United States: A Comparison Of Proposed Antitrust Legislation In 2021: Federal And New York State

Debate about legislative reform to the antitrust laws continues to intensify. 2021 has seen the introduction of not only federal bills, but also significant changes proposed at the state level, such as in New York. Some proposals have the potential to radically alter the current legal landscape; while it is unclear if any of the pending legislation will ultimately become law, support for some level of change across political parties is growing. This article highlights some of the major changes proposed to the federal and New York antitrust laws.

Background

Federal

At the federal level, there are three core antitrust laws: (1) the Sherman Act, in which Section 1 outlaws "every contract, combination, or conspiracy in [unreasonable] restraint of trade," and Section 2 outlaws any "monopolization, attempted monopolization, or conspiracy or combination to monopolize";¹ (2) the Federal Trade Commission Act, which prohibits "unfair methods of competition" and "unfair or deceptive acts or practices";² and (3) Section 7 of the Clayton Act, which prohibits mergers and acquisitions where the effect "may be substantially to lessen competition, or to tend to create a monopoly."³ Criminal violations of the Sherman Act carry a maximum penalty of a $100 million fine for corporations, and a maximum penalty of 10 years in prison and a $1 million fine for individuals. A prevailing plaintiff in a civil suit can recover treble damages and attorneys' fees. But federal law currently does not provide for civil penalties when the government brings an antitrust case, only injunctive relief.

Federal lawmakers have introduced three pieces of legislation aimed at antitrust reform, with more potentially on the way. On February 4, 2021, Senator Amy Klobuchar (D-MN), chair of the Senate Judiciary Committee's Antitrust Subcommittee, introduced the Competition and Antitrust Law Enforcement Reform Act of 2021 ("CALERA"),⁴ which purports to "overhaul[ ] and moderniz[e]"⁵ federal antitrust laws. Among the proposed 10 changes are: lowering the threshold for finding certain mergers or acquisitions unlawful; shifting the burden of proof to the merging parties in certain cases to prove that a proposed transaction would not materially harm competition; prohibiting dominant firms from "exclusionary conduct that presents an appreciable risk of harming competition"; redefining "market power" to include the ability of a firm to impose certain terms that it could not impose in a competitive market; removing the requirement for a plaintiff to define a relevant market to establish liability; authorizing civil penalties for antitrust violations; increasing structural and financial support to the DOJ and FTC to enforce the antitrust laws; and others.

On April 12, 2021, Senator Joshua Hawley (R-MO), introduced⁶ the Trust-Busting for the Twenty-First Century Act ("Trust-Busting Act"), in order to "bust up" major corporations and "restore competition."⁷ In particular, the Trust-Busting Act zeroes in on "dominant digital firms" that provide internet services and possess dominant market power.⁸ The Trust-Busting Act proposes: prohibiting mergers by companies with market capitalization exceeding $100 billion; prohibiting "dominant digital firms" from acquiring potential emerging competitors; prohibiting dominant digital firms from promoting their own search results over those of their competitors; lowering the threshold for finding a merger or acquisition unlawful; and requiring disgorgement of profits earned as a result of anticompetitive conduct in any case brought by the DOJ or FTC.

Additionally, on May 13, 2021, the Senate Judiciary Committee passed the bi-partisan Merger Filing Fee Modernization Act of 2021, co-sponsored by Amy Klobuchar and Chuck Grassley (R-IA). The bill would increase the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR") filing fees for the largest merger transactions. Deals worth over $161.5 million would see an increase in filing fees ranging from $55,000 to $1.97 million over the current fees. For example, deals worth $5 billion or more would see the filing fee increase from $280,000 to $2.25 million. The smallest mergers, however, would see a decrease such that mergers under $161.5 million would have a fee of $30,000 rather than $45,000.

New York

The Donnelly Act, New York's state antitrust law, prohibits "contract[s], agreements[s], arrangement[s], or combination[s]" that establish or maintain a monopoly or restrain competition or trade.⁹ Violations of the Donnelly Act result in civil fines of up to $1 million for corporations and $100,000 for individuals, and criminal fines of up to $1 million for corporations and up to $100,000 and four years in prison for individuals.

