By Brandon S. Winchester and Kelly W. Swanson

On July 9, 2021, President Joe Biden signed an executive order[1] calling for stronger enforcement of antitrust laws to promote competition and curtail the consolidation of American industries. The expansive order included 72 actions and recommendations to over a dozen agencies aimed at alleviating the negative effects of consolidation— namely, higher prices and lower wages—which the Biden administration estimated have cost the median American household $5,000 per year.

The order addresses specific anti-competitive behavior in a range of industries—including information technology, agriculture, pharmaceuticals, healthcare, telecommunications, financial services, and commercial shipping—as well as anti-competitive practices that cover all industries, including non-compete agreements and occupational licensing restrictions.

Specifically, Executive Order 14036 (Promoting Competition in the American Economy) calls for the following actions:

• The Attorney General and the chair of the FTC to consider revising the horizontal and vertical merger guidelines
• The Attorney General and the Secretary of Commerce to consider revising their position on the intersection of intellectual property and antitrust laws
• The Attorney General to review practices and adopt a plan for the revitalization of the merger guidelines under the Bank Merger Act and the Bank Holding Company Act of 1965
• The chair of the FCC to re-adopt net neutrality rules
• The chair of the FTC to consider creating a rule that curtails certain practices, including non-compete clauses, anti-competitive restrictions on third-party or self-repair of items, agreements in the prescription drug industry to delay the market entry of generic drugs, occupational licensing restrictions, and exclusionary practices in the brokerage or listing of real estate

Most notably, the executive order called on the FTC and the DOJ to enforce the antitrust laws “vigorously,” even suggesting that they “challenge transactions whose previous consummation was in violation of the [antitrust laws].”

The Biden administration complimented the “bold action” of past presidents in response to growing corporate power, including the “trust-busting” of Theodore Roosevelt and the aggressive increase in antitrust enforcement actions during Franklin Roosevelt’s administration.[2] These references to past antitrust crusaders signal Biden’s desire to cement antitrust enforcement as a touchstone of his legacy.

Putting the Executive Order into Action

The DOJ did not wait long before beginning to pursue Biden’s declared antitrust enforcement campaign. Below, we examine two efforts at blocking purportedly anti-competitive mergers as well as one attempt to address non-merger anti-competitive conduct.

i. The DOJ is successful in enjoining the merger of two publishing giants – U.S. v. Bertelsmann SE & Co. KGaA, et al.

On November 2, 2021, the DOJ filed suit to “stop Penguin Random House, LLC – the world’s largest book publisher – from buying its publishing rival, Simon & Schuster, Inc” under Section 7 of the Clayton Act.[3] The merger was arranged between the parent companies of the two publishing houses (Bertelsman SE & Co. KGaA and ViacomCBS, Inc.).[4] The complaint alleged that the merger, if consummated, would give Penguin Random House “outsized influence over who and what is published, and how much authors are paid for their work”[5] (specifically, the ability to “pay less and extract more from authors”[6]) and “would likely result in substantial harm to authors of anticipated top-selling books and ultimately, consumers.”[7] This harm, the DOJ alleged, would stem in part from the fact that the resulting entity would be twice the size of its closest competitor.[8]

When defining the relevant markets for analysis under Section 7 of the Clayton Act, the government selected two: “the acquisition of U.S. publishing rights to books from authors” and “the acquisition of U.S. publishing rights to anticipated top-selling books.”[9] The post-merger entity would have such an outsized place in these two markets that it would 1) reduce competition for these publishing rights from authors and, necessarily, 2) lead to significant decreases in advance fees paid to authors.[10]

Further, the DOJ alleged that smaller publishers outside of the largest five publishing houses lack the resources and capabilities to compete with their larger peers, particularly in connection with publishing rights, and the proposed merger would lead to increased coordination among the remaining Big Four.[11]

The case ultimately went to a 14-day bench trial before Judge Florence Y. Pan, a judge on the D.C. Circuit Court of Appeals who sat on the district court by designation, in August 2022. After trial and post-trial briefing, Judge Pan issued an order entering judgment in favor of the U.S., and enjoining the merger of Penguin Random House and Simon & Schuster, on October 31, 2022.

