Comments to the FTC and DOJ Regarding Premerger Notification Reporting and Waiting Period Requirements
On June 27, 2023, the Department of Justice’s Antitrust Division (DOJ) and the Federal Trade Commission (FTC) issued for public comment proposed amendments to the premerger notification rules (“NPRM”) that implement the Hart-Scott-Rodino Antitrust Improvements Act (“HSR”) and to the Premerger Notification and Report Form (the “Form”) and Instructions (“Instructions”). The Schumpeter Project on Competition Policy of the Information Technology and Innovation Foundation (“ITIF”) appreciates the opportunity to comment on the NPRM, and specifically with respect to expanding the scope of what is currently required under Item 8 of the Form to include certain proposed changes concerning the reporting of prior acquisitions.
Protecting potential competition is an important feature of sound antitrust enforcement. Specifically, the antitrust laws do not give firms “free reign to squash nascent, albeit unproven, competitors at will, particularly in industries marked by rapid technological advance and frequent business model shifts.” In the context of mergers and acquisitions, it is understood that this potential competition can be lessened in at least three ways. As distinct from the case of a dominant or rapid entrant, a deal can reduce perceived potential competition, whereby a firm acquires a rival that it perceives to be a potential entrant. Alternatively, some courts have found that a merger or acquisition may diminish actual potential competition by eliminating a rival that was a likely entrant, even if it was not perceived as such by the acquiring firm.
Of course, mergers and acquisitions are also crucial toward promoting innovation. Indeed, as the economist Joseph Schumpeter recognized long ago, consolidation can incentivize dynamic competition,  such as by facilitating the ability for a firm to recoup the costs of innovation through increased concentration. Moreover, not only can mergers and acquisitions enable economies of scope and scale that in turn bring to market innovative products that might have otherwise been unachievable through organic growth, but they can also stimulate innovation by providing entrepreneurs with an exit pathway that is generally less costly and more amendable to retaining control relative to an initial public offering.
Over the past several years, concerns have been raised that the Agencies have overlooked harms to competition from patterns of mergers and acquisitions, especially in technology markets, and have sought data on non-reportable transactions from large technology firms like Alphabet, Amazon, Apple, Meta, and Microsoft. Moreover, some studies have suggested that the Agencies’ record may be riddled with false negatives in the form of deals that harm potential competition in ways that outweigh procompetitive dynamic efficiency benefits. Known colloquially as “killer acquisitions,” these transactions have emerged as an enforcement focus and involve large established companies purchasing nascent rivals in small and sometimes non-HSR reportable transactions as a way to remove a competitive threat in its infancy.
The NPRM contemplates a number of changes aimed at “creating a Prior Acquisitions section within the proposed Instructions that would include the information currently required by Item 8 of the Form, as well as additional information.” As justification for these proposed changes, the NPRM notes not only both that many transactions fall below HSR thresholds and how a pattern of serial acquisitions can violate Clayton §7 and cause “widespread harm,” but that “[a] pattern of serial acquisitions may also affect competition among innovative firms by consolidating innovation efforts into the hands of market leaders or other firms attempting to control the pace or direction of innovation.”
One of the changes proposed by the Agencies involves “extending the time frame to report on prior acquisitions from five to ten years” on the grounds that “the current five-year requirement for prior acquisitions is often insufficient to meaningfully identify patterns of serial acquisitions or a trend toward concentration or vertical integration.” As they explain, “based on decades of experience, along with changes to the economy and the varied acquisition strategies of filing parties, the Commission believes 10 years would once again provide for a better framework for the Agencies to engage in a more detailed consideration of how numerous past acquisitions, including those in related sectors, affect the competitive landscape of the current transaction under review.”
A second important change in the NPRM entails “eliminating the threshold for listing prior acquisitions, which currently limits reporting to only acquisitions of entities with annual net sales or total assets greater than $10 million in the year prior to the acquisition.” For the Agencies, “[l]imiting the reporting requirement to acquisitions of entities with annual net sales or total assets over $10 million may not capture acquisitions of new entrants or other nascent competitors that, despite not yet having widespread commercial success, nonetheless are poised to affect competition among existing firms or disrupt market dynamics.” In support, the NPRM cites the FTC’s technology acquisition study that “between 39.3% and 47.9% of transactions were for target entities that were less than five years old at the time of the acquisition.”
The core rationale underlying the NPRM’s contemplated “Prior Acquisitions section” lacks sufficient justification. Simply put, from the standpoint of innovation, trends to concentration can still be procompetitive and drive dynamic efficiency. Moreover, as ITIF has found, fears about underenforcement in the form of failing to protect potential competition in technology markets from “killer acquisitions” appear to be overstated. In particular, concerns about killer acquisitions may be more well-founded in pharmaceutical markets characterized by drastic innovations, and where innovation milestones are easy to observe, rather than in technology markets. Additionally, the FTC’s recent loss in Meta/Within makes clear that, even for transactions the Agencies are aware of, cases alleging harm to potential competition face substantial burdens of proof to ensure that the antitrust laws are not used to chill procompetitive transactions based on speculative theories.