In early 2021, New York state legislators proposed three state Assembly and Senate bills to reform the Donnelly Act.¹⁰ Key provisions of the original bills include incorporating language from Section 2 of the federal Sherman Act to prohibit unilateral conduct that creates or maintains a monopoly; adding a provision prohibiting "abuse of dominance" that mirrors European antitrust laws and granting the Attorney General rulemaking authority; requiring merger notifications of at least 60 days prior to consummation of transactions valued over $8 million in assets or voting securities; increasing fines for antitrust violations; and authorizing parens patriae actions by the Attorney General on behalf of injured persons.

Similar Proposals

Merger Review Standards. The federal and New York proposals make a number of changes that would benefit the government in merger enforcement actions. First, proposals at both levels shift the burden of demonstrating harm to competition from the government to the merging parties. Additionally, CALERA attempts to lower the standard for finding a merger anticompetitive from a substantial lessening of competition standard to those that "create an appreciable risk of materially lessening competition."¹¹ The Trust-Busting Act attempts to increase merger enforcement by specifying that an antitrust agency can establish unlawful conduct without defining a relevant market if it can establish direct evidence of harm.¹² Similarly, proposed legislation in New York would place the burden on the merging parties to "prove by a preponderance of the evidence that the pro-competitive benefits of the transaction . . . outweigh the anticompetitive effects."¹³

Exclusionary Conduct/Abuse of Dominance. At the federal level, unilateral conduct is typically challenged under Section 2 of the Sherman Act, which prohibits monopolization and attempts to monopolize. Although some courts have held that the Donnelly Act applies to unilateral conduct, decisions are mixed as the Act addresses "contract[s], agreements[s], arrangement[s], or combination[s]." Proposals at the federal and New York level both seek to expand enforcement against unilateral conduct.

Proposed legislation in both instances would add provisions intended to prohibit dominant entities from engaging in exclusionary conduct. CALERA expands the focus from prohibiting exclusionary conduct that could harm competition to prohibiting conduct that materially disadvantages an actual or potential competitor, or limits its ability to compete.¹⁴ It would create a presumption that the conduct created "appreciable risk" whenever the dominant firm has a market share of 50% or more or otherwise has significant market power. Likewise, the Trust-Busting Act would prohibit dominant digital firms that operate search engines from excluding competitors by promoting their own search results over competitor results without disclosing the affiliation.¹⁵

The New York proposals would prohibit companies with a dominant position from abusing their dominant position.¹⁶ This language goes farther than the proposed language in CALERA, which focuses on excluding competitors from the market. It mirrors the European Union's abuse of dominance law, which also penalizes exploitative abuses of customers, in which a dominant firm uses its dominant market position to extract high prices or discriminate against customers.¹⁷ For example, two of the New York proposals could also potentially prohibit dominant firms from setting unfair prices, terms and conditions; refusing to deal with customers; dictating contractual terms without compensation; degrading product quality while maintaining profitability; using non-compete clauses or no-poach agreements; prohibiting collective bargaining; or limiting production to prejudice consumers.¹⁸

Increased Penalties. CALERA would authorize the FTC and DOJ to seek civil penalties for antitrust violations above and beyond the traditional injunctive relief that is currently available in civil cases.¹⁹ The Trust-Busting Act would authorize courts to order disgorgement of profits earned as a result of conduct constituting antitrust violations.²⁰ Two of the New York proposals would increase the maximum fines for criminal and civil antitrust violations to $100 million for corporations (up from $1 million), and $1 million for individuals (up from $100,000).²¹ The proposed New York legislation would also provide treble damages for private class action lawsuits.²²

Differences in Proposed Legislation

Each of the proposed federal bills and the NY legislation would make unique changes as well. For example, CALERA also proposes to:

• Amend Section 7 of the Clayton Act to make mergers that create monopsony power unlawful.²³
• Amend the Hart-Scott-Rodino Act²⁴ to require parties that entered into merger consent decrees in reportable transactions to report data to the FTC for a five-year period post-merger.²⁵
• Impose limits on implied immunity.²⁶
• Increase protections for whistleblowers.²⁷
• Establish an Office of the Competition Advocate within the FTC to make recommendations to the FTC and DOJ, collect data, and publish reports on competition.²⁸
• Grant antitrust plaintiffs the right to obtain prejudgment interest on damage awards.²⁹
• The Trust-Busting Act also proposes to:
• Prohibit acquisitions by companies exceeding $100billion.
• Treat acquisitions by "dominant digital firms" valued at over $1million as a presumptively unfair or deceptive transaction under the FTC Act.

