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On November 6, 2019, the Federal Trade Commission (“FTC”) voted 5-0 to uphold Administrative Law Judge D. Michael Chappell’s initial decision that Otto Bock HealthCare GmbH’s (“Otto Bock”) acquisition of rival Freedom Innovations LLC (“Freedom”) substantially lessened competition in the market for microprocessor-driven prosthetic knees. Finding that the acquisition already has lessened competition and likely will lead to higher prices and less innovation, the Commission ordered Otto Bock to sell the majority of the Freedom assets to an FTC-approved buyer.
Otto Bock completed its acquisition of Freedom in September 2017. The transaction was not subject to the premerger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”), and the FTC did not become aware of the transaction until after it had closed. “The Commission is committed to ensuring competitive markets for the benefit of consumers, and there will be times when it has to act after a merger has been consummated,” stated FTC Chairman Joseph J. Simons. “The goal is always to restore the lost competition.” The FTC’s order represents the first time that the current Commission ordered that a consummated transaction be unwound.
The Otto Bock decision is a firm reminder to parties that, although unraveling a consummated deal is a relatively uncommon remedy, post-merger challenges are a tool that regulators will use when they believe it is warranted. The FTC and the Antitrust Division of the U.S. Department of Justice (“DOJ”) prefer to challenge transactions before they close because it can be difficult to “unscramble the eggs” after a deal closes, especially if there has been significant integration. However, post-merger challenges have occurred increasingly in recent years, and agency challenges to consummated mergers are far more likely to result in litigation than challenges to unconsummated mergers.1
Both the FTC and DOJ have good track records when litigating against completed acquisitions.
These examples provide a reminder that parties to proposed transactions should not assume that, just because an HSR filing is not required, consideration of antitrust issues is unnecessary. Parties to a transaction should seek the advice of experienced antitrust counsel early in the process to address potential antitrust risks, even if the transaction is not reportable under the HSR Act. When a nonreportable merger is likely to raise significant antitrust issues or result in significant customer complaints, the parties should assess the risk of a post-consummation merger challenge and consider mitigating that risk by proactively raising potential overlaps with agency staff before closing.
Cadwalader’s antitrust team, located in key jurisdictions in the United States (New York, Washington, DC, Charlotte) and Europe (London, Brussels), is composed of specialists in offering ‘end-to-end’ advice on compliance, investigations and related litigation. Our practitioners are experienced in assessing and addressing potential antitrust risks with regard to proposed transactions, implementing effective HSR compliance programs and conducting trainings on regulatory requirements.
1 See “Consummated Merger Challenges – The Past Is Never Dead,” Remarks of J. Thomas Rosch, Commissioner, Federal Trade Commission, before the ABA Section of Antitrust Law Spring Meeting, dated March 29, 2012, available at https://www.ftc.gov/sites/default/files/documents/public_statements/consummated-merger-challenges-past-never-dead/120329springmeetingspeech.pdf. Former Commissioner Rosch speculates that “merging parties are more willing to litigate because there is more at stake in a consummated merger due to the greater cost to unwind a consummated deal relative to an unconsummated transaction,” and, from the agencies’ perspective, it is easier to try a consummated merger case because “there is less need to predict or speculate; one can determine what actually happened post-merger.”