The NPRM’s proposal to change the time frame to report on prior acquisitions from five to 10 years is also out of step with the better view of both case law and market realities. First, for purposes of analyzing a series of acquisitions, the Supreme Court in Brown Shoe Co. v. United States expressly referenced a five-year period. Similarly, in United States v. Von’s Grocery, the Court looked at acquisitions that had occurred six years prior to the merger. While it is true that on occasion the Court has appeared to countenance a longer time frame, in the fast-moving technology markets in which the Agencies are concerned anticompetitive acquisition activity may be occurring, 10 years is often an eternity—an acquisition made 10 years preceding the instant transaction before the Agencies likely provides little to no relevance toward understanding any current industry trend in technology markets driven by Schumpeterian competition. Moreover, the NPRM provides no explanation for how the Agencies’ “decades of experience” suggest that a pattern of anticompetitive acquisitions would not be discernable in the first instance in a 10- but not 5-year look back period. And of course, for any problematic trend they notice in a five-year period, they can seek additional information going back further in time.
Additionally, there does not seem to be a strong factual basis for the NPRM’s decision to eliminate the de minimis threshold that exempts from reporting transactions where control of entities did not involve net sales or total assets of greater than $10 million in the year prior to acquisition. While the FTC may have found in its technology acquisition study that approximately 39 percent of all non-reportable transactions above $1 million were below $10 million, this is not without more grounds for suggesting that transactions this small are necessary to understand broader market trends—let alone constitute hidden swaths of killer acquisitions. Indeed, not only does the current HSR process already capture a substantial number of smaller transactions that should inform the Agencies about patterns of anticompetitive acquisition activity, but prominent transactions commonly identified as potential killer acquisitions, such as Facebook’s acquisitions of Instagram and WhatsApp (currently the subject of a suit by the FTC), as well as Google’s acquisitions of DoubleClick and AdMob, were all HSR reportable.
For these reasons, ITIF has concerns about the NPRM’s creation of a Prior Acquisitions section as an additional reporting requirement to supplement that which is already required under Item 8 of the HSR Form and offers the following recommendations:
▪ Reconsider the need for creating a Prior Acquisitions section: As discussed above, there is very little basis for concluding that the Agencies are engaged in systemic underenforcement of so-called “killer acquisitions,” including in technology markets and in particular due to a lack of proper notification requirements.
▪ Keep the time frame to report on prior acquisitions at five years: The 10-year window is not only out of step with the Supreme Court’s decisions in Brown Shoe and Von’s Grocery, but wholly misplaced in the dynamic and fast-moving nature of the very markets where the Agencies appear to be most concerned killer acquisitions may be occurring.
▪ Preserve the $10 million threshold for listing prior acquisitions: Notwithstanding the number of transactions that may fall below it, there appears to be no firm basis for concluding that these deals are competitively significant to identify either patterns of anticompetitive acquisitions or killer acquisitions.
The Agencies have made clear that they “have a strong interest in receiving HSR filings that contain enough information to conduct a preliminary assessment of whether the proposed transaction presents competition concerns.” Unfortunately, the NPRM’s proposals toward creating a Prior Acquisitions section using a 10-year time frame that does not exempt acquisitions of entities with annual net sales or total assets over $10 million are not only vitiated by an ill-founded concern about underenforcement of killer acquisitions in fast-moving technology markets, but place additional burdens on parties complying with the HSR Act that are not simply justified by their informational value to the Agencies.
Thank you for your consideration.
 Press Release, Fed. Trade Comm’n & Dep’t of Justice, FTC and DOJ Propose Changes to HSR Form for More Effective, Efficient Merger Review (June 27, 2023).
 See United States v. Falstaff Brewing Corp., 410 U.S. 526 (1973).
 United States v. Microsoft Corporation, 253 F.3d 34, 79 (D.C. Cir. 2001).
 410 U.S. at 558–62 (Marshall J., concurring).
 See United States v. Marine Bancorporation, Inc., 418 U.S. 602, 625 (1974) (noting that “the concept of perceived potential entry has been accepted in the Court’s prior § 7 cases”).
 See Yamaha Motor Co., Ltd. v. FTC, 657 F.2d 971, 977 (8th Cir. 1981). But see 418 U.S. at 625 (“The Court has not previously resolved whether the potential-competition doctrine proscribes a market extension merger solely on the ground that such a merger eliminates the prospect for long-term deconcentration of an oligopolistic market that in theory might result if the acquiring firm were forbidden to enter except through a de novo undertaking or through the acquisition of a small existing entrant (a so-called foothold or toehold acquisition). Falstaff expressly reserved this issue.”)