The proposed New York legislation also proposes to:

• Implement a premerger notification system unique to New York that has both a lower transaction value threshold than the HSR Act (proposals include $8million or 10% of the federal threshold, currently $92million), and double the waiting period (60 days vs, typically 30 days).³⁰
• Require merging parties that must report and file HSR materials to the federal government to also provide the HSR materials to the New York Attorney General. ³¹
• Authorize class action lawsuits for antitrust violations.³²
• Authorize the Attorney General to bring parens patriae lawsuits to recover damages on behalf of New York residents and businesses for antitrust violations.³³

Conclusion

Pending legislative proposals to amend federal and New York antitrust laws are varied and potentially sweeping in 2021. Although it is unknown how federal and state legislators will respond, it appears that calls for change will only continue to grow. And the most common calls for change include shifting the burden of proving that mergers are procompetitive to the parties, clamping down on exclusionary conduct and imposing penalties on parties that violate the antitrust laws.

Footnotes

1 15 U.S.C. §§ 1-2.

2 15 U.S.C. § 45.

3 15 U.S.C. § 18.

4 Competition and Antitrust Law Enforcement Reform Act of 2021 (CALERA), introduced on Feb. 4, 2021, https://www.klobuchar.senate.gov/public/_cache/files/e/1/e171ac94-edaf-42bc-95ba-85c985a89200/375AF2AEA4F2AF97FB96DBC6A2A839F9.sil21191.pdf [hereinafter "CALERA"].

5 News Release, Senator Klobuchar Introduces Sweeping Bill to Promote Competition and Improve Antitrust Enforcement, Feb. 4, 2021, https://www.klobuchar.senate.gov/public/index.cfm/2021/2/senator-klobuchar-introduces-sweeping-bill-to-promote-competition-and-improve-antitrust-enforcement.

6 Trust-Busting for the Twenty-First Century Act, introduced on April 12, 2021, https://www.hawley.senate.gov/sites/default/files/2021-04/The%20Trust-Busting%20for%20the%20Twenty-First%20Century%20Act.pdf [hereinafter "Trust-Busting Act"].

7 Press Release, "Senator Hawley Introduces The 'Trust-Busting for the Twenty-First Century Act': A Plan to Bust Up Anti-Competitive Big Businesses," April 12, 2021, https://www.hawley.senate.gov/senator-hawley-introduces-trust-busting-twenty-first-century-act-plan-bust-anti-competitive-big.

8 Trust-Busting Act, § 10A.

9 N.Y. Gen. Bus. Law §§ 340-347.

10 See Twenty-First Century Anti-Trust Act, S933, introduced on Jan. 6, 2021 by Senator and Deputy Majority Leader Michael Gianaris (D-12th District), § 340.2.(a).(i), https://legislation.nysenate.gov/pdf/bills/2021/S933; A3399, introduced on Jan. 26, 2021 by Assemblyman Ron Kim (D-40th District), § 340.7.(a)-(d), https://legislation.nysenate.gov/pdf/bills/2021/A3399; A1812, introduced on Jan. 11, 2021 by Assemblyman Jeffrey Dinowitz (D-81st District), §§ 340-341, https://legislation.nysenate.gov/pdf/bills/2021/A1812. On June 8, 2021, the New York State Senate passed the 21st Century Antitrust Act (S933), and the legislation has advanced to the New York State Assembly for committee debate and potential vote.

11 CALERA, § 4(b).

12 Trust-Busting Act, § 1(B)(b)(1).

13 CALERA, § 4(b); A3399, § 352-dd(3).

14 CALERA, § 9.

15 Trust-Busting Act, § 4.

16 S933, 340.2.(a).(ii); A1812, § 340(2); A3399(7).

17 Consolidated Version of the Treaty on the Functioning of the European Union ("TFEU"), 2008 O.J. C 115.47.

18 S933, § 340(2)(b); A3399, § 340(7).

19 CALERA, §§ 9-10.

20 Trust-Busting Act, § 2(B)(b).

21 S933, § 341; A1812, § 341.

22 Id.

23 CALERA, § 4(a).

24 15 U.S.C. § 18a.

25 CALERA, § 5.

26 CALERA, § 14.

27 CALERA, § 16.

28 CALERA, § 8.

29 CALERA, § 17.

30 S933, §§ 340.10.(a), 340.11.(b).

31 S933, § 340.10.(c).(iv).

32 S933, § 340.9; A1812, § 2; A3399, § 340(7)(i)(9).

33 S933, § 342-b.

Originally published by ABA.

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