Competition law in United States: overview

A Q&A guide to competition law in the United States.

The Q&A gives a high level overview of merger control, restrictive agreements and practices, monopolies and abuse of market power, and joint ventures. In particular, it covers relevant triggering events and thresholds, notification requirements, procedures and timetables, third party claims, exclusions and exemptions, penalties for breach, and proposals for reform.

To compare answers across multiple jurisdictions visit the Competition law Country Q&A tool.

This Q&A is part of the PLC multi-jurisdictional guide to competition and cartel leniency. For a full list of jurisdictional Competition Q&As visit www.practicallaw.com/competition-mjg.

For a full list of jurisdictional Cartel Leniency Q&As, which provide a succinct overview of leniency and immunity, the applicable procedure and the regulatory authorities in multiple jurisdictions, visit www.practicallaw.com/leniency-mjg.

Bruce McCulloch and Tom Ensign, Freshfields Bruckhaus Deringer US LLP
Contents

Merger control

1. What (if any) merger control rules apply to mergers and acquisitions in your jurisdiction?

Regulatory framework

The regulatory framework for the review of mergers and acquisitions is set out in section 7 of the Clayton Act (15 U.S.C. § 18), which prohibits transactions that may substantially lessen competition or tend to create a monopoly.

Transactions that meet specific size-of-party and size-of-transaction thresholds must be notified to the federal agencies before they are allowed to close (Hart-Scott-Rodino Antitrust Improvements Act 1976 (15 U.S.C. § 18a)) (HSR Act) (see Question 2). The US is a suspensory jurisdiction. Transactions that meet the thresholds of the HSR Act and that are not otherwise exempt cannot close until the statutory waiting period has expired or been terminated.

All transactions (unless specifically exempted by other federal laws), whether they meet the notification thresholds of the HSR Act or not, are subject to review under section 7 of the Clayton Act and other anti-trust laws.

Regulatory authority

The federal anti-trust laws are enforced jointly by the Federal Trade Commission (FTC) and the Antitrust Division of the US Department of Justice (DOJ). Both agencies must be notified if an HSR Act filing is required, and both agencies have the authority to review transactions under section 7 of the Clayton Act.

State attorneys general can also challenge transactions under federal and state anti-trust laws.

See box, The regulatory authorities.

 

Triggering events/thresholds

2. What are the relevant jurisdictional triggering events/thresholds?

Triggering events

The Hart-Scott-Rodino Antitrust Improvements (HSR) Act applies to:

  • Mergers.

  • Consolidations.

  • Acquisitions of voting securities, non-corporate interests and certain assets.

  • Formations of joint ventures and partnerships.

  • Acquisitions of certain exclusive licences.

Completed anti-competitive mergers are not subject to a statute of limitations period and can be reviewed by the regulatory authorities at any time.

Thresholds

Under the HSR Act, transactions that meet specific size-of-transaction and/or size-of-party thresholds must be notified to the Federal Trade Commission and the Antitrust Division of the US Department of Justice (DOJ) before they are allowed to close:

  • Size-of-transaction test. If the value of the transaction:

    • does not exceed US$70.9 million, the transaction does not need to be notified;

    • exceeds US$283.6 million, the transaction must be notified;

    • exceeds US$70.9 million, but does not exceed US$283.6 million, the size-of-party test must be applied.

    The value of the transaction typically is the greater of the purchase price or the fair market value of the voting securities, non-corporate interests, or assets being acquired.

  • Size-of-party test. The transaction must be notified if:

    • one party has US$141.8 million or more in annual net sales or total assets; and

    • the other party has US$13.6 million or more in annual net sales or total assets.

    The annual net sales or total assets of the ultimate parent entity of each party must be considered.

Exemptions

The HSR Act and rules have many exemptions, for example, certain foreign-to-foreign transactions, ordinary course transactions, and specific industry exemptions.

For example, under the foreign-to-foreign exemption, the acquisition of the voting securities of a foreign issuer by a foreign person would be exempt from HSR reporting requirements unless certain thresholds and conditions are met.

 

Notification

3. What are the notification requirements for mergers?

Mandatory or voluntary

Under the Hart-Scott-Rodino Antitrust Improvements (HSR) Act, notification is mandatory if the transaction exceeds the size-of-transaction and/or size-of-party thresholds, and does not qualify for any of the exemptions in the HSR Act or rules (see Question 2, Thresholds).

Timing

A transaction that must be notified under the HSR Act cannot close until the federal agencies permit the statutory waiting period to expire, or grant early termination, but there is no statutory deadline for submitting the notification. If the closing schedule is time-sensitive, it is advisable that notification occur as early as possible. Notification can occur as soon as the parties reach a letter of intent or binding agreement, or a tender offer is publicly announced. Except in the case of certain public tender offers, the statutory waiting period is 30 days, and the waiting period does not begin until both parties have notified the agencies (see Question 4, Initial waiting period).

It is also important to keep in mind that the filing of an HSR Act notification can require the collection of a significant amount of information from the parties. As it will take time to collect this information, it is advisable (if possible), to start this process well in advance of the planned filing date.

Formal/informal guidance

The Federal Trade Commission's (FTC's) Premerger Notification Office (PNO) can provide information and guidance to parties on an anonymous basis concerning notification and filing requirements (see Question 37).

Responsibility for notification

For a transaction that must be notified under the HSR Act, both parties to the transaction must file notifications to the federal agencies. However, special rules apply for joint ventures (see Question 37).

Relevant authority

The parties must notify both the FTC and the Antitrust Division of the US Department of Justice (DOJ) of the transaction.

Form of notification

Parties must submit their filings using the official HSR Notification and Report Form. This form and related instructions are available for download at www.ftc.gov/bc/hsr/hsrform.shtm.

Filing fee

The acquiring party is responsible for paying the filing fee unless otherwise agreed between the parties. The filing fee will range from US$45,000 to US$280,000, depending on the size of the transaction.

Obligation to suspend

The US is a suspensory jurisdiction. Transactions that meet the thresholds of the HSR Act, and are not otherwise exempt, cannot close until the statutory waiting period has expired or been terminated (see Question 1, Regulatory framework).

