anti-trust Archives - Compliance Culture

Round-up on FTC compliance

This is the second in a series of seven posts about regulatory compliance priorities and enforcement trends. Last week’s post was about the Commodity Futures Trading Commission (CFTC). Today’s post will be about the Federal Trade Commission (FTC). On Thursday January 4, the post will be about the Securities & Exchange Commission (SEC). On Thursday January 11, the post will be about the Food & Drug Administration (FDA). On Thursday January 18, the post will be about the U.S. Department of Agriculture (USDA). On Thursday January 25, the post will be about the Environmental Protection Agency (EPA). Finally, on Thursday February 1, the post will be about the Federal Communications Commission (FCC).

The Federal Trade Commission (FTC) is the US regulator charged with supervisory authority to protect consumers as well as enforce antitrust laws to avoid monopolies and ensure competitive business practices. Created in 1914 by the Federal Trade Commission Act, the FTC is an independent regulatory agency with the purpose to monitor the markets for anticompetitive developments and investigate and eliminate those where they emerge. Avoiding monopolies, known as trust, was a major political focus at the time the FTC was created and eliminating these large, anti-competitive business entities, known as “trust busting,” was an important priority for President Woodrow Wilson. The creation of the FTC was intended to bring an administrative efficiency to regulating interstate trade so that these trust and antitrust matters could be determined more expediently by the regulatory agency instead of working their way slowly through the courts.

In its current state, the FTC has broad supervisory authority over business practices where consumer protection or competitive processes are involved. The mandates of its various bureaus include protecting consumers against unfair or fraudulent acts or practices, enforcing existing antitrust laws, and reviewing pending mergers. These issues come from consumer and business reports, pre-merger notice filings, press reports, and congressional inquiries.

The FTC’s enforcement actions extend to individual companies, groups of companies, or industries with the main objective of addressing series consumer fraud or harm and preventing anti-competition business developments. With such a far-reaching set of interests, the issues and focuses that characterize the FTC’s regulatory agenda and enforcement priorities are equally diverse.

Consumer DNA testing services and privacy: Companies offering DNA testing services for everything from ancestry to genetic diseases to potential allergies to nutritional needs have become very popular in recent years. Most of these services involve consumers using a kit at home to collect samples of hair, skin, or saliva, which they then send to the company. The company then tests the samples itself or sends them to a third-party lab service for testing and then compiles results and analytical data into a slick, branded presentation that is sent back to the customer to study. If these services were performed in the traditional setting of a doctor’s office, the customer would be treated as a patient and would therefore be afforded commensurate protections and have expectations of privacy and informed consent for the collection, use, and storage of their genetic material. In the retail DNA testing service business, however, the duty owed to consumers is more dubious and the practices of companies less closely supervised or disclosed. As the popularity and prevalence of these tests continues, the FTC will likely look to standardize and investigate business practices of these companies: Senator Calls on FTC to Investigate DNA Ancestry Companies
Use of consent decrees: The public and courts are taking a closer look at the often widespread use of settlement agreements by regulatory entities. The FTC typically uses these in enforcement actions in the data-privacy arena when companies experience breaches that puts consumer information security at risk. Consumers having their data stolen in cybersecurity compromises of payment systems or other retail financial data records. Settlement agreements and consent decrees are meant to apply to individual companies in federal-level, case-specific circumstances only, but the legal precedent has evolved for this common law practice to be potentially applied to establish liability under state law as well. In the continued use of consent decrees, the FTC needs to elucidate clearly what standards apply to constitute a violation and when and where liability may exist: Federal Court’s Embrace Of FTC Data-Breach Settlements As ‘Common Law’ Treads On Due Process
Venue shopping for overlapping antitrust review: As noted in this post, major merger and acquisition activity is at a high pitch in the markets right now. Many large companies are seeking to merge with or acquire another and in lots of cases, regulatory review is exhaustive and detailed. Regulators seek concessions, order sales or exclusions to assets, delay transactions, and influence deals in both the press and Congress. In this intense environment, companies looking to merge with or acquire another approach these transactions hoping for the lightest regulatory touch possible. As there are overlapping supervisory schemes, companies can attempt to shop for the friendliest regulator who might green-light the planned transaction. The FTC and the Department of Justice (DOJ) both conduct antitrust reviews. The perception in the marketplace is that the FTC review may be easier to pass or less burdensome in terms of settlement requirements than that of the DOJ. Therefore some large companies – such as CVS in its planned deal with Aetna – would prefer to be subject to the FTC to improve their odds of passing muster: CVS likely wants FTC antitrust review, not Justice Department, of Aetna deal
Occupational licensing reform: Portability of occupational licenses – such as those required for nurses and accountants – has long-been a challenging political and business issue. States have wildly varying educational and experiential standards for achieving and maintaining these licenses, often making it very hard for professionals who need them to work to move between states that have differing licensure requirements. Military spouses in particular often find themselves shut out of work due to family relocations. On the other end, consumers could be potentially harmed due to unmet expectations for professional service standards in states where the licensing schemes are more lax or supervisory enforcement is inadequate compared to others. Short of a concerted effort by multiple individual states, there is an authority vacuum in the task of making a coherent and coordinated system out of this patchwork of rules, tests, and qualifications. The FTC could be the appropriate regulator to intercede in these circumstances and create a reformed federal unifying system that would function to provide access to work as well as protect consumers’ interests: The Onerous, Arbitrary, Unaccountable World of Occupational Licensing
Net neutrality: Finally, nearly any discussion of US federal regulatory compliance hot topics at the end of 2017 is incomplete without mention of one of the biggest themes of the time, net neutrality. As the Federal Communications Commission (FCC) is pulling back from rule enforcement on net neutrality, both the FCC and the public expect the FTC to take up a more prominent role. The obvious areas where the FTC would have jurisdiction would be those concerning information security, principally data privacy, as well as competitive practices of service providers as well as other digital companies. Time will tell what approach the FTC intends to take in filling this enforcement void: After Net Neutrality: The FTC Is The Sheriff Of Tech Again. Is It Up To The Task?

