Joint Ventures

“Modernized” HSR Filing Fees and Increased Filing Thresholds

Jennifer Clarke-Smith, Danielle Mangogna and Kristin PetersenPosted on January 27, 2023

Takeaways

For the first time in more than two decades, HSR filing fees and fee tiers will be adjusted. The filing fees will range from $30,000 to $2.25 million and apply to HSR notifications filed on or after February 27, 2023.
The minimum HSR “Size of Transaction” filing threshold will increase to $111.4 million (from $101 million) and applies to transactions closing on or after February 27, 2023.
The maximum daily civil penalty for an HSR Act violation (including failure to file) has increased to $50,120.
Talk to HSR counsel early in the deal process to assess potential filing requirements.

On January 23, 2023, the U.S. Federal Trade Commission (“FTC”) announced revised filing thresholds, as required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), based on an increase in the U.S. gross national product. The FTC also announced that the recently passed amendments to the HSR Act, which adjust the HSR filing fee tiers and amounts, will take effect at the same time as the new filing thresholds. Going forward, the filing thresholds, as well as the filing fee tiers and amounts, will adjust annually.

The HSR Act and related regulations (“HSR Rules”) require that parties to certain transactions submit an HSR filing and, generally, wait 30 days (or more, if additional information is formally requested) before closing, giving the agency time to review the transaction for potential antitrust concerns. The HSR Act applies to a wide variety of transactions, including those outside the usual M&A context. Potentially reportable transactions include mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

New Filing Fee Structure and Amounts

After more than two decades, a new HSR filing fee scale will become effective on February 27, 2023. The new fee scale – a result of amendments to the HSR Act included in the 2023 Consolidated Appropriations Act (H.R. 2617) signed into law in late December 2022 – significantly increases the filing fee required for many transactions. The increase for larger transactions is notable, with a fee increase of nearly $2 million for transactions valued at $5 billion or more. The fee scale changes increase the filing fee for some, yet not all, transactions valued at less than $500 million.

The buyer is obligated to pay the filing fee for a reportable acquisition (although parties may agree to share the fee or shift responsibility to the seller). The specific fee due depends on the transaction value, which is based on the aggregate total value of voting securities, assets, and/or non-corporate interests that will be held as a result of the transaction, as calculated under the HSR Rules (the “Size of Transaction”).

The new fee scale is set forth below. The fee tiers and filing fee amounts will be adjusted annually.

New HSR Filing Fees
Size of Transaction	Filing Fee
Less than $161.5 million	$ 30,000
$161.5 million or more but less than $500 million	$ 100,000
$500 million or more but less than $1 billion	$ 250,000
$1 billion or more but less than $2 billion	$ 400,000
$2 billion or more but less than $5 billion	$ 800,000
$5 billion or more	$ 2,250,000

The filing fee changes are expected to contribute to a meaningful increase in collected fees, supporting increased budgets for the federal antitrust agencies’ active enforcement efforts.

Increased HSR Filing Thresholds

A higher minimum HSR “Size of Transaction” threshold will apply to transactions closing on or after February 27, 2023. As a result of this adjustment, a transaction will be potentially reportable under the HSR Act only if it is valued in excess of $111.4 million (approximately $10 million higher than the 2022 threshold of $101 million).

Determining HSR reportability: Does the transaction meet the Size of Transaction test?

An HSR filing may be required when, as a result of the transaction, the acquiring person will hold an aggregate amount of voting securities, assets, and/or non-corporate interests valued in excess of the minimum HSR Size of Transaction threshold in place at the time of closing. Because the HSR value considers what is held as a result of the transaction, the total Size of Transaction will include not only the value of what will be acquired in the present transaction but also the value of certain voting securities, non-corporate interests, and assets previously acquired.

Contingent payments, earnouts, liabilities, debt paid off or assumed, and other forms of consideration also can impact the Size of Transaction.

Size of Transaction Test

2022 Threshold

Closing before February 27, 2023

2023 Threshold

Closing on or after February 27, 2023

>$101 million

>$111.4 million

Determining HSR reportability: Do the parties to the transaction meet the Size of Person test?

Certain transactions that satisfy the Size of Transaction threshold must also satisfy the “Size of Person” test to be HSR reportable. The relevant Size of Person thresholds also will increase for transactions closing on or after February 27, 2023 and are reflected in the general Size of Person test set out below. The Size of Person test applies differently in certain situations—for example, the formation of joint ventures and where an Acquired Person is not engaged in manufacturing.

