Last week, leaders of the largest social media platforms testified before Congress to address concerns about the role of such platforms in potentially spreading disinformation and allowing groups to coordinate attacks on U.S. government institutions.
In the wake of these hearings, it is important to remember the larger economic and policy context. Specifically, it is important to keep in mind that some law makers, particularly Amy Klobuchar (D-MN), want to make significant changes to the way competition policy functions in the United States to ultimately make it easier to effectively regulate the largest, most powerful technology companies. These changes would not only impact the merger evaluation process, but such changes would also reduce market concentration and limit the ability of firms with a market share of over 50% from engaging in a range of activities that harm smaller companies’ ability to fairly compete.
To better understand how that balance would be reconfigured, let’s take a closer look at S. 225, the “Competition and Antitrust Enforcement Act” (the “Klobuchar Bill”), proposed by Senator Klobuchar on February 4, 2021.
The Klobuchar Bill would make three principal changes to U.S. competition law and policy:
- New Standards for Evaluating Mergers: Under the Clayton Act, an acquisition or merger is prohibited where the effect may be (i) the reduction of competition or (ii) the increase in the likelihood that a monopoly will be created. In the Klobuchar Bill, the scope of this prohibition expands: An acquisition or merger is prohibited where the transaction would “create an appreciable risk of materially lessening competition, or tend to create a monopoly or monopsony.”
- A Fundamental Change to the Burden of Proof for Mergers: Under current competition law, the burden of proof now rests on the government to establish that the benefits of a transaction are outweighed by the risks. The Klobuchar Bill shifts the burden of proof to the parties to the proposed merger or acquisition in a wide range of circumstances, including (i) where a firm with greater than 50% market share proposes to acquire a competitor or a company that has a “reasonable probability” of becoming a competitor in a relevant market, (ii) where an acquisition allows “the acquiring [entity] to “materially increase the probability of coordinated interaction among competitors,” (iii) where the transaction is valued at more than $5 billion, (iv) where the acquirer’s assets or market capitalization is above $100 billion and the value of the acquisition exceeds $50 million, and (v) where the acquisition would eliminate a firm that “prevents . . . or disrupts coordinated interaction among competitors in a relevant market.” In each of the above circumstances, the parties to a transaction have the burden of establishing that the benefits of the transaction outweigh the risks.
- The Introduction of a New Exclusionary Conduct Prohibition: The Klobuchar Bill introduces a new standard of exclusionary conduct into the Clayton Act. Under this new standard, a dominant firm (i.e., a firm with a market share exceeding 50%) is prohibited from engaging in conduct that creates an “appreciable risk of harming competition” or would “material[ly] disadvantage” competitors within a relevant market.
The Klobuchar Bill would (a) introduce tougher standards for evaluating the anticompetitive impact of mergers, (b) require firms with over 50% market share to shoulder the burden of establishing that the benefits of an acquisition would outweigh the potential risks, and (c) prohibit large firms from engaging in conduct that materially disadvantages smaller competitors.
It is too early to tell if Senator Klobuchar’s proposal will pass the Senate, where it faces stiff opposition from Republicans who are skeptical of the need to introduce significant changes to antitrust law. If the Klobuchar bill does pass the Senate, there is reason to believe it would be well-received in the House, as the Staff Report on competition in digital markets, issued by the U.S. House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law, recommended policy changes very similar to those set out in Klobuchar’s proposal.