Published on May 08, 2023
How Assa Abloy/Spectrum Brands ended up in mediation. Judge Ana Reyes, despite being a Biden appointee, was antagonistic towards the government behind closed doors from the beginning of the Assa Abloy/Spectrum Brands case seemingly because she believed that the case should settle rather than go to trial, according to sources familiar with the matter.
On Friday, DOJ announced a proposed settlement that would end the department’s suit to block Assa Abloy’s proposed $4.3 billion buyout of Spectrum Brands’ hardware and home improvement (HHI) division.
Beyond her attitude toward DOJ lawyers, Reyes indicated that she was open to reinterpreting how the burden of proof should shift in a litigate-the fix merger case. Typically, the burden is on the merging parties to show that their proposed remedy would resolve any anticompetitive effects resulting from the merger. However, Reyes indicated a willingness to consider requiring DOJ to prove that the merger, with the remedy, was anticompetitive—making it more difficult for the government to prevail. That increased the stakes in the courtroom to potentially establishing unfavorable precedent for the government rather than simply losing this case.
But the news wasn’t necessarily all good for the merging parties. Reyes seemed to walk back her antagonism toward DOJ once the trial started, acting more neutrally during the proceedings. Further, Reyes indicated an openness to compelling the merging parties to restructure their remedy to make it more robust and enhance the likelihood that it would restore competition. A possibility remained that DOJ would ultimately prevail in court.
Lastly, it’s unclear if Reyes pushed for mediation, but if she did, it would have been difficult for either side to ignore her call for a settlement as resistance could potentially risk angering the judge and perhaps tipping the case in the other party’s favor.
Neither Judge Reyes nor her office responded to Capitol Forum queries.
Overall, the case shows that DOJ and stakeholders can’t assume that Biden appointees will be sympathetic to the government’s position. DOJ and FTC leadership have explained that they’re very skeptical of complex remedies with behavioral elements. Consequently, a “pro-settlement” judge is ultimately going to favor the merging parties.
Details of DOJ, Assa Abloy proposed settlement. The assets to be divested to Fortune Brands Innovations include Assa Abloy’s Emtek and Schaub “premium mechanical door hardware businesses, its Yale and August residential smart lock businesses in the United States and Canada, and other assets for multifamily smart lock applications in the United States and Canada,” DOJ said.
The proposed settlement would require Assa Abloy to expand “Fortune’s intellectual property and commercialization rights in smart locks, inclusion of additional residential mechanical lock assets, the appointment of a monitoring trustee, a penalty provision for delayed transfer of a manufacturing facility, and the ability, under certain circumstances, for the Department to seek additional relief later if the divestiture fails to maintain the intensity of competition that existed before the merger for smart locks used for residential and multifamily buildings.”
“Following this settlement,” said Assa Abloy on May 6, “the HHI acquisition remains subject to customary closing conditions, including approval of the Mexican competition authority,” the “only outstanding regulatory condition.” It said deal closing is expected by the end of June at the latest.
DOJ noted the settlement includes no determination of liability. DOJ’s release included links to a Competitive Impact Statement, Proposed Final Judgment, Stipulation, Explanation of Procedures, Attachment A, Attachment B and Appendix A.
May 12 Closed Commission Meeting. It’s unclear what the nature is of the “two nonpublic law enforcement matters” that are the focus of the recently scheduled May 12 FTC commissioners’ meeting.However, there are two health care-related matters and one energy case that are worth mentioning.
First, as we mentioned last week in the Merger Monthly, it appears that the parties in Amgen/Horizon Therapeutics are engaging in a high-risk, high-reward strategy to substantially comply with their second request extremely quickly to avoid giving the FTC time to build up a novel theory of harm against their merger. It’s possible that Friday could be around 30 days after the merging parties substantially complied with the second request.
That said, we haven’t reported on any developments that indicate that the deal is headed in the near term for litigation—depositions, outside economist hires, etc.—and it doesn’t appear that the FTC has had enough time to prepare for a suit. It seems very unlikely that Amgen/Horizon is a subject of the Friday meeting.
Second, we have reported previously that the Remicade case, which has been the subject of many years of investigation , may be reaching a decision point, although we haven’t yet reported on any timing around that.
Lastly, EQT was issued a second request on November 18, 2022 for its proposed acquisition of Tug Hill. It’s plausible that the FTC could be voting on potential litigation in that matter, as we’ve continued to report on competition issues that may result from that merger.
What you might have missed at the AELP Anti-Monopoly Summit—competition as part of Biden Reelect. The president, CFPB Director Rohit Chopra, and Transportation Secretary Pete Buttigieg all made newsworthy remarks at the AELP Anti-Monopoly Summit, with Joe Biden reiterating his commitment to competition policy, Chopra declaring that those in the room were responsible for a historic revival of vigorous antimonopoly enforcement and calling big bank living wills a “fairy tale,” and Buttigieg saying that structural reforms were necessary to restore competition in transportation markets.
At the very end of the conference, however, AELP Interim Executive Director Faiz Shakir explained that competition policy was going to be a key part of President Joe Biden’s re-election campaign. Stakeholders should certainly keep an eye out for competition policy issues that become part of the president’s bully pulpit during campaign season, as such high-profile issues could become priorities either during the campaign or as part of a second-term agenda, should the president win in 2024.
In Their Own Words
Biden: ‘Much more to do to reverse decades of concentrated corporate power.’ President Biden’s message to the American Economic Liberties Project’s Anti-Monopoly Summit, May 4.