 

Procedure and timetable

4. What are the applicable procedures and timetable?

Initial waiting period

Once the parties have submitted their completed notification forms in accordance with the Hart-Scott-Rodino Antitrust Improvements (HSR) Act (see Question 3, Form of notification) to the Antitrust Division of the US Department of Justice (DOJ) and Federal Trade Commission (FTC), an initial 30 calendar day waiting period begins (15 calendar days for cash tender offers and certain bankruptcy proceedings).

The federal agencies can, on preliminary review, grant early termination of this waiting period if the parties request it and the agencies decide, in their discretion, that the transaction does not warrant further anti-trust investigation. Where early termination is granted, a decision is typically given within ten to 14 days of notification.

At the end of the 30-day waiting period, the waiting period expires and the parties are free to close the transaction (from a HSR Act standpoint) without formal approval.

If the FTC or DOJ decide that a further investigation would be advisable, responsibility for the initial waiting period investigation of the transaction is assigned to one of the agencies through a clearance process, based on industry expertise.

The agency charged with handling the investigation has the authority to:

  • Request voluntary information submissions from the parties, such as market studies and strategic plans.

  • Request voluntary interviews of relevant employees from the parties, such as the vice-president of sales and marketing.

  • Contact relevant third parties, such as customers, competitors, and suppliers.

The notifying parties can also take proactive steps to explain the transaction and its potential competitive justifications to the agencies, whether through submitting white papers, or through presentations and meetings with staff from the agencies. In evaluating the transaction, the agencies will take into consideration submissions and presentations by the parties, in addition to public and non-public sources of information (see Question 5).

Second request/extended waiting period

The reviewing agency can issue a "second request" if, by the end of the initial waiting period, it considers the transaction may present significant competitive issues. A second request is issued by the reviewing agency for the purpose of gathering additional information from the parties to help agency staff reach a decision. Second requests are often substantial, but the parties are usually able to negotiate with the reviewing agency to narrow the scope of the information requested.

Similar to the initial waiting period, the reviewing agency may seek interviews with employees of the parties and with relevant third parties. The reviewing agency also may issue information requests (both voluntary and compulsory), to third parties for information and documents.

Once the parties have substantially complied with the second request, the reviewing agency has 30 calendar days (ten days for cash tender offers and certain bankruptcy proceedings), to determine whether to:

  • Close its investigation.

  • Enter into a consent order with the parties requiring them to take certain actions to address anti-competitive concerns.

  • Seek a preliminary (DOJ and FTC) or permanent (DOJ) injunction in federal court to block the transaction.

  • Initiate an administrative proceeding before an administrative law judge (FTC).

This review period is often extended with the consent of the parties. The parties can close the transaction while a decision is pending in an administrative or judicial proceeding (barring a preliminary injunction).

The DOJ and FTC (and state attorneys general and private parties) can challenge a completed transaction, even if a second request had not been issued by the DOJ or FTC (see Question 2, Triggering events).

For an overview of the notification process, see flowchart, US: merger notifications (www.practicallaw.com/5-504-6458).

 

Publicity and confidentiality

5. How much information is made publicly available concerning merger inquiries? Is any information made automatically confidential and is confidentiality available on request?

Publicity

If early termination is requested and granted, a notice of the early termination will be published (along with the parties' names), in the Federal Register and on the Federal Trade Commission's (FTC's) website at www.ftc.gov. The FTC and the Antitrust Division of the US Department of Justice are not obliged to issue a closing decision in any other case. In certain high profile cases, they may make a closing statement, but this is not required or common. Therefore, all other notifications to the federal agencies (and all information provided under the notifications) are confidential under the Hart-Scott-Rodino Antitrust Improvements (HSR) Act. If the reviewing agency opts to interview third parties during its evaluation of the transaction, the existence of the proposed transaction can become known as a result.

Procedural stage

HSR notifications to the federal agencies and information provided under notifications are confidential (see above, Publicity).

Automatic confidentiality

Notifications to the federal agencies and information provided under notifications are automatically confidential.

Confidentiality on request

Notifying parties can request that materials provided to the agencies be returned or destroyed at the close of the reviewing agency's investigation. In the event of litigation with the reviewing agency, the notifying parties can seek a protective order from the court to prevent the disclosure of confidential information during litigation.

 

Rights of third parties

6. What rights (if any) do third parties have to make representations, access documents or be heard during the course of an investigation?

Representations

Third parties may request to meet with the reviewing agency to voice their concerns about a transaction, and may submit documents and other information to help inform the reviewing agency's investigation. Reviewing agencies routinely contact relevant third parties for information during the course of their investigations, and can use compulsory methods such as subpoenas and civil investigative demands to obtain this information. A civil investigative demand is essentially an administrative subpoena, but is broader in scope, potentially requiring the recipient to file written reports or answers to questions.

In the event of a consent order between the notifying parties and the reviewing agency, third parties are encouraged to participate during the public comment period.

Document access

Third parties do not have access to information or documents submitted by the notifying parties as part of their HSR notifications.

Be heard

Third parties do not have the right to be heard during the course of an investigation. However, they can request to meet with the agency staff during the investigation to provide their input regarding the proposed transaction.

 

Substantive test

7. What is the substantive test?

Section 7 of the Clayton Act (see Question 1, Regulatory framework), prohibits transactions that may substantially lessen competition or tend to create a monopoly. The Federal Trade Commission (FTC) and the Antitrust Division of the US Department of Justice (DOJ) jointly issued a set of guidelines, the Horizontal Merger Guidelines (HMG) to clarify the approach that federal agencies use to evaluate a transaction and determine whether it would be anti-competitive: www.justice.gov/atr/public/guidelines/hmg-2010.pdf.

The federal agencies evaluate each transaction from a number of different perspectives, but the central unifying theme of the HMG is that "mergers should not be permitted to create, enhance or entrench market power or to facilitate its exercise." The following are aspects of each transaction that the federal agencies consider when evaluating the potential effects of the transaction.

