Given the recent surge in merger filings and the Commission’s obligation to protect Americans from illegal transactions, the Bureau of Competition is instituting new process reforms to best to use its limited resources. These reforms build on other enhancements the Bureau announced in an August blog post.
The Hart-Scott-Rodino (HSR) Act requires that companies provide the FTC and Department of Justice with advance notice of certain transactions above a certain threshold, to provide the agencies 30 days to pursue an initial investigation and to determine whether additional information is needed to assess the legality of the transaction. If the FTC or DOJ seeks additional information through what is known as a “second request,” the law forbids merging firms from consummating a transaction until the companies have substantially complied with the additional investigatory request. When the FTC issues a second request, FTC staff typically engage in negotiations (sometimes quite extensive) with merging companies to tailor the scope of search to meet the specific needs of our investigation, and to consider modifications requested by the companies under investigation.
Mergers and acquisitions have hit an all-time high. Mergers filed with the antitrust agencies have doubled from 2010 to 2020 to nearly 2,000 deals a year. In the first eight months of 2021 alone, 2,436 acquisitions have already been filed with the agencies, meaning that right now these eight months have already seen many more filings than most other years. Based on the trend in these numbers, we project that we may hit 3,500 merger filings before the end of the year. There is no question now that this is going to be a record-setting year. This merger wave – which includes anticompetitive transactions that should have never been contemplated – has taxed federal antitrust agencies. Between 2010 and 2016, FTC and DOJ funding stagnated in nominal terms, and, in real terms, effectively declined. In 2017 and 2018, the FTC’s full-time employee headcount declined, and it remains roughly two-thirds of what it was 40 years ago. And, since the 1990’s, the scope of investigation and litigation discovery has expanded exponentially, with voluminous electronic submissions demanding substantial staff resources.
At the same time, evidence is mounting that this resource strain is complicating the agencies’ effort to challenge all anticompetitive deals. Researchers are seeing concerning evidence of anticompetitive transactions that either were not challenged by the antitrust agencies or that were resolved through remedies that failed. President Biden’s Executive Order on Competition also recently noted that “decades of industry consolidation have often led to excessive market concentration,” which has contributed to a host of downstream harms. It is therefore incumbent on us as enforcers to streamline our processes in ways that better enable us to scrutinize, detect, and challenge illegal deals.
Given all these factors, the FTC will be making several changes to how we investigate mergers and acquisitions, as well as assessing our second requests and improving our second request negotiations.
First, we are seeking to ensure our merger reviews are more comprehensive and analytically rigorous. Cognizant of how an unduly narrow approach to merger review may have created blind spots and enabled unlawful consolidation, we are examining a set of factors that may help us determine whether a proposed transaction would violate the antitrust laws. Providing heightened scrutiny to a broader range of relevant market realities is core to fulfilling our statutory obligations under the law. To better identify and challenge the deals that will illegally harm competition, our second requests may factor in additional facets of market competition that may be impacted. These factors may include, for example, how a proposed merger will affect labor markets, the cross-market effects of a transaction, and how the involvement of investment firms may affect market incentives to compete.
Second, staff will only consider requests for modifications after the companies under investigation have provided certain foundational information. Companies under investigation must first identify and describe the business responsibilities of employees and agents responsible for relevant lines of business, as well as those employees responsible for negotiating, analyzing, or recommending the transaction. Companies must also provide basic information about how they maintain data that is responsive to specifications in the second request. These changes should allow FTC staff to quickly focus on possible production challenges for both documents and data. To engage in productive compliance discussions, companies will need to be forthcoming with this base-level information.
Third, the FTC’s second requests will now require each company under investigation to provide information about how it intends to use e-discovery tools before it applies those tools to identify responsive materials. Complete and accurate information is critical in any investigation and there are substantial benefits to ensuring up front that e-discovery processes will identify required information. In addition, this change will more closely align the FTC’s model second request with that of the Department of Justice.
Fourth, the Bureau is aligning its practice with respect to privilege logs more closely with the Department of Justice’s practice. A privilege log is a chart providing basic information about documents or groups of documents that are being withheld as attorney-client privilege, providing information such as the author and the reason the document is privileged. Information provided in privilege logs is an important component in many investigations and review of full privilege logs can help to ensure that relevant information is withheld only on a well-grounded claim of legal privilege. Consequently, the Bureau is discontinuing the option to submit a “partial privilege log” that companies under investigation have submitted pursuant to previous guidance. Such partial submissions make it impossible to review the assertions of privilege that targets are making. Nevertheless, staff will remain open to modifications in appropriate circumstances.
Finally, the Commission has adopted a new internal practice to ensure that second requests and other requests for information are securely accessible to all Commissioners and relevant agency offices. Until now, second requests were generally not accessible to other Commissioners and were provided only at the Chair’s discretion and direction. Recognizing the need to maintain the confidentiality of these documents, the agency scoped out a process for sharing second requests within an existing and secure infrastructure. Moving forward, it is now official FTC policy that Bureau staff will provide the full Commission with access to second requests and voluntary access letters by uploading them into a secure system.
As we review our practices, we anticipate revising the Model Second Request that is posted on our website to reflect these and other changes in the near future. We will continue to assess ways in which second request compliance processes could be updated and improved, as always with the objective of balancing legitimate concerns about burden against the FTC’s need to fulfill its statutory obligations.