April 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. On April 23, the U.S. Federal Trade Commission (FTC) voted to enact a rule that would ban noncompete agreements imposed by employers on workers. Earlier in the month, officials from the FTC and the Antitrust Division of the Department of Justice (DOJ) previewed that changes to the Hart-Scott-Rodino (HSR) premerger notification forms are expected to be finalized soon. The European Commission (EC) recently used a number of its powers under the EU Foreign Subsidies Regulation (FSR) and sent a statement of objections to a notifying party alleging that it provided incomplete, inaccurate, or misleading information in the context of its merger notification from 2021. And on April 11, the UK Competition and Markets Authority (CMA) published an updated report on AI foundation models. Interested? Keep reading …

Our Take on Top-of-Mind Global Antitrust Issues

FTC’s noncompete ban faces legal challenges: On April 23, the FTC issued its final rule banning noncompete clauses in employment contracts as unfair methods of competition. The final rule prohibits employers from entering into noncompete clauses with workers, voids existing noncompetes (with the exception of senior executives), and supersedes any state law or regulation permitting noncompete clauses. More information on timing and the scope and exceptions to the rule can be found here. 

Less than 24 hours after the FTC vote, two federal lawsuits challenging the agency’s rulemaking authority were filed in federal courts in Texas. The complaints seek similar relief — an order vacating the new rule and permanently enjoining its enforcement because it violates Congress’ Administrative Procedure Act. The lawsuits challenge the agency’s authority to engage in substantive rulemaking without express congressional authority. They also include separation-of-powers arguments asserting that Section 5 of the FTC Act violates the Constitution’s nondelegation doctrine and that the FTC is unconstitutionally structured in violation of Article II.

Why it matters: The constitutionality of the FTC’s rulemaking authority is now a question before the federal courts in Texas. The rule is currently set to go into effect 120 days after publication in the Federal Register, but this date will likely be postponed if a stay or preliminary injunction is granted. In the interim, the FTC may continue to use its enforcement authority to bring actions regarding noncompetes against employers.

Changes to HSR form potentially “weeks” away: During the American Bar Association Antitrust Spring Meeting held from April 10–12, top agency officials stated that they expected final changes to the HSR form to be rolled out soon. DOJ Deputy Assistant Attorney General Andrew Forman stated his belief that these changes are coming in a matter of weeks, not months. Both he and Henry Liu, Director of the FTC’s Bureau of Competition, echoed concerns from agency staff regarding deficiencies in the current forms, though they previewed that the final amendments to the HSR form will differ materially from the proposed amendments the FTC announced last July. Liu noted that the new forms will likely require filing parties to provide information regarding supplier-customer relationships, as well as the transaction’s potential effect on labor markets.

Why it matters: In their initial proposal, the agencies estimated that the time required to prepare compliant HSR filings would increase fourfold, although antitrust practitioners largely agreed that the increased burden would, in fact, be significantly higher. The agencies received thousands of public comments regarding the initial proposal, which consistently expressed the sentiment that the increased burden would overwhelmingly outweigh the potential benefits to the agencies’ review, especially for transactions that do not raise competitive concerns. While the final requirements remain uncertain, parties anticipating near-term merger and acquisition activity should be prepared for HSR filings that may require significantly more time and resources to prepare than in prior transactions.

EC initiates in-depth investigations and undertakes a dawn raid under the FSR: The FSR provides the EC with broad powers to investigate and address distortions to the EU’s internal market created by financial contributions granted by non-EU countries to companies engaged in economic activity in the EU. Since the implementation of the FSR in 2023, the EC has the power to address suspected competition distortions caused by foreign subsidies by investigating public bids, as well as other market conduct on its own initiative (ex officio) and by conducting inspections (see our Sidley Update here). The EC launched its first in-depth investigation on February 16, in connection with a bid submitted by a Chinese state-owned company in relation to a Bulgarian tender for the provision of electric “push-pull” trains and related maintenance services. The EC launched two other in-depth investigations on April 3, into public bids submitted by two consortia involving Chinese operators in relation to a tender for the creation of a photovoltaic park in Romania. On April 9, the EC launched its first ex officio investigation into Chinese suppliers of wind turbines in connection with the development of wind parks in Spain, Greece, France, Romania, and Bulgaria. Finally, on April 23, the EC carried out its first unannounced inspection under the FSR at the EU premises of a security equipment operator. 

Why it matters: This first round of in-depth investigations and the dawn raid signal the EC’s intention to make full use of the FSR, especially to protect sensitive sectors such as renewable energy. Similar investigations can be expected to follow in other sectors.

EC flags problematic merger conduct: On March 19, the EC announced it had sent a statement of objections to Kingspan, a producer and distributor of mineral fiber sandwich panels, for intentionally or negligently providing incorrect, incomplete, and misleading information to the EC during its 2021 merger investigation of Kingspan’s proposed acquisition of competitor Trimo. The information at issue related to basic facts on Kingspan’s internal organization and assessments of the competitive landscape. The statement of objections signals the launch of an investigation to determine whether Kingspan breached its obligations, both when notifying the transaction and in reply to the EC’s requests for information. If proven, the EC could impose fines of up to 1% of Kingspan’s global annual turnover for each breach.

Why it matters: Parties involved in merger investigations must supply “accurate and complete” information to competition authorities during a merger review. Margrethe Vestager, Executive Vice-President in charge of competition policy at the EC, described this as “essential for merger reviews to remain both speedy and effective.” The CMA provided a similar reminder last year when it sent an open letter to Copart for its “significant customer outreach” during a merger investigation. In that instance, Copart attempted to coach its customers on how to respond to CMA inquiries. Failure to provide accurate information, risks adversely affecting the authority’s assessment of a proposed transaction and significant financial penalties.

CMA highlights growing concerns regarding AI foundation models: On April 11, the CMA published an update paper in connection with its initial review of AI foundation models (FMs). The CMA expressed concerns that the FM sector is developing in ways that risk negative market outcomes, and, in particular, it highlighted the growing presence across the FM value chain of incumbent technology firms. The paper includes updated principles intended to guide the development of the FM sector in a manner that ensures open and competitive markets and emphasizes consumer protection. It also highlights three key risks to fair, effective, and open competition in the FM sector. 

Why it matters: The update paper represents a shift in CMA thinking on the FM space since its initial report published in September 2023 (see our Sidley Update here). Then, the CMA made encouraging statements about the possible benefits of partnerships and vertical integration, whereas this update emphasizes a “marked increase” in CMA concerns that a small number of incumbent technology firms could use their existing market power to shape these new markets to the detriment of fair, open, and effective competition. The CMA stated its intention to use the full range of its powers, including through market investigations and “stepping up” its merger review. It also signaled that developments in the FM space will be considered when prioritizing digital activities for investigation under the forthcoming Digital Markets, Competition, and Consumers Bill. Focus on the FM space is part of a broader global trend of increased scrutiny by enforcement authorities, including in the U.S. and EU (e.g., see our Sidley Update here).

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