The Big Picture
- Currently, there are no industry-specific guidelines or rules for FTC review of mergers and acquisitions, and the system is working. Why waste government resources fixing something that’s not broken?
- Companies are required to “pre-clear” mergers and acquisitions with the federal government (the FTC and/or DOJ) and, depending on the transaction, with foreign regulatory bodies and/or U.S. state Attorneys General. The pre-clearance process means that before the merger or acquisition can be consummated, the companies must provide regulatory bodies with data and information on the proposed transaction.
- The FTC and other governmental entities can (and do) challenge in administrative or court proceedings transactions that they believe are anticompetitive. They also have the ability to require divestiture of specific products in cases of potential anticompetitive effects.
- There are three primary antitrust statutes: the Sherman Act (enacted in 1890), the Clayton Act (enacted in 1914), and the FTC Act (also enacted in 1914). Mergers are governed primarily by the Clayton Act, which prohibits mergers and
acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.” The Clayton Act was later amended to require companies to notify the government in advance of planned mergers or acquisitions.
- The FTC Act created the Federal Trade Commission and gave it sole authority to enforce the Act’s sweeping bans on “unfair methods of competition” and “unfair or deceptive acts or practices.”
- Both the DOJ and the FTC can enforce the Clayton Act’s requirements; in practice, the two agencies coordinate and do not review the same merger.
- Private parties harmed by anticompetitive conduct that the antitrust laws prohibit may sue for treble damages and a prohibition on future anticompetitive conduct.
- In sum, mergers and acquisitions are subject to a tremendous level of governmental scrutiny–including at the federal and potentially international and state levels–and the government has the tools it needs to block problematic mergers.
Why It Matters
- The FTC’s current merger/acquisition analysis applies to all companies across a wide variety of industries–from agriculture to entertainment to manufacturing to, as of now, pharmaceuticals. Why create new standards to apply to one industry?
- The current FTC guidelines are well-settled and informed by court decisions. They provide guidance to companies as they contemplate mergers or acquisitions. Creating new guidelines injects uncertainty in the pharmaceutical space, which is a
vital industry to the health and well-being of people around the globe.
- Legal uncertainty is the enemy of innovation; the mere hint of mystery surrounding how governments will treat pharma mergers and acquisitions is enough to dissuade innovators, who risk tremendous amounts of money in hopes of creating a
breakthrough product or technology that will attract a buyer or merger partner. Maintaining a climate favorable to risk-taking is nowhere more important than in the pharma sector, where innovations lead to literally life-saving products.