Size of Person Test
Size of Transaction >$111.4 million, but ≤$445.5 million	One party (or its Ultimate Parent Entity) has ≥$222.7 million in total assets or annual net sales, and
	The other party (or its Ultimate Parent Entity) has ≥$22.3 million in total assets or annual net sales
Size of Transaction >$445.5 million	Reportable regardless of the Size of Person test

Determining HSR reportability: Does an exemption apply?

The HSR Act and Rules set out a number of exemptions. Even where a transaction satisfies the Size of Transaction and Size of Person thresholds, the application of an exemption may render the transaction non-reportable or impact the Size of Transaction calculation.

Failure to File Penalty

Where required, the failure to file can carry a significant financial penalty for each day of non-compliance. The maximum civil penalty for HSR violations also adjusts annually. The adjusted maximum civil penalty as of January 11, 2023 is set out below.

Failure to File Penalty

Up to $50,120 per day in violation

Consult HSR counsel early in the deal process to determine whether your transaction is HSR-reportable, especially before concluding that a filing is not required.

If you have questions regarding HSR Act reporting requirements or the new filing fees or thresholds, please contact the authors listed above or your usual Orrick contact.

EU Foreign Subsidies Regulation Likely in Force in 2023

Marie-Laure Combet and Boris MarschallPosted on July 4, 2022

Following a trend towards protectionism that seems quite fashionable in many jurisdictions globally those days, the European Commission proposed, on 5 May 2021, a regulation on foreign subsidies distorting the internal market (hereafter “FSR”) intended to ensure a level playing field between companies subject to EU State aid rules and companies which are not.

On 30 June 2022, the co-legislators (EU Parliament and Member States) reached a political agreement on the text, meaning that the regulation could be formally adopted in the coming months and become effective as soon as 2023.

For people unfamiliar with EU State aid rules, the EU has a rather unique regime in place which aims at tackling government support, whatever its form, in favor of economic operators, which is likely to distort or distorts competition and trade within the EU. But, today, there is no equivalent set of rules that can be enforced in relation to subsidies received by economic operators from third countries. The traditional Section on subsidies contained in trade instruments or the Regulation (EU) 2016/1037 on protection against subsidized imports from countries not members of the European Union which are limited in their scope may indeed hardly qualify as an equivalent. This asymmetry was highly criticized over the past few years, as it was schematically deemed to put European companies at a disadvantage compared to foreign companies heavily subsidized by their home country (Chinese companies were particulary in the spotlight).

With the FSR, this asymmetry or enforcement gap shall now be history.

The FSR will provide the European Commission with new tools and powers to investigate foreign subsidies granted to companies that are engaged or will engage in economic activities in Europe and to remedy their distortive effects on competition.

Prior notification obligations for concentrations and public procurement bids meeting certain thresholds

In case of a merger, acquisition or creation of a full-function joint venture, the transaction will have to be notified to the European Commission prior to its implementation if the following cumulative thresholds are met:

(a) an annual turnover generated in the EU of at least EUR 500 million by the target of the acquisition, by any of the merging undertakings, or in the case of a joint venture, by the joint venture itself if it is established in the EU or by one of the parent companies if it is established in the EU; and

(b) subsidies amounting to at least EUR 50 million.

This review will run in parallel with the traditional EU merger control review (if also applicable).

In case of a public procurement procedure, a bid will have to be notified to the European Commission and the award of the contract put on hold if the following cumulative thresholds are met:

(a) the estimated contract value is at least EUR 250 million; and

(b) the bid involves a foreign subsidy of at least EUR 4 million by a single third country.

To ensure efficient control, the Commission will be vested with investigatory powers in that context (power to send information requests to companies, power to conduct fact-finding missions and inspections, etc…).

Following the notification, the Commission will be able to (i) prohibit the concentration or the award of the contract to the concerned bidder, (ii) impose behavioral and structural remedies or accept commitments, or (iii) issue full clearance. A breach of the notification obligation will potentially be fined up to 10% of the aggregated turnover of the undertakings concerned.

Ex-officio investigations

The Commission will also have the power to launch investigations on its own initiative into any other market situation where there is a suspicion of distortion of competition due to foreign subsidies. This includes but is not limited to concentrations and public procurement procedures where the thresholds above are not met. Again, the Commission will have investigatory powers as well as the power to impose fines on non-cooperative undertakings.

Challenges ahead

This is an innovative and very ambitious tool, which was finally drawn up in a relatively short period of time (less than 14 months) and for which a certain number of points will have to be clarified quickly for the sake of legal certainty.

It remains to be seen whether it will succeed in achieving its objectives and not produce (too many) undesirable effects. For example, there may be unintended consequences as this new regulation will not only affect state-controlled companies outside the EU, but all companies (including EU companies) that benefit from foreign subsidies while carrying out or preparing to carry out economic activities in Europe.

