Mergers and Acquisitions

• Pages: 195-267

195

CHAPTER IV

MERGERS AND ACQUISITIONS

Recent years have seen high levels of merger and acquisition activity

in the technology sector,1 which have generated substantial antitrust

scrutiny and a number of notable enforcement actions. The antitrust

analysis of mergers in technology industries implicates a number of

issues discussed elsewhere in this handbook, including the importance of

innovation and nonprice competition, the role of network effects and

“tipping points,” and the challenges associated with market definition.

While many of these issues may not be unique to technology industries,

they arise with great frequency and intensity in mergers involving these

industries.

This chapter discusses the merger review process in the United

States and a number of other jurisdictions that frequently analyze

technology mergers. It then reviews how enforcement authorities and

courts have analyzed the horizontal and vertical issues raised by mergers

in technology industries.

A. General Background

Technology companies are frequently active on a global basis, and

mergers involving such companies are often reviewed in multiple

jurisdictions. The United States, Europe, China, Japan, and Korea are

particularly important, both because so many leading technology

companies are based in these places and because they constitute such a

large share of the demand for technology products and services.

1. Rolfe Winkler & Anne Steele, Technology Busiest Sector in Merger

Deals This Year, WALL ST. J. (June 16, 2016), available at

http://www.wsj.com/articles/technology-busiest-sector-in-merger-deals-

this-year-1465861867.

196 Handbook on Antitrust in Technology Industries

1. Merger Review in the United States

The principal federal law governing the antitrust legality of

acquisitions and mergers in the United States is Section 7 of the Clayton

Act.2 Section 7 prohibits acquisitions if “in any line of commerce or in

any activity affecting commerce in any section of the country, the effect

of such acquisition may be substantially to lessen competition, or to tend

to create a monopoly.”3 The law applies to a wide variety of transactions,

including mergers, consolidations and joint ventures, as well as complete

or partial acquisitions of stock or assets (including, of particular

importance here, intellectual property assets). An acquisition can also

potentially implicate Sections 1 and 2 of the Sherman Act,4 and/or

Section 5 of the Federal Trade Commission Act,5 although the

substantive analysis applied by the enforcement agencies and the courts

tends to follow Section 7 jurisprudence. Notably, Section 7 requires only

a reasonable likelihood of anticompetitive effect; consequently,

evaluation of a transaction necessitates assessing probabilities of future

events and market conditions. This task is especially complicated in

technology industries given the rapid changes in products, competitors,

and markets typical of such industries.

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR

Act)6 establishes procedures for the review of certain transactions that

meet its jurisdictional thresholds regarding the size of the transaction,

size of the parties involved, and extent of U.S. contacts. Parties must

report to the Federal Trade Commission (FTC) and Department of

Justice (DOJ) all acquisitions that meet these thresholds and do not

qualify for an exemption, and observe a mandatory waiting period (and

potentially an additional waiting period) before they may complete the

transaction. This process allows the antitrust enforcement agencies to

review proposed acquisitions and take appropriate action—including

bringing an action to enjoin the transaction—before they are

consummated, and provides a mechanism for the agencies to obtain

information relevant to such review. As noted below, however, the

agencies frequently review on their own initiative transactions that, while

not reportable under the HSR Act, raise potential antitrust concerns.

2. 15 U.S.C. §18 (2012).

3. Id.

4. 15 U.S.C. §§1, 2.

5. 15 U.S.C. §45.

6. 15 U.S.C. §18a.

Mergers and Acquisitions 197

The initial waiting period for most transactions under the HSR Act is

thirty days following submission of the parties’ notification.7 (The

exceptions being in the case of a cash tender offer or a bankruptcy sale

covered by 11 U.S.C. §363(b), where the initial waiting period is fifteen

days.) Either agency can extend trigger a second waiting period by

issuing within the initial thirty (or fifteen) days a request for additional

information,8 commonly referred to as a “second request.” A complete

response to a second request can take several months. Once both

companies have “substantially complied” with the second request, which

involves both extensive document production and detailed interrogatory

answers,9 they still may not close. The agency then has thirty days (ten

days if a cash tender offer) to complete its investigation or challenge the

transaction.10 Any further extension may be ordered only by a federal

district court in response to the agency’s motion to compel substantial

compliance with the second request.11 As a practical matter, however,

after issuance of a second request, the merging parties and the agency

often agree to a period in which the parties will not close for longer than

the thirty day statutory waiting period that follows substantial

compliance.

The DOJ and FTC share jurisdiction over the review of transactions

subject to the HSR Act.12 The agencies have, to some extent, developed

complementary expertise so that one agency will likely review the vast

majority of transactions in a particular industry.13 The complex nature

and constant evolution of technology often blurs these traditional lines of

expertise or presents markets and issues for which each agency can claim

substantial experience. In recent years, the DOJ has taken greater

responsibility for software-related transactions and the FTC has taken

greater responsibility for hardware-related transactions, but the

boundaries are malleable and have shifted (and likely will continue to

shift) over time. Consequently, the DOJ and FTC have shared equal

importance in establishing the current procedural and substantive

approaches used in technology industry acquisitions.

7. Id. § 18a(b)(1).

8. Id. § 18a(e).

9. Id. § 18a(e)(2).

10. Id.

11. Id. § 18a.

12. Fed. Trade Comm’n, The Enforcers, available at https://www.ftc.gov/

tips-advice/competition-guidance/guide-antitrust-laws/enforcers.

13. Id.