French Insider Podcast Ep. 35
Antitrust in Focus: How the 2024 Election Could Impact the U.S. Antitrust Landscape with Jared Nagley of Sheppard Mullin
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In this episode of French Insider, Jared Nagley, a partner in Sheppard Mullin’s Antitrust and Competition Group formerly with the FTC’s Bureau of Competition, joins host Inès Briand to discuss the impact of the upcoming 2024 election on the U.S. antitrust landscape, and potential impacts from both a Democratic and Republican outcome.
About Jared Nagley
Jared Nagley is a partner in Sheppard Mullin’s New York office, where he is a partner in the Antitrust and Competition Group. Jared’s practice focuses on complex antitrust matters, including defending clients in litigations and government investigations brought by the Federal Trade Commission (FTC), the Department of Justice's Antitrust Division, and state and international enforcement authorities, in addition to advising clients in their mergers and acquisitions, joint ventures, and other strategic business issues. He is a member of the firm’s French Desk and Canada Desk Teams.
Prior to joining Sheppard, Mullin, Jared spent eight years at the FTC’s Bureau of Competition, where he served as the lead attorney in several significant public matters and was the recipient of the Janet D. Steiger Award.
About Inès Briand
Inès Briand is an associate in Sheppard Mullin’s Corporate Practice Group and French Desk Team in the firm’s Brussels office, where her practice primarily focuses on domestic and cross-border mergers and acquisition transactions (with special emphasis on operations involving French companies). She also has significant experience in general corporate matters and compliance for foreign companies settled in the United States.
As a member of the firm’s French Desk, Inès has advised companies and private equity funds in both the United States and Europe on mergers, acquisitions, commercial contracts and general corporate matters, including expansion of French companies in the United States.
Transcript:
Inès Briand:
Hi everyone, and welcome to today's episode of the French Insider podcast. I'm Inès Briand, an associate based out of our Brussels office in the corporate and securities group at Sheppard Mullin. And today, I'm joined by Jared Nagley. Hi Jared.
Jared Nagley:
Hi Inés, how are you?
Inès Briand:
Good. And you?
Jared Nagley:
Good today, thank you.
Inès Briand:
So could you please shortly introduce yourself?
Jared Nagley:
Sure. My name is Jared Nagley. I'm an antitrust lawyer and have been one for a long time. I am in Shepard Mullin's New York office and I also spent a lot of time at the Federal Trade Commission, in a prior life. So I have experience with antitrust as both an enforcer and as someone trying to guide clients through the process of dealing with the Federal Trade Commission, the Department of Justice, and the various state attorneys general who have become much more active in the space over the last few years.
Inès Briand:
That's very interesting. And so also I heard that there's a new Canada Desk that just got created.
Jared Nagley:
There is. So I am, by birth, a Canadian from Montreal. I guess where my overlap with the French Desk is. The Canada Desk and the French Desk, the Venn diagram sort of centers on where they intersect, centers on Montreal, and so I guess centers on me. So yes, I'm happy to be the member that sort of hinges the French Desk and the Canada Desk together.
Inès Briand:
That's great. So thanks for joining us today. And so we're going to talk about the antitrust and the elections that are coming up in 2024. So do you think that the outcome of the presidential election will necessarily have a major impact on antitrust enforcement?
Jared Nagley:
That's a very interesting question. A lot of people, a lot of lay observers, would naturally think, broadly speaking, that whether it was another Trump administration or the first Harris administration would necessarily impact how antitrust enforcement is pursued. This largely stems from people's sort of inherent belief that Republicans are pro-business and maybe less likely to enforce the antitrust laws vigorously. Or conversely, they think that Democrats are very anti-business and will over-enforce the antitrust laws. As it turns out, those broad characterizations are largely incorrect, I think. And if nothing else, the last few years have taught us that, speaking of Venn diagrams, there's a lot more overlap between Democrats and Republicans in many core areas of antitrust enforcement. So for example, both parties have been very in favor of, very supportive of antitrust enforcement in the healthcare sector. We'll talk about individual sectors a little more, so just mentioning one. And they both, maybe for different reasons, have been very interested in enforcement in the technology side. So it is a little too simplistic to say Republicans less enforcement, Democrats more enforcement.
