Markets Wired

In testimony before the U.S. Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, the Federal Trade Commission addressed how U.S. antitrust laws apply to acquisitions of nascent or potential competitors by digital platforms.

The testimony noted that many sectors of the economy have experienced significant disruption, which has resulted from the widespread use of technology to support new and evolving business models.

Testifying on behalf of the FTC, Bureau of Competition Director Bruce Hoffman stated, “This hearing focuses on one potential form of conduct that could harm competition in digital technology markets – the acquisition by dominant firms of nascent or potential competitors. This type of behavior, of course, can be just as anticompetitive as any other form of conduct. If a firm buys a nascent rival rather than trying to kill it through other means, that purchase is just as worthy of antitrust scrutiny.”

As part of its commitment to examining the effectiveness of its antitrust enforcement efforts, the Commission has held a series of hearings on competition and consumer protection topics over the last year, the testimony states. Several panels discussed issues relating to technology and the digital economy, including the acquisition of potential or nascent competitors in the digital marketplace.

To address the potential challenges posed by digital industries, the Bureau of Competition recently formed a Technology Task Force, which is actively conducting investigations.

Today’s testimony describes the basics of antitrust analysis that the Commission can employ to prevent competitive harm in technology markets. The testimony considers how merger analysis under the Clayton Act accounts for the incentives of established firms to acquire nascent or potential competitors. The FTC pays close attention when an industry leader seeks to acquire an up-and-coming competitor that is changing customer expectations and gaining sales, the testimony observes. For example, last year, the agency challenged the merger of market leader CDK Global and far-smaller competitor, Auto/Mate, both of which provide specialized platform business software used by U.S. franchise automotive dealers.

When a merger of potential competitors in a future market may delay competition by bringing separate development efforts under common control, the Commission may require a divestiture of one product under development, the testimony states.

In addition to the Clayton Act, the Sherman Act bars a firm from gaining or maintaining a monopoly position through anticompetitive conduct, including acquisitions that exclude nascent and potential threats to its dominance. A claim of monopolization under Section 2 of the Sherman Act requires proof of the possession of monopoly power, plus the willful acquisition or maintenance of that power as distinguished from growth or development because of a superior product, business acumen, or historic accident. The agency used this legal framework in its 2017 case against Questcor, alleging that Questcor illegally maintained its U.S. monopoly for an expensive drug called Acthar by buying the rights to develop a competing product and then not developing it, the testimony explains.

The testimony recounts the Commission’s latest monopolization case against the health information technology company Surescripts LLC. The FTC’s complaint alleges that Surescripts employed both vertical and horizontal restraints to maintain at least a 95 percent market share in two electronic prescription markets: routing and eligibility. The case demonstrates the FTC’s willingness to rely on Sherman Act standards to challenge anticompetitive conduct of technology firms, the testimony states.

The Commission voted 5-0 to approve the testimony and include it in the formal record.

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