While waiting to see the first effects of the FSR, the efficiency of the European institutions in producing laws (be they hard or soft) and moving fast on competition/regulatory topics is to be commended, as it must be remembered that the FSR will be only one of many areas to be monitored in relation to competition enforcement in the EU, at a time when additional regulation (Digital Markets Act) is being put in place and current procedures and policies are being updated.

Largest Ever Annual Adjustment to the HSR Premerger Notification Thresholds Announced

Jennifer Clarke-Smith, Kristin Petersen and Danielle MangognaPosted on January 24, 2022

Takeaways

The new minimum HSR “Size of Transaction” threshold is increasing from $92 million to $101 million.
New thresholds apply to transactions closing on or after February 23, 2022.
This $9 million increase is the largest ever annual adjustment to the minimum HSR “Size of Transaction” threshold.
Failure to file may result in a fine of up to $46,517 per day of non-compliance.
The HSR Act casts a wide net, catching mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

The Federal Trade Commission announced revised Hart-Scott-Rodino (“HSR”) filing thresholds on January 24, 2022, as required by the HSR Act, based on the change in the US gross national product. The new minimum HSR “Size of Transaction” threshold is increasing to $101 million from the prior threshold of $92 million. The increase of $9 million, or 9.8%, is the largest annual adjustment to the minimum HSR filing threshold since the adjustments began in 2005. The new threshold will apply to transactions closing on or after February 23, 2022. The HSR Act and Rules require that parties to certain transactions submit an HSR filing and wait up to 30 days (or more, if additional information is formally requested) before closing, which gives the government time to review the transaction for potential antitrust concerns. The HSR Act applies to a wide variety of transactions, including those outside the usual M&A context. Potentially reportable transactions include mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

Determining HSR reportability: Does the transaction meet the Size of Transaction test?

An HSR filing may be required when, as a result of the transaction, the acquiring person will hold an aggregate amount of voting securities, non-corporate interests, and/or assets valued in excess of the HSR “Size of Transaction” threshold in place at the time of closing. Calculating the Size of Transaction may require aggregating voting securities, non-corporate interests, and assets previously acquired, with what will be acquired in the contemplated transaction. The Size of Transaction may also include contingent payments, earnouts, liabilities, and certain debt retired as consideration for the transaction. Talk to HSR counsel to determine your Size of Transaction.

Size of Transaction Test

2021 Threshold

Closing before February 23, 2022

2022 Threshold

Closing on or after February 23, 2022

>$92 million

>$101 million

If the transaction will close before February 23, 2022, the $92 million threshold still applies; closings on or after February 23, 2022 will be subject to the higher $101 million threshold.

Determining HSR reportability: Do the parties to the transaction meet the Size of Person test?

Certain transactions that satisfy the Size of Transaction threshold must also satisfy the “Size of Person” thresholds to be HSR-reportable. These adjusted thresholds are also effective for all closings on or after February 23, 2022. While the general Size of Person test is set out below, an alternative test may apply to transactions where the Acquired Person is not engaged in manufacturing. Talk to HSR counsel to determine which entity’s sales and assets must be evaluated and which test applies.

Size of Person Test
Size of Transaction >$101 million, but ≤$403.9 million	One party (or its Ultimate Parent Entity) has ≥$202 million in total assets or annual net sales, and
	The other party (or its Ultimate Parent Entity) has ≥$20.2 million in total assets or annual net sales
Size of Transaction >$403.9 million	Reportable regardless of the Size of Person test

Filing Fee

For all HSR filings, one filing fee is required per acquisition. The amount of the filing fee is based on the Size of Transaction. Below are the adjusted fee ranges for 2022.

Size of Transaction	Filing Fee
More than $101 million, but less than $202 million	$45,000
$202 million or greater, but less than $1.0098 billion	$125,000
$1.0098 billion or greater	$280,000

Failure to File Penalty

Failing to submit an HSR filing can carry a significant financial penalty for each day of non-compliance. The maximum civil penalty for HSR violations also adjusts annually and the adjusted maximum civil penalty as of January 10, 2022 is set out below.

Failure to File Penalty

Up to $46,517 per day in violation

Always consult HSR counsel to determine whether your transaction is HSR-reportable, especially before concluding that a filing is not required. Even if the Size of Transaction and Size of Person tests are met, the transaction may be exempt from the filing requirements. If you have any questions regarding HSR Act reporting requirements or the new thresholds, please contact the authors listed above or your usual Orrick contact.

