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FTC Renewing Attention On Merger Reporting Loopholes & Non-Compete Clauses 

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Lina Khan began her term as the Chair of the Federal Trade Commission (FTC) in June. We’re now learning that Khan wants to update the existing merger reporting guidelines and non-compete clauses in agreements. CNBC reports (via) that Khan believes some of these acquisitions flew “under the radar.”

This comes after the conclusion of FTC’s inquiry into unreported acquisitions by tech giants from the year 2010 to 2019. The companies under inquiry were Alphabet (Google), Apple, Amazon, Microsoft, and Facebook. The findings of this report are now public. The inquiry focused mainly on 616 transactions conducted by these five companies. The overall value of these acquisitions was reportedly over $1 million.

Under the Hart-Scott-Rodino (HSR) Act, acquisitions of over $92 million need to be reported to the Department of Justice and the FTC for antitrust review. The HSR Act brought the federal premerger notification program to rein in large acquisitions.

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The FTC also wants to look into non-compete clauses written into merger agreements

The FTC discovered that the five tech companies conducted 616 non-reportable transactions between 2010 and 2019. Moreover, the agency found that a significant portion of them exceeded the $92 million HSR threshold.

More specifically, 94 of the 616 transactions were over the limit. However, these transactions went unnoticed because of loopholes or exemptions. The report held that nine more transactions would technically go beyond the HSR threshold if “deferred or contingent compensation to founders and key employees” was accounted for.

Additionally, the FTC Chair wants to revisit the use of non-compete clauses in mergers and acquisitions. The agency found that key personnel of over 75% of the acquired firms had to sign non-compete agreements. Khan also wants the FTC to learn from their international counterparts since most transactions occur with companies from overseas.

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“While the Commission’s enforcement actions have already focused on how digital platforms can buy their way out of competing, this study highlights the systemic nature of their acquisition strategies,” Khan said in a statement.

“It captures the extent to which these firms have devoted tremendous resources to acquiring start-ups, patent portfolios, and entire teams of technologists — and how they were able to do so largely outside of our purview.”

The FTC has taken a firm view on tech companies before, more recently with Facebook. In August, the agency filed an amended complaint against the tech giant for allegedly violating antitrust laws. The FTC also accused Facebook of anticompetitive practices in the industry.

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