Market definition and characteristics

When the federal agencies identify a potential competitive concern with a transaction, they will typically define the relevant market(s) in an attempt to clarify and better outline the competitive concern. They often identify one or more relevant markets in which the transaction may substantially lessen competition. A relevant market is evaluated in terms of:

  • Relevant product market. The emphasis is on the demand substitutability between the products of the merging firms, that is, the customers' willingness to substitute away from the product of one merging firm to the product of the other in response to a price increase or non-price change (such as product quality or service). The agencies seek to understand the significance of the competition between the merging firms and how the loss of that competition will affect the market for the affected products.

  • Relevant geographic market. Transportation costs and other geographic concerns (local regulations, regional tariffs and other trade barriers, custom and familiarity, and availability of service) may affect the effective geographic area in which a product or service can be sold. Typically geographic markets are defined based on the locations of suppliers, but when suppliers can discriminate based on customer location, the agencies may opt to define the geographic markets based on the locations of targeted customers.

  • Market participants. Typically the agencies consider all firms that earn revenues in the relevant market (product and geographic) to be market participants. The agencies will also take into consideration potential rapid entrants, for example, firms that currently produce the relevant product, but do not sell into the relevant geographic market.

  • Respective market shares and concentrations. The agencies will calculate market shares for all significant market participants. Market shares are usually calculated on the basis of previous market shares, but can be adjusted for current market conditions and trends. A firm's historical market share might be reduced if the firm does not have access to new technology that is important to long-term competitive viability, for example. In addition to market shares, the agencies will calculate concentration levels in the relevant market to determine whether the proposed merger would lead to a highly concentrated market (or whether the market is already highly concentrated).

Competitive effects

The federal agencies will evaluate whether the proposed merger is likely to produce anti-competitive effects in the relevant market(s). There are two types of anti-competitive effects that are considered:

  • Unilateral effects. When a merger results in a lessening of competition in the relevant market and an increase in market power for the merged firm, the merged firm may be able to engage unilaterally in anti-competitive conduct, such as increasing prices, decreasing output, or diminishing innovation.

  • Co-ordinated effects. A merger may be anti-competitive if it increases the probability that the remaining, post-merger firms in the relevant market will engage in co-ordinated interaction, such as an explicit agreement to increase prices.

To determine whether a proposed merger is likely to produce anti-competitive effects, the federal agencies will examine a number of factors, including evidence of anti-competitive effects from similar completed mergers in the same industry, as well as a full market analysis (see above, Market definition and characteristics).

Entry

In addition to evaluating current participants in the market, the federal agencies will consider firms that could rapidly enter the market and firms that had already committed to entering the market. Generally, the agencies take the position that a merger would not be likely to enhance market power if potential entry into the market was so easy that the merged firm and its rivals could not profitably raise price or otherwise reduce competition. For the federal agencies to view the potential for entry as a significant factor, entry must be:

  • Timely.

  • Likely.

  • Sufficient.

In making that evaluation, the agencies will look to the history of entry, and the existence of any potential barriers to entry, in the market.

Synergies and efficiencies

The federal agencies understand that a primary benefit from mergers is their potential to generate significant efficiencies and to enhance a merged firm's ability and incentive to compete. These benefits could result in either:

  • Lower prices.

  • Improved quality.

  • Enhanced service.

  • Additional innovation in the relevant market.

For the agencies to consider synergies and efficiencies as a significant factor, the efficiencies claimed by the merging parties must be:

  • Substantiated.

  • Verified.

  • Merger-specific.

They must not be the result of anti-competitive reductions in output or service. The agencies are most likely to accept efficiency claims that can be substantiated by analogous past experience. An efficiencies defence is almost never sufficient to justify a merger to a monopoly or near monopoly position.

Failing firm defence

The agencies consider that a merger is not likely to enhance market power in the extreme case where imminent failure of one of the merging firms would cause the assets of that firm to exit the market were it not for the merger. To meet the conditions of a failing firm defence, the failing firm must be unable to:

  • Meet its financial obligations in the near future.

  • Re-organise successfully under Chapter 11 of the Bankruptcy Act.

  • Elicit reasonable alternatives after several unsuccessful good faith efforts to keep its assets in the market.

  • Pose a less severe danger to competition than the proposed merger.

The failing firm defence is rarely successful.

 

Remedies, penalties and appeal

8. What remedies can be imposed as conditions of clearance to address competition concerns? At what stage of the procedure can they be offered and accepted?

If the reviewing agency determines that the proposed merger would be anti-competitive as structured, the notifying parties and the reviewing agency can negotiate a modification to the transaction or a settlement that would resolve the agency's concerns:

  • Structural remedies. A structural remedy typically involves the acquiring company agreeing to a consent order requiring it to divest either part of its current assets or the assets to be acquired, to facilitate the creation of a viable new competitor in the relevant market. The parties can also propose to the reviewing agency that a structural remedy be implemented without a formal consent order, known as a "fix-it-first" remedy. However, the agencies rarely accept such proposals.

    Structural remedies can be augmented by behavioural remedies (see below).

  • Behavioural remedies. The federal agencies and notifying parties can agree to behavioural remedies to mitigate further any lingering competitive concerns raised by the federal agencies. One behavioural remedy that naturally complements a divestiture (or series of divestitures) by the acquiring party would be for the acquiring party to agree to provide assistance to the purchaser of the divested assets. Other behavioural remedies include:

    • licensing technology to competitors;

    • agreeing to or modifying existing business agreements;

    • implementing firewalls to prevent the sharing of sensitive information between the merging parties.

Although the federal agencies typically favour structural remedies, behavioural remedies alone are sometimes sufficient, particularly in vertical transactions where such competitive concerns can more easily be put to rest.

There is no formal procedure for negotiating remedies. Settlement with the:

  • Antitrust Division of the US Department of Justice is subject to both (Tunney Act):

    • a 60-day notice and comment period;

    • judicial review and approval.

  • Federal Trade Commission (FTC) is subject to both:

    • a 30-day notice and comment period;

    • an FTC internal review.

 
9. What are the penalties for failing to comply with the merger control rules?

Failure to notify correctly

If the parties fail to notify the agencies correctly, the timetable for the statutory waiting period will not start (see Question 4, Initial waiting period). The parties must submit complete and accurate notification forms to the agencies.

