DealLawyers.com Blog

Last week, the FTC issued a policy statement setting forth a sweeping new claim to enforcement authority under Section 5 of the Federal Trade Commission Act. Up until now, that statutory provision has been a rarely used tool to address “unfair methods of competition” arising in situations where other major antitrust statutes didn’t apply. The policy statement is premised on the FTC’s position that Section 5 wasn’t just intended to protect consumers, but also to “protect the smaller, weaker business organizations from the oppressive and unfair competition of their more powerful rivals.”

What are the implications of this new policy statement? Well, as this Goodwin memo explains, the FTC is likely to try to wield that authority in merger enforcement cases targeting acquisitions of nascent competitors – exactly the kind of transactions it’s been having a hard time persuading the courts are prohibited under Section 7 of the Clayton Act:

The 2022 Policy Statement goes on to provide a “non-exclusive set of examples” of the type of business conduct that may violate Section 5. While this list covers a broad range of business activities, most striking among these activities are references to M&A deal activity that the FTC has now declared could be prohibited under the FTC Act:

– Mergers or acquisitions, or joint ventures that have the tendency to ripen into violation of the antitrust laws.

– A series of mergers, acquisitions, or joint ventures that tend to bring about the harms that the antitrust laws were designed to prevent, but individually may not have violated the antitrust laws.

– Mergers or acquisitions of a potential or nascent competitor that may tend to lessen current or future competition.

Taking an unprecedented interpretive position on one federal antitrust statute to avoid getting clobbered in court for taking that same position on another more directly applicable statute is. . . well . . . let’s just say it’s “a bold strategy”.  But according to this Wilson Sonsini memo, that’s far from the limit of what the FTC’s new policy statement might mean.  As this excerpt says, it could also substantially broaden the risks of enforcement actions targeting director interlocks:

The FTC’s policy statement lists “interlocking directors and officers of competing firms not covered by the literal language of the Clayton Act” as one example of a “violation” of Section 5. Under this new interpretation, the FTC appears to be asserting the authority to obtain injunctive relief against “interlocks” not prohibited by the terms of the Clayton Act.

This likely includes, at minimum, “interlocks” involving board observers. This would include a situation in which:

– an individual serves as a board observer at two competing corporations,

– an individual serves as a board observer at one corporation and a director or officer of its competitor, or

– an entity such as a private equity or venture capital fund is represented by a board observer at one corporation and is represented by a board observer or director at another corporation.

It is possible that the FTC would also use this authority to challenge interlocks that fall within the safe harbor exemptions of Section 8 of the Clayton Act.

I’m not usually impressed by overheated claims about the “Regulatory State,” but holy cow! This statement is about as aggressive an attempt to rewrite important provisions of federal law as I’ve ever seen an agency undertake – and I can’t imagine it’s going to fare well in the federal courts as they’re currently configured.

– John Jenkins