In the last few months, the U.S. federal government has brought two major antitrust cases: one to block Microsoft’s acquisition of game developer Activision, and another against Google aimed at forcing the company to divest some of its advertising businesses. Along with the Federal Trade Commission’s failed effort to stop Meta’s acquisition of a virtual reality startup, an earlier federal case against Google regarding search, multiple ongoing state-level cases against the company, and reports the FTC will soon bring an action against Amazon, it appears that hunting season for large technology companies is in full swing.
But if reigning in big tech is the goal, antitrust law, at least on the surface, seems a problematic weapon. Antitrust authorities have a poor track record of successful lawsuits that proceed to trial, largely because federal law doesn’t cover the behavior regulators now allege is harmful to competition, including the control of consumer data to create competitive advantages, and self-preferencing their own products on their platforms. But harm not to competitors but to consumers, usually in the form of increased prices, has remained the standard for proving antitrust violations in the courts for roughly the past 40 years.
The regulators know that, of course. But they also recognize that the stars may be aligning to reshape the law dramatically. To navigate increasing uncertainty, companies need to understand the complex politics of competing efforts to craft a new paradigm for competition law. They also need to widen their view of legal risk, and adopt a global plan of action, both for future transactions and for current operations.
How Losing Cases Could Be a Winning Strategy
The government doesn’t necessarily need to win cases for lawsuits to have an impact. For starters, big cases against big companies send a message designed to discourage future dealmaking. This is particularly true for today’s most successful technology companies, which have long expanded into emerging markets by gobbling up promising startups already on the field. As ex-Biden competition advisor Tim Wu recently noted, it can make a huge difference to an industry if the major players know they’re “under heavy surveillance from the government.”
Even if deals eventually close, regulators see value in everyone understanding that all transactions will be more closely scrutinized. From the outset, companies will find themselves encouraged to make voluntary concessions. In the Activision deal, for example, Microsoft preemptively offered substantial limits on how it will treat Activision’s products post-merger. Flagship titles including Call of Duty, notably, will not be pulled from other platforms, and offered instead as Xbox exclusives.
More broadly, an aggressive, if unsuccessful, litigation strategy can provide a potent disruption to companies deemed too powerful. Cases can take years to resolve. In the interim, senior management may be distracted by spending their time dealing with the lawyers instead of the business. Those enterprises may also second guess current plans, worried that new initiatives will inflame existing lawsuits or weaken their negotiating positions. In the past, IBM, AT&T, Intel, and Microsoft were famously flummoxed for years by antitrust cases that dragged on, much as Google and Meta are today — and perhaps, now, Microsoft again.
But there’s more going on here than just putting companies on notice. The Biden administration believes that taking big swings, even when they whiff, puts pressure on Congress to pass legislation expanding the types of harms antitrust law can remedy, and giving the FTC and the Department of Justice more authority and resources to manage competition. Bills that would do just that circulated in the last Congress, but none made it to a conclusive vote. So, President Biden has called on the new Congress to pass bipartisan legislation, including antitrust reforms, “to hold Big Tech accountable.”
Playing to a Different Audience
There’s another political concern at work, too: Europe has become tech’s most important regulator. As President Biden wrote in a January op-ed, the U.S., despite its strong lead in the information economy, lags in the regulation of the major participants. In contrast, the EU has vastly expanded both the scope and enforcement of its own antitrust laws over the last two decades, in a campaign waged largely against U.S.-based tech companies. This includes aggressive new legislation such as the Digital Markets Act and the Digital Services Act. They have also conducted more vigorous merger reviews, with the UK’s antitrust authority recently forcing Meta to divest another VR-related startup it acquired in 2020.
The EU’s regulatory leadership probably explains why the FTC sent its case against the Activision deal to its administrative judges rather than federal court. The Commissioners know that the Europeans will soon decide for themselves whether or not to block the deal, and going to the administrative court first signals to EU regulators how the U.S. sees the case, without committing to litigating it to the bitter end. If Brussels or the UK do sue, the chances are much better that they’ll kill the deal (or get even more concessions from the parties) than if Washington goes it alone.
President Biden and his senior antitrust officials likely prefer to regulate the information economy themselves, but faced with the reality of Congressional inaction, they are more than happy to benefit from the Europeans’ greater ability to act. They are also working closely, if begrudgingly, with state governments, which, under U.S. law, share antitrust authority. In some cases, as in the Google search-related case, the feds are suing in partnership with state regulators. In other instances, including a recent failed attempt to unravel Facebook’s acquisition of Instagram and WhatsApp, the states are marching to their own tune.
Threading the Needle
The Biden Administration clearly envisions markets with more competitors and less concentration, notably but not exclusively in tech. Biden’s appointees want to break up companies they deem too big and constrain future growth through acquisitions.
They would also prefer to take the lead in pursuing those goals, which would simplify the process. But unless Congress acts and other countries retreat — both unlikely — the antitrust landscape will remain fractured and complex, characterized by subtle if not mixed signals sent to lawmakers, deal participants, and competing regulators.
In the face of that reality, here are five essential rules for those looking to get deals done:
Have boots on the ground everywhere you will face a review.
Most large public companies already have legal representation, either directly or through trade associations, in Washington. But how about Brussels? Japan and South Korea have also expanded their oversight of global companies, and, post-Brexit, the UK flexing its muscle. Don’t assume, as Wall Street analysts often do, that Washington is the only M&A regulator that matters.
Don’t wait for your deal to get to know the regulators and establish a relationship.
The worst time to introduce yourself to antitrust regulators is after you’ve announced a transaction. Microsoft and other tech companies have developed ongoing relationships with both the permanent staff and appointed officials of regulatory agencies worldwide. It may not avert a negative response from regulators, but at least you’ll know who to talk to — and how.
Frame your deal as the solution to the problem antitrust officials fear.
The current federal mindset views new transactions through the lens of past deals involving tech companies that they wish in retrospect the government had blocked. If possible, frame your deal as a way to obtain the scale necessary to be the new attackers that can, through market forces, undo the sins of prior regulatory regimes. Microsoft, for example, is casting itself in the role of also-ran in the gaming industry, trying to convince regulators that Activision will help it compete more effectively against Sony and Nintendo.
Know which friends and enemies count in antitrust.
While partisan politics can matter, the most important voices that weigh in with antitrust authorities are suppliers and distributors in your market. If they fear you are gaining the ability and incentive to create a bottleneck, they can be influential voices against your deal. If they are not concerned, it is much easier to pass through a review quickly. On the other hand, complaints by competitors are almost an endorsement, as antitrust officials see them as fear of the intensified competition the officials want.
Be prepared to compromise.
Can you get your deal done quickly but still satisfy strategic objectives by offering concessions? Recognizing the priorities of different antitrust authorities, come up with pre-emptive offers that can both divide different enforcement authorities and turn public opinion in your favor. Voluntary concessions can also undermine the government’s legal arguments. Courts do factor in the likely impact of stipulated conditions in determining the likely impact of a deal on consumers.
The government’s focus on big technology companies including Microsoft, Google, and Meta offers a free education for all business leaders on the current state of global antitrust and growing tension among regulators. While the timing and trajectory of reform, both in the U.S. and elsewhere, may not be clear, efforts to enforce existing law and to expand it wherever possible has become the global order of the day. Ignore it at your peril.