By Ian Tang, Capstone Tech, Media, and Telecommunications Analyst

Companies and investors know all too well that the Biden administration has made antitrust a banner agenda item. However, many have questioned how the pace of dealmaking enforcement may change given federal agencies’ recent track record of dismissals. We believe the underappreciated posture of regulators—notably their defensiveness in characterizing recent unfavorable verdicts as important victories—suggests they are unlikely to change their aggressive posture any time soon. In fact, they may just be warming up.

Under Assistant Attorney General Jonathan Kanter and Chair Lina Khan, the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) have aggressively pursued litigation against proposed mergers, including non-horizontal transactions that have historically generated less anti-competitive concerns, and ongoing business conduct. While not completely a surprise given their stated pursuit, some otherwise benign mergers have been caught up in the zeal and have faced oversized scrutiny. This has produced interesting and underappreciated results.

The underappreciated posture of regulators suggests they are unlikely to change their aggressive posture any time soon. In fact, they may just be warming up.

At the 2023 American Bar Association Antitrust Section Spring Meeting, which I attended, practitioners widely reflected on and opined about Meta Platform Inc.’s successful defense of its purchase of Within Unlimited, the virtual reality studio that develops the Supernatural fitness application. How this victory for Meta would influence the agency’s ambitions was at the top of attendees’ minds. However, the agency and its staff could not have reached a more divergent conclusion than the attendees, framing the loss as a hallmark achievement.

While the commission failed to obtain a preliminary injunction in federal court to prohibit the $400 million deal, regulators view the case as a guiding framework for future monopolization cases against large technology platforms. In fact, at the final session of the conference, the Enforcers Roundtable, Chair Khan boldly characterized the district court’s Meta-Within decision as a “programmatic advance.” That perspective was reflected in comments on other panels throughout the week.

In the FTC’s view, Judge Edward Davila affirmed many of the threshold issues that would boost the agency’s ability to bring cases involving nascent markets or potential competition, all while using a slightly lower legal standard for justifying its arguments. Even where it may fail in obtaining the desired relief, the FTC believes cases like Meta-Within provide federal courts the opportunity to update their interpretation of antitrust law that fits today’s market realities. Although the FTC may be overstating its confidence and optimism for the outcome in this challenge— especially because the opinion is only at the district court level—its strong postulation about the case’s implications shows how enforcers are thinking about these issues, especially as they continue their work on developing new merger guidelines.

Rather than pivoting their efforts to filing complaints more selectively, they are likely to charge full steam ahead and scrutinize business combinations in nascent industries. Algorithmic systems and artificial intelligence were mentioned repeatedly throughout the conference, with Chair Khan explicitly highlighting her interest in those spaces.

Capstone has closely followed mergers and acquisitions in digital markets (Microsoft-Activision) and beyond, including in financial services (Black Knight-Intercontinental Exchange) and healthcare (CVS-Signify), in the context of the evolving regulatory landscape that these deals face. Just in the United States alone, we are also monitoring the Biden administration’s whole-of-government approach in addressing industry consolidation, including how other federal agencies will use their “public interest” mandates in efforts to block transactions like Standard General-Tegna and JetBlue-Spirit.

Investors should pay close attention to regulators’ evolving posture and methods regarding merger regulations.

Many regulators for major jurisdictions like the United States, Canada, European Union, and the United Kingdom, have stakes in these deals and had strong showings at the conference. They showed a largely united front during that last panel in how they view concentration within various markets and how they would similarly approach enforcement thinking about novel theories of harm.

Despite regulators’ bruises from its early battles, we believe companies and investors should not count regulators out—and instead should pay close attention to regulators’ evolving posture and methods regarding merger regulations. We are still in the early stages, and there are many more moves to come. Despite seeming setbacks, we expect federal agencies to continue their aggressive and increasingly creative approach to antitrust enforcement.

---