UNITED STATES

• New Merger Guidelines Released

The US Federal Trade Commission (FTC) and US Department of Justice Antitrust Division (DOJ) issued their updated Merger Guidelines on December 18, 2023. The new guidelines include several potential enforcement theories from the prior guidelines but also introduce new concepts not addressed in prior versions. A theme of the new guidelines is increased scrutiny on a variety of different transaction types, including (1) mergers between close competitors, even if the parties compete in a broad market, (2) mergers involving a potential entrant, (3) transactions in industries that have experienced or are experiencing significant consolidation, and (4) vertical transactions. The Merger Guidelines are not the law, but they do signal a focus on an enforcement-oriented approach consistent with trends seen lately. A more detailed assessment is available here.

• FTC Focused on Pharmaceutical Companies 

The FTC continues to closely scrutinize pharmaceutical transactions, including exclusive licenses. For example, on December 11, 2023, the FTC issued an administrative complaint and sought a preliminary injunction to block Sanofi’s proposed exclusive licensing agreement involving Maze Therapeutics’ pipeline Pompe disease treatment. Sanofi currently offers the only first line therapy for Pompe disease. Maze’s Phase 2-ready developmental drug would introduce a new method of treatment, as it can be distributed orally instead of through biweekly infusions. Maze and Sanofi entered into an agreement whereby Sanofi would obtain an exclusive license to Maze’s drug and Sanofi would help fund the costs of development and use its resources and expertise to advance the treatment. The FTC alleged that the deal would eliminate Maze as a nascent competitor and allow Sanofi to maintain its monopoly, preventing consumers from reaping the benefits of innovation and price cuts.

Pfizer, in contrast, secured FTC clearance to purchase cancer drugmaker Seagen for $43 billion, but only after a second request and agreeing to donate all US royalties for Bavencio, a bladder-cancer treatment, to the American Association for Cancer Research. The FTC did not require a consent decree, but Pfizer publicly stated it would donate Bavencio royalties to address FTC concerns.

In addition to the continued skepticism of pharmaceutical deals, the FTC also issued a policy statement warning that the improper listing of patents of branded drugs in the FDA’s catalog of “Approved Drug Products with Therapeutic Equivalence Evaluations,” more commonly known as the “Orange Book,” could trigger legal action under Section 5 of the FTC Act for unfair methods of competition. Manufacturers seeking approval for a generic drug must certify that the generic does not violate an Orange Book patent or that the listed Orange Book patent is invalid or will not be infringed by the generic drug. Drugs listed in the Orange Book can be entitled to an automatic 30-month stay on approval while companies litigate a generic drug’s potential patent infringement. The FTC policy statement suggests this can be exploited to deter or delay generic products from entering the market and inflate drug prices for consumers. Since the policy statement was published, the FTC has issued challenges to more than 100 patents in the Orange Book, notifying pharmaceutical companies via letter that they have 30 days to withdraw, amend, or certify under penalty of perjury that the identified patents are proper.

• FTC Targets “Moat-Building” Mergers

Several recent FTC merger challenges have focused on Guideline 5 of the new Merger Guidelines, stating “mergers can violate the law when they create a firm that may limit access to products or services that its rivals use to compete.” Complaints in several recent cases have alleged the combined firm would have the “ability and incentive” to control inputs, products or services used by competitors, creating barriers to entry or competition. The FTC recently challenged Intercontinental Exchange Inc’s acquisition of Black Knight Inc., raising concerns about the “ability and incentive” of the combined firm to impede third-party loan service providers’ access to its loan-origination systems. Similar allegations were brought in seeking to block IQVIA Holding Inc.’s acquisition of Propel Media Inc. There, the complaint alleged that the combined firm would have the “ability and incentive” to disadvantage current and/or emerging rivals through IQVIA’s control of leading data inputs such as healthcare professionals’ identities and prescribing data. Likewise, in challenging Amgen Inc.’s acquisition of Horizon Therapeutics plc., the FTC cited concerns that Amgen would have the “ability and incentive” to condition rebates for its broad product portfolio on its customers refusing to include competing products on their formularies. Finally, the FTC’s ongoing challenge to Microsoft’s acquisition of Activision Blizzard Inc., on appeal and before an administrative law judge, also focuses on Microsoft’s “ability and increased incentive” to control Activision’s video game titles in a way that could disadvantage competitors to Microsoft’s Xbox gaming console. While the FTC has not relied solely on Guideline 5 in forming the allegations in these complaints, there is a clear focus on these foreclosure theories.

• Fifth Circuit Fuels FTC’s Vertical Mergers Agenda

On December 15, 2023, the US Court of Appeals for the Fifth Circuit issued its decision in the Illumina/GRAIL case. The court sided with the FTC that it had reason to find anticompetitive harm from the proposed deal, but also noted the FTC had committed “legal error” in treating Illumina’s proposed fix – an “open offer” made available to everyone in the industry – as a remedy. The Fifth Circuit directed the lower court to evaluate whether the “open offer” would address the FTC’s foreclosure concerns. Due primarily to a European Commission ruling, Illumina has announced it will divest GRAIL. The decision will no doubt embolden the agency’s efforts to combat vertical mergers. Indeed, the FTC’s final Merger Guidelines were published shortly after this decision and reflect a heightened focus on vertical mergers, even quoting from the Illumina/Grail decision. Still, the agencies are finding resistance in the courts, particularly for the idea that a vertical remedy to address anticompetitive harms of a merger must maintain the same level of competition as pre-merger. Federal judges have reiterated that the Clayton Act only blocks mergers that “substantially” threaten competition.

