June 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. Sen. Amy Klobuchar, Democrat of Minnesota, called on the U.S. Federal Trade Commission (FTC) to require private equity firms to report investments in residential property for rental purposes, even though such transactions are typically exempted from notification under Hart-Scott-Rodino (HSR) Act. Comments by Jonathan Kanter, the Assistant Attorney General (AAG) and head of the Antitrust Division of the U.S. Department of Justice (DOJ) showed the DOJ’s focus on the ways in which artificial intelligence (AI) can be used to violate longstanding antitrust principles. On June 10, the European Commission (EC) opened its first in-depth investigation into a transaction under the Foreign Subsidies Regulation (FSR) and, on June 24, imposed a fine for obstructing an antitrust investigation based on the deletion of messages exchanged with a competitor via social media. The European Court of Justice (ECJ) confirmed that the EC must pay interest on overpaid antitrust fines. In the UK, the Competition and Markets Authority (CMA) published for consultation proposed new digital markets competition guidance. Interested? Keep reading…

Our Take on Top-of-Mind Global Antitrust Issues

U.S. antitrust agencies keep the spotlight on private equity firms: Antitrust enforcers and legislators alike continue to scrutinize private equity firms’ practices. On May 23, the FTC and DOJ jointly launched a public inquiry to identify serial acquisitions and roll-up strategies that have led to alleged competition-harming consolidation. Comments submitted in response to the request for information will inform the agencies’ enforcement priorities and future actions. And in another bid to curtail private equity practices, Sen. Klobuchar recently sent a letter to the FTC urging the agency to eliminate the rules exempting commercial transactions of residential and rental properties from HSR Act reporting requirements. According to Sen. Klobuchar, institutional investors’ — including private equity firms’ — real estate purchases have led to consumer harm including, among other things, an increase in housing prices, higher rent, and increased evictions.

Why it matters: These new developments come on the heels of a cross-government public inquiry into private equity’s investments in healthcare and an enforcement action against a private equity firm for alleged price-fixing in the medical sector (which was recently dismissed as against the private equity firm involved). The agencies have been clear — in word and action — that they intend to scrutinize private equity closely for antitrust violations, and the agencies show no signs of backing down.

DOJ AAG Jonathan Kanter addresses artificial intelligence: Speaking at a conference on May 30, Kanter argued that AI poses threats to innovation in various markets and can lead to illegal price fixing. In this regard, Kanter noted the antitrust laws are designed to change with market realities, including emerging technology like AI. Moreover, the DOJ will adapt its enforcement programs and policies as it continues to develop its understanding of the AI ecosystem and its potential impact on competition across various sectors.

Why it matters: Kanter’s remarks reiterate the continued antitrust focus on AI and its potential for facilitating price fixing and other improper information sharing. These remarks echo the FTC’s rhetoric at a tech summit on AI the agency hosted last January. Kanter was careful to point out that although the DOJ is still learning about the technology, the underlying principles of competition and potentially problematic conduct are not new. As Kanter noted, “Combining to set prices with rivals is concerted action whether or not an algorithm assists that collusion.” Indeed, Kanter’s comments came just two days after a federal judge denied a defendant’s motion to dismiss in a suit brought by the DOJ against an industry data aggregator alleged to have facilitated the improper exchange of information among competitors through the collection and distribution of confidential pricing and cost data.

EC initiates first in-depth investigation into a transaction under the FSR: On June 10, the EC launched its first deal-related in-depth investigation using its powers under the FSR. The in-depth investigation relates to the proposed acquisition by the Emirates Telecommunications Group Company PJSC (e&) of sole control of PPF Telecom Group B.V. According to the EC’s summary decision concerning the initiation of the in-depth investigation, there are indications that e& received foreign subsidies from the United Arab Emirates that may distort the EU internal market and in particular the EU telecom sector, including (i) an unlimited guarantee deriving from an exemption of e& from national bankruptcy law, (ii) a term loan, and (iii) other financial contributions. Allegedly, the latter subsidies may have helped e& secure the transaction and improve the competitive position of the combined entity post concentration. The EC is due to issue a final decision by October 15.