Implementation before approval or after prohibition

If the transaction is implemented before approval or after the reviewing agency has prohibited the transaction, a penalty of up to US$16,000 per day can be imposed on the notifying parties (and individual officers and directors) for the period of the violation. The agencies can also unwind the transaction, either by:

  • Requiring a divestiture of voting securities or assets by the merged firm.

  • Rescission of the transaction.

Failure to observe

See above, Implementation before approval or after prohibition. Failure to follow through on any remedial undertakings can result in either the:

  • Appointment of a trustee to complete a divestiture.

  • Commencement of civil action by the agencies seeking fines and/or other remedial actions before a court.

 
10. Is there a right of appeal against any decision? If so, which decisions, to which body and within which time limits? Are rights of appeal available to third parties or only the parties to the decision?

Rights of appeal and procedure

Once the Antitrust Division of the US Department of Justice (DOJ), Federal Trade Commission (FTC), or state attorneys general (AGs) have reached a final determination on the merits, they can initiate litigation in court to prevent a proposed transaction from closing. If the court rules against the merging parties, the parties can appeal this decision to the federal appellate court. If FTC administrative proceedings before an administrative law judge (ALJ), rules against the merging parties, this decision can be appealed to the FTC's full Commission. The full Commission's decision can be appealed to a federal appellate court.

Third party rights of appeal

Third parties do not have the right to appeal a court decision on an action brought by the federal agencies or state AGs. They can, however, bring their own private action in court to challenge a transaction.

 

Automatic clearance of restrictive provisions

11. If a merger is cleared, are any restrictive provisions in the agreements automatically cleared? If they are not automatically cleared, how are they regulated?

A decision by either federal agency to close an investigation does not provide for automatic clearance of restrictive provisions in the agreements. The federal agencies (or state attorneys general or private parties) are not prohibited from later bringing a legal action for any restrictive provision in the agreements.

 

Regulation of specific industries

12. What industries (if any) are specifically regulated?

In addition to the anti-trust agencies, other federal and state agencies can impose additional requirements on mergers in certain industries, such as:

  • Railroads.

  • Energy and electricity providers.

  • Telecommunications companies.

  • Banks and other financial institutions.

  • Insurance companies.

  • National security.

 

Restrictive agreements and practices

Scope of rules

13. Are restrictive agreements and practices regulated? If so, what are the substantive provisions and regulatory authority?

Restrictive agreements and practices are regulated under section 1 of the Sherman Act, which generally prohibits agreements that unreasonably restrain competition. Restrictive agreements and practices are evaluated under one of two standards:

  • Per se rule. Certain restrictive agreements and practices have been found to almost always restrict competition, decrease output, and/or lack any redeeming virtue. Examples of restrictive agreements or practices that are evaluated under the per se rule include horizontal price fixing, market allocation, and bid-rigging.

  • Rule of reason. Other agreements and practices have been found to be less damaging to competition or to have significant redeeming virtues. These agreements and practices are evaluated under the "rule of reason" standard. Under this standard, a totality of circumstances test is used, which examines whether the pro-competitive benefits of the challenged practice would outweigh its anti-competitive effects. A number of factors will be considered for this analysis, including the reasons for the agreement or practice, its relevant history, and any facts particular to the business or industry.

The Federal Trade Commission and the Antitrust Division of the US Department of Justice (DOJ) are the regulating authorities, although only the DOJ has the authority to prosecute criminal activity.

 
14. Do the regulations only apply to formal agreements or can they apply to informal practices?

The regulations apply to formal agreements and informal practices alike, including tacit agreements. All forms of evidence, whether direct or circumstantial, are considered in determining whether the parties acted independently. However, parallel conduct alone is not prohibited under section 1 of the Sherman Act.

 

Exemptions

15. Are there any exemptions? If so, what are the criteria for individual exemption and any applicable block exemptions?

Certain industries have received express statutory exemption from the anti-trust laws, including:

  • Agricultural co-operatives.

  • Insurance companies regulated under state laws.

  • Labour unions.

  • Professional sports leagues.

  • Utilities, infrastructure, and certain transportation companies.

In addition, there are judicially created exemptions from anti-trust laws, including:

  • The state action doctrine. Actions taken by state and local governments (or private parties in accordance with state policy and under state supervision), are exempt.

  • The Noerr-Pennington doctrine. Attempts to influence the passage or enforcement of laws (including agreements to seek legislation or file a lawsuit) are exempt from anti-trust laws. This doctrine applies even when the laws advocated for are anti-competitive or would have anti-competitive effects.

 

Exclusions and statutes of limitation

16. Are there any exclusions? Are there statutes of limitation associated with restrictive agreements and practices?

Exclusions

While there are no formal exclusions, the federal agencies can in their discretion, opt not to investigate or punish restrictive conduct that is unlikely to have a substantial effect on competition or commerce.

Statutes of limitation

Civil actions. Civil actions brought to challenge restrictive practices or agreements under the Clayton Act are subject to a four-year statute of limitations. The statute of limitations period begins when the cause of action accrues, which in anti-trust cases, is typically when the claimant suffers the anti-trust injury. The start of the statute of limitations period may be suspended when fraudulent concealment has occurred or when certain government anti-trust proceedings are pending.

Criminal actions. For criminal violations of the Sherman Act, the Antitrust Division of the US Department of Justice (DOJ) faces a five-year statute of limitations period during which to bring its case. The statute of limitations period does not begin to run until the purpose of the conspiracy has been achieved or abandoned.

 

Notification

17. What are the notification requirements for restrictive agreements and practices?

Notification

It is not possible to receive clearance or pre-approval from the federal agencies to ensure that a proposed restrictive agreement or practice is lawful. However, it may be advisable to notify the agencies voluntarily about joint ventures for research and development, or activity by standard-setting organisations, to ensure that parties would be liable only for actual and not trebled damages.

Informal guidance/opinion

The Antitrust Division of the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) each have an informal guidance procedure (DOJ business review process and FTC advisory opinion practice, respectively), through which parties can obtain a non-binding statement from the agencies relating to proposed business conduct.

