August 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. Last month, authorities in Europe, the United States, and the UK came together to issue a joint statement on how they intend to preserve competition in generative AI. In the United States, the Department of Justice (DOJ) required a company to pay US$3.5 million to settle gun-jumping allegations, and a court in Texas prevented the Federal Trade Commission (FTC) noncompete ban from going into effect. In Europe, the European Commission (EC) is taking a close look at a potential food delivery cartel, the Court of Justice of the European Union (CJEU) clarified the legal process for cartel victim damages claims, and the European Court’s Advocate General weighed in on price parity clauses. 

Our Take on Top-of-Mind Global Antitrust Issues

EU, UK, and U.S. Issue Joint Statement on Competition in AI: On July 23, the EC, CMA, DOJ, and FTC issued a joint statement on competition in generative AI foundation models and AI products. The statement includes a list of recognized risks to competition, including concentrated control of key inputs, entrenchment or extension of market power in AI-related markets, and entry into partnerships, financial investments, or other connections among firms related to the development of generative AI. The document includes three agreed principles for protecting competition in the AI ecosystem: fair dealing, interoperability, and choice. For further detail, see our recent Sidley Update. 

Why it matters: As discussed during our July 16 webinar on AI: Key Issues, Challenges, and Considerations in Global Antitrust and Government Strategies (a recording is available here), these agencies have already issued their own separate statements or launched their own initiatives related to AI. This joint statement indicates the determination of these agencies to address cross-border issues arising from generative AI foundation models and AI products on a collaborative basis.

DOJ Settles With Legends for Gun-Jumping Violations: The DOJ recently announced a US$3.5 million settlement with Legends Hospitality Parent Holdings, LLC (Legends) in connection with its proposed acquisition of competing venue services provider ASM Global Inc. (ASM) for alleged gun-jumping violations under the Hart-Scott-Rodino (HSR) Act. During the HSR waiting period — generally 30 days from the time of filing, but potentially many months, if the DOJ or the FTC initiates an extended investigation of a transaction — merging parties must remain separate and independent entities, and the buyer cannot exercise control over the target business, known as gun-jumping. 

The DOJ alleged that Legends violated the HSR Act by taking beneficial ownership of ASM and exercising operational control over part of its business before the waiting period expired by:

• Having ASM manage a city-owned arena in California on Legend’s behalf for which Legends had won the management contract;
• Discussing competitive bidding strategies with ASM, including Legends considering not bidding against ASM for certain venue management; and
• Exchanging competitively sensitive information with ASM to prepare to submit joint bids to two different potential customers.

In addition to the US$3.5 million fine, the DOJ settlement requires Legends to refrain from certain conduct, appoint an antitrust compliance officer, and implement an antitrust training program.

Why it matters: This settlement serves as a reminder for merging parties to take appropriate precautions to ensure they don’t run afoul of the antitrust laws during pre-closing integration planning and diligence. The most important principle is that parties must remain independent companies before their transaction closes. Parties can take other steps to minimize antitrust risk during the pre-closing period, including using clean teams to facilitate the diligence of competitively sensitive information and/or using third parties to help plan for post-close integration. The line between permissible integration planning and impermissible integration implementation is highly fact-specific, so experienced antitrust counsel can help merging parties comply with the law.

FTC’s ban on employee noncompetes dealt a blow by Texas federal court: On August 20, 2024, U.S. District Judge Ada Brown for the Northern District of Texas granted plaintiffs’ motion for summary judgment in a suit challenging the FTC’s rule that would ban noncompete clauses in employment contracts. (See our previous Bulletin about this case here and a more detailed Sidley Update about this latest ruling here.) The judge found that the FTC exceeded its statutory authority by promulgating a substantive rule regarding unfair methods of competition, and that the rule is arbitrary and capricious in violation of the Administrative Procedure Act because it is overbroad “without a reasonable explanation.” The final ruling is not a complete surprise, as the court previously granted a stay and a preliminary injunction of the rule with respect to the plaintiffs. But in reaching the final decision, the court rejected the FTC’s argument that relief should be limited to just the plaintiffs in the case; instead, the court’s holding striking down the FTC rule applies nationwide. 