 See Joseph A. Schumpeter, The Theory of Economic Development: An Inquiry Into Profits, Capital, Interest, and the Business Cycle 402–404 (1934).
 Joseph A. Schumpeter, Capitalism, Socialism, and Democracy 106 (1942).
 See, e.g., Gilles Duruflé at al., From start-up to scale-up: examining public policies for the financing of high-growth ventures, Said Business School WP 2017-05 at 5 (2017).
 Fed. Trade Comm’n, Non-HSR Reported Acquisitions by Select Technology Platforms (2021).
 See Collen Cunningham at al., Killer Acquisitions, 129 J. Pol. Econ. 649 (Mar. 2021).
 See, e.g., Vanita Gupta, Associate Att’y Gen., U.S. Dep’t of Justice, Remarks at Georgetown Law’s 15th Annual Global Antitrust Enforcement Symposium (Sept. 14, 2021) (“Killer acquisitions can sideline or silence ideas that might eliminate the barriers keeping too many Americans out of banking, housing and health care markets.”).
 Premerger Notification; Reporting and Waiting Period Requirements, 88 FR 42178, 42202 (proposed June 27, 2023) [hereinafter NPRM].
 Id. at 42203.
 Id. (citing Fed. Trade Comm’n, Non-HSR Reported Acquisitions by Select Technology Platforms 26 (2021)).
 See Joseph V. Coniglio, Protecting Innovation: Why the Draft Merger Guidelines Fall Short, Comments of ITIF Before the FTC and DOJ 5 (Sept. 18, 2023) (discussing how the empirical relationship between market concentration and innovation can take the form of an “inverted-U” and may even in some cases be negative).
 See Joe Kennedy, Monopoly Myths: Is Big Tech Creating “Kill Zones,” ITIF Monopoly Myth Series (Nov. 9, 2020) (concluding that “concerns that large Internet companies are impeding competition by engaging in killer acquisitions are exaggerated”); see also Marc Ivaldi at al., Killer Acquisitions: Evidence From EC Merger Cases in Digital Industries, TSE Working Paper No. 13-1420 (Apr. 2023); Tiago S. Prado and Johannes M. Bauer, Big Tech Platform Acquisitions of Start-ups and Venture Capital Funding for Innovation, Information Economics and Policy, 100973 (Mar. 2022); Ginger Zhe Jin at al., How Do Top Acquirers Compare in Technology Mergers? New Evidence from an S&P Taxonomy, NBER Working Paper No. w29642 (Jan. 2022).
 See John M. Yun, Potential Competition, Nascent Competitors, and Killer Acquisitions, GAI Report on the Digital Economy 652, 662 (2020).
 See Julie Carlson, The Platform Competition and Opportunity Act Is a Solution in Search of a Problem, ITIF Report (Jan. 2022) (“The limited evidence of killer acquisitions in the pharmaceutical industry does not suggest that we should expect killer acquisitions in technology markets. If anything, we should expect to see fewer killer acquisitions than in the pharmaceutical industry. The pharmaceutical industry is best characterized by radical innovation. Pharmaceutical innovation is intended to displace incumbent firms. Innovation in technology markets tends to be incremental or cumulative and builds on the prior innovations of incumbent firms.”).
 Fed. Trade Comm’n v. Meta Platforms, Inc., No. 5:22-cv-04325-EJD, 2022 WL 16637996, at *1 (N.D. Cal. Nov. 2, 2022).
 370 U.S. 294, 356 (1962) (noting that “Brown’s earlier acquisitions, seven in number in five years, indicate a pattern to increase the sale of Brown shoes through the acquisition of independent outlets, resulting in the loss of sales by competing manufacturers”).
 384 U.S. 270, 279 (1966) (analyzing trends back to 1954 for a merger that occurred in 1960).
 See United States v. Philadelphia Nat. Bank, 374 U.S. 321, 325 (1963).
 See Adam Thierer, What Schumpeter Would Say about Techlash, Mercatus (Apr. 12, 2019) (discussing several case studies in technology markets where Schumpeterian competition radically transformed industries within a 10–15-year period).
 NPRM, at 42203.
 Fed. Trade Comm’n, Non-HSR Reported Acquisitions by Select Technology Platforms at Figure 5 (2021).
 Aurelien Portuese, Reforming Merger Reviews to Preserve Creative Destruction, ITIF Report at Figure 6(Sept. 2021).
 Fed. Trade Comm’n v. Facebook, Inc. Case No. 1:20-cv-03590-JEB (D.D.C).
 Premerger Notification; Reporting and Waiting Period Requirements, 85 Fed. Reg. 77053, 77055 (proposed Dec. 1, 2020).