“To the American Economic Liberties Project, thank you, from Teamsters to pharmacists to small business owners and so many more. Convening this Anti-Monopoly Summit matters—it matters. By working together we’re going to make progress on building an economy from the middle out and the bottom up, not from the top down, and in making the case I’ve been making, capitalism without competition is not capitalism; it’s exploitation. But that ends on our watch.
“With your support, I signed my ground-breaking executive order on competition that helps us lower costs for hearing aides; we banned noncompete clauses and we did so much more. With the Inflation Reduction Act, you helped us beat Big Pharma, lowering the cost of prescription drugs. At this year’s State of the Union, you heard my call for a ban on junk fees at hotels, concerts, flights and so much more because no one likes to be played for a sucker.
“But we have much more to do to reverse the decades of concentrated corporate power, and to continue lowering prices for consumers, and increasing opportunities for workers and small business owners. We’re focused on all of this as we implement our plans to invest in America. So let’s finish the job. Remember who we are. We’re the United States of America and there’s simply nothing beyond our capacity when we decide to do it and do it together.”
Chopra at Anti-Monopoly Summit. From an emailed release of the American Economic Liberties Project of excerpts of CFPB Director Rohit Chopra’s remarks.
“New laws and old laws alike provide a roadmap for regulators to fix some of these problems, but many have been underutilized. For example, large banks must file living wills with regulators detailing how they could safely fail under Chapter 11 of the U.S. Bankruptcy Code without a government bailout. If the plans are not credible or if executing the plans would disrupt financial stability, the Federal Reserve Board and FDIC Board ultimately have the authority to shrink and simplify the firms. After the experience with SVB, Signature, and First Republic, firms much smaller and less complex than the Wall Street firms, I don’t think anyone truly believes the current plans filed by Wall Street firms are anything more than a fairy tale. In fact, the emergency Credit Suisse-UBS merger and comments by Swiss policymakers all-but-confirm it. In addition, the Federal Reserve Board has the authority to require large banks to shed risky nonbank assets and business lines if the firm is not well-managed, for example after a spree of shoddy acquisitions. These are just two of the powerful and underutilized authorities that could be used to help undo some of the harms created by decades of lax merger review.”
“A few years ago, bank regulators started to deregulate again and neglect some of their statutory duties to watch over their supervised entities. In a report published last Friday by the Federal Reserve Board, a review of the Silicon Valley Bank failure revealed that the Fed’s deregulatory efforts “…impeded effective supervision by reducing standards, increasing complexity, and promoting a less assertive supervisory stance.” We are paying the price once again. Periods of financial instability tend to be mass concentration events, both through organic growth as customers run to TBTF firms and through emergency mergers and acquisitions. Strong financial stability safeguards ex ante are critical complements to a broader anti-monopoly strategy.”
Biden: AI a ‘most powerful’ tool, ‘but to seize opportunities, we must first mitigate its risks;’ ‘Enormous potential and danger.’ President Biden’s May 4 tweet on a White House meeting on artificial intelligence with four industry CEOs, which was accompanied by various new actions.
“Artificial Intelligence is one of the most powerful tools of our time, but to seize its opportunities, we must first mitigate its risks. Today, I dropped by a meeting with AI leaders to touch on the importance of innovating responsibly and protecting people’s rights and safety.”
In an edited video clip attached to the tweet, Biden told meeting participants: “I just came by to say thanks. … What you’re doing has enormous potential—and enormous danger. I know you understand that. And I hope you can educate us as to what you think is most needed to protect society as well as to advance it. … This is really, really important.”
Tech Update/Outlook
Khan: AI risks further locking in dominant firms; we’ll uphold fair competition, combat mass exploitation of users. The FTC is examining artificial intelligence for how best to achieve its dual mandate of promoting fair competition and combatting unfair or deceptive practices, Chair Lina Khan opined in The New York Times May 3. The FTC is committed to upholding the U.S. “tradition of maintaining the open, fair and competitive markets that have underpinned both breakthrough innovations and our nation’s economic success — without tolerating business models or practices involving the mass exploitation of their users” she wrote. AI is “not exempt from existing rules,” and the FTC “will vigorously enforce the laws” it oversees.
Khan warned against repeating mistakes made in the mid-2000s—when innovative services of upstarts like Facebook and Google “came at a steep cost” in surveillance, data hoarding and sales, and market dominance—due to hands-off policy choices. “The expanding adoption of A.I. risks further locking in the market dominance of large incumbent” tech firms, she wrote. A few “powerful businesses control” the building blocks that start-ups and others need to develop and deploy AI. “This includes cloud services and computing power, as well as vast stores of data.”
“Enforcers and regulators must be vigilant,” she wrote. “Dominant firms could use their control over these key inputs to exclude or discriminate against downstream rivals, picking winners and losers in ways that further entrench their dominance.” AI tools “to set prices … can facilitate collusive behavior that unfairly inflates prices — as well as forms of precisely targeted price discrimination,” she added. The FTC is “well equipped” legally “to handle the issues brought to the fore by the rapidly developing A.I. sector, including collusion, monopolization, mergers, price discrimination and unfair methods of competition.”