Why it matters: The decision is the first that addresses the legality of the rule as a whole, and it marks a significant setback to the FTC because it precludes the rule from taking effect on September 4. The decision is not, however, a basis for rendering all noncompetes legal. The FTC may seek appellate review of the district court’s decision. Moreover, the holding addresses the legality of the FTC’s rule that would ban noncompete clauses between employers and employees, but it does not limit the FTC’s authority to challenge overbroad noncompete clauses as violations of federal antitrust laws. Additionally, the decision does not affect state laws governing noncompetes or other restrictive covenants. And finally, separate challenges to the FTC’s rule are making their way through the other federal courts that may reach contradictory conclusions — for example, a judge in the Eastern District of Pennsylvania recently denied a motion for a stay and preliminary injunction by a plaintiff that alleged, among other claims, the FTC exceeded its authority by promulgating the rule.

European Commission opens investigation into possible food delivery cartel: On July 23, the EC announced that it had opened a formal antitrust investigation into possible anticompetitive agreements between two parties in the online food delivery sector. The investigation relates to possible market allocations and the sharing of commercially sensitive information (relating to topics such as prices, costs, and capacity) at a time when one party held a minority interest in the other (it has since acquired sole control). The EC is also investigating whether the companies involved entered into a no-poach agreement (an agreement between companies not to solicit or hire each other’s employees) in violation of EU competition rules.

Why it matters: There have been several initiatives by the U.S. agencies related to competition in labor markets, including in relation to noncompete clauses in employment contracts (as discussed above and further here). The EC published a Competition Policy Brief on antitrust in labor markets in May 2024 (as discussed here), but this is the first time the EC has opened a formal investigation into a no-poach agreement. This investigation is also the first by the EC into potentially anticompetitive agreements that may have occurred when, and been facilitated by, one party’s minority interest in the other. 

CJEU curtails antitrust damages actions for companies with subsidiaries in different EU countries: EU case law establishes that when a parent company and its subsidiaries form “a single economic unit,” a parent company can be liable for the antitrust violations of its subsidiaries. This raises the question whether plaintiffs in damages actions can avail themselves of the single economic unit concept to pursue damages actions through any of its subsidiaries (and potentially also choose between jurisdictions in which such subsidiaries are registered). On July 4, the CJEU handed down a preliminary ruling clarifying that the concept of a “single economic unit” does not apply to claimants in a cartel damages action in the same way as the concept applies to defendants in alleged cartels. The CJEU ruled that an entity cannot claim damages in the country of its registered seat if the harm from the cartel is only suffered by its subsidiaries located elsewhere in the EU, even if the parent and those subsidiaries are deemed to form a single economic unit for other purposes.

Why it matters: Under EU law, jurisdiction for a damages claim can be based on the place where the defendant is domiciled, or in tort matters, where the harmful event occurs, which will often be where the harmed party is located. Although the harm suffered from cartel behavior may typically be similar across EU countries, the CJEU has not provided a “one stop shop” mechanism for damages claims based on the domicile of a cartel victim’s headquarters. Instead, cartel victims with subsidiaries in different EU countries must continue to navigate the relevant national procedural systems based either on location of the harm suffered or the defendant’s domicile.

Advocate General (AG) Collins’ Opinion on Price Parity Clauses: On June 6, AG Collins issued his advisory Opinion concerning price parity clauses (PPCs) used by an online travel agent (OTA). The PPCs (also known as most-favored nation clauses) in this case restricted supplier hotels from offering better accommodation prices through different channels outside the OTA’s platform, including their own hotel websites. AG Collins argued that the PPCs could not be considered ancillary restraints of competition under EU competition law unless proven “indispensable and proportionate” to ensuring the economic viability of the OTA. He expressed skepticism about the necessity of PPCs, suggesting that OTAs could charge fees instead. In addition, AG Collins highlighted the need to consider both sides of the market — hotels and customers — when defining the relevant market, particularly in the context of two-sided platforms.

Why it matters: AG Collins’ Opinion, while nonbinding, provides an important interpretation of PPCs and their legality under EU competition law. If the CJEU adopts his perspective, PPCs could be subject to stricter scrutiny, especially wide PPCs (which prevent a supplier from offering better prices and terms on any other sales/distribution channels), which may have an impact on how businesses structure their pricing agreements. The CJEU decision will also influence the broader debate on market definition and the ancillary restraints doctrine, with potential implications for the digital economy and two-sided markets.

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