February Antitrust and Competition Bulletin: Top-of-Mind Global Antitrust Issues

Welcome to this month’s edition of the Sidley Antitrust and Competition Bulletin — thoughts on topics that are top of mind for Sidley’s Global Antitrust team and why they may matter to you. The U.S. Federal Trade Commission (FTC), together with the U.S. Antitrust Division of the Department of Justice (DOJ), published guidance regarding the preservation of ephemeral messages for potential collection in antitrust investigations, and the FTC hosted a virtual summit focused on artificial intelligence (AI). The FTC also announced a new plan for its operations during a government shutdown that diverts significantly from past practice. The European Commission (EC) finalized new policy guidance on its approach to market definition for the first time in over 25 years, and it also published a report on recent competition enforcement in the pharmaceutical sector in Europe. The UK’s Competition and Markets Authority (CMA) Microeconomics Unit published its first report on competition and market power in the UK labor market. Interested? Keep reading.…

Our Take on Top-of-Mind Global Antitrust Issues

Recent U.S. FTC and DOJ document preservation guidance for collaboration tools and ephemeral messaging: On January 26, the FTC and DOJ jointly announced an update to their data preservation language in investigative letters, second requests, and grand jury subpoenas, specifically targeting modern collaboration tools and ephemeral messaging platforms not inherently designed to be preserved (e.g., work-related text messages from personal devices, instant messaging applications, and other collaborative work environments, including Slack, and iManage). The expectation is “that opposing counsel will preserve and produce any and all responsive documents, including data from ephemeral messaging applications designed to hide evidence. Failure to produce such documents may result in obstruction of justice charges,” DOJ warned. “Neither opposing counsel nor their clients can feign ignorance when their clients or companies choose to conduct business through ephemeral messages.” 

Why it matters: In many ways, this guidance is not revolutionary. After all, the legal requirement to preserve data used to communicate, draft, store, and collaborate while under an investigative proceeding is well established. But given the recent proliferation of workplace communication platforms where drafts are overwritten, chats disappear, and messages automatically delete in the ordinary course, compliance with the agencies’ position could be highly burdensome and costly. Though courts have the final say regarding parties’ preservation and production efforts, this announcement reiterates the agencies’ belief that companies are falling short of their obligations to maintain and produce information and data highly relevant to antitrust proceedings. For further details, please see our recent Sidley Update. 

What does the FTC have to say about AI? On January 25, the FTC hosted a Tech Summit on AI and its impact on competition and consumers. The panels discussed the role of chips and cloud infrastructure in AI development, the function of data in AI models, and AI consumer applications. Commissioner Rebecca Slaughter emphasized that the FTC’s role is to “enact guardrails to ensure its safe deployment and use for all.” She continued, “By using the full panoply of the FTC’s tools, the Commission will be able to focus on enforcement, minimize harm, and stay ahead of the rapidly evolving AI market.”

Why it matters: Given the FTC’s priorities regarding AI, companies should ensure that they have a full understanding of their AI partnerships and investments, including the practical implications and potential competitive effects of such relationships. For example, agencies or private plaintiffs may argue that the use of generative AI by competitors to set pricing amounts to illegal price fixing. Moreover, control over generative AI inputs may result in arguments that potential single-firm conduct runs afoul of antitrust laws (e.g., tying, bundling, or exclusive dealing). Competition authorities outside the U.S. are also looking into the effect of AI on competition, including the EC, which invited submission of responses on two calls for competition in virtual worlds and generative AI by March 11, and the CMA, which launched an initial review into AI foundation models in 2023 and is expected to publish an update in April 2024.

The FTC announces changes to its operations in the event of a government shutdown: On January 23, the FTC published an updated operations plan that would become effective should the U.S. government partially shut down and appropriations lapse. Under the plan, the FTC Premerger Notification Office (PNO) will not accept or process new filings submitted under the Hart-Scott-Rodino (HSR) Act, which requires parties to notify the antitrust agencies of qualifying transactions and then observe a 30-day waiting period prior to consummation. Waiting periods for transactions filed prior to the appropriations lapse will continue to run. The continuing resolution currently in place funds the FTC through March 8. It is unclear how soon thereafter the PNO would stop accepting new filings. 

Why it matters: Discontinuing the acceptance of HSR filings during a shutdown diverts from the FTC’s historical practice. Critically, the updated plan does not provide a solution for transacting parties, nor does it relieve them from their obligations under the HSR Act. Consequently, parties that have recently agreed to, or that are currently contemplating, notifiable transactions may consider submitting HSR filings prior to March 8, including on an executed letter of intent or term sheet that is short of a fully negotiated purchase agreement. 

EC adopts updated Market Definition Notice: On February 8, the EC adopted a revised Market Definition Notice (Revised Notice) updating a previous version from 1997. The Revised Notice expands on the EC’s approach to market definition, reflecting increased globalization, developments in digital markets, and the EU’s policy goals in terms of innovation and sustainability. The Revised Notice incorporates the following new elements: (i) emphasis on nonprice parameters to define markets, including innovation and sustainability; (ii) clarifications on quantitative techniques used to assess product substitutability (e.g., “small but significant and nontransitory increase in price” test); (iii) clarifications on forward-looking assessments of markets; (iv) guidance on alternative metrics for the calculation of market shares (e.g., number of website visits), and (v) guidance on the application of market definition concepts in specific circumstances, such as in digital and innovation-driven markets.

Why it matters: Market definition is a key tool influencing the outcome of EC competition assessments. The Revised Notice increases transparency and predictability of the EC’s analytical framework for companies active in the EU. It allows companies to self-assess the likelihood of EC scrutiny and the type of information that the EC may request. For further details, please see our recent Sidley Update. 

EC reports on increased antitrust enforcement in the pharma sector: On January 26, the EC published an in-depth report, prepared in close coordination with the EU’s national competition authorities, on the enforcement of merger and antitrust rules in the pharmaceutical sector for the period 2018-22 (see the main findings of the report here). The report emphasizes that enforcement in the pharmaceutical sector remains a high priority. In addition to providing examples of enforcement activity by the EC and at the national level, the report provides general guidance on the application of EU competition rules in the pharma sector. The report includes different statistics, showing for example that the total annual amount of fines issued has increased by approximately 40% in the years 2018-22 compared with 2009-17. In terms of material scope, biological medicines and biosimilars are a new point of focus for the authorities, shifting from generics in the 2009-17 period.  

Why it matters: The report highlights the antitrust authorities’ increased scrutiny of both commercial conduct and mergers and acquisitions in the pharma sector. Moreover, the regulators have pursued novel theories of harm, including harm from mergers that may reduce overlapping drug research and development projects. Given the scope of recent interventions and the increased coordination and cooperation among the EC and national competition authorities in their enforcement efforts, it is important for pharma companies to scrutinize their commercial strategies at an early stage and before implementation and to comprehensively consider antitrust implications prior to engaging in mergers and acquisitions. With approximately 30 antitrust investigations ongoing in the EU and the continued focus by the U.S. regulators, 2024 promises to be another intense year in terms of antitrust enforcement in the pharma sector. 

Why it matters: The CMA’s report reflects growing regulatory interest in labor markets worldwide, including in the U.S. and Europe. In addition to the report, which will support the CMA and broader UK government policymaking, the CMA is investigating suspected anticompetitive conduct relating to rates for workers and no-poach arrangements in the broadcasting and fragrance industries. These investigations follow increasingly aggressive enforcement on labor market restrictions in the U.S. including a proposed ban on noncompete clauses, as we noted in December. As discussed by Sidley partners during the recent Sidley Podcast on noncompete agreements, this direction will require employment and competition law to come together.