“And generative A.I. risks turbocharging fraud,” she wrote. It “can already do a vastly better job of crafting a seemingly authentic message than your average con artist… When enforcing the law’s prohibition on deceptive practices, we will look not just at the fly-by-night scammers deploying these tools but also at the upstream firms that are enabling them.” AI tools “are being trained on huge troves of data in ways that are largely unchecked,” she noted. “Existing laws prohibiting discrimination will apply, as will existing authorities proscribing exploitative collection or use of personal data.”
“Can we continue to be the home of world-leading technology without accepting race-to-the-bottom business models and monopolistic control that locks out higher quality products or the next big idea?” Khan concluded. “Yes—if we make the right policy choices.
The FTC issued some cautionary guidance. “Companies thinking about novel uses of generative AI, such as customizing ads to specific people or groups, should know that design elements that trick people into making harmful choices are a common element in FTC cases, such as recent actions relating to financial offers, in-game purchases, and attempts to cancel services,” blogged Michael Atleson, a Division of Advertising Practices attorney. “[I]t should always be clear that an ad is an ad, and search results or any generative AI output should distinguish clearly between what is organic and what is paid. People should know if an AI product’s response is steering them to a particular website, service provider, or product because of a commercial relationship. And, certainly, people should know if they’re communicating with a real person or a machine.”
FTC proposes barring Facebook from monetizing youth data; Meta slams ‘political stunt.’ The FTC proposed to alter its 2020 Facebook privacy order, alleging the company failed to fully comply, misled parents about their control over their children’s communications via its Messenger Kids app, and misrepresented the access some app developers were given to private user data. “Facebook has repeatedly violated its privacy promises,” said FTC’s Bureau of Consumer Protection Director Samuel Levine in a May 3 release. “The company’s recklessness has put young users at risk, and Facebook needs to answer for its failures.”
Under proposed changes, Meta/Facebook “would be prohibited from profiting from data it collects, including through its virtual reality products, from under-18,” the release said. “It would also be subject to other expanded limitations, including in its use of facial recognition technology, and required to provide additional protections for users.”
The FTC alleged that Facebook violated the 2020 privacy order and a Children’s Online Privacy Protection Act Rule, the release said. The 2020 order—which followed an order in 2012 and implemented a 2019agreement—required Facebook to pay a $5 billion civil penalty. It also expanded a required privacy program and an independent third-party assessor’s role in evaluating the program’s effectiveness.
The independent assessor, “identified several gaps and weaknesses in Facebook’s privacy program, according to [an] Order to Show Cause,” the release said. That order also alleges Facebook violated the 2012 and 2020 orders by continuing to give app developers access to users’ private information after promising in 2018 to cut off such access to users who hadn’t used those apps for 90 days.
The proposed changes to the 2020 order—which would apply to Facebook and Meta’s other services like Instagram, WhatsApp, and Oculus—would include a blanket prohibition against monetizing data of users under 18: “The company could only collect and use such data to provide the services or for security purposes, and would be prohibited from monetizing this data or otherwise using it for commercial gain even after those users turn 18.” Among other provisions, Meta would also be barred from releasing “new or modified products, services, or features without written confirmation from the assessor that its privacy program is in full compliance with the order’s requirements and presents no material gaps or weaknesses.”
The show-cause order was approved 3-0, but Commissioner Alvaro Bedoya issued a cautionary statement. The “question is not what I would support as a matter of policy,” he wrote. “Rather, when the Commission determines how to modify an order, it must identify a nexus between the original order, the intervening violations, and the modified order. Based on the record before me today, I have concerns about whether such a nexus exists for proposed Provision I,” which “would place specific prohibitions on the handling of certain information from youth users.” He nevertheless said he would had an open mind about further information and arguments.
Meta has 30 days to respond, but blasted the FTC’s “political stunt” the same day. “It’s a clear attempt to usurp the authority of Congress to set industry-wide standards and instead single out one American company while allowing Chinese companies like TikTok to operate without constraint on American soil,” Meta said. “The FTC does not have the authority to unilaterally impose ‘do-overs’ on court-approved, negotiated settlements.” Meta noted Bedoya’s “doubt.”
“To justify imposing brand new obligations that have no basis in the agreement or the alleged violations, the FTC is relying on years-old incidents that we fully disclosed and fixed ourselves — in some instances, even before the order was originally finalized,” Meta said. “Since 2019, we’ve overhauled our approach to privacy, investing $5 billion in a rigorous privacy program that protects people’s privacy by identifying privacy risks early and embedding privacy into our products from the start.”
Klobuchar targets Google ‘dominance’ at digital advertising hearing; Lee also critical. There’s “a lack of competition” in digital ad markets that’s “harmful to small businesses and consumers,” due to “unchecked consolidation and a reluctance to enforce antitrust laws,” said Senate Judiciary antitrust subcommittee Chair Amy Klobuchar (D-MN), opening a May 3 hearing. “Although Facebook and Amazon have significant ad businesses, there’s one company that dominates digital advertising like no other and that is Google.”
It’s a “three-part domination,” Klobuchar said. “Google has a 90% share of the service that publishers use to sell space on their sites. It has a 40% share of the services that advertisers … use to buy ads; and it has a 50% share of the market for ad exchanges that connect those advertisers and the publishers. This end-to-end control gives Google unique access to information about virtually all digital ad transactions and allows it to extract a higher percentage of revenues … For example, publishers using Google AdSense to sell their ad space must give Google 32% of the revenue generated. That’s a pretty big cut. Research has suggested that Google may be taking between 30 and 70% of every advertising dollar spent by advertisers using its services.”
