Speaker 1: This is Bloomberg Law with June Grassoe from Bloomberg Radio.
Speaker 1: The FTC has been criticized for being overly friendly to
Speaker 1: large businesses in recent years. Over the last decade, we've
Speaker 1: heard about some enormous acquisitions by the tech giants, for example,
Speaker 1: facebook purchase of WhatsApp, Microsoft's deal for linked In, Amazon's
Speaker 1: acquisition of Whole Foods. But there are also a huge
Speaker 1: number of tiny deals, deals too small to draw the
Speaker 1: FTC's attention. Until now, the FTC appears to be reconsidering
Speaker 1: and wondering whether it missed troubling signs in the wave
Speaker 1: of smaller acquisitions by the tech giants. Joining me is
Speaker 1: Jennifer Ree, Bloomberg Intelligence Senior litigation analyst. Jen would you
Speaker 1: say the FTC has taken a permissive approach to the
Speaker 1: tech industry at this point, June? While I believe that
Speaker 1: there are probably antitrust thinkers out there that actually do
Speaker 1: believe the ft C has been two lacks for many
Speaker 1: years on the tech industry, I don't really know that
Speaker 1: we can say that. I mean, in fact, they have
Speaker 1: investigated tech company deals. You know, they have looked closely
Speaker 1: at these deals and considered whether or not these deals
Speaker 1: should close and in fact challenged a tech deal in
Speaker 1: the past that was an already consummated deal in one
Speaker 1: in that case. So you know, we're not paying as
Speaker 1: much attention to what they have done in the past. Instead,
Speaker 1: what we're thinking about is what we view as too
Speaker 1: much dominance at this point for tech companies. But we're
Speaker 1: not really looking at what the FTC has done in
Speaker 1: the past that has in some cases curved tech dominance.
Speaker 1: So now the FTC is asking for new information from Google, Apple, Amazon, Facebook,
Speaker 1: and Microsoft. What kind of information? What are they looking for?
Speaker 1: This investigation is under the FTC X Section six B,
Speaker 1: and what it is. It allows the FTC to go
Speaker 1: in and seek a broad range of documents, data and
Speaker 1: information from these companies even if they don't really have
Speaker 1: an ultimate enforcement goal. So in other words, even if
Speaker 1: they don't necessarily suspect that there has been anti competitive activity,
Speaker 1: they can go in and kind of conduct this fishing expedition. Now,
Speaker 1: what they're looking for here is information on past deals
Speaker 1: that these companies have done that fell underneath the filing
Speaker 1: thresholds of the Heart's got Redino Act. So, in other words,
Speaker 1: they weren't filed with the government because the companies didn't
Speaker 1: have to file with the government and they were free
Speaker 1: to just go ahead and close right away without giving
Speaker 1: the government, FTC or d o J time to review
Speaker 1: the deal. So the FTC wants to know about ten
Speaker 1: years worth of these sorts of deals by the companies
Speaker 1: that you named, and they're trying to understand whether or
Speaker 1: not they need to change the HSR rules or do
Speaker 1: something that might capture small deals that might have been
Speaker 1: anti competitive. And in fact, if they believe they find
Speaker 1: evidence of wrongdoing, which they could because this will be
Speaker 1: a very broad, sweeping investigation, they can then go back
Speaker 1: and start an enforcement action targeting specific deals that could
Speaker 1: be two, three, four or five years old. Explain some
Speaker 1: of the different reasons why tech companies might buy startups
Speaker 1: what they're looking for. There are any number of reasons,
Speaker 1: and obviously what the FTC is wondering as are those
Speaker 1: reasons anti competitive? In other words, is there really no
Speaker 1: reason to buy this startup company other than to eliminate
Speaker 1: threatening competition in a certain segment. So you know this
Speaker 1: is something the FTC will be looking for. Now. The
Speaker 1: other thing they may be thinking about is whether or
Speaker 1: not some of these acquisitions were done just in order
Speaker 1: to gain the data that the startup company is able
Speaker 1: to collect. I think sometimes when you think about the
Speaker 1: Google Ways acquisition that the News has targeted as something
Speaker 1: the FTC may be looking at the question, maybe was
Speaker 1: this because of the user data that Ways was able
Speaker 1: to collect from this platform, which was a user generated platform.
Speaker 1: The other reason sometimes startups are acquired, especially by tech
Speaker 1: is to gain intellectual property that that startup might have,
Speaker 1: or even the talent the employees that the company may have.
Speaker 1: Senator Elizabeth Warren, of course, a Democrat running for president,
Speaker 1: has described a kill zone. What is she talking about now?