Be sure to check back next week for a round-up on SEC regulatory compliance.

Compliance considerations in an active era of mergers and acquisitions

The term “mergers and acquisitions” describes transactions in which the ownership of organizations or business operations within organizations are combined or transferred between companies. Merger describes the combination of at least two organizational units, whereas acquisition describes the transfer of interests or assets from one organization to another.

So far 2017 has been a banner year for high-profile mergers and acquisitions across all industries. Businesses are generating attention, press, and perhaps even revenue for themselves by ambitiously entering into deals with one another. Some prominent competitors have decided to join forces, while other companies hope to make inroads into new markets or gain access to new technologies through mergers and acquisitions activity.

The Amazon/Whole Foods merger has been one of the hottest topics of late summer 2017. Already the deal has had a seismic effect on the market, causing competitors from European grocery retailers to ready-to-eat meal delivery companies to major retailers such as Wal-Mart to recalibrate their own corporate strategies and expansion plans. One of the focal points of the lively conversation around this transaction has been the speed with which the US Federal Trade Commission (FTC) gave its blessing. While some professional skepticism from lawmakers on this subject is certainly welcome, the proof will be the pudding as to whether the deal encourages innovation in the sector by challenging competitors to respond creatively to the merger. If this does indeed pan out, perhaps consumers will stand to benefit, not to be harmed, by this type of deal: Consumers the big winners of Amazon-Whole Foods merger
In the UK, a different regulator is not in such a rush to approve the merger between 21^st Century Fox, owned by Rupert Murdoch, and broadcaster Sky. The Competition and Markets Authority (CMA) will perform a six month review of that one on the referral of the Culture Minister Karen Bradley. The stated reasons for the review were concerns about media plurality, stemming from the material influence Rupert Murdoch would gain over news providers in the UK key market plaforms, and an inadequate compliance program at Fox, which already owns a 39 percent stake in Sky: UK competition commission to review Fox-Sky merger
Mergers can complicate outstanding or future legal claims, as the union between chemical industry giants Dow Chemical and DuPont is indicating. The issue dates back to a major industrial accident in 1984 in India at a factory owned by Union Carbide India. The majority owner of this company was Union Carbide Corporation, which in turn was acquired by Dow in 2001. Victims of the gas leak accident, which killed as many as 22,000 people and left more than 500,000 others injured, have struggled in the last three decades to reach justice through the complicated system of corporate liability. This is a labyrinthine system of liability and procedural quagmires already for victims to make it through, and the acquisition of Union Carbide by Dow made defining liability, both in a legal sense and in a concrete moral sense to attach to an existing corporate entity, very complicated. Already complex enough when dealing with just Dow, now that DuPont will be in the mix, the corporate structures will become even more difficult to navigate legally: Bhopal disaster victims may never get compensation following Dow-DuPont merger, fears UN official
Bayer AG and Monsanto Company are set to face a regulatory review by the EU over at least the next four months in the planned merger by the major agrochemical companies. In that same sector this year, Dow and DuPont as well as China National Chemical and Syngenta AG have faced similar regulatory hurdles and had to make serious sacrifices in order to settle with the EU For their consolidations to go ahead. As companies in one industry seek to merge with each other, the industry comes out reshaped entirely, and the regulator in charge of oversight must step up to ensure the consumers are protected and that innovation continues unchecked despite fewer competitors in the market: Bayer-Monsanto merger faces in-depth EU probe
Similarly, EU regulators have also expressed concern about the merger between Italian eyewear-maker Luxxotica and French lens-maker Essilor. Together the two companies will form a $55.12 billion global eyewear retailer. The EU is concerned because the combined company will be so large, likely crowding out other, smaller retailers that cannot operate on the slim margins workable for major organizations. The regulator is particularly concerned about impact this merger could have on the supply chain, as Essilor will gain access to previously untapped markets in the Americas and Asia: EU regulators have concerns over Luxottica-Essilor merger

One conclusion that may be drawn already so far from a survey of this year’s mergers and acquisitions activity is for some, that expediency is the name of the game. Companies entering into these agreements want to come together quickly to get on with business, before the advancements in technology outpace their own participation. In some markets, regulators seem basically happy to oblige them. This apparent trend stands somewhat in contrast with standard regulatory agenda for existing companies, and the current preference in other markets, which is to identify and investigate possible anti-trust business practices for possible enforcement action or remedial measures before allowing the deal to go through.

If the US regulators continue to take the point of view that combined and strengthened competition from one market player drives the rest to be better and innovate, such as with Amazon, this will be a justification of relaxed regulatory scrutiny. It will be interesting then to observe whether regulators in the EU or other regions trend in the other direction, increasing the scope and standard of their oversight in order to reinforce their opposite protection that in these times of combination innovation may actually be more at risk than ever.

Only time will tell in this case which side has predicted the outcome correctly; one may find commerce stifled in name of caution, while the other may discover that imposing supervision after the union is more difficult than taking a measured approach from the beginning.