That dynamic “is contributing to the near collapse of advertising-based revenue models for many news organizations,” Klobuchar said. “This threatens more than competition. It threatens the viability of a free and independent press which is essential to our democracy, and it is especially hurting the small local radio, TV, and newspapers. Google’s market dominance, combined with its huge advantage in consumer data, gives it the market power to exclude its ad tech rivals and maintain its monopoly power.
“The good news is that there is a bipartisan desire to take action,” Klobuchar said, noting various efforts, including her work with Ranking Member Mike Lee (R-UT) on his AMERICA Act to improve ad-tech competition and transparency. “This legislation is a key part of the work this committee has been doing over the last few years to rein in the market power of a handful of online gatekeepers that are dominating our digital economy,” she said.
Google declined to comment.
Lee said Big Tech was monetizing data surveillance, tracking, and control of devices and services. “The solution lies in the Advertising Middlemen Endangering Rigorous Internet Competition Accountability, or AMERICA, Act,” he said. “All this technological and financial hegemony rests on one thing, digital advertising, because digital ads are how you turn data into money. This is the lifeblood of the tech sector in many respects. That’s why the first step towards reining in the power and predation of the monopolist tech companies is to bring transparency and competition to the digital advertising market…”
Lee noted one defense of Google is that its innovation lowers ad prices and costs. “I’m not sure that argument holds water because Google tends to buy up those who do new things,” he said. “Google isn’t necessarily introducing anything new on its own; it acquires firms that do, … would-be nascent competitors, so they can get their innovation. The innovations originating from Google seem to be focused more on building gigantic walls, fences, moats—with alligators, crocodiles and sharks with lasers mounted on their heads—around their market position. And then the lower prices … don’t account for the need to buy more ads because of the declining quality of the ad placement.”
Warren report says Big Tech ‘rigging’ digital trade rules; USTR cites broad engagement; Republicans also concerned. Senator Elizabeth Warren (D-MA) issued a report, “Big Tech’s Big Con: Rigging Digital Trade Rules to Block Antitrust Regulation,” ahead of the third round of Indo-Pacific Economic Framework (IPEF) talks this week. An “investigation, based on a review of previously undisclosed emails, reveals that Big Tech is using its revolving door hires to gain backdoor access to key United States Trade Representative (USTR) and Commerce Department officials, undermining the Biden Administration’s promises to end rigged trade deals and protect workers, consumers, and the environment,” said a May 2 Warren release.
“Big Tech is working to undermine the Biden trade and competition agenda and instead push trade negotiators to pre-empt domestic and international regulatory efforts, hiring dozens of former government officials and lobbyists to gain insider access to U.S. trade officials and influence trade negotiations – and this report contains new evidence of the extent to which they have been effective,” said the report. It said previously undisclosed emails “point to Big Tech’s significant influence over USTR during the Biden Administration.”
Results of a Demand Progress Education Fund Freedom of Information request “reveal that USTR officials have been in contact with lobbyists from Amazon and Google, some of whom are also former USTR officials, for input on the new Indo-Pacific trade framework and pressured foreign countries on Big Tech-friendly policies on their behalf,” said an emailed DPEF release.
USTR pushed back. “Under Ambassador [Katherine] Tai’s leadership, USTR is leading unprecedented engagement with stakeholders who are often left out of trade negotiations,” emailed an agency spokesperson. “Ambassador Tai and USTR staff have hosted hundreds of meetings with stakeholders, including labor organizations, workers, and civil society representatives to expand the conversation and bring in new voices to help shape trade policy, including on the [IPEF]. Our actions demonstrate how we are bringing new and different perspectives to the table in developing President Biden’s worker-centered trade policy.”
Google has “very publicly advocated for the [IPEF] to include strong digital trade provisions that ensure digital technologies are widely accessible, and that support privacy, security, and trust in cross-border data flows,” Google emailed. “We will continue to engage with governments around the world to advocate for policies that help consumers and small businesses, and support economic growth.” Amazon didn’t respond to a Capitol Forum query.
Senator J.D. Vance (R-OH), Representative Ken Buck (R-CO), Senator Josh Hawley (R-MO), and Representatives Matt Gaetz (R-FL) and Paul Gosar (R-AZ), sent a letter to Tai and Commerce Secretary Gina Raimondo voicing concern that Biden’s “trade framework would expand big tech monopolies,” said a Vance release.
“We write to express concern about the administration’s efforts to bind the United States to a specific set of competition policies in the course of negotiations with foreign governments over the possible [IPEF],” they wrote. “Congress, not the President, has the constitutional prerogative to craft domestic policy in the antitrust space … In particular, Congress is in the midst of a longstanding exploration of reforms that would reduce the market power of large technology companies and promote consumer interests in the technology sector.”
USTR and Commerce spokespersons didn’t respond to Capitol Forum queries.
Personnel News
Key Schumer aide Petrella now Microsoft U.S. public policy general manager. Gerry Petrella, policy director and longtime staffer for Senate Majority Leader Chuck Schumer (D-NY), has joined Microsoft as U.S. public policy general manager, focused on strategic priorities, the company announced. Petrella, “led the development and execution of the Inflation Reduction Act” (IRA) and was “also the lead negotiator and manager for Senate Democrats on landmark legislation such as the 2018 Bipartisan Budget deal, the CARES Act, the U.S. Innovation and Competition Act, the Bipartisan Infrastructure deal, and the American Rescue Plan.”
