Senator Klobuchar Unveils Broad New Proposed Antitrust Legislation

On February 4, 2021, Senator Amy Klobuchar (D-MN) introduced the Competition and Antitrust Law Enforcement Reform Act (“CALERA”), proposing to overhaul existing antitrust law and address a variety of market-competition concerns, including what the Senator has referred to as “a major monopoly problem” in the US. The bill calls for, among other things, merger law reform and broader, more plaintiff-friendly standards for identifying exclusionary conduct (particularly for large firms), stiff fines for civil antitrust violations, and structural changes—including significant funding increases for the antitrust agencies and new agency offices and functions aimed at increasing consumer protection—to support more rigorous enforcement. Senators Richard Blumenthal (D-CT), Cory Booker (D-NJ), Ed Markey (D-MA), and Brian Schatz (D-HI) are the bill’s co-sponsors.¹

Although the elements of CALERA are subject to change, they provide in this proposed form a roadmap for the 117th Congress’s antitrust priorities that may influence merger review, enforcement, and regulatory decisions in the coming months. As most predicted, antitrust overhaul is likely to be a central issue in the new administration, and, as one commentator has stated, CALERA “is the beginning [of] a massive battle over what that overhaul looks like.”²

Merger Law Overhaul

CALERA’s main thrust is to propose significant changes to current merger law. For starters, it would revamp Section 7 of the Clayton Act to make it easier to challenge and block mergers and harder for certain types of firms to engage in merger activity. Section 7, in its present form, creates a burden-shifting framework for challenging mergers. The initial burden of proof rests with the challenger—usually the Federal Trade Commission (“FTC”) or the Department of Justice’s Antitrust Division—to show that the effect of an acquisition “may be substantially to lessen competition, or to tend to create a monopoly.” If the plaintiff agency makes that showing, the burden shifts to the merging parties to rebut it by establishing that the merger is unlikely to reduce competition.

Under CALERA’s revised Section 7, the agencies would no longer have to show that the effect of a proposed acquisition “may be substantially to lessen competition” to satisfy their initial burden. Instead, they would have to show only that the effect “may be to create an appreciable risk of materially lessening competition.” § 4(b)(1). Courts would likely interpret this new standard to be significantly lower and broader than the current standard (i.e., because simply establishing a “risk” should be sufficient under the plain language), though the practical effects of judicial interpretation would take time to develop.

Perhaps taking a page from the concept of per se antitrust violations, CALERA also contemplates that certain acquisitions would automatically create an appreciable risk of materially lessening competition. Once the agencies allege that the transaction fits into one of these categories, the burden would shift to the merging parties to show that their transaction is not likely to lessen competition. Transactions that would automatically shift the burden of proof include:

• Acquisitions that “would lead to a significant increase in market concentration in any relevant market”;
• Acquisitions in which one party already has greater than 50% market share or otherwise has significant market power;³
• Acquisitions that produce a combined firm with greater than 50% market share;
• Acquisitions that remove a firm that previously limited coordination among competitors;
• Acquisitions that create a reasonable probability of coordination among competitors or of the acquirer unilaterally and profitably exercising market power;
• Acquisitions that create a merged firm with over $5 billion in assets or voting securities; and
• Acquisitions in which the acquirer’s assets, net annual sales, or market capitalization exceed $100 billion and will include as a result of the transaction more than $50 million in the target’s assets, unless the acquirer can show the acquisition will not create appreciable risk of more than a de minimis reduction in competition.

These burden-shifting reforms, if enacted, would usher in a major directional change in existing merger law by allowing merger challenges based on a relatively modest showing on one of three straightforward metrics: acquirer size, market share, or a target’s reputation as a so-called “maverick” (that is, a firm that “plays a disruptive role in the market to the benefit of consumers,” often by resisting “prevailing industry norms to cooperate on price setting or other terms of competition”⁴) or nascent rival. Moreover, courts generally defer to the government on these topics, so long as the government makes the required prima facie showing.⁵

Practically speaking, burden shifting under CALERA would make it far more difficult for large firms and those with substantial market share to grow and develop through acquisition. Many US Fortune 500 companies exceed CALERA’s market capitalization, asset, or annual sales minimums, and for the country’s largest firms, the bill would effectively require a preemptive defense for every significant acquisition. And companies of all sizes would face greater headwinds against mergers intended to combine scale and innovation, given that firms with reputations for innovation are often deemed mavericks or nascent competitors and may therefore trigger burden shifting—even if they present no cognizable threat to competition.

