Antitrust and anti-competitiveness enforcement have greatly affected the mergers and acquisitions (M&A) space as of late. The current worldwide anticompetition enforcement environment combined with high interest rates has reduced the number of successful and large M&A deals.[i]

Particularly for mergers of companies having a presence in many international jurisdictions, the extent of antitrust regulatory review has significantly increased over the years. Competition regulators include: The United States with its Federal Trade Commission (FTC) and the Department of Justice, jointly issuing merger guidelines; The European Union (EU), which enacts laws under the Economic Concentration Regulation (EUMR); and China, which provides antitrust regulation through its State Administration for Market Regulation (SAMR).  Given BREXIT, the United Kingdom has exercised its merger oversight under its Competition & Markets Authority (CMA).

Some high-profile mergers have been either impacted or, in some cases, terminated as a consequence of regulatory review by various domestic and international regulatory reviews.  For instance,  the FTC filed a complaint against Illumina, Inc., alleging that its acquisition of Grail, Inc. was a violation of Section 5 of the FTC Act, 15 U.S.C. §45, and  Section 7 of the Clayton Act.  Illumina, Inc., a corporation and GRAIL, Inc., a corporation, F.T.C. Following the U.S. Court of Appeals for the Fifth Circuit's finding of substantial evidence that Illumina's acquisition of Grail was anti-competitive, Illumina announced that it would be divesting Grail.  This occurred after the European Commission (EC) imposed a fine of 432 million Euros, approximately $476 million, for Ilumina's failure to secure its approval prior to closing the deal to acquire Grail. Illumina had argued that since Grail did no business in the EU, the EC exercised regulatory overreach in scrutinizing the $7.1 billion Grail deal.  Nevertheless, the EC and FTC actions were apparently effective in nixing the Grail acquisition.

In another instance, the FTC filed a complaint, alleging anti-competitive effects, in the U.S. District Court for the Northern District of Illinois, seeking a temporary restraining order and preliminary injunction enjoining Amgen, Inc. from acquiring Horizon Therapeutics plc., in connection with a $27.8 billion deal.  As a result, a settlement was reached with the FTC culminating in a final consent order prohibiting Amgen from certain activities regarding thyroid eye disease or chronic refractory gout without prior FTC approval.

More recently, Adobe and Figma agreed to terminate a planned $20 billion merger after EU and UK regulators opposed their deal.[ii] 

Adobe must now pay Figma a $1 billion cash breakup fee.  As a result of regulatory effects of this type, startups and their investors may be deprived of expected high returns. Additionally, although the UK's CMA approved a restructured deal for Microsoft's $68.7 billion acquisition of Activision Blizzard Inc., the FTC is now appealing the decision of the U.S. District Court for the Northern District of California denying a motion for a preliminary injunction to block this deal. The matter is now before the U.S.  Court of Appeals for the Ninth Circuit. Amicus curie (friend of the court) briefs, supporting the deal, were filed with the Ninth Circuit by seven venture capital firms and endorsed in a Statement of Support by thirty-one other venture capital firms and investors accounting for over $130 billion in managed assets.  A portion of the Statement of Support is reproduced below:

As investors and venture capital firms, we enable innovative entrepreneurs to develop groundbreaking technologies, products, and services. Specifically, we provide seed capital and support to entrepreneurs to help them transform their visions into viable products that can then be scaled and shared broadly with consumers, typically through an acquisition by a larger company. Exits through acquisition provide venture capital firms and entrepreneurs an opportunity to realize a gain on the substantial investments of capital, time, and effort needed to support innovation. Exits thus enable venture capital firms to raise and re-deploy capital in support of innovation and enable and incentivize startup founders and employees to become serial entrepreneurs. Exits likewise provide established firms an opportunity to acquire new technologies and products that they may not have the capacity or incentive to develop themselves, and to scale and share those innovations and their benefits with consumers broadly. Exits through acquisition are critical to creating and maintaining a self-sustaining cycle of innovation.

We are concerned that recent enforcement actions and policy initiatives by the Federal Trade Commission pose a serious threat to American innovation. We are particularly troubled by the FTC's continued and unprecedented efforts to challenge Microsoft's acquisition of Activision-Blizzard, Inc. Despite having lost its case at the District Court, the FTC now argues on appeal that the legal standards it must meet to win a preliminary injunction blocking a merger should be lessened and that district courts should be limited in their ability to consider the full market reality of the transactions before them. If the FTC's approach were adopted, many more acquisitions would be subject to lengthy and expensive regulatory review and litigation that few if any transactions would be able to withstand. As a result, many transactions will be abandoned upon challenge or never pursued, grinding American innovation to a halt. This will be particularly harmful to the current generation of entrepreneurs – who are more diverse and reflective of America as a whole – who will not have the same opportunities as those who came before them.

While the current regulatory environment may discourage merger and acquisition activities, high interest rates may also discourage investment in initial public offerings (IPOs). Both may have a negative effect on investment in startup companies.  Overall, high interest rates tend to shrink the availability of funding for an enterprise. Additionally, under the threat of having to unwind an acquisition by virtue of regulatory disapproval, a large company may be less apt to acquire a start-up company. Further, all manner of uncertainty is introduced by delays imposed in connection with fighting with competition regulators in multi-jurisdictions.

Patents have a major role in advancing innovation, providing foundational support for new technologies and driving business growth. One might expect that increased regulatory scrutiny may have a carry-through effect and make it harder to monetize patents. However, as explained below, it could be that just the opposite may occur.

For at least the past 20 years, it has been more likely than not that investors are better able to fund ventures that are already making use of inventions for which patent protection has been obtained.  While a patent has value in and of itself, in the past, an inventor could realize a greater return in connection with forming a company than through the sale or license of a patent alone. However, now with the ever-expanding shadow cast by the specter of antitrust regulatory review, the value of a patent apart from a startup infrastructure may actually be increasing. 

Especially for a patent covering breakthrough technology, in the past, the goal was to build a company around the underlying technology covered by the patent and subsequently selling the company to a much larger entity with deep pockets.  Now large companies may be better off partnering in a joint venture with entities or buying patents flat out as both of these strategies may be less likely to incur the same type of antitrust scrutiny that one might find in connection with a publicly announced multibillion-dollar deal.

Although we do not conflate patent monetization strategies with M&A outcomes, the M&A environment can nonetheless significantly affect patent monetization. Even though M&A activity may decrease, the value of individual patents may increase in the near future in connection with large companies engaging inventors and startups at an earlier stage of development, as compared with that which currently occurs.  This strategy may serve to lessen the likelihood of regulatory review.

While we believe that a well-drafted patent may work wonders, we also strive to make sure that you understand why. 

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*The information in this article is not legal advice and should not be relied on. The content of this article is for informational purposes only and is meant as a starting point in your search for answers to your legal questions.