One thing that we have seen over the course of the last several years, going back to the first Trump administration, has been a shift in antitrust in general. Both Republicans and Democrats have become more pro-enforcement. And I think this is largely down to the fact that, not to get too technical or in the weeds, but for many decades leading up to the first Trump administration, Republican and Democratic thinkers about antitrust, intellectuals and economists, had sort of agreed on a general framework for what enforcement should look like. There were obviously disagreements about specifics of how enforcement should take place, but the load star, the North star I should say, was always something called consumer welfare, which is essentially boiled down to does a merger, for example, or a business practice impact consumers positively or negatively, usually through the lens of are prices going up or not for consumers. And in some ways that was a very useful tool and in some ways it was a very narrow tool because it focused on a very narrow aspect, a very narrow effect of corporate behavior. And that narrow effect, people began to view as too myopic.
So let's take a modern example. We all have apps on our phones, whether we are Android users or iPhone users, and many of our apps are free, we don't pay for them. And so, how do you measure competition in a situation where you are getting services for free? Can there still be harms to competition when a lot of the services we receive in the modern digital age we don't directly pay for? That's just one example. And it turns out a lot of people anyway think that a broader view is necessary beyond just price to understand economic impact. I think it's all part of a more populist trend in antitrust enforcement, maybe more populist trend generally in government.
But that was all a long-winded way of saying in their own ways, Democrats and Republicans, and again, I am obviously generalizing because there's only two major parties and there's differences among people even within parties. But I think there has been a more populist trend over the last many years, a rejection of the Chicago school, the narrow focus on consumer welfare. The Chicago school, I don't know if I mentioned it, is sort of the economic instantiation of consumer welfare. And the economists from the University of Chicago were preeminent in establishing that outlook. And so, it became known as the Chicago school. And so, I think as we have our conversation today and we look through different areas of enforcement, we will see that although there are differences, both Democrats and Republicans are likely much more aggressive, no matter how you define aggressive, than members of their parties were 10 years ago.
Inès Briand:
And would you say that most parties are targeting the same areas or are they targeting different sectors of the industry?
Jared Nagley:
So broadly speaking, I think the focus is on similar things. What each thinks is an appropriate approach to enforcement in those areas may be slightly different and maybe it's best to start with some examples and we can explore some similarities and some differences as we go along between what each side tends to think is appropriate enforcement. I'll say, just to set the stage, as I think everyone knows, the current head of the Antitrust division at the Department of Justice, Jonathan Cantor was a Biden appointee, of course he was. The Federal Trade Commission works a little differently. There's a lot of mention of Lena Kahn in the news and she is the chairman of the commission, but it is a five-member commission. So it's a very sort of different structure. And currently, there are three members of the commission that are Biden appointees. And more recently in the last year, two members of the commission that are Republican appointees.
And that's generally how the commission is supposed to work, being that there are three people from the president's party and two people from the minority party. But again, the commission is a little strange and at any given time there may be 1, 2, 3, 4 or 5 commissioners and that has implications for how the commission operates. And so, just a word in advance that although a lot of the conversation you hear about the FTC is surrounding Lena Kahn, for very good reason, at the end of the day she is one of five members. And although she largely drives policy, it is a slightly different setup and there are slightly therefore different considerations when you are talking about the Department of Justice or the Federal Trade Commission.
So let's take a look at a place where Democrats and Republicans tend to have a great deal of agreement, and that is in healthcare. Healthcare a is very important, very important part of the US economy, a very large part of the US economy, and it's also a very public-facing part of the US economy. Consumers care very deeply about their healthcare and because individual citizens care very deeply about their healthcare, politicians care very deeply.
Inès Briand:
Yeah, the correlation.
Jared Nagley:
Yes, maybe correlation, maybe causation, I won't speculate, but as a result, there is a history of enforcement under both Republican and Democratic administrations in the healthcare sector, healthcare is largely not exclusively, largely the purview of the Federal Trade Commission, particularly hospital mergers. Mergers involving payers, insurance companies, health plans, that tends to be the Department of Justice and the enforcement doesn't really change depending on administration. I served at the Federal Trade Commission under both Democratic and Republican administration. And at the Federal Trade Commission, as I mentioned, it's a commission, so ultimately there are five decision-makers, not one. And there is a vote if you need the commission to take action to issue process, to issue a second request, which is essentially a very large investigative subpoena, to ultimately issue a complaint if they're going to challenge a transaction. And although there are often divisions between Republican and Democratic commissioners, usually, not exclusively, but usually when FTC staff is seeking enforcement in the healthcare space to block a hospital merger for example, you get unanimity in the voting of Republicans and Democratic commissioners.