Judge Pan also issued an accompanying memorandum opinion (after agreed redactions by the parties) explaining her reasoning.[12] She found, explicitly, that the proposed merger would “substantially lessen competition” in the relevant market, the market to acquire “the publishing rights to anticipated top-selling books.”[13] In doing so, Judge Pan noted the history of consolidation in the publishing industry and the substantial market power that the two parties to the merger already held.[14] She also found that there was a presumption of undue concentration given certain statistical measures as well as other resulting anti-competitive harms (eliminating competition between the two merging companies and the potential for increased coordination by the remaining publishing houses).[15]

Judgment was entered on November 2, 2022, and no appeal was filed.

It remains to be seen if this ruling will be the tone-setting decision for other judges to follow suit. Judge Pan certainly took what may be seen as an impassioned view of anti-competitive effects brought about by mergers via a thorough examination of the relevant antitrust case law and the facts at hand.

Below, we discuss two other pending antitrust cases that should be watched to determine if other courts follow Judge Pan’s lead.

ii. DOJ attempts to address anti-competitive business practices in the online advertising space by Google – U.S. v. Google LLC

On January 24, 2023, the DOJ filed suit against Google, continuing to send the signal that the Biden administration’s tough stance on antitrust enforcement is not just all talk.[16]

In U.S. v. Google LLC, the DOJ and eight states[17] allege that, over the last 15 years, Google has monopolized the online advertising market[18]—specifically, that Google has captured significant, profitable pieces of every phase of the online advertising market while also engaging in other anti-competitive practices to continue to bolster its position.[19] The claims brought include monopolization of the publisher ad server market, ad exchange market, and advertiser ad network market (all in violation of Section 2 of the Sherman Act), attempted monopolization of the ad exchange market (in violation of Section 2 of the Sherman Act), and unlawful tying (in violation of Sections 1 and 2 of the Sherman Act).

The suit aims to force Google to divest much of its ad tech business, a one-stop shop for the buying and selling of online advertisements. Of every dollar exchanged between advertisers and website developers through Google’s ad tech tools, Google retains at least 30 cents for itself.[20] As alleged by the DOJ, Google’s history of acquiring competitors and controlling the online ad marketplace has locked publishers and advertisers in and made it nearly impossible for users to seek out other advertising options.[21]

According to the complaint, even Google’s own advertising executives have questioned the consequences of its control over the market: “[I]s there a deeper issue with us owning the platform, the exchange, and a huge network? The analogy would be if Goldman or Citibank owned the NYSE.”[22]

Google sought to have the suit transferred to the U.S. District Court for the Southern District of New York, where over two dozen antitrust actions related to Google’s online advertising technology have been transferred and consolidated by the Judicial Panel on Multidistrict Litigation.[23] However, Judge Leonie Brinkema of the U.S. District Court for the Eastern District of Virginia denied Google’s motion to transfer venue, holding that transferring the case to New York “would result in significant delays and prevent the government plaintiffs from expeditiously obtaining relief,” that the government’s choice of forum weighed against transfer, and that the speedy and efficient resolution of the lawsuit would outweigh any possible concerns of lack of judicial economy.[24]

Google later filed a motion to dismiss, arguing that the plaintiffs failed to state a claim by failing to allege plausible relevant markets, improperly excluding relevant facets of a proposed market, failing to allege that Google has monopoly power in a relevant market, failing to allege that Google’s acquisitions and other activities harmed competition, and failing to allege that they purchased digital advertising and, thus, suffered harm. The plaintiffs amended their complaint on April 17, 2023; Google’s motion to dismiss was denied on April 28, 2023. As of the date of publication, Google has not filed a motion to dismiss the amended complaint. Discovery in the case is proceeding.

iii. DOJ attempts to stop merger of two bargain airlines – U.S. v. JetBlue Airways Corp.

On the heels of the DOJ’s claims against Google, it filed another lawsuit in March 2023—this time to block JetBlue Airways Corp’s planned $3.8 billion purchase of Spirit Airlines Inc. Allowing this deal to go through, the DOJ argues, will reduce flight options and raise ticket prices.