DECREASING HSR Premerger Notification Thresholds in 2021

Diana GillisPosted on February 2, 2021

Takeaways

The new minimum HSR threshold is DECREASING from $94 million to $92 million.
New thresholds apply to any transaction closing on or after March 4, 2021.
Failure to file may result in a fine of up to $43,792 per day of non-compliance.
The HSR Act casts a wide net, catching mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

The Federal Trade Commission has announced new HSR thresholds for 2021, which are lower than the existing thresholds. The thresholds typically increase year-over-year, but are decreasing in 2021 from $94 million to $92 million, potentially requiring HSR premerger notification filings to the U.S. antitrust agencies for smaller transactions. The new threshold will begin to apply to transactions closing on March 4, 2021. The HSR Act and Rules require that parties to certain transactions submit an HSR filing and wait up to 30 days (or more, if additional information is formally requested) before closing, which gives the government time to review the transaction for potential antitrust concerns. The HSR Act applies to a wide variety of transactions, including those outside the usual M&A context. Potentially reportable transactions include mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

Determining reportability: Does the transaction meet the Size of Transaction test?

The potential need for an HSR filing requires determining whether the acquiring person will hold an aggregate amount of voting securities, non-corporate interests, and/or assets valued in excess of the HSR “Size of Transaction” threshold that is in place at the time of closing. Calculating the Size of Transaction may require aggregating voting securities, non-corporate interests, and assets previously acquired, with what will be acquired in the contemplated transaction. It may also include more than the purchase price, such as earnouts and liabilities. Talk to your HSR counsel to determine what must be included in determining your Size of Transaction.

If the transaction will close before March 4, 2021, the $94 million threshold still applies; closings as of March 4, 2021 will be subject to the lower $92 million threshold.

Determining reportability: Do the parties to the transaction have to meet the Size of Person test?

Transactions that satisfy the Size of Transaction threshold may also have to satisfy the “Size of Person” thresholds to be HSR-reportable. These new thresholds are also effective for all closings on or after March 4, 2021. Talk to your HSR counsel to determine which entity’s sales and assets must be evaluated.

Filing Fee

For all HSR filings, one filing fee is required per transaction. The amount of the filing fee is based on the Size of Transaction.

Failure to File Penalty

Failing to submit an HSR filing can carry a significant financial penalty for each day of non-compliance.

Always consult with HSR counsel to determine if your transaction is HSR-reportable, especially before concluding that a filing is not required. Even if the Size of Transaction and Size of Person tests are met, the transaction may be exempt from the filing requirements.

Will (almost) every U.S. VC investment in German startups require FDI approval in the future?

Sven Greulich, Lars Mesenbrink and Julius SchradinPosted on January 29, 2021

The German Government is about to tighten the control of foreign direct investments (FDI) in German companies—again! The suggested changes might impede or at least delay non-EU (in reality mainly U.S.…) investments in German start-ups although such non-EU investments have in particular in the growth stage become vital for the developing German ecosystem over the last years…

In a nutshell:

What’s new?
- German Ministry for Economics once again proposes to broaden the scope of FDI control.
- This time, German FDI control faces a major overhaul: the latest draft covers more than 27 business areas in which an investment can trigger a mandatory notification and standstill obligation for non-EU investors.
- Many more minority investments, including VC investments, could be subject to the proposed FDI control if an investor acquires at least 10% of the voting rights. Unlike merger control, there is no turnover threshold for the FDI regime.
The good
- To be determined…
The ugly
- The proposed amendment will possibly lead to significant delays for non-EU investors.
- Investors that already hold at least 10% of the voting rights and acquire additional voting rights can also trigger such a mandatory notification and standstill obligation.
- In the future, non-EU investors will likely face a competitive disadvantage compared to their EU competitors.
Action items for our clients
- Check transactions that are currently being negotiated and determine if they can be completed before the proposed amendment becomes effective.
- Review your plans for future acquisitions and investments to account for potential significant delays. Solid preparation will become even more critical.
- Going forward: The Ministry has launched public consultations on the draft of the FDI amendment—keep an eye on this development! Of course, we will keep you posted.

In detail:

After the latest amendment of Foreign Trade and Payments Ordinance in October 2020, the now proposed amendment is the 4th amendment of the relevant German FDI regulation within the past 12 months. While prior amendments extended the review scope to specific business areas (e.g., companies active in the production of certain medical equipment due to the COVID pandemic), the proposed amendment specifies the requirements of the EU Screening Regulation. It will broaden the scope of German FDI control extensively, in particular with respect to critical technologies that are of (security) relevance.

Remember the good old times four amendments ago: While a year ago, the prohibition of an investment required a threat to the public order or security of the Federal Republic of Germany, it now suffices that public order or security of the Federal Republic of Germany or of another EU Member State is likely to be impaired as a result of the investment.