So hospital consolidation, provider consolidation, I think that's something that both Democrats and Republicans are very wary of. And so, I don't see that changing whether or not the next administration is Republican or Democrat. And this ties to I think just generally the rising cost of healthcare. And one of the healthcare is obviously a very complicated subject. It is very difficult to tease out the various reasons why healthcare costs so much in this country. But one way that is generally accepted in the economic literature and generally viewed as sort of a commonsensical approach is that less choice leads to higher prices. So you have three hospital systems in an area and you go down to two, prices tend to go up. And so, that's an easy fix for both Republicans and Democrats. The more nuanced maybe approach has to do with the cost of drugs. So again, not essentially a universal complaint among American consumers is the high cost of prescription drugs and not just drugs that are patented and are still under patent protection, but even generic drugs.
We've all seen examples in the last several years where drugs that have been on the market for a very long time, prices go up because companies raise the prices of the drugs for a variety of reasons. But it's not because of new investments in research or development. The drugs are well known and well used for decades. There are generics of the drugs and yet the price of all of them stays stubbornly I or rises. And what has been newer under both the Trump and Biden administrations has been looking at antitrust as a way in which they can go after behavioral remedies to investigate people who they consider or the FTC or the DOJ consider are behaving anti-competitively, not in the context of a merger, but behaving anti-competitively in how drug prices are being set.
So one example that you may see in the news, the FTC has for the last two years been examining the PBM industry, pharmacy benefit managers. These are sort of middlemen between the drug companies who manufacture the drugs and the insurance companies who pay for the drugs. And there are only three very big ones in the United States. And the FTC has recently sued the PBM manufacturers as an outgrowth of its investigation into the space because the allegations relate to the practices of the PBM managers artificially keeping drug prices higher.
And both sides of the aisle, there is absolutely some disagreement at the commission, but both sides of the aisle are generally supportive of, if not this particular instance, of the FTC's use of its powers, of a more fulsome, a more careful review of business practices by members of the drug distribution chain in this country. And in fact, when the FTC launched its recent lawsuit, it also made a comment that this doesn't mean that we aren't looking at manufacturers as well. Again, drugs are very complicated and drug prices are very complicated, I should say. And there are a lot of factors that go into what makes a drug cost what it does. But I think the last several years have seen a trend of antitrust enforcers looking at the tools that are available to them and seeing whether or not they can be applied in slightly new milieus to achieve the effect of improving the competitive environment and in this case, reducing drug prices,
Inès Briand:
Which in turn is good for the consumers.
Jared Nagley:
One would hope.
Inès Briand:
Yeah. And so, I guess one other sector that's been under a lot of scrutiny would be big tech. Can you tell us more about this?
Jared Nagley:
Sure. So big tech is an interesting one because it is sort of a generic and somewhat amorphous term, but what's interesting is some of the most aggressive things said about the big technology companies have been from the Republican side of the aisle. So Trump on his first administration had a number of investigations and challenges in the tech space. Then President Trump made various comments about the dangers of concentration, specifically in the tech space. JD Vance, who is Mr. Trump's nominee to be vice president, has said a very aggressive thing about antitrust enforcement. He has made comments about breaking up large tech companies. He has said Lena Kahn, the chairman of the FTC, is very divisive. Many people think she fabulous and is doing spectacular work, being very aggressive, enforcing the antitrust laws or attempting to enforce the antitrust laws in ways that they haven't been in the past, bringing them to new sectors and new theories. Many people on both sides of the aisle think she is naive and is doing more harm than good and is bad for the economy.
But interestingly, JD Vance has said positive things about Chair Khan. He has said, I'm not quoting exactly now, but something along the lines of she's one of the few people in government on the democratic side who's doing a good job. Now, whether JD Vance ultimately has any influence over antitrust policy should President Trump get reelected, that's sort of a different story. But it's interesting anyway, that on the big tech side, in many respects, the Republican side of the aisle has been quite aggressive. And by comparison there is less of a history with respect to nominee Kamala Harris on the democratic side as to what she would do with respect to antitrust if she were president. She's made fewer statements. When she was in California, the AG's office didn't take particularly aggressive action with respect to big tech, which is interesting because as many of you realize, I think who are listening to this-
Inès Briand:
Silicon Valley.
