Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Ohlhausen discusses FTC merger review in technology sector, (Jan 27, 2016)

By Linda O’Brien, J.D., LL.M.

Given the dynamic nature of competition in the technology sector, the FTC should tread lightly in its application of competition law or risk chilling innovation, stated FTC Commissioner Maureen Ohlhausen in a January 26 speech at the Antitrust in the Technology Sector: Policy Perspectives and Insights from the Enforcers event in Palo Alto, California on January 26.

Ohlhausen began her remarks, entitled “Antitrust Tales in the Tech Sector: Goldilocks and the Three Mergers and Into the Muir Woods,” by noting that transactions combining technology firms can raise difficult issues in merger review, such as defining the relevant market or evaluating competition for a share of customers and the market as a whole. Also, phenomena such as “first-mover advantage and network effects” implicate both the FTC’s effects and entry analyses.

The Commissioner continued by recounting three technology mergers in which the FTC reached different conclusions. The first transaction involved NXP Semiconductors’s $12 billion acquisition of Freescale Semiconductor, which combined the world’s two largest suppliers of radio frequency power amplifiers. The Commission concluded that the transaction would be anticompetitive, and NXP agreed to an asset divestiture to remedy the agency’s competitive concerns. In the second merger, the FTC decided to close its investigation of Zillow Inc.’s acquisition of Trulia after determining that the combined entity would have strong incentives to develop new features to grow its customer audience and continued to face competition from the remaining real estate portals. In the last transaction, the FTC failed to block the merger of Steris Corporation and Synergy Health, two of the largest providers of contract sterilization services worldwide. A district court hearing the FTC challenge rejected the FTC’s theory that the merging parties were potential competitors in the radiation sterilization market and that the combination would likely lessen competition.

The appropriate standard for a potential competition case is “clear proof that independent entry would have occurred but for the merger or acquisition,” Ohlhausen noted. In meeting this high standard, the best evidence concerning a firm’s incentive to enter a market was likely to be subjective. However, a rigorous standard helps to overcome one of the shortcomings of earlier potential competition cases brought by antitrust agencies—the tendency to second guess business judgment, she observed.

According to Ohlhausen, one of the most significant FTC actions from the past year, implicating primarily conduct matters but also mergers, was its issuance of a policy statement on the use of the FTC Act Section 5 authority. Section 5’s prohibition on unfair methods of competition has been construed to include other business conduct that is not necessarily illegal under antitrust laws but is nonetheless an unfair method of competition. In Ohlhausen’s view, the Commission’s Section 5 authority should be very limited in scope and reach very little beyond antitrust violations. Thus, the FTC’s application of competition law will be most challenging in the technology area, given the dynamic nature of competition in that area.

In conclusion, the Commissioner noted that the FTC has largely been on firm ground in reviewing technology mergers. It has applied well developed merger guidelines and incorporated into its analyses the unique features of these fast moving markets. However, if the agency diverts from the “well defined road of antitrust law,” failure to give clear guidance to the technology sector runs a serious risk of dampening incentives to compete vigorously.

News: Antitrust FederalTradeCommissionNews