Speaker 1: I believe what she's talking about is also what's called
Speaker 1: killer acquisitions that the idea is sort of just to catch, buy,
Speaker 1: and kill off the company. This is one of those
Speaker 1: acquisitions that would be for no other reason but to
Speaker 1: eliminate competition. It is not what the Facebook, Instagram or
Speaker 1: the Facebook What's App acquisitions were, because of course Facebook
Speaker 1: put assets and capital into those acquisitions and continue those businesses,
Speaker 1: so those were not sort of a catch and kill
Speaker 1: type acquisition. But it doesn't necessarily mean that they automatically
Speaker 1: become pro competitive and not anti competitive. But what Elizabeth
Speaker 1: Warren is talking about are these startups that could potentially
Speaker 1: rise up. Their nascent competitors could rise up and threaten
Speaker 1: businesses that Google, Amazon, Facebook, etcetera. Are already in and
Speaker 1: the purpose for the deal is just to buy them
Speaker 1: kill off the competition. The FDC chairman described the new
Speaker 1: review of these smaller mergers as a policy project, not
Speaker 1: a law enforcement action. What's the difference, you know. The
Speaker 1: difference really is that when an enforcement type investigation is opened,
Speaker 1: it usually is because of complaints that have come in
Speaker 1: or something that the FTC has seen that suggests it's
Speaker 1: possible wrongdoing has occurred or is occurring. This doesn't have
Speaker 1: any necessary suspicion of wrongdoing. This is just a fact
Speaker 1: finding mission, so it sits on the policy side rather
Speaker 1: than on the enforcement side. It could lead to enforcement
Speaker 1: actions because of course they're going to be gathering documents,
Speaker 1: and if those documents that they review suggest that wrongdoing
Speaker 1: has occurred, this could then lead to an investigation, which
Speaker 1: is under the enforcement arm. I've been talking with Jennifer
Speaker 1: Ree Bloomberg Intelligence senior litigation analysts about the FTC going
Speaker 1: back to review acquisitions by tech companies that they once
Speaker 1: thought were too small to bother with. So this review
Speaker 1: could lead to enforcement actions. But aren't these small companies
Speaker 1: by now already integrated into the tech giants. Could the
Speaker 1: FTC unwind them at this point? This would be fact based,
Speaker 1: It would be deal by deal. In some cases, yes,
Speaker 1: assets are gone, they're completely merged. Really you can't unscramble
Speaker 1: the eggs in certain cases. But in other cases, the
Speaker 1: acquired entity maybe operating as a separate subsidiary. It might
Speaker 1: be a situation where it's easier to carve off those assets.
Speaker 1: And in addition, one of the things the FTC has
Speaker 1: done in the past and d o J is required
Speaker 1: the company to go into the company and create a
Speaker 1: separate division where they've actually integrated assets, to go in
Speaker 1: and separate out out those assets, create a separate division,
Speaker 1: incentivize the employees to go with the division, and then
Speaker 1: sell off that division. I can't imagine what the industry's
Speaker 1: reaction has been to this, because it sounds like it's
Speaker 1: going to require a lot from them initially and perhaps
Speaker 1: lead to more problems down the road. That is absolutely right.
Speaker 1: You know, the legal departments of these big tech companies,
Speaker 1: the five you mentioned earlier. Have to be so busy
Speaker 1: right now because this is just one of many investigations
Speaker 1: that is ongoing right now. You know, you have Congress
Speaker 1: looking into these companies. We know that the Department of
Speaker 1: Justice is looking at Google, looking at Apple and possibly
Speaker 1: other tech companies. We know the FTCs investigating Facebook, We
Speaker 1: know the European Commission has been looking at these companies.
Speaker 1: So they are very busy, and you know, there is
Speaker 1: a lot of sort of add on here in terms
Speaker 1: of polling documents and probably some repetitive documents, the same
Speaker 1: documents that respond to both investigations. So they are very busy.
Speaker 1: And certainly every time a company turns over a lot
Speaker 1: of their ordinary course business documents, including texts and emails,
Speaker 1: you know, notes of telephone conversations, they add risk because
Speaker 1: you could have the greatest compliance program internally in the world,
Speaker 1: but you still don't necessarily have control over the things
Speaker 1: that your vast number of employees are saying and doing
Speaker 1: in the everyday running of the business, and you're turning
Speaker 1: all of that over to the government. Does the FTC
Speaker 1: have the resources and the people to go through all
Speaker 1: the information that's going to be coming from these huge companies.
Speaker 1: You know, the FTC has always been, in my experience,
Speaker 1: very good at doing a lot with limited resources. The
Speaker 1: FTC themselves have said to Congress they need more resources
Speaker 1: in order to do what they're doing and to sort
Speaker 1: of tackle the new technological economy that we're in right now.