• FTC Losing Streak Reverses During the Fourth Quarter

The FTC won two major merger challenges in court, Illumina/GRAIL and IQVIA/Propel, and in a third transaction, Sanofi/Maze, the parties abandoned the transaction shortly after the FTC filed a complaint. (The DOJ also prevailed in its challenge in JetBlue/Spirit, but the actual decision was published in January 2024, which we will address in more detail in the next quarterly snapshot). At a high level, all three challenges involved very strong facts for the FTC. IQVIA/Propel involved a three-to-two merger, and Sanofi/Maze involved a monopolist purchasing essentially the only competitor developing a drug that would compete against the monopolist’s own product. Although the Illumina/GRAIL Fifth Circuit decision was the first vertical merger challenge that the FTC or DOJ has won in decades, it involved a monopolist purchasing the only test kit on the market today. Therefore, the FTC had strong arguments that competitors developing competing test kits may be foreclosed from access/interoperability with Illumina’s equipment.

EUROPEAN UNION

• Ex post Review in the Merger Control Sphere Occurring More and More Frequently

Although traditionally the EU merger control system is an ex ante system, 2023 marked a notable increase in ex post investigations by competition authorities, meaning that regulators can investigate and challenge consummated transactions. In practice, this will result in businesses having to face increased scrutiny of their transactions where these could previously fly under the radar or even where such transactions were not notifiable. Enforcers – the European Commission (Commission) as well as national competition authorities – are taking more interest in transactions that are below filing thresholds but are of competitive significance (including so-called “killer acquisitions”). Two important contributors to this trend in 2023, with likely profound effects in 2024, are the Towercast and Illumina/GRAIL cases.

Towercast involved a transaction that escaped review under the European Merger Regulation (EUMR) or French merger-control rules, as it did not meet the ex ante EU/national merger control thresholds and was not referred to the Commission under Article 22 EUMR. The European Court of Justice (ECJ) ruled that non-notifiable concentrations can be reviewed by EU member states’ competition authorities and their courts as a possible abuse under Article 102 Treaty for the Functioning of the European Union (TFEU). The assessment involves determining whether a dominant undertaking substantially impedes competition in the market in which it is (or has become) dominant as a result of acquiring another undertaking. Almost immediately following this judgment, the Belgian competition authority became the first national competition authority to open an ex officio ex post investigation of the incumbent Belgian telecom operator Proximus’s takeover of the assets of fixed-internet provider EDPnet. The investigation was abandoned following Proximus’s divestiture of EDPnet to another telecom operator.

Illumina/GRAIL entails an unprecedented restorative request from the Commission for Illumina to unwind its already completed transaction with GRAIL. It involved a below-threshold transaction that was referred to the Commission by several EU member states due to its competitive significance (evidenced by its deal value of USD 7.1 billion). Illumina unlawfully closed the transaction while the Commission was reviewing and the Commission subsequently blocked the transaction for vertical concerns. In the summer of 2023, the Commission imposed the largest-ever gun-jumping fine as well as the first-ever fine on a target company.

Both cases illustrate significant risks and ambiguities for companies wishing to engage in M&A transactions that may not be reportable in a particular jurisdiction. It also provides competitors opportunities to challenge non-reportable transactions in light of the increasing use of the referral mechanism for non-notifiable concentrations. Parties to transactions that are not notifiable on the EU or national level can no longer be certain that such transactions will not be reviewed.

It is clear that this trend will affect the technology and artificial intelligence (AI) industries, in particular. In this context, the German competition authority (Bundeskartellamt) recently examined whether Microsoft’s investment in OpenAI required a notification under the merger-control regime in Germany, but ultimately decided it was not reportable. At the time of Microsoft’s initial investment in 2019, the regulator determined that Microsoft had indeed gained a material competitive influence. However, at that time OpenAI did not have any substantial operations in Germany as to trigger a notification. The Bundeskartellamt also clarified that any increased influence over OpenAI on Microsoft’s part would trigger a re-examination of such notification obligation, and that these findings were no guarantee that the cooperation is compliant with horizontal competition rules. Both the Commission and the UK Competition and Markets Authority (CMA) have announced that they are also reviewing whether this investment was reportable under, respectively, the EUMR and UK merger control. The Commission launched a call for contributions on January 9, 2024, regarding competition in virtual worlds and generative AI, while the CMA has just closed its invitation to comment on January 3, 2024, in advance of its formal investigation starting.

ENFORCEMENT IN KEY INDUSTRIES
 

NOTABLE US CASES

NOTABLE EUROPEAN & UK CASES