The complaint[25] filed in federal court in Massachusetts says JetBlue plans to “abandon Spirit’s business model, remove seats from Spirit’s planes, and charge Spirit’s customers higher prices,” calling the deal “presumptively illegal” because it allegedly violates Section 7 of the Clayton Act.[26]

Overall, the government alleges the merger would eliminate what it calls the “Spirit Effect,” where, on average, when Spirit offers new service on a route, industry-wide fares go down 17%, while the number of passengers increases by 30%.[27] Spirit acts as a disrupter in the “ultra-low-cost carrier” market and in the air passenger carrier market overall, as it combines low prices with the unbundling of services (i.e. providing seat selection, baggage checking, and other services on an à la carte basis).[28] JetBlue, on the other hand, started off as a low-cost carrier but has since allied itself with larger airlines.[29]

The DOJ alleges that the merger, were it to consummate, would hurt travelers by eliminating “vigorous head-to-head competition” between JetBlue and Spirit that “benefits cost-conscious travelers[.]”[30] This would lead to higher prices and less choices for travelers, less innovation, and an increased risk that the remaining airlines would coordinate to raise prices.[31]

The lawsuit alleges violations of Section 7 of the Clayton Act and asks that the proposed acquisition be enjoined. If the deal were to go through, it would mark the largest airline industry merger since Alaska Air bought Virgin America in 2016 for $2.6 billion. It also would create the fifth-largest airline carrier in the United States.

Guidance for Companies Considering a Merger

Since issuing the Executive Order, the Biden administration has shown to be true to its word. The Justice Department and FTC have attempted to halt 22 mergers in the past two years.[32] Companies would be wise to make themselves aware of the Biden administration’s renewed efforts at stopping anti-competitive behavior.

The FTC, for its part, has provided some guidance to companies seeking to merge. Of note, the FTC has advised companies that “the potential for competitive harm is not a result of the transaction as a whole, but rather occurs only in certain lines of business.” [33] Where a buyer competes in a line of products with the company it seeks to buy, the FTC proposes that the parties may simply agree to sell off the overlapping business line of one of the merging parties. This “allows the procompetitive benefits of the merger to be realized without creating the potential for anticompetitive harm.”

Merging parties can also take additional actions to mitigate the risk of an antitrust enforcement action, which would put a halt to their best laid plans. [34] These include:

• Engaging in a preliminary market assessment to determine whether the proposed transaction is likely to enable the merging parties, whether unilaterally or collectively with competitors, to engage in anti-competitive behavior (increase prices to consumers above competitive levels or reduce output, innovation, or product quality).
• Assessing whether a commitment to divestitures (in order to obtain antitrust agency approval) is appropriate. This ranges from a “hell or high water” provision (which requires a buyer to do whatever it takes and give up whatever assets are necessary to obtain antitrust clearance) to an explicit listing of divestiture obligations (requiring only certain product or service lines to be sold).
• Seeking an agreement with one’s merger partner that obligates that party to litigate against agency (FTC or DOJ) challenges to the proposed merger. With the FTC and DOJ following Biden’s marching orders to aggressively challenge mergers with supposed anticompetitive effects, such an agreement can ensure that one’s merger partner does not just walk away from a transaction. Such an obligation can—and should—address who is obligated to litigate, for how long or to what stage litigation is required, and who bears the cost of litigation.
• Addressing any agreement some natural off-ramps for either party to terminate the merger, such as inquiries by the antitrust enforcement agencies or a court entering an order enjoining the merger.
• Allocating risk on the seller side with a reverse breakup fee. These are fees that are payable by the buyer to compensate a would-be seller if the transaction fails to close on antitrust grounds.
• Spelling out the efforts that the parties must engage in to effect the merger, including coordination with the other merging party and the antitrust enforcement agencies.

The FTC, again, has provided some guidance to potential merger partners (competitors or potential competitors) who wish to minimize their antitrust risks throughout the premerger negotiation and due diligence process.[35] Specifically, the FTC has focused on advice to companies regarding information sharing in the premerger process, above and beyond any post-merger anti-competitive concerns like those described above.

The FTC’s concern with this pre-merger information sharing is that it “can inflict harm to competition similar to the harm caused by an anti-competitive merger. Exchanging information about competitive plans, strategies, and crucial data such as prices and costs can facilitate coordination between firms (and, if accompanied by accommodating actions, could constitute an unlawful agreement). Right up until consummation, the merger parties are still independent businesses and they must continue to operate independently­­ including safeguarding their competitively sensitive information—to ensure competitive vigor in the short term and also in the event that the merger does not happen.”