Crowell hires Grassley aide Cummings to help clients on antitrust, AI, other issues. Aaron Cummings, previously chief of staff to Senate Judiciary Ranking Member Charles Grassley (R-IA), has joined Crowell & Moring as co-chair of its “bipartisan Government Affairs Group with partner Jim Flood, former Counsel” to Schumer,” said the firm. Cummings advises and advocates for clients on legislative and policy matters, “including antitrust, financial services, health care, energy, intellectual property, artificial intelligence, technology, agriculture, and national security.”
DOJ antitrust promotes McCabe to regular deputy chief of staff. Shannon McCabe was named deputy chief of staff of the DOJ antitrust division, according to its leadership directory. She had been serving as acting deputy chief of staff.
Transportation Department agency forms Truck Leasing Task Force. The Transportation Department’s Federal Motor Carrier Safety Administration announced its Truck Leasing Task Force, which will seek to “combat predatory practices” and “promote fair leasing agreements.” The members represent various interests: Tamara Brock, Brock Logistics and Lewis & Lewis Logistics; Paul Cullen, The Cullen Law Firm; Troy Hawkins, TTOH Consulting & Logistics; Jim Jefferson, Owner-Operator Independent Driver Association; Joshua Krause, OTR Leasing; Kaitlyn Long, International Brotherhood of Teamsters; Steve Rush, Carbon Express; Lesley Tse, Animal Defense Partnership; and Steve Viscelli, University of Pennsylvania economic sociologist.
Litigation Developments
Judge allows FTC to amend its complaint against Korchava. U.S. District Court Judge B. Lynn Winmill dismissed an FTC complaint against Korchava’s data-selling practices but will allow the commission to file an amended complaint. “This case is about mobile devices, location data, and privacy,” wrote Winmill of the Idaho district May 4. “The underlying dispute is whether the defendant, Kochava, Inc., is engaging in an ‘unfair . . . act or practice’ by selling geolocation data that could enable third parties to track mobile device users to and from sensitive locations.” But at this early stage, the Court must only decide whether the FTC “has stated at least a plausible claim against Kochava.”
The FTC sought a permanent injunction last August to bar Kochava “from continuing its sale of ‘precise location data associated with unique persistent identifiers that reveal consumers’ visits to sensitive locations,’” Winmill wrote. The agency’s complaint focused “on two components of the data Kochava sells: timestamped geolocation coordinates and [Mobile Advertising IDs—‘unique alphanumeric names that operating systems, such as IOS and Android, assign to mobile devices’]. According to the FTC, by aggregating and selling both data points, together, without any technical controls to prevent tracking device users to sensitive locations, Kochava violates device users’ privacy and exposes them to risks of secondary harm. In doing so, the FTC alleges, Kochava engages in an ‘unfair . . . act or practice’ prohibited’” by FTC Act Section 5(a).
“Instead of filing an answer to the FTC’s Complaint, Kochava seeks dismissal … for failure to state a claim upon which relief may be granted,” Winmill wrote. “The Court will grant the motion to dismiss, but will allow the FTC to file an emended complaint in accordance with this Order.”
Franchising
Khan voices interest in some franchisee concerns about franchisors. FTC Chair Lina Khan said it was “really interesting and troubling” to hear some of the concerns raised by franchisees and their representatives about franchisors, on a virtual event held May 2 by franchisee groups (available here). Noting franchisee complaints about franchisor “mystery fees,” Khan said the agency could expand a proposed rulemaking on consumer-oriented junk fees to include business-to-business fees. She also said franchisee objections to “kickbacks” paid to franchisors could be addressed under the FTC’s effort to reactivate Robinson-Patman Act enforcement.
In opening remarks, Khan said her main goal was to hear from franchisees at the event organized by the Asian American Hotel Owners Association (AAHOA), the American Association of Franchisees and Dealers, and the Coalition of Franchisee Associations (AAHOA release). She said franchisee requests for “transparency and fairness” were squarely within the FTC’s mandate. The agency is tasked with “making sure that dominant firms are not using their power in unlawful ways that lock out small businesses and entrepreneurs,” she said, noting a recent Request for Information on the franchisee-franchisor relationship.
“There are three-quarters of a million franchisees operating,” said Khan. “This is a really important model… Unfortunately, we’ve heard a lot of concerns.” The FTC is “looking to reinvigorate” its enforcement of all “the laws that Congress has charged us with,” including FTC Act Section 5, “which prohibits unfair methods of competition” and “unfair or deceptive acts or practices.”
Khan noted the FTC issued a proposed rule to ban non-compete agreements in employment contracts, and is looking at whether to include franchisee-franchisor provisions. She also noted the FTC’s renewed effort to enforce Robinson-Patman Act provisions against bribes or kickbacks, and is revisiting its Franchise rule.
The FTC has seen a dynamic where a large “asymmetry of economic power can too often translate into a large imbalance in whose voices are heard, or even who feels free to speak up without fearing retaliation,” Khan said. “It is strongly my view that in America nobody should have to fear losing their livelihood for exercising their basic freedom of speech, or engaging in our democratic process and engaging with government agencies.”
AAHOA Chairman Bharat Patel said a main driver “to join a brand and buy a franchise” is “group purchasing power that’s supposed to lower the costs of goods and services,” he said. “However, this is not what we’re seeing. We have mandated vendors who are charging higher prices to the franchisees and sending rebates or commissions back to the franchisors.” (Others called the rebates “kickbacks.”)
