Mergers & Antitrust Law News

Big-Tech Probe Goes Back to Deals FTC Once Saw as Safe to Ignore

Feb. 12, 2020, 9:00 AM

Over the last decade, major technology companies made a handful of enormous acquisitions — Facebook Inc.’s 2014 purchase of WhatsApp; Microsoft Corp.’s 2016 deal for LinkedIn; Amazon.com Inc.’s 2017 acquisition of Whole Foods — and a huge number of tiny deals. In the latest sign that public officials are re-examining the permissive approach they’ve taken to the industry, the U.S. Federal Trade Commission demanded new information this week about deals too small to draw its attention when they happened.

The request covers hundreds of startup acquisitions that Alphabet Inc., Apple Inc., Amazon, Facebook and Microsoft weren’t required to report to regulators. The FTC now wants to know whether those “potentially anticompetitive acquisitions of nascent or potential competitors” should have been blocked, even though they flew way under the traditional antitrust radar.

Andrew Gavil, a Howard University law professor who was the director of the FTC’s office of policy planning from 2012 to 2014, said the sheer number of deals in tech over the last decade merit a second look. “You could have an acquisition that would look too small if you’re just looking at the numbers because you’re not measuring the impact correctly,” he said. “They’re going to be looking for patterns.”

Large tech companies gobble up startups for various reasons. Many times they want technical talent. Other times they want to integrate a small company’s products into their own. Startups can also have desirable pools of users or tantalizing data that will improve a larger company’s existing products. Critics of the industry say big tech companies have a habit of buying out emerging rivals before they pose a real threat. They’ve also expressed concern that companies that already hold enormous amounts of data can quickly accumulate more though startup deals, either for advertising purposes, or as a way to undermine rivals.

U.S. Senator Elizabeth Warren, a Democrat running for president, has described a “kill zone,” where the largest tech companies try to drive startups out of business or acquire them to shut them down. Even companies that grow large enough to go public worry they’re still beholden to the biggest industry players.

In written comments to Congressional investigators Tuesday, FTC Chairman Joseph Simons said he was aware of concerns about “killer acquisitions” intended to squash competitors. “We are taking this issue very seriously,” he said. In a call with reporters, he described the new review of smaller mergers as a policy project, not a law enforcement action. “We want to at least be aware of what we’ve been missing, why they were not filed, the significance of those transactions, and whether there’s something we need to change moving forward,” he said.

Still, if the FTC sees evidence of problematic behavior, “all our options are on the table,” Simons added. That could include requiring companies to divest assets or spin off certain operations into separate businesses. He declined to name specific transactions that may have piqued the FTC’s interest. The FTC also said it might use the inquiry to change rules about when deals need to be submitted for review.

The move is part of a broader reconsideration of decades-old U.S. antitrust law that focuses on end-customer prices and consumer harm to decide whether acquisitions can go ahead. Tech giants often provide free or cheap services, so their deal sprees have rarely been challenged. The industry is fighting to keep it that way, and seemed taken aback by the FTC’s order on Tuesday.

“It is deeply concerning that the Commission has indicated this may be a fishing expedition that leads it to retroactively split up companies that have already merged,” Robert Atkinson, president of the Information Technology & Innovation Foundation, said. “The consumer welfare standard should continue to be the North Star that guides antitrust regulation.”

The FTC has been criticized for being overly friendly to large businesses in recent years. A report from the Washington Center for Equitable Growth published in September found that merger filings had increased nearly 80% between 2010 and 2018, but the number of enforcement actions hadn’t changed. The number of criminal antitrust cases filed in 2018 were at the lowest levels in almost 30 years. Tim Wu, a law professor at Columbia University who used to work at the FTC, has likened the commission to a basketball referee who never calls a foul. Earlier this week, Senator Josh Hawley, a Republican from Missouri, said the agency has proven so ineffective that it should be rolled into the Department of Justice.

Simons has pushed back against such criticism, and described the plan to re-examine smaller deals as part of an ongoing process to understand the issues presented by the tech industry. The commission is requiring companies “to provide information and documents on their corporate acquisition strategies, voting and board appointment agreements, agreements to hire key personnel from other companies, and post-employment covenants not to compete,” it said. But the commission is interested in more than just traditional acquisitions. It said that minority investments, licensing deals and other transactions could be of interest, too.

The FTC’s move adds another source of potentially damaging information about practices within the tech industry, which is also facing a congressional investigation, a probe by state attorneys general and a Justice Department inquiry.

“They could find evidence of wrongdoing, and that evidence of wrongdoing could align with something they’re looking at in these other investigations, and then down the road all come together,” said Jennifer Rie, an analyst at Bloomberg Intelligence.

To contact the author of this story:
Joshua Brustein in New York at jbrustein@bloomberg.net

To contact the editor responsible for this story:
Alistair Barr at abarr18@bloomberg.net

Jillian Ward

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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