Responsibility for notification

While neither party has responsibility for notification, either party can notify the agencies.

Relevant authority

The DOJ and FTC are the relevant authorities.

Form of notification

There is no official form for voluntary notification or informal guidance.

Filing fee

There is no filing fee for voluntary notifications or informal guidance.

 

Investigations

18. Who can start an investigation into a restrictive agreement or practice?

Regulators

Both federal agencies and the state attorneys general (AGs) can commence investigations on their own initiative.

Third parties

Third parties can make a complaint to the federal agencies or the state AGs, and request that they open an investigation. In addition, they can commence private actions in court.

 
19. What rights (if any) does a complainant or other third party have to make representations, access documents or be heard during the course of an investigation?

Representations

Third parties do not have the right to make representations to the federal agencies during an investigation, but may be permitted to do so. In some instances, the reviewing agency can even require that the third party provide information or documents to assist with its investigation. Third parties can also comment on a proposed consent order during the comment period.

Document access

Third parties do not have the right to access confidential documents obtained by the reviewing agency, but they can seek documents or information through discovery in private litigation.

Be heard

Third parties do not have the right to be heard by the federal agencies, but their comments are often welcomed by the reviewing agency.

 
20. What are the stages of the investigation and timetable?

While there is no set procedure or timetable for the federal agency investigating restrictive conduct, the investigations typically follow the general pattern below. The parties are free at any time to enter into a consent agreement with the reviewing agency to settle the investigation.

Preliminary investigation

Before opening a formal investigation, the reviewing agency usually conducts a preliminary investigation, relying on voluntary information and document submissions from relevant third parties, including one or more third parties who may have brought a complaint to the agency (see Question 18). The reviewing agency may choose to interview employees from relevant third parties.

Formal investigation

Based on evidence gathered from the preliminary investigation, the reviewing agency can choose to open a formal investigation if it believes that an anti-trust violation has occurred. During a formal investigation, the reviewing agency can rely on its compulsory process powers to obtain documents, testimony, and interrogatory responses from the parties and any relevant third parties.

Post-investigation

When the reviewing agency has finished its formal investigation, it can bring a civil action for injunctive relief in court (or in the case of the Federal Trade Commission before an administrative law judge (ALJ)). The parties will have a chance to mount their defence before the court or ALJ, and can appeal any adverse decisions to an appellate court. The litigation process, including the appeal procedure, can take a number of years.

Criminal prosecution

After its investigation, if the Antitrust Division of the US Department of Justice (DOJ) decides that criminal prosecution is warranted, it can use the grand jury process to further its investigation of the parties. The grand jury has the power to decide whether a criminal indictment is appropriate. If the parties wish to settle with the DOJ, they can enter into a plea agreement to resolve the DOJ's concerns. The Sherman Act does not identify types of conduct to be prosecuted criminally. Historically, the DOJ prosecutes "hard-core" violations such as horizontal price-fixing, bid-rigging and market allocation.

 

Publicity and confidentiality

21. How much information is made publicly available concerning investigations into potentially restrictive agreements or practices? Is any information made automatically confidential and is confidentiality available on request?

Publicity

Investigations typically remain confidential until the reviewing agency reaches a conclusion or the parties release a public statement about the investigation (a public company may be required to disclose the existence of an investigation).

Automatic confidentiality

All information submitted to the federal agencies is required by statute to be kept confidential. In the event of further litigation or an administrative proceeding, however, information or documents can be disclosed. If the Antitrust Division of the US Department of Justice (DOJ) opens a criminal grand jury investigation, any information disclosed during the proceeding (and the proceeding itself), is confidential. Witnesses used in a grand jury investigation are not bound to confidentiality.

Confidentiality on request

The parties can request that certain information be kept confidential during an investigation by asking for written confirmation from the reviewing agency or by marking information and documents confidential as appropriate.

In the event of litigation, the parties can seek a protective order from the court to prevent commercially sensitive information from being disclosed.

 
22. What are the powers (if any) that the relevant regulator has to investigate potentially restrictive agreements or practices?

There are several available powers of investigation:

  • Civil investigation. The federal agencies have the authority to issue subpoenas or civil investigative demands for the production of documents, answers to interrogatories, and testimony from relevant persons.

  • Civil litigation. US courts provide relatively broad powers of discovery to the litigating parties under the Federal Rules of Civil Procedure and applicable state law.

  • Criminal grand jury investigation. The Antitrust Division of the US Department of Justice and state attorney generals are able to require the production of information, documents, and testimony through a grand jury subpoena. They can also rely on search warrants, wiretaps, and electronic surveillance to gather evidence.

 

Settlements

23. Can the regulator reach settlements with the parties without reaching an infringement decision? If so, what are the circumstances in which settlements can be reached and the applicable procedure?

Civil investigation

At any time, the parties can agree to a consent order with the reviewing agency that would placate the agency's concerns (such as to require the parties to modify a restrictive agreement or cease a restrictive practice):

  • If the consent order is proposed by the Antitrust Division of the US Department of Justice (DOJ), it must be approved by the Assistant Attorney General, and filed with a competitive impact statement (CIS), in the federal district court.

  • If the consent order is proposed by the Federal Trade Commission (FTC), it is subject to a 30-day public comment period and must be approved by a Commission vote. A simple majority is required for the Commission to rule.

In both instances, the consent order is published in the Federal Registrar to facilitate public comment (60-day public comment period). The federal court then reviews the public comments and reaches a decision as to whether the proposed consent order would be in the public's interest. No liability is admitted when the parties agree to a consent order.

Criminal investigation

In respect of a criminal investigation, the parties can enter into a plea bargain with the DOJ. The plea agreement needs to be approved first by the Assistant Attorney General, then by a federal district court.

 

Penalties and enforcement

24. What are the regulator's enforcement powers in relation to a prohibited restrictive agreement or practice?

Orders

Following a decision by an administrative law judge (ALJ) that certain restrictive conduct violates section 5 of the Federal Trade Commission (FTC) Act, the FTC can issue a "cease-and-desist" order requiring the restrictive conduct to be terminated. While the Antitrust Division of the US Department of Justice (DOJ) and state attorneys general (AGs) cannot issue such an order, they can commence litigation in court seeking civil remedies or criminal sanctions for the restrictive conduct.