Jared Nagley:
Exactly. Silicon Valley, the tech industry, is based largely in California, or at least I'm not going to try and do percentages, but a lot of it is in California. It makes an important part of the economy. And Harris has said very positive things in the past before she was the Democratic nominee for President about the importance of the tech sector to the economy and the importance of the tech sector to jobs and the development of the United States' capabilities. So this is not to say that Harris presidency would be less aggressive with respect to big tech, but I do think there are people who are on the Democratic side of the aisle who may be encouraged, and the Republican side of the aisle, who in at least in this one way, who may be encouraged that the FTC and DOJ under a Harris presidency wouldn't be as aggressive with respect to big tech enforcement.
Again, we have precious little to base this on, but hope springs eternal. And the one thing we can say is, with respect to big tech, with respect to antitrust in general, President Biden has been very aggressive. He has made major policy statements on antitrust. He has made competition in the American economy in various sectors a real focus. And he has encouraged the aggressiveness of the FTC and DOJ, or at least certainly has spoken favorably of it, which isn't to say that Harris wouldn't, but because she's more of a tabula rasa, there is, I think, on the corporate side, not speaking about the Republican side or the Democratic side on the corporate side of America, I think there is some hope that she will maybe smooth out some of the more aggressive edges of what has been the focus of the current heads of the FTC and DOJ.
And I should state that it's not a given. In fact, it would be the exception if Lena Kahn remained chair in a Harris presidency. Presidents tend to want to have their own people who are the head of the antitrust agencies, and particularly so when this would not be a Biden second term even if the Democrats win. So Harris very well might want to put her imprimatur on the position. And historically speaking, even in two-term administrations, it would be unusual for the head of the Department of Justice's antitrust division, or the chair of the FTC, to remain throughout that president who appointed them to a second term. Nothing is impossible and that she certainly could, but it is possible that enforcement changes just because even in a Democratic administration, in a Harris presidency, she decides to go a slightly different way with respect to the heads of the enforcement agencies.
Inès Briand:
And also sometimes change is good too, for the country and the economy and everything.
Jared Nagley:
For sure. What's interesting about that comment is though that in the past, people who were heads of the antitrust division or who were commissioners in the Federal Trade Commission, whether they were Republicans or Democrats, the exit path was always very similar. Many, many, many of them went to work at law firms like ours and some of them went into academia, some went and did other things, but many of them went to work in law firms.
I think what will be interesting, whoever wins the next election, is to see what the opportunities are. Not the opportunities, because the opportunities will always be there. But because we're in a more aggressive antitrust enforcement time, it will be interesting to see whether the exit opportunities or the exit decisions by the most senior members of the Federal Trade Commission and the Department of Justice are the same. I think they largely will be with the exception of, I can't see, I would be shocked, I've been wrong before, but I'd be really shocked, for example, if whenever Chairman Kahn's time is done, whenever she decided to leave the FTC voluntarily or because she was asked to leave, I would be shocked if she went to a law firm.
And in the past that would be a very natural outcome. I don't see that happening here. Jonathan Cantor is a slightly different story because he had left private a big firm about a year before he was nominated to be the chief of the antitrust division. And he had founded his own law firm. I would imagine he would go back to his own law firm, but that's sort of a special situation. I would be interested to see for the Democratic commissioners, particularly Chair Kahn, what they would do next. I don't envision it being, particularly not for her, a large law firm, which would otherwise be a very normal thing to do.
Inès Briand:
Well, I guess we might know soon, depending on the result of the election.
Jared Nagley:
Indeed.
Inès Briand:
So another topic of interest in antitrust nowadays is the scrutiny on roll-ups. Can you tell us more about this?
Jared Nagley:
Sure. So for those who are unaware, the antitrust laws apply regardless of the size of transaction, but there are notification requirements above certain thresholds. So for example, currently if a transaction involves the acquisition of assets or securities that are over 119.5 million, and it adjusts with inflation every year and other factors are met. This is very general. There is a Hart-Scott-Rodino HSR notification required for the merging parties. And what that does is it freezes the transaction for at least 30 days, and it gives information to the Department of Justice and the Federal Trade Commission who have time to decide then whether they want to investigate further. But the parties can't go ahead and close until that waiting period, that 30 days, expires on its own or is terminated by the reviewing agency. And this came about, this regime came about in 1976, I think the HSR Act was passed.
And the point of it was to give authorities a chance to breathe and consider the antitrust implications of transactions and to make them visible. Because otherwise, antitrust enforcers found out about transactions the same way everyone else did, in the newspaper. And it is very difficult to unwind a transaction after the parties have already scrambled the eggs, so to speak. They've already merged and disposed of assets and moved people around. It is much more challenging, as an antitrust enforcer, to take action against an already consummated merger. It happens, for sure, but it is much rarer and is much more complicated to pull off. And so what that was a wind-up to talking about roll-ups.
