In the past few months, the US federal government has brought two major antitrust cases: one to block Microsoft claims game developer Activisionand another against Google aimed at forcing the company to divest some of its advertising businesses. With the Federal Trade Commission’s failed attempt to stop Meta’s acquisition of a virtual reality startup, an earlier federal lawsuit against Google over search, several ongoing state-level lawsuits against the company, and reports the FTC will soon bring an action against Amazon, it shows that the hunting season for large technology companies is in full swing.
But if dominating big tech is the goal, antitrust law, at least on the surface, seems like a problematic weapon. Antitrust authorities have a poor track record of successful cases going to trial, largely because federal law does not cover conduct regulators now say harms competition, including the control of data by consumers to create competitive advantages, and self-preference themselves. products on their platforms. But not harming competitors but consumers, usually in the form of increased prices, remains the standard for proving antitrust violations in the courts for almost the last 40 years.
Regulators know that, of course. But they also know the stars may be aligning to change the law. To navigate the growing uncertainty, companies must understand the complex politics of competitive efforts to create a new paradigm for competition law. They also need to expand their view of legal risk, and adopt a global plan of action, for future transactions and for current operations.
How Losing Cases Can Be A Winning Strategy
The government does not have to win cases for the cases to have an effect. For starters, big lawsuits against big companies send a message designed to deter future deals. This is especially true for today’s most successful technology companies, which have long expanded into emerging markets by destroying promising startups already in the field. As ex-Biden campaign adviser Tim Wu recently noticedit can make a big difference in an industry if the big players know they are “under heavy surveillance from the government.”
Although the deals are close, regulators see value in all that understand that all transactions will be scrutinized more closely. From the beginning, companies find themselves encouraged to make voluntary concessions. In the Activision deal, for example, Microsoft preemptively offered several limitations on how it would treat Activision’s products after the merger. Principal titles including Call of Dutyespecially, cannot be pulled from other platforms, and are offered as Xbox exclusives instead.
More broadly, an aggressive, if unsuccessful, litigation strategy can cause powerful disruption to companies that are considered too powerful. Cases can take years to resolve. In the interim, senior management may be distracted by spending their time dealing with lawyers instead of the business. Those businesses may also be second-guessing current plans, worried that new initiatives could ignite existing lawsuits or weaken their negotiating positions. In the past, IBM, AT&T, Intel, and Microsoft have been notorious for years due to ongoing antitrust lawsuits, as are Google and Meta now – and perhaps, now, Microsoft again.
But there’s more going on here than just announcing companies. The Biden administration believes so that making major changes, even if they do happen, puts pressure on Congress to pass legislation that expands the types of harm that antitrust law can deal with, and gives the FTC and the Department of Justice more authority and resources to manage the competition. Fees to do just that circulated in the previous Congress, but no one made it to a conclusive vote. So, President Biden CALL of the new Congress to pass bipartisan legislation, including antitrust reforms, “to hold Big Tech accountable.”
Play to a Different Audience
There is another political concern at work, too: Europe has become the most important regulator of technology. President Biden said wrote in a January op-ed, the US, despite its strong leadership in the information economy, lags behind in the regulation of major participants. In contrast, the EU has greatly expanded the scope and enforcement of its own antitrust laws over the past two decades, in a campaign largely against US-based technology companies. This includes aggressive new legislation such as the Digital Markets Act and Digital Services Act. They also carry out stronger merger reviews, which the UK’s antitrust authority recently forced Meta to divest another VR-related startup got it in 2020.
The EU’s regulatory leadership likely explains why the FTC sent its case against Activision’s deal to administrative judges rather than federal court. Commissioners know that Europeans will soon decide for themselves whether or not to block the deal, and going to the administrative court first signals to EU regulators how US view on the case, with no commitment to litigate it to the bitter end. If Brussels or the UK sues, the chances are better that they will kill the deal (or get more concessions from the parties) than Washington alone.
President Biden and his senior antitrust officials would probably prefer to regulate the information economy themselves, but faced with the reality of Congressional inaction, they are more than happy to benefit from more Europeans’ ability to move. They also work closely, if not well, with state governments, which, under US law, share antitrust authority. In some cases, such as the Google search-related case, the feds are suing in cooperation with state regulators. At other times, including the recent failed attempt to solve Facebook’s acquisition of Instagram and WhatsApp, states are marching to their own tune.
Threading the Needle
The Biden Administration clearly envisions markets with more competitors and less concentration, especially but not only in tech. Biden’s appointees want it break up companies they consider too big and restricting future growth through acquisition.
They also prefer to take the lead in pursuing goals, which simplifies the process. But unless Congress acts and other countries back down — both unlikely — the antitrust landscape will remain fractured and complex, characterized by subtle if inconsistent signals sent by lawmakers, participants in negotiations, and competing regulators.
In the face of that fact, here are five important rules for those looking to close deals:
Have boots on the ground wherever you deal with a review.
Most large public companies now have legal representation, either directly or through trade associations, in Washington. But what about Brussels? Japan and South Korea are also expanding their oversight of global companies, and, post-Brexit, the UK is flexing its muscle. Don’t think, as Wall Street analysts often do, that Washington is the only M&A regulator that matters.
Don’t wait for your deal to get to know the regulators and build a relationship.
The worst time to introduce yourself to antitrust regulators is after you’ve announced a transaction. Microsoft and other tech companies have developed ongoing relationships with permanent staff and designated officials at regulatory agencies around the world. It may not avoid a negative response from regulators, but at least you’ll know who to talk to — and how.
Frame your deal as a solution to the problem that antitrust officials fear.
Current federal thinking views new transactions through the lens of past deals involving tech companies that they want to retrospect have been blocked by the government. If possible, frame your deal as a way to gain the scale needed to become new entrants who can, through market forces, undo the sins of the previous regulatory regime. Microsoft, for example, has put itself in the role of also running in the gaming industry, trying to convince regulators that Activision it helps to compete more effectively against Sony and Nintendo.
Find out which friends and enemies count in antitrust.
While partisan politics can be important, the most important voices weighing in on antitrust authorities are the suppliers and distributors in your market. If they fear you’ve got the ability and incentive to create a bottleneck, they can be influential voices against your deal. If they’re not worried, it’s much easier to get through a review quickly. On the other hand, the complaints of competitors are almost an endorsement, because antitrust officials see them as fearing the intensified competition that officials want.
Be prepared to compromise.
Can you close your deal quickly but still satisfy strategic objectives by offering concessions? Identifying the priorities of the various antitrust authorities, making pre-emptive offers that may divide the various enforcement authorities and favor you in public opinion. Voluntary concessions can also undermine the government’s legal arguments. Courts will factor in the likely effect of specified conditions in determining the likely effect of a deal on consumers.
The government’s focus on major technology companies including Microsoft, Google, and Meta offers free education for all business leaders in the current state of global antitrust and growing tensions with regulators. While the timing and path of reform, in the US and elsewhere, may be unclear, efforts to enforce existing law and expand it wherever possible have become the global order of the day. Ignore it at your peril.