Investments in certain businesses in Germany that will result in the investor holding at least 10 percent of the voting rights can trigger a mandatory notification to the Ministry and a standstill obligation. This can include, among others, investments in companies that:

Provide cloud computing services and the infrastructures used for this purpose;
Develop or manufacture goods which solve specific application problems by means of artificial intelligence methods and are capable of independently optimizing their algorithm;
Develop or manufacture motor vehicles or unmanned aerial vehicles that have technical equipment for the control of highly automated, fully automated or autonomous driving or navigation functions, or the components essential for the control of such driving or navigation functions or software required for this purpose;
Develop or manufacture industrial robots, including software or technology therefor, or provides specific related IT services;
Develop, manufacture or refine certain types of semiconductors, optical circuits and manufacturing or processing tools for such products;
Develop or manufacture certain IT products or components of such products;
Operate, develop or manufacture certain dual-use goods;
Develop or manufacture goods used to produce components for industrial applications by means of additive manufacturing processes;
Extract, process or refine critical raw materials or their ores.

Since the Ministry launched a public consultation, interested parties have the opportunity until 26 February 2021 to provide detailed comments on the proposed amendment. In view of the technical complexity of the aspects to be regulated, the Ministry attributes particular importance to the results of this consultation. Even though this should not be regarded as an indication for the Ministry narrowing the scope, it could result in a more precise description of the relevant business areas which will facilitate a prior assessment of the notification obligations.

Good News for Clients From Germany: Increased German Merger Control Thresholds in Force

Lars Mesenbrink and Julius SchradinPosted on January 22, 2021

In a Nutshell

What’s new?
- Significantly increased turnover thresholds for German merger control.
The good
- Many transactions will no longer be subject to German merger control.
- This will lead to a much smoother process for lots of transactions, specifically for our clients in the tech sector and start-up companies that have not generated more than 17.5 mn in Germany.
The ugly
- Transactions can still be subject to German merger control even if the increased thresholds are not triggered.
- The Federal Cartel Office can require filings from a company after having conducted a market inquiry.
- The review period for so-called phase 2 proceedings was extended from four to five months.
- In 2017, consideration of the transaction threshold with the requirement of the rather vague criterion “substantial domestic operations” was introduced and is still in effect.
Action items for our clients
- Check transactions that are currently being negotiated or that have already been signed – they might benefit from the increased thresholds of not requiring merger clearance in Germany anymore.
- Going forward: Have a look at the Federal Cartel Office’s approach on the “vague thresholds” and sector inquiries – we will keep you posted.

In Detail

The 10^th amendment of the German Act against Restraints of Competition (ARC) does not only introduce a new enforcement tool concerning the control of abusive practices. The amendment also brings a significant increase of the turnover thresholds in merger control. This will lead to a significant reduction of merger control filing requirements – good news for transactions!

New Thresholds

Most transactions in Germany are only subject to a notification if the companies involved achieve certain minimum turnover worldwide and in Germany. With respect to the turnover threshold, from now on, transactions will only be subject to merger control if, among other things, one of the companies involved has annual sales of at least 50 million euros in Germany (instead of 25 million previously) and, in addition, another company involved has annual sales in Germany of at least 17.5 million euros (instead of five million previously). Officially, this increase is intended to ease the bureaucratic burden on companies. However, the fact that the Federal Cartel Office received around 1,200 merger notifications in 2020 and opened in-depth investigations (phase II) in only 7 cases indicates that the Federal Cartel Office intends to focus its resources more efficiently on problematic cases. This is accompanied by the extension from four to five months of the review period for in-depth investigations.

For our business clients dealing with unproblematic transactions from an antitrust perspective, this is certainly good news as there will be no delay due to a merger control filing. However, besides these mere turnover thresholds, there is another threshold that takes into account the value of the transaction and competitive potential that has been in force since 2017 and is particularly important to our tech clients. We will keep you posted if the Federal Cartel Office focuses on this threshold in the future.

Further, the Federal Cartel Office is now able to require companies in certain sectors of the economy to notify mergers even if the companies involved in the transaction do not meet turnover thresholds mentioned above. According to the newly introduced section 39a ARC, the Federal Cartel Office can request notifications from a company if the following conditions are met:

The acquirer must generate a worldwide turnover of more than 500 million euros;
There must be objectively verifiable indications demonstrating that future acquisitions by the acquirer may significantly impede effective competition in Germany in the specified sectors;
The acquirer holds at least a 15% market share in Germany in the specified sector; and
The Federal Cartel Office must have carried out a sector inquiry of the industry in question.