With that in mind, the FTC advises companies to construct “effective protocols to prevent anti-competitive information sharing” during pre-merger negotiations and due diligence, to employ consultants and other safeguards to limit “the dissemination and use of that information within the parties’ businesses,” and to monitor compliance with these protocols.

With a little over 18 months left in President Biden’s first term, antitrust enforcement efforts appear poised to continue apace. Businesses would do well to apprise themselves of related developments and engage antitrust counsel who can help them mitigate the myriad risks of the regulatory approval process.

Brandon S. Winchester is senior counsel and Kelly Swanson is an associate at Schiffer Hicks Johnson PLLC, a Houston-based trial law firm.

[1] https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/.

[2] https://www.whitehouse.gov/briefing-room/statements-releases/2021/07/09/fact-sheet-executive-order-on-promoting-competition-in-the-american-economy/.

[3] Complaint [Dkt. No. 1] at 1, U.S. v. Berteslmann SE & Co. KGaA, et al., Cause No. 1:21-cv-02886 in the United States District Court for the District of Columbia.

[4] Id. at 2.

[5] Id. at 2.

[6] Id. at 5.

[7] Id. at 4.

[8] Id.

[9] Id. at 12-16.

[10] Id. at 13-16.

[11] Id. at 11-12, 21.

[12] Judge Pan issued an amended memorandum opinion after fixing some typographical errors. All references herein are to the amended memorandum opinion.

[13] United States v. Bertelsmann SE & Co. KGaA, 2022 WL 16949715, at *2 (D.D.C. 2022).

[14] Id. at *2-3.

[15] Id. at *21, 23-28.

[16] U.S.A. v. Google LLC, Case No. 1:23-cv-00108, in the United States District Court for the Eastern District of Virginia.

[17] California, Colorado, Connecticut, New Jersey, New York, Rhode Island, Tennessee, and Virginia (a commonwealth).

[18] Original Complaint at 1.

[19] Id. at 1-4.

[20] Id. at 4.

[21] Id. at 6, 9, 30, 35-37.

[22] Id. at 3.

[23] U.S. v. Google, LLC, 2023 WL 2486605, *1 (E.D. Va. 2023). In May 2020, a group of advertisers filed a class action, in the Northern District of California challenging Google’s alleged anti-competitive conduct in the ad tech industry. Other private suits were filed by advertisers challenging the same conduct, and putative class actions also were filed by publisher plaintiffs. On December 16, 2020, Texas and a group of nine other states brought an action in the Eastern District of Texas against Google alleging that its digital advertising practices violated the Sherman Act and various state laws. The Multidistrict Panel consolidated those actions on August 10, 2021. Texas and its co-plaintiffs have since sought to have their case removed from the Multidistrict Panel based on the recently enacted State Antitrust Enforcement Venue Act that exempts antitrust claims brought by states from being included in Multidistrict Litigation Panels. Texas’s motion to send its case back to the Eastern District of Texas remains pending.

[24] Id. at *6, 8, 11.

[25] U.S., et al. v. JetBlue Airways Corporation and Spirit Airlines, Inc., Case No. 1:23-cv-10511, in the United States District Court for the District of Massachusetts.

[26] Amended Complaint in U.S., et al. v. JetBlue Airways Corporation and Spirit Airlines, Inc., at 2, 4, 15-16.

[27] Id. at 2-3.

[28] Id. at 9.

[29] Id. at 7-8.

[30] Id. at 14.

[31] Id. at 14-19.

[32] https://www.reuters.com/markets/deals/dealmakers-grapple-with-unprecedented-us-challenge-mergers-2022-12-27/.

[33] https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/mergers/premerger-notification-merger-review-process.

[34] Many of these strategies have been excellently laid out previously by Aimee E. DeFilippo, Melissa Hall, and Dionne C. Lomax: https://www.bloomberglaw.com/external/document/X3UHAG0G000000/health-care-transactions-professional-perspective-antitrust-cons.

[35] https://www.ftc.gov/enforcement/competition-matters/2018/03/avoiding-antitrust-pitfalls-during-pre-merger-negotiations-and-due-diligence.