Both federal agencies and the state AGs can also enter into consent orders with the parties to bring a restrictive practice or agreement to an end.

Fines

The maximum civil penalty is up to US$16,000 for each violation, or for each day of a continuing violation of a cease-and-desist order.

The maximum criminal penalty is up to US$100 million for corporations and up to US$1 million for individuals for violations of section 1 of the Sherman Act. This statutory maximum can be exceeded under:

  • The Alternative Fines Statute, which allows fines up to twice the pecuniary gain to parties or loss to victims.

  • The Alternative Sentencing Guidelines, which uses a formula based on the affected volume of commerce and makes upward and downward adjustments based on a number of mitigating and aggravating factors. Under the Alternative Sentencing Guidelines, there is theoretically no upper limit on fines, although in all cases, fines would need to be approved by the court.

Personal liability

For civil violations of an FTC cease-and-desist order, an individual can be fined up to US$16,000 for each violation, or for each day of a continuing violation.

For criminal violations of section 1 of the Sherman Act, individuals can be fined up to US$1 million and sentenced to up to ten years in prison.

Immunity/leniency

The DOJ offers leniency programmes that cover criminal anti-trust violations for both corporations and individuals with specific requirements for admission:

  • Corporate leniency. The DOJ's corporate leniency programme is available to corporations and their current officers, directors, and employees. To qualify for automatic (Type A) corporate leniency, a DOJ investigation cannot have already been opened with respect to this conduct, and the corporation must:

    • be the first to report the conduct;

    • terminate participation;

    • provide complete, ongoing co-operation with the DOJ;

    • admit wrongdoing as a corporation;

    • provide restitution where possible; and

    • not have been the ringleader.

    If a DOJ investigation is already pending when the corporation comes forward, the corporation can still qualify for corporate leniency (Type B) if, in addition to the above:

    • the DOJ does not yet have enough evidence to sustain a conviction against the corporation; and/or

    • granting leniency would not be unfair to other parties in respect of issues such as timing and roles.

  • Individual leniency. The DOJ's individual leniency programme is available to an individual if a DOJ investigation has not already been opened with respect to the reported conduct, and the individual:

    • is the first party to report the conduct;

    • provides complete, ongoing co-operation to the DOJ; and

    • was not the ringleader in the conduct.

Corporations and individuals that have entered into one of the DOJ's leniency programmes also benefit under the Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA). This limits their civil damages exposure to actual damages, as opposed to treble damages (and joint and several liability), under the Clayton Act.

Impact on agreements

The federal agencies can seek an order or court opinion that would void the entire agreement.

 

Third party damages claims and appeals

25. Can third parties claim damages for losses suffered as a result of a prohibited restrictive agreement or practice? If so, what special procedures or rules (if any) apply? Are class actions possible?

Third party damages

Under the Clayton Act, third parties who have been injured by an anti-competitive agreement or practice have the right to sue in court for:

  • Treble damages.

  • Injunctive relief.

  • Court costs.

  • Legal fees.

Special procedures/rules

Private civil actions brought in court are not afforded any special procedural rules.

Class actions

Third parties can choose to bring their claims as class actions. Due to the number of parties involved and the various issues specific to those parties, class action litigation is typically far more complicated and has a longer timetable than an individual lawsuit.

During the class certification hearing, the district court must make an overall determination as to whether the proposed class of harmed claimants meets the following requirements:

  • Commonality. There must be one or more legal or factual claims common to the class.

  • Adequacy. The parties representing the class must be able to adequately protect the interests of the entire class.

  • Numerosity. The class must be so large as to make individual lawsuits impractical.

  • Typicality. The claims of the class representative must be typical of the claims of the entire class.

 
26. Is there a right of appeal against any decision of the regulator? If so, which decisions, to which body and within which time limits? Are rights of appeal available to third parties, or only to the parties to the agreement or practice?

Rights of appeal and procedure

Decisions made by the administrative law judge (ALJ) in actions brought by the Federal Trade Commission (FTC) can be appealed to the five-member Commission made up of the FTC Chairman and four Commissioners who lead the FTC. Their final decision can be appealed to the US Court of Appeals.

Decisions made by a US District Court in civil or criminal actions brought by the Antitrust Division of the US Department of Justice (DOJ) and state attorneys general can be appealed to the US Court of Appeals.

Final decisions made by the US Court of Appeals can be appealed to the US Supreme Court.

Third party rights of appeal

Third parties do not have any rights to appeal decisions.

 

Monopolies and abuses of market power

Scope of rules

27. Are monopolies and abuses of market power regulated under administrative and/or criminal law? If so, what are the substantive provisions and regulatory authority?

Both federal agencies and the state attorneys general (AGs) are able to bring charges of anti-competitive monopolisation. The Antitrust Division of the US Department of Justice (DOJ) can bring civil and criminal monopolisation claims under section 2 of the Sherman Act, and the state AGs derive authority from their respective state anti-trust laws. The Federal Trade Commission (FTC) cannot bring criminal charges, but is authorised to bring civil monopolisation claims under section 5 of the FTC Act.

Under section 2 of the Sherman Act (and consequently, section 5 of the FTC Act), it is unlawful to monopolise, attempt to monopolise, or conspire to monopolise.

To establish a valid monopolisation claim, the claimant must be able to establish that the defendant:

  • Possessed monopoly power in the relevant market.

  • Engaged in exclusionary conduct to obtain or preserve monopoly power.

For a successful attempted monopolisation claim, the plaintiff must establish that the defendant engaged in exclusionary conduct with the specific intent of obtaining a monopoly, resulting in a dangerous probability of obtaining monopoly power.

For a successful conspiracy to monopolise claim, the plaintiff must establish both that:

  • Two or more entities entered into a combination or conspiracy.

  • There was a specific intent to monopolise.

  • An overt act was taken in furtherance of this conspiracy.

