As businesses continue to deal with the repercussions of extended lockdowns, the U.S. government is on the lookout for enterprises that may use the pandemic as a cover to pursue anticompetitive endeavors.
In April, Sen. Elizabeth Warren (D-MA) and Rep. Alexandria Ocasio-Cortez (D-NY) introduced the Pandemic Anti-Monopoly Act (the Proposed Act) with the aim of preventing companies from exploiting the pandemic and entering into transactions to acquire struggling businesses that would harm competition. The Proposed Act would impose a moratorium on most mergers and acquisitions until the pandemic ends. Specifically, the ban would apply to transactions involving companies with over $100 million in revenue, private equity companies and hedge funds, and companies with exclusive patents relating to the crisis (such as patents for personal protective equipment). Transactions reportable under the Hart-Scott-Rodino Antitrust Improvements Act would also be put on hold under the Proposed Act.
While the head of the Department of Justice’s Antitrust Division called the Proposed Act “misguided,” the Federal Trade Commission (FTC) sent its own warning to businesses eager to purchase troubled companies. On May 27, 2020, Ian Conner, director of the FTC’s Bureau of Competition, cautioned businesses to “think twice” before invoking the failing firm defense, which clears deals that may be anticompetitive but otherwise meet the strict requirements of the defense in order to prevent business failure. Conner wrote that the FTC will not “turn away from the challenges ahead by changing the rules that have served [it] well in the past, including during prior economic downturns” and requested that “counsel not make that job harder by seeking advantage from the suffering of some.”
Businesses are facing unprecedented challenges during the COVID-19 pandemic, and in some situations, those challenges provide fertile grounds for transactions that may give rise to anticompetitive effects when economic conditions improve. Companies should be aware that federal antitrust regulators will be closely examining predatory transactions. For more information, please contact one of the authors of this blog post or the Reed Smith lawyer with whom you regularly work.