So one thing that's happened in the economy maybe at a higher level than it has in the past is that the biggest companies, particularly in the tech sector, buy startups, all of these companies you've never heard of that one day, so the story goes, might develop into competitors, but before they can develop into competitors, while they're still at the early stages, they get bought up. And the valuations of those companies are such that they very rarely have to be reported. So they are below the reporting threshold. Again, as I said, the antitrust laws apply to a transaction whether it is the acquisition of a company for 10 million or the acquisition of a company for 10 billion. But if it's the acquisition of a company for 10 million, you might not know about it. If you don't know about it, it's hard to take action against it.
And then when you learn about it, or more appropriately, you learn about a series of those acquisitions that all of a sudden over the course of 10 years, company X has purchased 40 or 50 or 60 or 70. And those numbers are not exaggerations given what we've seen, of small upstart potential competitors, all of which are below the threshold, you may come to the end of the ten-year period and say, "Wait, why is there no competition? What happened to all of the little companies? Where did they go? And why does Company X have such an entrenched position now? Oh, because they have," so the argument goes, "they've bought up everyone who might be a challenger to them in the future." So by the way, that's a narrative. It's not necessarily correct. There are companies, just to take a moment to give you the other side, there are companies who say, "We never would have got funding. We never would have been able to even start to develop without the possibility that our investors knew that their money could get out at some point." IE, there had to be a realistic exit.
And so, one of the counterarguments, and it's a very reasonable counterargument, is that starting a company to hopefully one day sell it to a bigger company is very pro-competitive in its own right. It encourages people to take shots on things knowing that there is an exit. Most people who start a business want an exit opportunity, want it to be successful enough that they can monetize all the time and effort and work they put into creating it. But anyway, those are sort of very broadly and unfair to each side, I'm sure, the issue with roll-ups is that, and this is where we tie into big tech, because a lot of the times historically, these have been big tech companies who have been rolling up little groups of engineers, tiny little companies you've never heard of, startups in people's garages. And at the end of the day, the antitrust enforcers feel like they don't have enough tools to get at those types of transactions.
And so, there are a variety of things being proposed that will sort of, I don't know if they will ameliorate the situation, but make more visible those types of transactions and give the agencies a chance to decide whether or not they want to enforce in any particular situation. There is a case going on right now where a small, and this is not a big tech case, this is in the healthcare space where a private equity backed firm bought up over the course many years, a number of individual practices in a certain specialty. And then the allegation is by the time they were done buying all these little small practices, all of which were below the reporting threshold, they all of a sudden had market power in their geography and they had raised prices anti-competitively, and the FTC sued to unwind the transaction, which is a very complicated thing to do.
Inès Briand:
Especially once it's done.
Jared Nagley:
Yeah, very much so. And these are transactions that happened over the course of, the oldest one may have been. Now this is, I don't have it right to mind, but the oldest one was many years ago. So this is a series of transactions that began under a prior administration, maybe even before that. And so, imagine the difficulty of trying to unwind 12 little transactions. And how do you unwind it in a way that preserves competition, that ensures that there is a viable entity afterwards? You can't recreate the past, so you're not going to recreate 12 little organizations. Do you create two? Is that enough? Do you break out three? What percentage of the business do you have to break off? And when there are individuals involved, you can't force people to, particularly if they're doctors, you can't force them to work for anyone. That's not how the world works. There are a lot of complex issues. So let's talk about some things that I think will continue regardless of who wins the election.
Inès Briand:
That was very interesting. And so, now we know what to do, what not to do, and what to look for. Thank you so much, in any case, Jared, for joining us today and for letting us know of the latest trends in antitrust, it was very insightful. Do you have any last words of wisdom or antitrust related advice for our listeners that you would like to share?
Jared Nagley:
I don't know, words of wisdom. The election will be interesting for a number of reasons. I guess we've spoken a lot about Republicans and Democrats and what's happening on the federal level. I would also urge listeners to be aware of in the US system, the State Attorneys general have a lot of powers with respect to antitrust enforcement and many states have their own laws that some of which go beyond the federal laws with respect to antitrust enforcement. So that's also something you always have to be careful of. But I've enjoyed the conversation, Ines, thank you very much and I look forward to speaking with you again sometime.
Inès Briand:
Thank you very much and thanks for joining.
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