Probably never before has there been introduced in Congress so many bills relating to antitrust. At last count, over 25 different pieces of antitrust legislation have been introduced just this year, covering antitrust in general and distinct industries in particular, including pharmaceuticals, sports, news and oil. And more have been promised. While some proposed laws are bipartisan in nature, most are single-party efforts. Interestingly, while both sides want to battle mega-mergers and worry about increasing market concentration, true to their ideology, they attack the issue in distinct ways. We will devote this issue to the key – and perhaps most radical, at least in terms of its departure from the status quo – piece of legislation proposed by the Democrats, the Competition and Antitrust Law Enforcement Reform Act (CALERA).
Klobuchar’s Competition and Antitrust Law Enforcement Reform Act
True to the 2020 Democratic platform, U.S. Senate members have introduced antitrust legislation to fight against mega-mergers in various industries. This legislation reflects the New Brandeisian’s concerns about growing market concentration and power and the belief that recent administrations have relaxed antitrust enforcement standards. This legislation also encompasses the changing view of what constitutes “competitive conduct.” Abandoning consumer welfare as the sole/primary (depending on your view) focus for antitrust, this New Brandeisian legislation seeks to instead include other considerations as a new objective for antitrust laws.
In February 2021, Sen. Amy Klobuchar (D-MN) proposed CALERA (Senate Bill 225), which would radically change much about antitrust law. A reflection of the New Brandeisian belief, CALERA reflects the view that current antitrust laws are structurally weak and allow for unregulated and uninvestigated mergers. If passed, CALERA would cause the most significant change to antitrust law in at least a generation. CALERA is currently in the Senate, where it has been read twice and referred to the Committee on the Judiciary. CALERA is sponsored only by Democrats.
The bill is interesting for a number of reasons. But before we get into specifics, we should note the “findings” that are contained at the beginning of the bill. To be sure, some are straight-forward, non-controversial and quite in line with present antitrust law and enforcement. But others are quite remarkable and telling, including (emphasis added):
- “Competition fosters small business growth, reduces economic inequality, and spurs innovation and job creation;”
- “In the United States economy today, the presence and exercise of market power is substantial and growing;”
- “The presence and exercise of market power . . . [has] particularly damaging effects on historically disadvantaged communities;”
- “Market power and undue market concentration contribute to the consolidation of political power, undermining the health of democracy in the United States;”
- “The acquisition of nascent or potential rivals by dominant firms can present significant long term threats to competition and innovation;”
- “In recent years, some court decisions and enforcement policies have limited the vitality of the Clayton Act to prevent harmful consolidation by . . . focusing inordinately on the effect of an acquisition on price in the short term, to the exclusion of other potential anticompetitive effects . . and requiring the government to prove harmful effects of a proposed merger to a near certainty;”
- “Antitrust enforcement against anticompetitive exclusionary conduct has been impeded when courts have declined to rigorously examine the facts in favor of relying on inaccurate economic assumptions that are inconsistent with contemporary economic learning, such as presuming that market power is not durable and can be expected to self-correct, that monopolies can drive as much or more innovation than a competitive market, that above-cost pricing cannot harm competition, and other flawed assumptions.”
While not surprising, these findings are remarkable in that they assume that certain political considerations are rightfully addressed by the antitrust laws. Additionally, several findings make assertions that are hotly debated, to say the least, and explicitly reject much of what the Chicago and post-Chicago School was founded upon. These, of course, set the stage for what the bill actually proposes to do.
Mergers and Acquisitions
CALERA amends the Clayton Act to lower the threshold for what mergers and acquisitions violate the antitrust laws and, in some instances, create a presumption of illegality for the transaction. Currently, Section 7 of the Clayton Act prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.” The requirement that the effect must “substantially” lessen competition has been viewed by New Brandeisians as a requirement that the government establish that a transaction has a near certainty of causing future harm. CALERA aims to lower that threshold by prohibiting mergers and acquisitions that “create an appreciable risk of materially lessening competition.” The bill clarifies that “that the term ‘materially’ means more than a de minimis amount.” It remains to be seen how, if passed, the courts will interpret that phrase, but plainly the threshold is not meant to be high.
CALERA also establishes hard-lines for subjecting transactions to the new standard. The bill explicitly states that certain transactions meet the “appreciable risk of materially lessening competition” standard, and are thus presumptively unlawful, including those that would lead to more than a 50 percent market share, deals worth more than $5 billion or deals involving a company worth more than $100 billion, and any acquisitions that would “lead to a significant increase in market concentration.” In these situations, the burden of proof shifts to the transacting parties to prove that their merger or acquisition will not “create an appreciable risk of materially lessening competition.” It is unclear, though, what sort of evidence would save the transaction.
Beyond mergers and acquisitions, the bill seeks to strengthen current law by expanding what conduct is deemed exclusionary. First, CALERA states that it is unlawful, acting alone or in concert with others, to engage in “exclusionary conduct that presents an appreciable risk of harming competition.” “Exclusionary conduct” is defined as conduct that either “(i) materially disadvantages 1 or more actual or potential competitors; or (ii) tends to foreclose or limit the ability or incentive of 1 or more actual or potential competitors to compete.”
The real bite to the bill comes in the presumptions. According to the bill, exclusionary conduct that presents an appreciable risk of harming competition is presumed if it is engaged in by one or more entities that have a market share of 50 percent or “otherwise has significant power in the relevant market.” The presumption can be defeated, however, by a showing of “distinct procompetitive benefits” that eliminate the competitive harm, that others have entered or expanded within the market eliminating the risk of harm or that the conduct does not, in fact, present that “appreciable risk” of harm.
CALERA increases civil penalties for Sherman and Clayton Act violations. The bill proposes the greater of 15 percent of a company’s total U.S. revenue or 30 percent of the company’s U.S. revenue that related to the illegal conduct.
While the provisions described above, if passed, would significantly alter the landscape of antitrust law and enforcement, some of the other, less splashy provisions of the bill may have as much or more effect on antitrust and the competitive landscape of the U.S. economy. First, it increases the budgets of the Justice Department’s Antitrust Division and Federal Trade Commission (FTC) in an effort to aid in antitrust enforcement. Aimed at the popular New Brandesian belief that antitrust enforcement has become lax and market concentration and power has increased, CALERA provides greater resources to government agencies to enable merger enforcement and the protection of competition. More resources will inevitably result if more enforcement and an attempt to shift the antitrust paradigm further.
Second, CALERA establishes a new, independent FTC division to conduct market studies and merger retrospectives. Indeed, that division is charged with investigating “markets or industry sectors to analyze the competitive conditions and dynamics affecting such markets or industry sectors . . .” Such proactive studies will translate into more and varied industries being investigated. The division will also study the effect of mergers that occurred two or more years before, including the transaction’s effect on wages, an issue that is not currently a concern for the antitrust laws (absent collusive behavior).
Finally, the bill strengthens whistleblower protections. Cumulatively, these provisions will provide a culture and foundation for aggressive enforcement for years to come.
The future for New Brandesians and impacts of this legislation
This recent antitrust legislation reflects society’s current New Brandeisian views and lives up to the 2020 democratic platform. This legislation also represents a potential shift in the role of antitrust law in many commercial industries. Indeed, if passed, this legislation could have impacts in the healthcare, agriculture and entertainment industries, just to name a few.