Once a company is subject to such a notification obligation, it is obliged to notify the Federal Cartel Office about any acquisition in the specified sector(s), provided that

the target’s global turnover exceeded 2 million euros in its last fiscal year, and
more than two-thirds of the target’s turnover were generated in Germany.

Sector inquiries are investigations by the Federal Cartel Office of a specific sector of the economy if certain circumstances give rise to the assumption that competition of such a specific sector may be restricted or distorted. In the course of a sector inquiry, the supply and demand structures as well as aspects of market activity which have an impact on competition are analyzed by the Federal Cartel Office. A sector inquiry is not a procedure against specific companies. However, proceedings by the Federal Cartel Office are often a follow-up to a sector inquiry if the sector inquiry raises sufficient initial suspicion of a violation of competition regulations.

Andreas Mundt, President of the Federal Cartel Office, indicated the ambivalence of the new thresholds from an enforcement point of view:

“So far, we have controlled around 1,200 mergers year after year; including many cases that are not really relevant from a competition point of view. That is a considerable number, and one that is accompanied by a very heavy workload. In principle, we therefore welcome an increase in the thresholds. However, at the level now selected, one or two questionable cases are likely to disappear. With the resources freed up, we will be able to focus even better on the really critical cases.“

This shows the shift in the way the Federal Cartel Office obtains information on critical cases and markets. The previous approach relied heavily on a large number of “unproblematic” merger notifications, which provided the Federal Cartel Office with the parties’ view on markets and competition.

In the future, the Federal Cartel Office will put an emphasis on gaining information through sector inquiries. This shift also results in the elimination of the obligation to inform the Federal Cartel Office about the successful closing of a transaction. Previously, such a notification had to be submitted to the Federal Cartel Office for statistical purposes.

Takeaways

From a company’s point of view, the significant increase of the thresholds is welcomed as it will relieve companies from “pro forma” notifications. This applies, in particular, to PE funds. The new thresholds refer to the last completed business year prior to closing. Thus, transactions that are currently being negotiated or have already been signed but not yet closed could benefit from these new thresholds as well.

The increased thresholds will also free resources at the Federal Cartel Office, which will likely be used to conduct more sector inquiries and, subsequently, to prepare decisions under the new sections 39a and 19a GWB. Companies that are affected by such a sector inquiry and interested third parties will have the opportunity to provide the Federal Cartel Office with their views and arguments on the competitive environment in their market(s) and may highlight potentially controversial market conduct of (rival) market participants. This might be seen as a good opportunity to shine the spotlight in the right direction.

Background

The 10^th amendment became necessary due to the implementation of the ECNplus Directive. The implementation of the so-called ECNplus Directive will strengthen the effectiveness of antitrust prosecution. In conjunction with the system in place at the EU level, companies and their employees are now obliged to cooperate by clarifying these facts.

The amendment also contains various innovations in the area of fine regulations. For example, “reasonable and effective precautions taken in advance to avoid and detect infringements” (i.e., compliance measures) can be considered mitigating circumstances in the future assessment of fines. In addition, the leniency program has now been codified into law. The Federal Cartel Office will adapt its announcements in this regard. Leniency applications can of course still be submitted at any time.

M&A HSR Premerger Notification Thresholds Increase in 2020

Diana GillisPosted on January 28, 2020

Chinese: 美国提高2020年HSR法案并购前申报门槛

Takeaways

The new minimum HSR threshold is $94 million and applies to transactions closing on or after February 27, 2020.
The current threshold of $90 million is in effect for all transactions that will close through February 26, 2020.
Failure to file may result in a fine of up to $43,280 per day of non-compliance.
The HSR Act casts a wide net, catching mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

The Federal Trade Commission has announced new HSR thresholds for 2020. Transactions closing on or after February 27, 2020 that are valued in excess of $94 million potentially require an HSR premerger notification filing to the U.S. antitrust agencies. The HSR Act and Rules require that parties to certain transactions submit an HSR filing and wait up to 30 days (or more, if additional information is formally requested) before closing, which gives the government time to review the transaction for potential antitrust concerns. The HSR Act applies to a wide variety of transactions, including those outside the usual M&A context. Potentially reportable transactions include mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

Determining reportability: Does the transaction meet the Size of Transaction test?

If the transaction will close before February 27, 2020, the $90 million threshold still applies; closings as of February 27, 2020 will be subject to the new $94 million threshold.

Determining reportability: Do the parties to the transaction have to meet the Size of Person test?