One hotel franchisor “took in close to $90 million in revenue based on the franchise purchases in their 2021 disclosure,” Patel said. “And we don’t know how it was used. This is not the free market.” The practice should be stopped or at least the rebates should be fully disclosed, he said.
AAHOA Vice Chairman Miraj S. Patel said “loyalty programs” have become a “profit center for franchisors based on unfair practices that are often not fully disclosed.” For example, “instead of a consumer … staying at a brand property for which a consumer will earn loyalty points that can be then cashed in for a free stay down the line, a consumer can now … go to the franchisor’s website and buy deeply discounted loyalty points,” he said. “A consumer can then stay at the brand hotel for free with these discounted loyalty points, but the franchisor, in return, only reimburses the hotel owner a small amount … typically 25 or 30% of the average room night, while the franchisor pockets the difference … These loyalty programs have become a sort of cryptocurrency regulated by the franchisors.”
Some franchisees said they had problems with corporate owners while others said they had more problems with small franchisors, some of whom didn’t operate any stores or offices.
Vendors “have to pay to play to become mandated, and they do not offer the best or the most competitive pricing; instead, often the prices are higher for lesser-quality goods,” said AAHOA CEO Laura Lee Blake. “These new fees that were not disclosed in the [franchise disclosure document]; instead, they’re running them through an operations manual, and they keep … adding up every year for the franchisees who cannot, especially in the hotel industry, usually exit the franchise agreement without paying hundreds of thousands in liquidated damages. They’re stuck.”
“Some of that seems intrinsic to how franchising is done, right?” Khan said. “Once you are reading the disclosure docs and everything looks fine and good, you’re undertaking the investment, and then anytime you’re undertaking a big investment, the exit opportunity can be more challenging. So I’m just curious … what else could be done?”
“People always say, ‘well, you signed the contract,’” said moderator Ken Miller, principal, Franchisee Advocacy Consulting. “But a lot of these terms are coming up on renewals, and it depends how long that term is. But obviously the non-compete thing really, I think, puts … a roadblock there. When the opposition says franchising can’t survive without it, well, California bans them already … Being in California, last I checked there’s a lot of franchises here.”
Events in Next Two Weeks
Monday, May 8 at noon EDT. American Bar Association (ABA) webinar “Price Fixing 101” on basics of price-fixing litigation from plaintiff, defense, DOJ and economist perspectives. DOJ antitrust division trial attorney Julia Maloney among speakers.
Wednesday, May 10 at 10:00 a.m. EDT. Information Technology & Innovation Foundation webinar“Assessing the State of Transatlantic Tech-Trade Relations.” Speakers include the U.S. State Department’s Tyson Barker, Bureau of European and Eurasian Affairs senior advisor, and Eva Maydell, European Parliament member. (An EU-U.S. Trade and Technology Council ministerial meeting is coming up May 30-31 in Sweden.)
Wednesday-Friday, May 10-12 at 8:30 a.m., 9:00 a.m., 9:00 a.m. PDT. American Intellectual Property Law Association Spring Meeting in Seattle. Speakers include USPTO Director Kathy Vidal in opening plenary session on May 10 at 8:30 a.m. (program).
Wednesday, May 10 at noon EDT. Public portion of National Association of Attorneys General “Consumer Protection Spring Conference” (May 10-12, draft agenda) in Tampa, Florida. On the agenda are AI and deep fakes, online lenders, and data collection and targeted advertising.
Wednesday-Thursday, May 10-11 at 9:00 a.m. PDT each day. Informa CompLaw “Antitrust West Coast” conference in San Francisco. Speakers include senior federal and state officials, industry executives and others.
Wednesday, May 10 at 1:00 p.m. EDT. Senate Health, Education, Labor & Pensions (HELP) Committee hearing “The Need to Make Insulin Affordable for All Americans.” Witnesses: the CEOs of the major insulin manufacturers—Eli Lilly and Co., Novo Nordisk and Sanofi—and top executives of the major pharmacy benefit managers: CVS Health, Express Scripts and OptumRX. See release of Chairman Bernie Sanders (I-VT) for more.
Thursday, May 11 at 10:00 a.m. EDT. Senate HELP panel executive session to continue action on the Pharmacy Benefit Manager Reform Act (S. 1339) Ensuring Timely Access to Generics Act (S.1067), Expanding Access to Low-Cost Generics Act (S. 1114) and RARE Act (S. 1214).
Thursday, May 11 at 10:00 a.m. EDT. Senate Judiciary Committee business meeting, with agenda including tech-relevant bills: STOP CSAM Act (S.1199) and Project Safe Childhood Act (S. 1170) targeting online child sexual exploitation, the SHIELD Act (S. 412) targeting harmful image exploitation and distribution, and the Cooper Davis Act (S.1080) to “require electronic communication service providers and remote computing services to report to the Attorney General certain controlled substances violations.”
Thursday, May 11 at 10:00 a.m. EDT. Senate Finance Committee hearing “Cross-border Rx: Pharmaceutical Manufacturers and U.S. International Tax Policy.”
Thursday, May 11 at 10:30 a.m. EDT. House Energy & Commerce oversight subcommittee hearing“Examining the Root Causes of Drug Shortages: Challenges in Pharmaceutical Drug Supply Chains” (release).