Why it matters: 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. The EC has the power to address suspected competition distortions caused by foreign subsidies by investigating, among others, transactions that exceed certain revenue and financial contribution thresholds (for an overview of the FSR, see our Sidley Update here). This new in-depth investigation suggests commitment by the EC to using the full suite of its FSR powers, including in relation to merger-and-acquisition transactions.

EC fines company for employees’ deletion of social media messages during an inspection: On June 24, the EC fined International Flavors & Fragrances Inc. and its French affiliate (together, IFF) €15.9 million for obstructing an antitrust inspection. During an on-site inspection, the EC found that a senior IFF employee intentionally deleted a number of WhatsApp messages with a competitor, which contained business-related information, after the employee had been informed of the EC’s inspection. The EC was not proactively informed of the data deletion and instead detected it during the course of its review. Although the EC considered that the infringement was “of a very serious nature,” IFF fully cooperated with the EC and was granted a 50% reduction in its fine.

Why it matters: Margrethe Vestager, Executive Vice-President in charge of EC competition policy, stated that “Compliance with antitrust investigations is of paramount importance. Companies that undergo an inspection must ensure that employees do not delete or manipulate business records. This includes communications on mobile phones.” This is the first time the EC has imposed a fine for the deletion of messages exchanged via social media apps on a mobile phone. Other global regulators have addressed similar challenges to their antitrust investigatory powers as a result of ever-changing forms of business communication. In 2019, the Netherlands Authority for Consumers and Markets imposed a fine of €1.84 million on an unnamed company after several employees deleted messages and left WhatsApp group chats during a dawn raid. In January 2024, the FTC and DOJ announced updates to their data preservation language in investigative letters, second requests, and grand jury subpoenas targeting ephemeral messaging platforms to “reinforce longstanding obligations requiring companies to preserve materials during the pendency of government investigations and litigation” and emphasise that “[f]ailure to produce such documents may result in obstruction of justice charges” (for further details, see our Sidley Update here).

ECJ confirms that the EC must pay interest on overpaid antitrust fines: On June 11, the ECJ handed down its judgment in the Deutsche Telekom case, confirming that interest must be paid by the EC on a partially annulled fine. Where a fine for a breach of EU competition rules is annulled or reduced, the authority must repay all or part of the fine provisionally paid, together with interest for the period from the date of provisional payment of that fine to the date of repayment. The interest to be paid should be that intended to compensate the company at a standard rate for loss of enjoyment of the amount at issue.

Why it matters: In recent years, EU courts have annulled or reduced a number of (sometimes very high) fines. This case makes it clear that interest should be paid even where the financial returns on the investment by the EC of the amount of that fine during that period were zero or even negative. It remains to be seen whether the judgment may affect the EC’s cartel or fining policy, though the judgment indicates that imposing fines that are liable to be challenged, for example in cases involving novel theories of harm, could be costly for the EC.

UK government consults on new digital markets competition guidance: The CMA is consulting on draft guidance for the new digital markets competition regime established by the recently enacted Digital Markets, Competition, and Consumer Act 2024 (DMCCA). Stakeholders are invited to contribute their views until July 12, 2024, after which the CMA will finalize the guidelines and release a formal document just before the DMCCA’s anticipated enforcement later this year.

Why it matters: The UK’s new digital markets regulatory regime marks a major departure from the existing competition law enforcement landscape. Under the new regime, the CMA Digital Markets Unit (DMU) will designate certain tech companies with “strategic market status” (SMS). Companies designated with SMS will be subject to (among others) (i) bespoke enforceable codes of conduct, (ii) the prospect of “pro-competitive interventions,” and (iii) a strict merger reporting regime that captures minority investments as low as 15%. The draft guidance details the processes for SMS designations, the application of conduct standards, and the deployment of CMA investigative and enforcement powers to monitor and ensure compliance.

Read more Antitrust and Competition Bulletins here.