The Prohibiting Anticompetitive Mergers Act – A Radical and Duplicative Bill
Democrats in both the House and Senate recently introduced H.R. 7101/S. 3847, the “Prohibiting Anticompetitive Mergers Act” (PAMA) sponsored by Rep. Jones and Sen. Warren. The bill is yet another merger ban bill (which also includes unwinding previous mergers) targeted at leading technology services in the mold of H.R. 7835, the Ending Platforms Monopoly Act and H.R. 3726, the Platform Competition and Opportunity Act, along with its Senate companion S. 3197.
The newest attempt at regulation is helmed by seven senators and eleven House members. It is conceivable that the sweeping nature of this bill could shift the “Overton Window” of industrial policies that are plausible, making other House and Senate Judiciary Committee proposals, namely S. 2992 and H.R. 3816, appear as more sober, thoughtful, and therefore worthy of floor time. But as DisCo has previously discussed, those bills have lots of problems as well. [ 1, 2, 3, 4, and 5]
Because previous anti-tech bills introduced in this Congress were marked up without any prior legislative hearings in the House or the Senate, it would not be surprising if this radical bill followed the same route. This new trend of marking up bills, especially those that will have arguably the biggest consequence for antitrust in over 100 years since the Sherman and Clayton Acts and would stand to overturn the prevailing consumer welfare standard [1, 2], should be stopped by Congress as discussed previously. The public and interested stakeholders should be afforded the time to digest the import of these bills, register concerns, ask questions, and expect redress and discussion with lawmakers.
Let’s talk about PAMA
PAMA would prohibit certain mergers outright, without prior court approval, including:
- transactions valued over $5 billion;
- transactions that would result in the combined firm having over a 33% market share; and;
- transactions that would result in a market share greater than 25% of any labor market
PAMA would also dramatically alter the merger review process by allowing the Department of Justice (DOJ) and Federal Trade Commission (FTC) to block mergers outright without having to seek a preliminary or permanent injunction in federal court. It would extend the initial Hart-Scott-Rodino (HSR) waiting period from 30 days to 120 days. In addition, it would ban the agencies from negotiating settlements during the initial HSR or extended Second Request waiting period. The agencies could reverse already consummated mergers if they led to a market share of greater than 50% or “materially harm” workers, consumers, or small businesses. The agencies’ challenges to mergers would only be overturned on appeal if the reviewing agency acted in an “arbitrary or capricious” manner. However, with such a permissive standard, the vast majority of banned mergers would have no hope of being overturned in court!
PAMA would undermine the DOJ and FTC’s expertise and authority to determine relevant markets and dominance by defining a “dominant firm” as one that has $5 billion in annual revenues, is a financial institution, equity fund, or a registered investment advisor that has greater than $10 billion in capital, commitments, or assets, or a firm with greater than 20% of any relevant market. PAMA would almost always reject mergers involving or resulting in a “dominant firm.” Thus, PAMA would remove agency authority and limit the agencies’ investigatory power to determine relevant markets and market dominance – instead, PAMA would outright ban mergers, many of which would likely lead to significant consumer benefits. Banning many procompetitive mergers would harm consumers and the economy as a whole. Yet, the bill misguidedly calls for the arbitrary appropriation of $1 billion dollars to the FTC and the DOJ. Additionally, any fines and penalties assessed by the agencies may be used as the agencies see fit.
Here’s Why the Sponsors Think PAMA is Needed
PAMA’s sponsors are attempting to make the case that the bill is needed because “in 2015, the top 30 firms [pocketed half of the profits generated by firms and because] startup rates fell by more than half over the last four decades in industries that saw an increase in concentration.” However, there are numerous studies refuting these claims. [1, 2] The bill further states that market concentration is associated with low wages and that in more concentrated markets, corporations are less likely to pass productivity gains on to workers in terms of wages and best labor practices, which is belied by the March 2022 Chamber of Commerce study showing that concentration is decreasing.
PAMA Provides Duplicative Remedies
PAMA is a bill with duplicative remedies as the agencies already have the ability to look back and review a merger that has already been consummated. But because the sponsors of the bill are concerned that there has been a “recent explosion of filings” under the HSR Act, they want to empower the agencies to block acquisitions and effectively stop mergers. The bill has additional duplicative requirements, such as requiringHSR filings for mergers greater than $50 million and when the acquiring company or acquiree has more than $5 billion in annual revenue, but these requirements are again already part of existing law.
The HSR filing is shared with State attorneys generals and other agencies. Penalty for filing false certification amounts to $10 million in fines that must be personally payable by the firm’s CEO if the CEO knew or should have known of the violation; otherwise, the entity will be fined 5% of revenue.
The Agency Review Process is Stacked Against the Acquiring Company
Within 60 days of the agencies announcing a formal review of the acquisition, the public can provide comments on the harms to the competitive process, which would include any harms to workers, consumers, small or minority-owned businesses, communities of color, and vague notions of “privacy, quality (including health and safety), entrepreneurship, or innovation.” In evaluating whether an acquisition is “likely to harm the competitive process,” the agencies can consider an overly broad range of variables such as historical factors, whether another party offers competing or equivalent services, or is a startup. If the agencies determine that the acquisition should not be rejected, it can still be reviewable at any time thereafter. Additionally, certain acquisitions are rejected per se, i.e., if the acquisition is likely to harm the competitive process, a party to the acquisition is a dominant firm or has made 2 or more acquisitions in any market within 5 years, or if certain other federal agencies object to the acquisition on a substantive ground defined in the legislation. If acquisitions are rejected, the agencies must publish the reasons for denial and must respond to public comments. The decision is reviewable in federal court but the standard is so narrow that the agencies’ determination can only be overturned if it’s arbitrary, capricious, or an abuse of discretion and the courts will no longer be able to balance anticompetitive behavior with procompetitive benefits and give deference to the agencies’ determinations.