Therefore not all monopolies are prohibited by the law, only those that are obtained or maintained through anti-competitive conduct, with no legitimate business justification. Monopolies established through superior business acumen or product, or by historical accident, would not be found to be unlawful.

 
28. How is dominance/market power determined?

Broadly speaking, the US Supreme Court has defined monopoly power as the power to control prices or exclude competition. As a first step in determining whether a firm has market power, courts have traditionally looked towards market shares as an indicator of monopoly power. A market share in excess of 70% is prima facie evidence of monopoly power in the relevant market, and a market share of below 50% is not generally considered high enough to show monopoly power.

Some courts have also required that a defendant's market share must be not only sufficiently high, but also sufficiently durable. In other words, there must be high barriers to entry or other specific market conditions enabling the defendant to maintain its market share.

In addition, courts will also allow more direct evidence of monopoly power, such as profit margins, demand elasticities, and price-cost ratios. However, direct evidence alone (without examining market shares and entry conditions), will rarely be sufficient to establish market power.

 
29. Are there any broad categories of behaviour that may constitute abusive conduct?

Some broad categories of conduct that have been found to be anti-competitive are:

  • Exclusive dealing. This occurs when a seller with sufficient market power in a market for a product imposes a requirement on a buyer that forces it to purchase all of its requirements exclusively from the seller.

  • Tying arrangements. A tying arrangement occurs when a seller with sufficient market power in one market for a "tying product," imposes a requirement on a buyer forcing it to purchase a "tied product" with every purchase of the tying product.

  • Refusals to deal. A firm has no general duty to deal with or sell to third parties. However, courts have found that in certain instances, a refusal to deal with competitors may be found to be anti-competitive, such as when a firm with sufficient market power ceases doing business with a competitor without legitimate business justification.

  • Predatory pricing. Predatory pricing occurs when a firm with sufficient market power lowers its price below its cost of production, to drive competitors out of the market and later raise prices. Predatory pricing is generally viewed as difficult to prove in the US.

 

Exemptions and exclusions

30. Are there any exemptions or exclusions?

Various industries and activities are statutorily exempt from anti-trust enforcement, see Question 15.

 

Notification

31. Is it necessary (or, if not necessary, possible/advisable) to notify the conduct to obtain clearance or (formal or informal) guidance from the regulator? If so, what is the applicable procedure?

While notification is not available, the parties may seek informal guidance from the federal agencies through the methods listed in Question 17.

 

Investigations

32. What (if any) procedural differences are there between investigations into monopolies and abuses of market power and investigations into restrictive agreements and practices?

See Questions 18 to 21, and Question 23.

 
33. What are the regulator's powers of investigation?
 

Penalties and enforcement

34. What are the penalties for abuse of market power and what orders can the regulator make?
 

Third party damages claims

35. Can third parties claim damages for losses suffered as a result of abuse of market power? If so, what special procedures or rules (if any) apply? Are class actions possible?
 

EU law

36. Are there any differences between the powers of the national regulatory authority(ies) and courts in relation to cases dealt with under Article 101 and/or Article 102 of the TFEU, and those dealt with only under national law?

Not applicable.

 

Joint ventures

37. How are joint ventures analysed under competition law?

The federal agencies generally define a competitor collaboration as a set of one or more agreements between competitors to engage in economic activity. The federal agencies evaluate a joint venture similarly to both a merger and a restrictive agreement or practice. They will determine whether a joint venture would substantially lessen competition or tend to create a monopoly under section 7 of the Clayton Act, and whether it would constitute an unreasonable restraint of trade under section 1 of the Sherman Act. If the joint venture agreement would be efficiency-enhancing and is necessary to achieve the pro-competitive benefits of the enterprise, it will be afforded rule of reason treatment under Section 1 of the Sherman Act (see Question 13).

 

Inter-agency co-operation

38. Does the regulatory authority in your jurisdiction co-operate with regulatory authorities in other jurisdictions in relation to infringements of competition law? If so, what is the legal basis for and extent of co-operation (in particular, in relation to the exchange of information)?

The federal agencies share information with competition authorities in other jurisdictions through bilateral anti-trust co-operation agreements and informal understandings with foreign countries. This holds particularly true in dealing with large-scale international cartels. However, when the federal agencies have obtained information through a mandatory notification under the Hart-Scott-Rodino Antitrust Improvements Act or through compulsory process, that information will be kept confidential unless a confidentiality waiver is signed.

 

Proposals for reform

39. Are there any proposals for reform of competition law?

There are no significant proposals to reform US anti-trust laws in the immediate future. However, there are a pair of smaller proposed bills that have been introduced in the House of Representatives and the Senate that would, if enacted, extend anti-trust enforcement to the health insurance industry and provide anti-retaliation protections for anti-trust whistleblowers. Both bills have been referred to committee, but are still in the early stages of their development. It is not clear at this time whether they will have the support necessary to pass Congress.

 

Online resources

Federal Trade Commission

W www.ftc.gov/ogc/ftcact.shtm

Description. The Federal Trade Commission (FTC) website is maintained by the FTC and contains links to the FTC Act.

Cornell University Law School Legal Information Institute

W www.law.cornell.edu/uscode/text/15/chapter-1

Description. Legal Information Institute website maintained by Cornell University Law School containing the text of the Sherman Act.

Cornell University Law School Legal Information Institute

W www.law.cornell.edu/uscode/text/15/12

Description. Legal Information Institute website maintained by Cornell University Law School containing the text of the Clayton Act.



The regulatory authorities

Federal Trade Commission (FTC)

Head. Edith Ramirez (Chairwoman)
Contact details. Office of Policy and Coordination
Room 7117, Bureau of Competition, Federal Trade Commission
601 New Jersey Ave., NW
Washington, DC 20580, United States
T +1 202 326 3300
F +1 202 326 3394
E antitrust@ftc.gov
W www.ftc.gov

Outline structure. Five commissioners, including one Chairwoman, oversee the FTC. The five commissioners are nominated by the President and confirmed by the Senate. The FTC consists of a number of smaller bureaus: the Bureau of Competition (BC), the Bureau of Consumer Protection, and the Bureau of Economics. Each bureau is headed by its own director. The BC is the bureau charged with investigating and prosecuting potential anti-trust violations. The director for the BC is Richard Feinstein. Within the BC, there are number of smaller subsections, including:

  • Director's Office.
  • Premerger Notification Office.
  • Office of Policy & Coordination.
  • Mergers I - IV Divisions.
  • Health Care Division.
  • Anti-competitive Practices Division.
  • Compliance Division.
  • Northeast, West, and Northwest Regional Offices.