Transactions that satisfy the Size of Transaction threshold may also have to satisfy the “Size of Person” thresholds to be HSR-reportable. These new thresholds are also effective for all closings on or after February 27, 2020. Talk to your HSR counsel to determine which entity’s sales and assets must be evaluated.

Filing Fee

For all HSR filings, one filing fee is required per transaction. The amount of the filing fee is based on the Size of Transaction.

Failure to File Penalty

Failing to submit an HSR filing can carry a significant financial penalty for each day of non-compliance.

Does California’s Ban on Non-Competes Apply to Business Agreements? The California Supreme Court May Weigh In Shortly.

Howard Ullman and Jason K. YuPosted on August 26, 2019

The Ninth Circuit recently certified a question to the California Supreme Court regarding the scope of California Business & Professions Code Section 16600. As readers of the Orrick Trade Secrets Watch blog are likely aware, Section 16600 states that “[e]very contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.” Pursuant to this statute, California courts have struck down a number of restrictive covenants in contracts with employees in California, including non-compete provisions, customer non-solicit provisions, and certain employee non-solicit provisions. The Ninth Circuit now wants to know whether the statute should apply to an agreement between two businesses. The Supreme Court’s answer may have significant effects on business agreements and collaborations in or involving California.

The question arises in a recent case, Ixchel Pharma LLC v. Biogen, Inc., where the plaintiff sought to apply Section 16600 to an agreement limiting a pharmaceutical company’s ability to develop a new drug. In 2016, Ixchel and a third-party company, Forward Pharma, entered into a collaboration agreement to develop a new and potentially profitable drug. The collaboration agreement stated that Forward had the ability to terminate the agreement at any time by written notice.

In 2017, Forward entered into a separate agreement with Biogen. Pursuant to that agreement, Forward agreed to terminate the collaboration agreement with Ixchel, stop development of the new drug, and refrain from entering into any new contracts for the development of the new drug. In exchange, Biogen agreed to pay Forward $1.25 billion.

Ixchel subsequently filed suit against Biogen asserting claims for interference with contract, interference with prospective economic advantage, and unfair and unlawful business practices. As a predicate for its unlawful business practices claim, Ixchel argued that Biogen entered into an agreement that violates Section 16600. Specifically, Ixchel argued that the provision in the agreement with Biogen restricting Forward from working on the new drug violates Section 16600.

According to Ixchel, the statute applies to provisions that restrain “anyone” from engaging in lawful business. Although “anyone” is not defined in the statute, Ixchel contends it should indeed mean “any” person and that other statutes regulating competition define “person” to include “a corporation, partnership, or other association.” The district court disagreed. It found that Section 16600 does not apply outside of the employer-employee context and dismissed the case. Ixhcel appealed and the Ninth Circuit, after argument, certified this question to the California Supreme Court.

Applying Section 16600 to invalidate provisions in business-to-business agreements could have significant implications for all California businesses and firms doing business in California. According to Biogen, for example, such a ruling would be contrary to the rule of reason in the federal antitrust context and could jeopardize any joint venture, lease, distribution agreement, or license agreement, as well as other widely used business agreements in which a business voluntarily limits the scope of its operations geographically, by sector, or otherwise.

When the California Supreme Court takes up certified questions, it generally requires separate briefs and oral argument. The time to resolution varies among cases, but Antitrust Watch will keep an eye on the issue and provide updates as it develops.

M&A HSR Premerger Notification Thresholds Increase in 2019

Diana GillisPosted on March 4, 2019

Takeaways

The new minimum HSR threshold is $90 million and applies to transactions closing on or after April 3, 2019.

The current threshold of $84.4 million is in effect for all transactions that will close through April 2, 2019.

Failure to file may result in a fine of up to $42,530 per day of non-compliance.

The HSR Act casts a wide net, catching mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

The Federal Trade Commission has announced new HSR thresholds for 2019. The thresholds are adjusted annually, and were delayed this year by the government shutdown. Transactions closing on or after April 3, 2019 that are valued in excess of $90 million potentially require an HSR premerger notification filing to the U.S. antitrust agencies. The HSR Act and Rules require that parties to certain transactions submit an HSR filing and wait up to 30 days (or more, if additional information is formally requested) before closing, which gives the government time to review the transaction for potential antitrust concerns. The HSR Act applies to a wide variety of transactions, including those outside the usual M&A context. Potentially reportable transactions include mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

Determining reportability: Does the transaction meet the Size of Transaction test?

If the transaction will close before April 3, 2019, the $84.4 million threshold still applies; closings as of April 3, 2019 will be subject to the new $90 million threshold.

Determining reportability: Do the parties to the transaction have to meet the Size of Person test?