Thursday, May 11 at 11 a.m. EDT. ABA webinar “Applying a Gender Lens to Antitrust.” Speakers: Keystone Strategy’s Cristina Caffarra, FTC’s Patricia Brink, Competition Bureau Canada’s Ellen Creighton and GWU law’s William Kovacic.
Thursday, May 11 at 1:00 p.m. EDT. FTC virtual event (at ftc.gov) on cloud computing. Chair Lina Khan gives opening remarks followed by primer and panel discussion (description/agenda).
Friday, May 12 at 11:00 a.m. EDT. The Capitol Forum conference call with Philip Mattera, research director of Good Jobs First. TCF’s Teddy Downey and Alice Tracey will interview Mattera about his report that found that brand-name drug producers’ “Pay for Delay” schemes to stave off competition have resulted in $10 billion in fines and settlements since 2000. Register here to receive the link for the call (email info@thecapitolforum-news.com for assistance).
Friday, May 12 at 3:00 p.m. EDT. FTC commissioners closed meeting on two nonpublic law enforcement matters.
May 16 at 4 a.m. EDT (9:00 a.m. British Summer Time). Access Partnership webinar “Responsible AI: From concept to practice.” Speakers include Caitlin Corrigan, executive director, Institute for Ethics in Artificial Intelligence.
May 16-17 at 8:00 a.m. EDT. Informa Connect “Drug Pricing Transparency Congress” in Washington, D.C. (mostly livestreamed, must register). Speakers: mostly industry representatives.
May 17-18 at 9:00 a.m. EDT. Food and Drug Law Institute annual conference in Washington, D.C. (hybrid event). Food & Drug Administration Commissioner Robert Califf and Chief Counsel Mark Raza give opening keynotes, with many other FDA officials and some DOJ and FTC officials also among speakers.
May 17 at 1:30 p.m. EDT. CTIA 5G Summit in Washington D.C. Speakers include FCC Chair Jessica Rosenworcel and Senate Commerce communications Chair Ben Ray Lujan (D-NM).
May 18 at 10:30 a.m. EDT. FCC commissioners meeting (hybrid event). Tentative agenda includes a 12.2 GHz band order to safeguard next-generation satellite uses while barring mobile operations, and a 12.7 GHz band proposed rulemaking to allow mobile broadband and other uses.
Mark Your Calendar
May 23 at 8:30 a.m. EDT. CFE Fund & Bank On conference in Washington D.C. (registration). Keynotes: FDIC Chair Martin Gruenberg and Acting Comptroller of the Currency Michael Hsu.
May 23 at 9:00 a.m. EDT. American Antitrust Institute annual conference in Washington, D.C. “Taking Stock of Antitrust’s Pro-Enforcement Movement.” Agenda includes panels with DOJ antitrust division’s Markus Brazill (counsel to AAG Jonathan Kanter) and Chief Technologist Laura Edelson; and Randy Stutz, attorney advisor, FTC Office of Policy Planning. Colorado AG Philip Weiser to receive Alfred Khan Award for Antitrust Achievement.
May 23 at 1:00 p.m. EDT. Institute for Local Self-Reliance virtual event “Fixing the Food Gap: Antitrust Action and Grassroots Solutions to Check Dollar Stores and Rebuild Local Grocery Stores.” FTC Commissioner Alvaro Bedoya gives keynote, followed by panel discussion.
June 7 at 9:00 a.m. EDT. GCRLive Cartels conference in Washington, D.C. on “the next frontier of cartel enforcement.” Speakers include DOJ antitrust division’s Deputy AAG for criminal enforcement Manish Kumar and Washington Criminal II Section Chief James Fredricks.
Other Developments
EPI: Kroger/Albertsons would cut store worker wages by $450 per worker annually. Kroger’s planned $24.6 billion purchase of competing supermarket Albertsons would reduce the wages of grocery store workers in affected cities by $334 million by limiting employment options, according to a study from the left-leaning think tank Economic Policy Institute.
EPI economist Ben Zipperer used prior research that forecasts changes in average wages following changes in employer concentration and applied those estimates to the grocery market in 55 metropolitan areas where concentration would increase as a result of the deal. Wages would decline by 1.3% for the 746,000 workers in those areas, with workers in the Los Angeles, Chicago, and Washington, D.C., areas and their nearby suburbs seeing the biggest aggregate wage losses, Zipperer found.
The losses extended to workers employed by other stores, not just Kroger, Albertsons, or their various banners. “Because Kroger and Albertsons employ about one quarter of all grocery store employees, most of the wage losses caused by the merger will be a negative externality that falls on grocery store workers employed by other firms,” he wrote.
The U.S. Department of the Treasury is amending the CFIUS real estate regulation. A proposed rulewill add eight military installations to the list of critical military sites subject to the jurisdiction of the Committee on Foreign Investments in the United States (CFIUS). Currently, foreign investors buying real estate near sensitive sites are required to file with the committee. There are more than a hundred sensitive sites, which include homeland security facilities, infrastructure assets, and military installations. Some sites are classified and CFIUS intervenes on a case-to-case basis.
The proposal comes on the back of the controversial decision by CFIUS not to intervene in the purchase of land near the Grand Forks Air Force base in North Dakota because the base wasn’t included on the list of sensitive military sites. The Treasury’s decision to bring eight military sites under the CFIUS jurisdiction will give the committee more flexibility in dealing with cases like the one in North Dakota. The proposed list includes Grand Forks Air Force Base in North Dakota, Lackland Air Force Base in Texas and Air Force Plant 42 in California, among others.