Speaker 1: They are up against the big legal teams that these
Speaker 1: companies hire and can afford to hire, so it is
Speaker 1: very difficult for them. They would probably benefit from more resources,
Speaker 1: but I also wouldn't doubt that the FTC can do
Speaker 1: the job that they need to do with the resources
Speaker 1: they have. The FTC said it might use this review
Speaker 1: to change rules about when deals need to be submitted
Speaker 1: for review. What are the rules now? So the HSR
Speaker 1: Act hearts guard Redino Acts sets out the thresholds for
Speaker 1: when a deal needs to be notified, and it's actually
Speaker 1: really quite complicated now. Most big law firms that have
Speaker 1: an M and A practice have an HSR specialist. That
Speaker 1: the only thing this lawyer does is every time a
Speaker 1: deal comes in, they assess it to determine whether it
Speaker 1: needs to be filed. Generally, deals that are worth less
Speaker 1: than ninety three million right now don't need to be filed,
Speaker 1: and deals that are worth more than three seventy six
Speaker 1: million must be filed. And in between deals some yes
Speaker 1: and some know. It depends, and that threshold changes every year,
Speaker 1: And there are a lot of exemptions, there are a
Speaker 1: lot of safe harpers. So what the FTC might want
Speaker 1: to look at when they collect these documents is an
Speaker 1: understanding of the kinds of deals that are happening that
Speaker 1: aren't falling within those thresholds, or that are fitting one
Speaker 1: of those exemptions. And maybe what they want to do
Speaker 1: is say, Hey, a lot of tech deals seem to
Speaker 1: fall under exemption X, so let's get rid of exemption X.
Speaker 1: That's the kind of thing they might be thinking. The
Speaker 1: idea if they change the rules would be to ensnare
Speaker 1: more deals require the filing, which then requires an automatic
Speaker 1: waiting period before the companies can close. This move is
Speaker 1: part of a broader reconsideration of US antitrust law that
Speaker 1: focuses on in customer prices and consumer harm. So explain
Speaker 1: where we are now with the way these things are judged,
Speaker 1: and I wear looking at it again. Generally, when deals
Speaker 1: are reviewed by the antitrust regulators, what they're looking for
Speaker 1: is a deal that has the likelihood of substantially lessening
Speaker 1: competition and could cause consumer harm. Consumer harm is usually
Speaker 1: increased prices. This is the most obvious way consumers are
Speaker 1: harmed harmed, but it has never been limited to justin
Speaker 1: increase in prices. This could also be a decrease in output,
Speaker 1: it could be reduction in quality, and it could be
Speaker 1: in fact reduced innovation. The FTC recently has actually challenged
Speaker 1: deals because not just an increase in prices, but a
Speaker 1: reduction and innovation, particularly in the pharmaceutical area. These are
Speaker 1: generally the bucket of consumer harms that are looked at
Speaker 1: and and the idea is to be predictive. You know,
Speaker 1: you can't say what's definitely going to happen when two
Speaker 1: companies merge, and it's a very difficult determination, you know,
Speaker 1: we saw what happened with T Mobile and Sprint. The States,
Speaker 1: many state ages believed that this was a deal that
Speaker 1: was likely to have substantial anti compare out of effects,
Speaker 1: but the Department of Justice, with a remedy didn't agree
Speaker 1: um and a district court judge did not agree, deciding
Speaker 1: that the deal could go forward and that the States
Speaker 1: are hadn't shown that this would likely to be anti competitive,
Speaker 1: and most judges will say, when they're looking at these
Speaker 1: deals that are challenged by FTC or d o J,
Speaker 1: you know, I need a crystal ball. How can I
Speaker 1: predict the future of what will happen? So it's a
Speaker 1: very difficult determination to make. What the d o J
Speaker 1: and FTC do is use economic tools. They both have
Speaker 1: groups of economists within the antitrust groups within each agency
Speaker 1: that have a lot of complicated economic tools they use
Speaker 1: to try to help make this prediction um And it's
Speaker 1: difficult to do. And you know, sometimes the FTC is
Speaker 1: wrong and d o J are wrong, and sometimes they're
Speaker 1: absolutely right. Uh, you know, And it's a predictive judgment,
Speaker 1: and they do the best that they can do. They
Speaker 1: want to change what they're looking for. Do they want
Speaker 1: to expand it away from consumer harm? Because sometimes tech
Speaker 1: deals tech deals make things cheaper for consumers, that's right,
Speaker 1: And I think that's been one of the conundrums, and
Speaker 1: certainly right now, neither agency would want to do something
Speaker 1: that somehow has this unintended consequence of harming consumers, such
Speaker 1: as prices on Amazon going up, or a function that
Speaker 1: we're used to having for free, like searching on Google
Speaker 1: or using Facebook suddenly become go behind a paywall. They