Other Liability Reforms

In an effort to combat monopolization (traditionally pursued under Section 2 of the Sherman Act), CALERA would create a new Clayton Act provision addressing “exclusionary conduct,” which is defined as conduct that materially disadvantages competitors or limits their opportunity to compete, thereby presenting an “appreciable risk of harming competition.” Like CALERA’s proposed merger reforms, its exclusionary conduct provisions apply in greatest force to large firms—i.e., companies that have market shares greater than 50% or otherwise have significant market power. If such a firm is found to have engaged in exclusionary conduct, CALERA would create a rebuttable presumption that the conduct presents an “appreciable risk of harming competition,” and, as with the bill’s merger-related forms, shift the burden onto the acting party to prove its conduct was not exclusionary. § 26. If CALERA passes, its expanded definition of “exclusionary conduct” should prompt large firms to assess diligently any considered action that might be seen as exclusionary.

CALERA also proposes to formally eliminate the requirement of defining a relevant market in antitrust cases where the moving party presents direct evidence of actual or likely competitive harm. § 13. Although this reform largely already exists in antitrust case law, CALERA would seek to formally codify it. This change would make it easier for antitrust plaintiffs to plead cases in which the relevant market is unclear or difficult to ascertain, but alleged anticompetitive harm can be shown through other means.

CALERA would also eliminate so-called implicit immunity from the antitrust laws. Where, in the past, courts have sometimes found that an existing statute “implicitly precludes application of the antitrust laws” to certain regulated conduct, CALERA removes that discretion and limits antitrust immunity to those sectors and entities that receive it explicitly by statute. § 14. This change would likely negate the Supreme Court’s antitrust immunity findings in cases like Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004) (implied immunity under the Telecommunications Act) and Credit Suisse Securities (USA) LLC v. Billing, 551 U.S. 264 (2007) (implied immunity under the securities laws), and would return implied immunity standards to something closer to those stated in United States v. Philadelphia National Bank, in which Justice Brennan stated that “repeals of the antitrust laws by implication from a regulatory statute are strongly disfavored, and have only been found in cases of plain repugnancy between the antitrust and regulatory provisions.”⁶ Firms in regulated industries should note this change as an indication that implied immunity may continue to face Congressional scrutiny.

Civil Penalties and Whistleblower Reforms

Under current civil antitrust law, the antitrust agencies can seek injunctions or divestitures, but generally, they cannot seek fines. CALERA would, for the first time, authorize the federal antitrust agencies to seek civil fines for violations of Sections 1 and 2 of Sherman Act, and for the additional exclusionary conduct offense under the Clayton Act that CALERA proposes to create. Civil fines would be cumulative with other remedies, including injunctions and divestitures. § 10. Civil fines would be capped at the greater of 15% of the violator’s total US revenues for the prior year or 30% of the violator’s total US revenues in any line of commerce.

CALERA would also expand whistleblower protections by extending to civil whistleblowers the same anti-retaliation protections granted late last year to criminal whistleblowers under the Criminal Antitrust Anti-Retaliation Act.⁷ It would also create a reward system for criminal whistleblowers, who provide evidence in antitrust cases resulting in the collection of criminal fines. Under the proposed reward system, criminal whistleblowers could receive up to 30% of the total fine collected (though the final percentage to be diverted to a criminal whistleblower remains in the Attorney General’s discretion). § 16. These reforms, if passed, may generate a rise in qui tam litigation for alleged antitrust violations.

Additionally, CALERA would amend Section 4 of the Clayton Act, which, in its current form, provides a discretionary framework for granting pre-judgment interest to antitrust plaintiffs who win their cases at trial. Under CALERA, pre-judgment interest on treble damages would be guaranteed for any antitrust plaintiff. § 17. Should this reform stand, firms will want to be sure to factor pre-judgment interest into settlement negotiations, as well as trial outcome projections.

