Over the river, into the woods, and down into the weeds we go.
There’s a whole lot of drama going on at the Federal Trade Commission (FTC), not least because of recent correspondence between the U.S. House Oversight Committee and FTC Chair Lina Khan that might politely—euphemistically, really—be termed “heated.” But I’m not gonna go there today. I had a bit to say about the new draft merger guidelines in my last roundup, but I barely scratched the surface. And I’m not going there either.
Nope, it’s minutiae-ho! The Hart-Scott-Rodino (HSR) pre-merger filing requirements–filing form included. With the concurrence of the U.S. Justice Department (DOJ), the commission has filed a notice of proposed rulemaking (NPRM) offering changes to the filing requirements and—quelle surprise—the proposed changes turn out to be somewhat controversial (see here, here, and, for a useful compendium of law-firm comments, here).
I go forth with trepidation. And I’m sorry. HSR pre-merger filing requirements are not among my favorite issues in antitrust law or competition policy. They don’t make my top 10. Or 20. Before receiving an offer to join the FTC’s Office of Policy Planning (OPP) in 2006, I met with Debbie Majoras (then the chair) once, Maureen Ohlhausen (then the OPP director, and later a commissioner and acting chair) twice, and most of the OPP staff (once each). Meeting with most of the staff was easy enough, as there were only four of them at the time. Thinking back, it’s astonishing what our merry little band was able to accomplish, but I digress.
To the best of my recollection, nobody asked me a darn thing about the HSR requirements, and that was just as well: I knew how to spell “HSR,” but I’m not sure I would have had anything of substance to say about the filing requirements. And I did want the job, which I did land. I was there for 16 years. Yep, 15 happy years.
So … I’m nobody’s idea of an HSR maven, even if I have had to work at HSR screening in the past. Yet here we are.
In a nutshell, the proposed revisions are controversial because they promise to make pre-merger filing more cumbersome and, not incidentally, more costly, and it’s not at all clear what the payoff is likely to be. The FTC estimates that the new information will impose “approximately $350,000,000 in labor costs” on filing parties. And even in Washington (and even at this late date), a few hundred million here, and a few hundred million there, and pretty soon you’re talking real money.
As far as I know, nobody at the commission thought the prior form perfect. It had been amended many times before, although many (not all) of the changes were minor, and some have been required by statute. The FTC solicited input on further reform in an advance notice of proposed rulemaking as recently as December 2020, at the tail end of the last administration.
Some of the proposed changes seem straightforward. For example, I’ve not seen any objections to the commission’s proposal to “adopt electronic filing and eliminate references to paper and DVD filings.” The NPRM rightly points out that the FTC and DOJ have been accepting electronic filings for several years now, and as a practical matter, staff document review largely has taken place on screens longer still.
But the proposed changes are numerous, and many do not simply involve updating or streamlining HSR pre-merger filing. I’ll note just a few here.
First, the FTC proposes to gather considerable information on workers. Under the proposal, both the acquiring party and the target would be required to gather information on their employees in each of five standard occupational classification (SOC) categories, with occupations defined by six-digit SOC codes. For each of the five largest such groups of employees, both filers would be required to identify any SOC codes in which they both employ workers, as well as any overlap in employees’ commuting zones and the total number of employees within each commuting zone.
The NPRM acknowledges that neither six-digit SOC codes (developed by the U.S. Bureau of Labor Statistics) nor commuting zones (as determined by the U.S. Agriculture Department’s Economic Research Service) were developed to facilitate competition analysis generally, or merger screening specifically. Thus, they don’t determine the product/labor markets or geographic markets in which competition might be impeded. But it suggests that such information will serve as a useful “screen” or “initial proxy for labor issues while balancing the burden on filers by limiting the request to their five largest categories of workers.”
Leaving aside the hard questions of when or under what conditions labor-market effects might be pertinent (and unlikely to covary with product-market effects), would it? Here are some six-digit codes in the tech industry:
- 15-1221 Computer and Information Research Scientists;
- 15-1251 Computer Programmers;
- 15-1252, Software Developers; and
- 15-1253 Software Quality Assurance Analysts and Testers.
Suppose one tech firm is acquiring another. Let’s say Meta is acquiring Within (see, for example, here, here, here, here, and here). Will both firms be required to report commuting-zone overlaps for most of their employees, even though, e.g., programmers do not all possess the same skill sets and may compete in very different labor markets?
Attorneys working across diverse areas of expertise are broken down into attorneys (23-1011 Lawyers) and … well, attorneys, although there is a separate category for Judges, Magistrate Judges, and Magistrates (23-1023), who are likely lawyers, too. To paraphrase Shakespeare (or a character in “Henry VI, Part 2”), let’s kill all the widgets.
To the best of my recollection, the agencies tend to slice the professional salami a little thinner than that when hiring staff.
Physicians fare a little better, although 10 categories of specialist physicians, plus “family medicine physicians” and “physicians, all other” leave out some specialties (like, say, surgery and ophthalmology) and make no room for subspecialties, which might be of interest if you’re hiring a cardiothoracic surgeon to do a quad bypass or an orthopedic surgeon to do a hip replacement (or both, but you care which surgeon does which procedure).
By the way, how many firms have their employee information coded in a way that will facilitate such reporting?