A periodic review of the list of sensitive military installations was foreseen in 2020 when Congress passed the landmark CFIUS reform bill.
Non-Capitol Forum Antitrust Reading List
Sheila Foster Anthony in The Sling: The Double Standard Applied to Lina Khan. LINK
The New York Times: Supreme Court Takes Up Case That Could Curtail Agency Power to Regulate Business. LINK
BIG By Matt Stoller: All Rise: How Judges Rule America. In a case involving Swedish conglomerate Assa Abloy’s attempt to dominate smart locks, a Biden judge is acting like an anti-government management consultant. The American judiciary is out of control. LINK (Written before the DOJ-Assa Abloy proposed settlement was announced.)
The Wall Street Journal: Why Is Inflation So Sticky? It Could Be Corporate Profits. Some companies might have been raising prices faster than their costs have increased. LINK
Reuters: Walmart keeps grocery prices steady amid inflation, antitrust claims. Dataweave analyzed prices of 589 products over 14-month period. Walmart’s avg. basket price rose 3% vs avg. inflation of 7.5% LINK
Bloomberg Opinion, Ed Hammond: Economic Reality and Antitrust Theory Paralyze M&A. LINK
The American Prospect: Morgan’s Takeover of First Republic: A Shady Sweetheart Deal. The comptroller of the currency rejected other alternatives in the rush to have government underwrite Morgan’s latest coup. LINK
Politico: The Right’s Economic Populism Is Breaking Progressives’ Brains. When two American Prospect writers expressed tentative praise for the deposed Tucker Carlson, the response was instant and furious. LINK
Bloomberg: Senate Democrats Plan Bipartisan Bill to Compete With China. Bill aims to respond to any Chinese aggression against Taiwan. Measure is follow-up to last year’s microchip-focused bill. LINK
The WSJ: U.S. Orders Chinese Firm to Sell Dating App Grindr Over Blackmail Risk. Beijing could exploit the app’s personal data for espionage, U.S. officials believe. LINK
Reuters: Vanda Pharmaceuticals sues U.S. government over drug trade secret. LINK
Bloomberg Opinion, Chris Bryant: Your Holiday Rental Car Will Cost a Fortune, Again. Car-hire firms are making the most of their oligopoly. LINK
WRAL News: Unanimous NC Senate backs UNC Health changes, despite ‘monopolistic’ concerns. LINK
Minnesota Reformer: Mayo Clinic threatens to pull billions in investments over proposed legislation that aims to increase nurse staffing levels and rein in health care costs. LINK
Inside Radio: President Biden Reportedly Nearing A Decision On FCC Pick. LINK
Labor
The WSJ: Biggest Grocery Union Opposes $20 Billion Kroger-Albertsons Deal. LINK
The American Prospect: The UAW Plays Some Hardball on Electric Cars. The union’s new leaders seek some administration guarantees of just transition before backing Biden in ’24. LINK
The American Prospect: Teamsters Begin Major Amazon Fight. A group of unionized delivery drivers in Palmdale, California, could open new possibilities for a legal challenge to Amazon’s subcontracting model. LINK
The American Prospect The Writers Walk. The nearly century-long war between the studios and the writers continues. LINK
Artificial Intelligence
Politico: ‘It’s got everyone’s attention’: Inside Congress’s struggle to rein in AI. LINK
The Washington Post: Google shared AI knowledge with the world — until ChatGPT caught up. For years the tech giant published scientific research that helped jump-start its competitors. But now it’s lurched into defensive mode. LINK
The New York Times: ‘The Godfather of A.I.’ Leaves Google and Warns of Danger Ahead. For half a century, Geoffrey Hinton nurtured the technology at the heart of chatbots like ChatGPT. Now he worries it will cause serious harm. LINK
Axios: AI experts warn of looming catastrophes. LINK
The WSJ: Google DeepMind CEO Says Some Form of AGI Possible in a Few Years. LINK
The Information. Amazon Plans to Generate Photos and Videos for Advertisers Using AI. LINK
CNBC: Britain launches probe into ChatGPT-style A.I. as regulators grow concerned by risks. LINK
Bloomberg: AI Chatbots Have Been Used to Create Dozens of News Content Farms. A new report documents 49 new websites populated by AI tools like ChatGPT and posing as news outlets. LINK
More Tech
The Washington Post: Big Tech-funded groups try to kill bills to protect children online. The groups are blitzing states, arguing that new measures would hurt user privacy. LINK
The WSJ: TikTok Tracked Users Who Watched Gay Content, Prompting Employee Complaints. LINK
AP: Waymo robotaxis make more inroads in Phoenix, San Francisco. LINK
Washington Examiner: Tech groups weigh in against Texas bill that would limit abortion pill information. LINK
The Washington Post. Utah’s porn crackdown has a VPN problem. LINK
International
Reuters: Google, Meta executives push back against Canada online news bill. LINK
Tech Policy Press — Australia’s New Soft Power: Bargaining Codes Start to Spread Globally. LINK
Reuters: Microsoft offers to charge for Teams to address EU antitrust concerns. LINK
Reuters: French antitrust body tells Meta to change conditions for access to ad verification. LINK
The Guardian: Facebook and WhatsApp owner urged by UK bank to act on fraud as scams soar. LINK