Agency Related Reforms

CALERA proposes several additional reforms concerning the antitrust agencies, including significant funding increases and new offices, studies, and programs:

• It would appropriate over $1.1 billion to the federal antitrust agencies in 2022, increasing each agency’s budget by $300 million. § 15.
• It would direct the FTC to work with the SEC on a report detailing the impact of institutional investors’ common ownership of competitor firms. § 6.
• It would direct the Comptroller General to conduct a study of the impact of past merger remedies required by the FTC and the Antitrust Division. § 7.
• It would establish within the FTC a new Office of the Competition Advocate, which would serve as a policy, regulation, and solicitation hub for consumer and small business reports about potential anticompetitive activity. § 8.
• It would establish within the Office of the Competition Advocate a Division of Market Analysis, which would analyze competitive conditions and dynamics in a variety of markets and would review recently consummated mergers for potential enforcement action. § 8.

O’Melveny has a robust antitrust practice and experience navigating competition issues in a broad range of industries. We are prepared to assist clients in navigating the evolving legal landscape.

¹ Press Release, Senator Klobuchar Introduces Sweeping Bill to Promote Competition and Improve Antitrust Enforcement, https://www.klobuchar.senate.gov/public/index.cfm/news-releases?ID=A4EF296B-9072-4244-90AF-54FE43BB0876 (Feb. 4, 2021).

² Zephyr Teachout (@ZephyrTeachout), Twitter (Feb. 4, 2021, 10:39), https://twitter.com/ZephyrTeachout/status/1357353158842925057.

³ CALERA would also amend the Clayton Act with an explicit definition of “market power”—i.e., the ability to profitably impose terms more favorable than what could be obtained in a competitive market. § 4(a).

⁴ H & R Block, 833 F. Supp. at 79 (quoting United States Department of Justice and the Federal Trade Commission, Horizontal Merger Guidelines § 2.1.5) (Aug. 19, 2010).

⁵ See, e.g., United States v. Baker Hughes Inc., 908 F.2d 981, 991 (D.C. Cir. 1990) (“The more compelling the prima facie case, the more evidence the defendant must present to rebut it successfully.”), FTC v. Sysco Corp., 113 F. Supp. 3d 1, 23 (D.D.C. 2015) (“Such a showing establishes a ‘presumption’ that the merger will substantially lessen competition.”).

⁶ 374 U.S. 321, 350-51 (1963).

⁷ Pub. L. No. 116-257.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Ben Bradshaw, an O’Melveny partner licensed to practice law in California and the District of Columbia, Ian Simmons, an O’Melveny partner licensed to practice law in the District of Columbia and Pennsylvania, Riccardo Celli, an O’Melveny partner licensed to practice law in the Capital Region of Brussels, the Law Society England & Wales, and Roma, Courtney Dyer, an O’Melveny partner licensed to practice law in the District of Columbia and New York, Andrew Frackman, an O’Melveny partner licensed to practice law in New Jersey and New York, Yoji Maeda, an O’Melveny partner licensed to practice law in Japan and New York, Stephen McIntyre, an O’Melveny partner licensed to practice law in California, Philip Monaghan, an O’Melveny partner licensed to practice law in the Capital Region of Brussels, Hong Kong, the Law Society England & Wales, and the Law Society Ireland, Edward Moss, an O’Melveny partner licensed to practice law in New York, Anna T. Pletcher, an O’Melveny partner licensed to practice law in California, Katrina Robson, an O’Melveny partner licensed to practice law in California and the District of Columbia, Youngwook Shin, an O’Melveny partner licensed to practice law in California and New York, Michael Tubach, an O’Melveny partner licensed to practice law in California and the District of Columbia, Laura S. Aronsson, an O’Melveny counsel licensed to practice law in New York and California, Courtney C. Byrd, an O’Melveny counsel licensed to practice law in the District of Columbia and Maryland, Zhao Liu, an O’Melveny counsel licensed to practice law in the District of Columbia and California, Evan N. Schlom, an O’Melveny counsel licensed to practice law in California and the District of Columbia, Matt Schock, an O’Melveny counsel licensed to practice law in the District of Columbia and New York, Sergei Zaslavsky, an O’Melveny counsel licensed to practice law in the District of Columbia and Maryland, and Tyler Helms, an O’Melveny law clerk, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

© 2021 O’Melveny & Myers LLP. All Rights Reserved. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York’s Rules of Professional Conduct to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, T: +1 212 326 2000.