Responsibilities. The FTC is charged with responsibility for civil enforcement of the FTC Act. This includes investigation of both anti-competitive practices (anti-trust), as well as unfair or deceptive acts or practices (consumer protection).

Procedure for obtaining documents. The FTC website is the easiest way to obtain publicly available documents, such as advisory opinions, case filings, guidelines and policy statements, guidance under the Hart-Scott-Rodino Antitrust Improvements Act and information interpretations, and press releases.

Department of Justice, Antitrust Division (DOJ)

Head. William Baer (Assistant Attorney General)
Contact details. Antitrust Division
Department of Justice, 950 Pennsylvania Avenue, NW
Washington, DC 20530, United States
T +1 202 514 2401
F +1 202 616 2645
E antitrust.atr@usdoj.gov
W www.justice.gov/atr/index.html

Outline structure. The Antitrust Division at the Department of Justice (DOJ) is overseen by an Assistant Attorney General (AAG). The AAG is nominated by the President and confirmed by the Senate. Under the AAG are a number of Deputy AAGs (DAAGs), responsible for:

  • Economic analysis.
  • International enforcement.
  • Criminal enforcement.
  • Regulatory matters.
  • Civil enforcement.

Within the DOJ, there are a number of smaller subsections, including:

  • Office of the Assistant Attorney General.
  • Office of Operations.
  • Civil Sections.
  • Litigation I – III Sections.
  • Network and Technology Enforcement Section.
  • Telecommunications and Media Enforcement Section.
  • Transportation, Energy, and Agriculture Section.
  • Criminal Section and Field Offices.
  • National Criminal Enforcement Section (Washington, DC).
  • Chicago, New York, and San Francisco Field Offices.
  • Economic Analysis Group.
  • Other Offices.
  • Appellate Section.
  • Executive Office.
  • Foreign Commerce Section.
  • Legal Policy Section.

Responsibilities. The DOJ is responsible for civil and criminal enforcement of the federal anti-trust laws.

Procedure for obtaining documents. The DOJ website is the easiest way to obtain publicly available documents, such as case filings, guidelines and policy statements, and press releases.



Contributor profiles

Bruce McCulloch, Partner

Freshfields Bruckhaus Deringer US LLP

T +1 202 777 4547
F +1 202 777 4555
E bruce.mcculloch@freshfields.com
W www.freshfields.com

Professional qualifications. Admitted in Washington, DC and Virginia, United States. Based in Washington DC.

Areas of practice. Anti-trust counselling; litigation and representation before the Department of Justice and the Federal Trade Commission in a wide range of industries (including automotive, consumer products, manufacturing, mining, natural gas gathering and processing, oil and gas exploration and distribution and wholesale drug distribution), in particular:

  • DOJ and FTC investigations involving Hart-Scott-Rodino Act reviews of mergers and acquisitions, including the technical aspects of HSR Act compliance and reporting.
  • DOJ criminal anti-trust investigations and other civil anti-trust investigations.
  • Anti-trust litigation in federal court.
  • All aspects of anti-trust and consumer protection compliance, including Robinson-Patman Act compliance.

Non-professional qualifications. JD from George Mason University School of Law with high honors; BA from the University of Virginia.

Professional associations/memberships. Leader in the American Bar Association's Antitrust Section; frequent speaker at ABA programs.

Publications. Premerger Notification Practice Manual, Energy Antitrust Handbook and Market Power Handbook.

A full profile is available here.

Tom Ensign, Partner

Freshfields Bruckhaus Deringer US LLP

T +1 202) 777 4527
F +1 202 777 4555
E thomas.ensign@freshfields.com
W www.freshfields.com

Professional qualifications. Admitted in the state of Illinois and the District of Columbia, United States. Based in Washington DC.

Areas of practice. Full range of anti-trust issues, including intellectual property agreements; distribution arrangements; joint ventures and competitor collaborations; premerger notification requirements in the US and abroad. Regularly:

  • Appears before the Department of Justice and the Federal Trade Commission (FTC).
  • Represents clients in Hart-Scott-Rodino Act reviews of mergers and acquisitions, and in civil and criminal anti-trust investigations of alleged anti-competitive conduct.

Extremely broad range of industries including aerospace; aggregates agriculture; air cargo; biotechnology; counterterrorism products; dairy; defence; distilled spirits; explosives; health care; hospitals; life sciences; medical devices; medical imaging; parking; pharmaceuticals; private equity; satellite telecommunications; semiconductors; stock exchange; timber; vitamins.

Recent transactions

  • EMI in connection with the FTC investigations of UMG's acquisition of EMI Recorded Music and Sony/ATV's acquisition of EMI Music Publishing.
  • ASSA ABLOY in connection with the multi-jurisdictional review of its acquisition of Albany Door Systems.
  • Solvay on the FTC review of its US$4.8 billion acquisition of Rhodia.
  • HP in connection with the multi-jurisdictional review of its US$10 billion acquisition of Autonomy plc.
  • Johnson & Johnson's subsidiary, Ortho Clinical Diagnostics, in a blood banking industry cartel investigation.
  • Emirates in air cargo international cartel investigations and related private litigation.

Non-professional qualifications. Prior to joining the firm, served as anti-trust counsel at Intel Corporation. Bachelor's degree from Vanderbilt University, (1994). Law degree from the University of Michigan Law School (1997).

Professional associations/memberships. Actively participates in the American Bar Association's leadership; currently vice chair of the Programs and Teleseminars Committee.

Publications. ABA Antitrust Section's practice guide on Proving Antitrust Damages (second edition) (editor).

A full profile is available here.


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