In addition, both firms are to identify, for the five years immediately preceding the filing:
…any penalties or findings issued against the filing person by the U.S. Department of Labor’s Wage and Hour Division (WHD), the National Labor Relations Board (NLRB), or the Occupational Safety and Health Administration (OSHA) in the last five years and/or any pending WHD, NLRB, or OSHA matters. For each identified penalty or finding, provide (1) the decision or issuance date, (2) the case number, (3) the JD number (for NLRB only), and (4) a description of the penalty and/or finding.
Why? Well, the commission observes: “[i]f a firm has a history of labor law violations, it may be indicative of a concentrated labor market where workers do not have the ability to easily find another job.”
Well, I suppose it “may be.” Or not. How good a signal is this, really? Any OSHA finding? Seriously?
According to OSHA itself, the 10 most frequently cited standards are in:
- Fall Protection, construction (29 CFR 1926.501) [related safety resources]
- Hazard Communication, general industry (29 CFR 1910.1200) [related safety resources]
- Ladders, construction (29 CFR 1926.1053) [related safety resources]
- Respiratory Protection, general industry (29 CFR 1910.134) [related safety resources]
- Scaffolding, construction (29 CFR 1926.451) [related safety resources]
- Control of Hazardous Energy (lockout/tagout), general industry (29 CFR 1910.147) [related safety resources]
- Powered Industrial Trucks, general industry (29 CFR 1910.178) [related safety resources]
- Fall Protection Training, construction (29 CFR 1926.503) [related safety resources]
- Eye and Face Protection, construction (29 CFR 1926.102) [related safety resources]
- Machinery and Machine Guarding, general industry (29 CFR 1910.212) [related safety resources]
Five of the 10 are in the construction sector. Several others are sometimes in construction. Construction itself is pretty broad, and it doesn’t tend to be highly concentrated, much less an industry in which firms—as buyers—are likely to be exploiting monopsony power in labor markets.
The FTC also proposes to require submission of a good deal more information on both firms’ histories of acquisitions, “including non-horizontal and small prior acquisitions.” In their accompanying statement, the commissioners explain that the FTC’s “recent 6(b) inquiry into unreported acquisitions by Apple, Amazon, Facebook (now Meta), Google, and Microsoft during 2010-2019 highlighted the importance of collecting more information on [such acquisitions].”
To be sure, under the right facts and circumstances, such acquisitions can be anticompetitive. But having read the study, I have to wonder about likelihoods. For one thing, there’s nothing in the study finding (or even suggesting) that such unreported transactions were typically—or frequently, or with any frequency at all—anticompetitive. That wasn’t part of the study. And the “report does not make recommendations or conclusions regarding the HSR thresholds.”
A recently published paper by Ginger Zhe Jin (former director of the FTC’s Bureau of Economics), Mario Leccese, & Liad Wagman (formerly a senior economic and technology advisor in the FTC’s Office of Policy Planning who, in that capacity, played a leading role in conducting the FTC’s 6(b) study) observes, among other things, that:
The top 25 private equity firms outpaced GAFAM in tech acquisitions per firm since 2018. (iii) GAFAM acquisitions are less concentrated across tech categories than other top acquirer groups, due, in part, to an ‘acquire-adjacent-and-then-expand’ strategy
Overall, we find that technology acquisitions do not shield GAFAM from competition, at least not from other GAFAM members or other firms that acquire in the same categories.
That doesn’t read like a cry for help.
There’s much more: drafts of documents, narrative information about actual and potential vertical (and other nonhorizontal) business dealings, street-level and geolocation data for certain transactions, etc. And there’s the question of how to read open-ended requirements in view of the new draft merger guidelines. On vertical transactions, see, among many, many other things, the International Center for Law & Economics’ (ICLE) comments on the FTC/DOJ merger-enforcement RFI; Alden Abbott and Andrew Mercado; ICLE’s amicus brief in Illumina/Grail; Daniel O’Brien (here and here); the Global Antitrust Institute’s comments to the FTC; and all sorts of academic literature (which you’ll find cited in the preceding linked pieces).
The FTC estimates that the proposed requirements will add 144 hours of attorney and executive time to the average filing, at the dubious average rate of $460 per hour (up to an additional 222 hours for 45% of filings). This seems a “guestimate” at best, and a lowball one. It’s based on talking to FTC staff who have private-side HSR experience, so there’s that, but it’s not based on any data or tests, and of course, not on any experience with the proposed requirements.
That’s a real tax on transactions, even though the large majority of transactions are lawful, and even though, as Doug Melamed pointed out on Twitter:
https://twitter.com/dougmelamed/status/1679587148016779264 There’s another issue about costs, one the FTC recognizes but doesn’t seem to analyze: requiring the submission of a great deal of additional information supposes that the staff will review it. In my experience, the staff are pretty conscientious about that sort of thing.
As I noted in a prior post, Chair Khan and the commission repeatedly testify before Congress that the FTC lacks sufficient funding to do its job. Resources—even regulatory resources—are scarce. To what extent will quadrupling the information required in each and every HSR premerger filing strain staff resources even further? And what will the commission and consumers get in return?
Or, if staff are sent on fishing expeditions, what will they catch, and what will they miss?