Transactions that satisfy the Size of Transaction threshold may also have to satisfy the “Size of Person” thresholds to be HSR-reportable. These new thresholds are also effective for all closings on or after April 3, 2019. Talk to your HSR counsel to determine which entity’s sales and assets must be evaluated.

Filing Fee

For all HSR filings, one filing fee is required per transaction. The amount of the filing fee is based on the Size of Transaction.

Failure to File Penalty

Failing to submit an HSR filing can carry a significant financial penalty for each day of non-compliance.

Always consult with HSR counsel to determine if your transaction is HSR-reportable. Even if the Size of Transaction and Size of Person tests are met, the transaction may be exempt from the filing requirements.

Potential Antitrust Issues Lurking in Blockchain Technology

Howard UllmanPosted on June 20, 2018

Blockchain technology has burst onto the scene and into the public consciousness over the last few years. While the securities and privacy law questions surrounding blockchain technology have received much attention, perhaps less obvious are the potential antitrust issues raised by the technology.

Although these issues are nascent, they are not wholly theoretical. For example, on March 16 the FTC announced that it is creating a Blockchain Working Group to look at, inter alia, competition policy. “Cryptocurrency and blockchain technologies could disrupt existing industries. In disruptive scenarios, incumbent companies may sometimes seek to hobble potential competitors through regulatory burdens. The FTC’s competition advocacy work could help ensure that competition, not regulation, determines what products will be available in the marketplace” (FTC Blog Post). And in January of this year, the Japan Fair Trade Commission also indicated that it may look into the competition policy issues involving blockchain-based cryptocurrencies.

This blog post briefly discusses some of the potential antitrust issues associated with blockchain technology. READ MORE →

CMA Launches Consultation Concerning Changes to its Jurisdiction over M&A in the Tech Sector

Douglas Lahnborg and Saira HenryPosted on March 23, 2018

The UK government considers that transactions in the following sectors can raise national security concerns:

1. quantum technology;
2. computing hardware; and
3. the development or production of items for military or military and civilian use.

In order to allow the UK’s Secretary of State to intervene in transactions in these sectors, the UK government has proposed amendments to the Enterprise Act 2002 that would expand the Competition & Markets Authority’s (“CMA”) jurisdiction to review transactions in these sectors from a competition perspective. READ MORE →

Antitrust Issues with Joint Ventures – PLI CLE presented by Howard Ullman

Editorial BoardPosted on January 25, 2018

Orrick Antitrust Of Counsel Howard Ullman will present a Practising Law Institute (PLI) One-Hour Briefing on the topic of Antitrust Issues with Joint Ventures. This One-Hour Briefing will analyze the potential antitrust ramifications of joint ventures and other collaborations between competitors and how to balance the pro-competitive efficiencies against the anti-competitive effects of a proposed JV. Registration for the webcast can be found here, and to read Howard’s series on Orrick’s Antitrust Watch Blog analyzing the antitrust effects on joint ventures, click here.

Antitrust Analysis of Joint Ventures: How Big Is Too Big?

Howard UllmanPosted on December 11, 2017

Antitrust Analysis of Joint Ventures: Ancillary Restraints

Howard UllmanPosted on August 7, 2017

Antitrust Analysis of Joint Ventures: Structural Considerations

Howard UllmanPosted on April 14, 2017

Businessman hand touching JOINT VENTURE sign with businesspeople icon network on virtual screen Antitrust Analysis of Joint Ventures Antitrust Analysis of Joint Ventures – Structural Considerations

In the first post in this series, we introduced the concept of joint ventures (“JVs”), outlined why antitrust law applies to their formation and operation, identified the major antitrust issues raised by JVs, and discussed why you should care about these issues. In this installment, we will unpack some of the major antitrust issues surrounding the threshold question of whether or not a JV is a legitimate collaboration. In particular, we will first try to separate the analyses of, on the one hand, JV formation, and on the other, JV operation and structure. Then we will consider whether a JV (i) constitutes a “naked” agreement between or among competitors which is per se unlawful, (ii) presents no significant antitrust issue because there is only a single, integrated entity performing the JV functions, or (iii) involves restraints within the scope of a legitimate collaboration that are virtually per se lawful.

Antitrust Analysis of Joint Ventures: An Introduction

Howard UllmanPosted on January 31, 2017

Joint ventures (“JVs”) can require navigation of a potential minefield of antitrust issues, which we’ll explore in a series of six blog posts beginning with this introductory post. Not all of the law in this area is entirely settled, and there remain ongoing debates about some aspects of the antitrust treatment of JVs. Indeed, arriving at a coherent and unified view of JV law is like putting together a jigsaw puzzle with missing and damaged pieces.