Speaker 1: do not want an unintended consequence like that. I think
Speaker 1: what what the agencies are thinking about right now is
Speaker 1: not necessarily looking at some other standard outside of consumer harm,
Speaker 1: but understanding whether there are ways that consumers are harmed
Speaker 1: that they haven't really thought about in the past, such
Speaker 1: as via the collection of data. Um what does that
Speaker 1: mean and how does this data driven economy that we
Speaker 1: live in right now affect consumers and how could that
Speaker 1: contribute to consumer harms in ways that perhaps they haven't
Speaker 1: really been thinking about in the past. Does in fact
Speaker 1: privacy protection constitute part of that consumer harm? If a
Speaker 1: company that offers greater privacy protections is acquired by a
Speaker 1: company that offers lowered privacy protections, could that be a
Speaker 1: consumer harm because now the consumers that are more concerned
Speaker 1: about their privacy protection lose the option of the search engine,
Speaker 1: let's say, or the social media platform that did provide
Speaker 1: greater privacy protections. This is something I think some people
Speaker 1: appointed to with Instagram that when Instagram was independent, it
Speaker 1: offered perhaps greater privacy protections than Facebook did, and once
Speaker 1: acquired users lost that option. So I think that this
Speaker 1: is more about thinking about new ways that consumers may
Speaker 1: be harmed by tech companies that operate differently than most
Speaker 1: of the companies did that the agencies were looking at
Speaker 1: fifty years ago. Now I'm saying that that I think
Speaker 1: this is what the agencies are thinking about. There's certainly
Speaker 1: advocates out there for looking at things like how deals
Speaker 1: affect employment, how deals affect wages, which would be going
Speaker 1: beyond the kinds of consumer harms that the agencies think about. Now,
Speaker 1: there's been criticism of the FTC on a number of grounds,
Speaker 1: one being that the number of criminal antitrust cases filed
Speaker 1: in twenty team where at the lowest levels in almost
Speaker 1: thirty years, And you had one senator Missouri Senator Josh
Speaker 1: Holly saying the FTC should just be part of the
Speaker 1: Justice Department, rolled into the Justice Department. So what's your
Speaker 1: take on whether the FTC has not really done the
Speaker 1: kinds of things that they should have in the past.
Speaker 1: On the criminal side of it, the FTC doesn't have
Speaker 1: jurisdiction to pursue companies under the antitrust laws. Under the
Speaker 1: criminal side of the anti dust laws, only the Department
Speaker 1: of Justice does, and I think in some respects um
Speaker 1: those statistics maybe a little bit misleading, only because there
Speaker 1: was this raft of criminal prosecutions by the Department of
Speaker 1: Justice following the banking crisis of two thousand. You had
Speaker 1: a lot of rate rigging and bench mark rigging conduct
Speaker 1: and cartel type conduct by the banks that the Department
Speaker 1: of Justice went after in two thousand eleven and on
Speaker 1: with a libor scandal. We all recall the for an
Speaker 1: exchange rigging scandal you had is to fix um credit
Speaker 1: default swaps conduct, and and you had this uptick in
Speaker 1: the criminal prosecutions. And so now some of those cases
Speaker 1: are wrapping up, and I do actually think the Department
Speaker 1: of Justice maybe on the verge of filing more criminal
Speaker 1: charges in the generic drug price fixing probe. And the
Speaker 1: News has reported that the Department of Justice maybe also
Speaker 1: going after some companies no poaching agreements criminally, in other words,
Speaker 1: agreeing not to recruit each other's employees, which is sort
Speaker 1: of a price fixing. It's a wage fixing, and it
Speaker 1: affects those employees and the ability to get raises and
Speaker 1: increased salaries. So we may be seeing more coming out
Speaker 1: of the Department of Justice on criminal matters with respect
Speaker 1: to the FTC. You know, I think it's really hard
Speaker 1: to go back and criticize the FTC for not doing enough.
Speaker 1: We have had a rapidly changing economy over the last
Speaker 1: ten years, particularly in tech, and tech innovations move very
Speaker 1: very quickly. The FTC. I believe we tend to overlook
Speaker 1: much of what the FTC does in terms of blocking deals.
Speaker 1: If you look at the statistics, they do not show
Speaker 1: that there's any decreased level of interest activity coming out
Speaker 1: of the FTC as compared to ten years ago. They
Speaker 1: continued to do a lot of work, and I think
Speaker 1: they continue to do what they can do given the
Speaker 1: resources that they have. That's Jennifer Ree, Bloomberg Intelligence Senior
Speaker 1: Litigation Analyst, and that's it for this edition of Bloomberg Law.
Speaker 1: I'm June Glass. Thanks so much for listening, and remember
Speaker 1: to tunit to the Bloomberg Law Show tomorrow night at
Speaker 1: ten p m. Eastern right here on Bloomberg Radio.