Nascent Competition Theory Is Deterring M&A

Under the Biden Administration, the Federal Trade Commission (FTC) and the Department Of Justice (DOJ) have aggressively expanded the concept of restraint of trade that antitrust law rests upon. The Fenwick firm reports that in the technology and life sciences sectors, this is taking the form of increasing scrutiny of acquisitions of nascent or potential competitors.

The SEC and DOJ look hardest at so-called “killer acquisitions” of a potential threat by a dominant company, and situations in which the buyer’s R&D is advancing in such a way that it will ultimately enter a new market, but jump-starts the process by acquiring a potential competitor.

The effort has had some success, largely through deterring possible deals. Just threatening litigation can make parties give up on acquisitions to avoid the expense, and risk of a court challenge.

The deterrence factor has stymied judicial review of the aggressive new application of the potential competition doctrine. Litigation might have led to some case law countering the approach, but as things stand, abandoned deals are being used as institutional enforcement precedents.

The enforcement agencies’ untested analysis is stated in the 2023 FTC and DOJ Merger Guidelines published in December 2023. It states that they will look at whether either merging party had an alternative way to enter the market, whether either probably would have, and whether such entry offered a substantial likelihood of ultimately producing significant pro-competitive effects.

Fenwick advises bringing antitrust counsel in early to implement an effective antitrust strategy. They also advise being careful about what gets put in writing. “Internal documents play a crucial role in any antitrust inquiry,” they warn.

Be especially wary of documenting a “killer acquisition” motive behind a deal, which would practically guarantee an extended antitrust investigation.