Biden Administration's Antitrust Revolution: Judicious Reform Or "Ideological Witch Hunt"?

Antitrust has catapulted to centerstage as a political lever to cater to populist dissatisfaction about economic disparities and diminishing opportunities. Indeed, President Biden discussed antitrust in his State of the Union address, introducing the topic by noting that "Capitalism without competition is not capitalism - It is exploitation." The reform is ideologically motivated - as FTC Chair Lina Khan remarked in a 2019 interview with the Financial Times, "Laws reflect values. Antitrust laws used to reflect one set of values, and then there was a change in values that led us to a very different place." (Rana Foroohar."Lina Khan: 'This isn't just about antitrust. It's about values.'" Financial Times, March 29, 2019). Antitrust reform is touted to be a panacea that will have macroeconomic impacts on wages, employment, investment, and opportunities - a tool for change in an age of discontent.

During the American Bar Association Antitrust Law Section's Fall Forum in 2021, Senator Michael Lee (R-Utah), the ranking Republican on the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, called the Biden Administration's reform attempts "an ideological witch hunt" where in twenty years, "competition will be no better, consumers will be worse off and the appetite for radically transforming the Federal Trade Commission will be at levels not seen since the 1970s."

Politicians on both sides of the aisle agree that antitrust reform is necessary. The question is: how do we do it best as it does have macroeconomic impacts, including on growth, innovation, investment, and competitiveness in the global economy? As we consider reform, we should be mindful of how we currently stack up. The U.S. has the fourth highest median income in the world - the U.S. median income is more than 30 percent higher than the median income in France. The U.S. also ranks above France, Spain and Italy in the Human Development Index measured by the United Nations Development Programme.

The Biden Administration's goal has been to "go big" on antitrust reform to reverse the past forty years of "Chicago-school" inspired precedent and policy. Such a return to mid-century antitrust policy (sometimes referred to as "hipster antitrust") pulls back from efficiency driven analyses and rather moves toward condemning concentration. Antitrust policy back then was motivated by a political climate that was wary of any business enterprise gaining too much economic, or relatedly, political power. The current movement is referred to as "New Brandeis" after Louis Brandeis, known as the "people's lawyer" who took on Rockefeller and JP Morgan.

To effectuate the reform, the Biden Administration appointed champions of the "New Brandeis" movement to lead the Federal Trade Commission and Department of Justice's Antitrust Division. They also issued an Executive Order on Competition calling for inter-agency collaboration to increase antitrust enforcement, created a White House Competition Council, withdrew multiple policy statements and guidelines deemed too lax and out-of-date, proposed an overhaul of the merger notification rules, significantly expanded the scope of merger scrutiny, and sued major companies including Google and Amazon. In alignment with views expressed by Senator Elizabeth Warren (D-Mass), DOJ Antitrust Division Assistant Attorney General Jonathan Kanter has been vocal about rejecting merger remedies to resolve problematic transactions, opting to litigate to block the entire transaction instead. The DOJ has not settled a merger challenge pre-litigation since AAG Kanter was confirmed on Nov. 16, 2021 - in contrast to historical practice in which approximately 80% of merger challenges over the past two decades were settled through a remedy.

According to Timothy Wu, who has been heralded as the architect of the Biden Administration's antitrust policy, "the priority for Neo-Brandeisian antitrust is the reform of merger review." (Tim Wu. "The Curse of Bigness: Antitrust in the New Gilded Age" 2018). The developments relating to merger enforcement reflect the Biden Administration's aversion to M&A activity and intent to impede deals. However, such big and noisy reform efforts can leave many unintended consequences in their wake. While the magnitude of the effect on innovation, efficiency, and global competitiveness may take some time to fully recognize, there are two areas of concern I have already noticed in practice: (1) the disproportionate impact on small-cap deals and (2) the cost of the DOJ's anti-remedy stance.

The changes, including the proposed Hart-Scott-Rodino rules and draft Merger Guidelines, disproportionately affect small-cap deals where companies have less resources to devote to burdensome filings and to navigate prolonged antitrust investigations and litigations (that typically delay transactions by one to two years). Smaller companies also struggle more to sustain operations in the face of the deal uncertainty caused by the delay. Yet, these are also the companies most in need of capital for growth and innovation. While US M&A activity declined by 27.4% in the past year ending 9/30/23, deals valued between $100 million to $499.9 million declined by 42.6%.

The DOJ has backed itself into a corner through its public aversion to remedies. Instead of entering into court-enforced settlements, parties are now opting to remedy concerns through privately negotiated divestitures without DOJ oversight. The risk of "litigating-the-fix" can be a significant deterrent to the DOJ challenging the transaction in court. In those cases, the DOJ loses the opportunity to approve the divestiture buyer and the scope of the divestiture sale and its terms, including concessions that may better position the divestiture buyer. Prior DOJ settlements also included compliance reporting obligations and provisions requiring notice of future transactions in the affected relevant market. In an effort to be seen as taking a more aggressive stance on merger enforcement, the DOJ loses a resource-efficient solution and opportunity for oversight.

While more tailored reform may be less sensational, it would be more sustainable. If the Biden Administration seeks to turn a large ship that has been heading in one direction for forty years, it should stop to consider where it wants to ultimately go and navigate accordingly - backwards may not be where we want to go.

Ausra O. Deluard is co-chair of the US Competition and Antitrust group at Dentons.