas and investigative demands, to investigate potential antitrust violations in eight specific areas, including monopolization offenses, competitive concerns raised by common directors and officers and common ownership, abuses of intellectual property, and manipulative conduct on the internet.  In addition to these key areas, the FTC has also been targeting mergers, restrictive contract terms, and perceived antitrust violations in the tech and healthcare sectors.
   
   In November 2021, Jonathan Kanter was confirmed as the Assistant Attorney General for the DOJ Antitrust Division.  His appointment serves as another signal that the Biden Administration is prioritizing the aggressive enforcement of antitrust laws.  However, even prior to AAG Kanters confirmation, the DOJ had been focusing on merger enforcement across industries.  While the DOJ has historically brought enforcement actions against horizontal mergers , we believe that we will see more challenges to vertical mergers as well.  Overall, we anticipate that the FTC and the DOJ will become more aggressive in investigating and challenging mergers, acquisitions, joint ventures, and other conduct.
3. Antitrust Implications Related to Mergers and Acquisitions:  A few weeks ago, Lina Khan and Jonathan Kanter announced the launch of a joint review of the Horizontal Merger Guidelines.  Through this review, the agencies are seeking to strengthen their merger enforcement activity and guidelines with the aim of preventing many industries from becoming more consolidated.  Some of the specific areas that the agencies are particularly focused on revamping include the circumstances where certain transactions should presumptively be considered anticompetitive, the impact of monopsony power, and threats to potential and nascent competition.  Separately, review and comment is also being sought on the Vertical Merger Guidelines, with the aim of creating guidelines that contain economic models that reflect market realities.
   
   In conjunction with the revamping of the Merger Guidelines, we are also seeing increased merger enforcement by the FTC and the DOJ.  Historically, when companies received approval for their transactions, federal antitrust enforcers generally would not try to unwind the transaction on antitrust grounds after the transaction closed.  However, the FTC is now saying that it may seek to unwind transactions after they have closed, creating uncertainty and unexpected antitrust risks for merging parties.  In comparison to the FTC, the DOJ is focusing on the remedy portion of mergers, and has indicated that it will scrutinize the partial divestitures that are often a part of merger settlements with the aim of preventing divested assets from ending up in the hands of ineffective buyers.  This approach may make a partys ability to obtain a divestiture remedy difficult in the future.
   
   Due to the increased focus on mergers, we believe it is more likely that the FTC and DOJ will begin challenging more mergers, particularly those in both the tech and healthcare sectors.  These considerations also have implications with respect to how advisers to merging parties, or parties considering a merger or acquisition, approach such matters going forward. 

4. Antitrust Implications Related to Employment Practices:  In the past, both the FTC and the DOJ have brought civil actions against employers that entered into no-poach agreements.  However, following public announcements in 2016 concerning, among other issues, criminal implications of employee related agreements, the DOJ has initiated criminal investigations and brought indictments against employers, including individual employees, who are alleged to have entered into naked wage-fixing and no-poach agreements.^[1]  Such criminal actions are particularly concerning as they increase the potential penalties that companies and executives could face, including more severe financial penalties and jail time. 

The FTC is also signaling its plans to increase enforcement efforts against the use of non-compete clauses in employment agreements.  In January 2022, the FTC held two workshops focused on restrictive covenants and non-compete agreements, likely with the goal of gathering facts that could be used for formal proceedings.  While the workshops were informal, it is likely that the FTC will attempt to address restrictive covenants, such as non-compete clauses, in the near future, as such activity would correspond with President Bidens Executive Order, which directs the FTC to consider using its rulemaking authority to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.[2]

5. Antitrust Implications in the Health Insurance Space: In January 2021, Competitive Health Insurance Reform Act (CHIRA) was enacted into law.  CHIRA eliminated exemptions for health and dental insurers under the McCarran Ferguson Act, an act that granted insurance companies a broad exemption from the federal antitrust laws for conduct that was (1) part of the business of insurance; (2) regulated by existing state law; and (3) not an act or agreement of boycott, coercion, or intimidation.  The exemption was only eliminated for health and dental insurers (it remains in place for other insurers).  The elimination of the exemption means that collaborative agreements reached by health and/or dental insurance companies, regarding matters such as the standardization of rates, claim handling, and reinsurance are no longer protected from antitrust enforcement.  As a result, we anticipate that there will be increased federal antitrust scrutiny by both the DOJ and the FTC, as well as an increase in the number of private civil antitrust suits brought by both providers and those who are insured. 

As the antitrust landscape continues to shift, it is clear that we should anticipate an aggressive enforcement approach and a drive for stricter legislation and regulation. Recent actions by the Biden Administration, the FTC, and the DOJ emphasize the need for all businesses across sectors to try and mitigate their antitrust risk and prepare for increased antitrust scrutiny, and to actively monitor both those developments and their compliance programs in an effort to mitigate antitrust civil and criminal exposure.

Copyright 2022. Morgan, Lewis & Bockius LLP. All Rights Reserved.
This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.

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[1] United States of America v. Jindal, No. 4:20cr358 (E.D, Tex. Dec. 9, 2020); United States of America v. Surgical Care Affiliates, LLC, No. 3-21CR011-L (N.D. Tex. Jan. 5, 2021).

[2] Exec. Order 14036, 86 Fed. Reg. 36987 (Jul. 14, 2021).