- The Federal Trade Commission's attempt to investigate previous acquisitions of large technology companies is another regulatory concern for these companies.
- The agency plans to investigate the "hundreds" of deals the companies have made in the past 10 years that the companies had not previously reported.
- There is growing concern inside and outside the agency that companies have used such deals to suppress emerging competitors.
- As a result of the study, the FTC could force companies to withdraw some of their previous purchases or to present potential ones for review, legal experts said.
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In recent years, large technology companies have made dozens of acquisitions, mostly under the radar screen, because the companies they have acquired have been relatively small.
These acquisitions can now be seen on the radar screen of regulators, particularly the Federal Trade Commission, which announced on Tuesday that it would review small purchases made in the past by Microsoft, Google, Facebook, and Amazon. This is not a good sign for these companies. The FTC's study could lead to much more scrutiny of future purchases by small startups that make them, or the agency that forces them to reverse some of their previous acquisitions.
"I think this is a first step that could lead to enforcement action. This could lead to new guidelines," said Doug Melamed, a law professor at Stanford Law School.
The Hart Scott Rodino Act requires larger companies that are planning acquisitions of a certain size to notify the antitrust authorities to the FTC and the Department of Justice. The regulators of these agencies frequently review these purchases and block them in some cases, such as when the parent company of Schick shavers tried to buy the start-up shaving company Harry & # 39; s.
However, companies are not required to notify regulators of small acquisitions. The assumption is that such transactions generally do not significantly affect competition and that regulators should focus their time and resources on the larger businesses.
Some fear that small acquisitions could cause big problems
However, some experts and market observers have started to question this assumption. There are relatively few large-scale businesses in the technology industry that are subject to government review. But there are many smaller deals every year that are not reported to regulators. In a conference call with reporters, FTC chairman Joe Simons estimated the number of purchases the five large companies had made in the past decade, and hundreds of which his agency numbers had not previously been shared.
At least some of these transactions could have affected competition by allowing dominant companies to wipe out emerging potential competitors. Just such concerns have been raised when Facebook launched tbh two years ago, a young social media app aimed at teenagers. Facebook was closed less than a year after the acquisition.
"It's a big question of the shadow that the big tech companies are casting over Silicon Valley or the startup world," said Melamed.
The study is taking place under increasing observation by the technology giants. The European Union has already imposed three fines of more than $ 1 billion each on Alphabet for committing anti-competitive activities and has launched investigations into Apple, Facebook and Amazon. In the United States, federal and state regulators have initiated antitrust proceedings against these four companies. The FTC's actions should be part of this broader investigation and reassessment of the power of technology companies, legal experts told Business Insider.
But the questions go beyond Silicon Valley. The agency's two democratic commissioners stated in a statement on the FTC's announcement of the study asked them to examine the impact of small acquisitions on industries beyond technology, The dialysis industry has merged into two major national players, and research shows that the two companies gain power through numerous acquisitions that were below the reporting threshold.
"Similar patterns of" stealth consolidation "have been observed in the pharmaceutical and hospital markets," said Commissioners Christine Wilson and Rohit Chopra in their statement. "We urge the Commission to consider similar … studies in other industries to ensure that we have a better understanding of the competitive impact of non-reportable mergers."
The FTC has a lot of power
While the agency's first comprehensive look at small-scale mergers in the tech industry, the study is not entirely unprecedented. The FTC has extensive powers under the Federal Trade Commission law to carry out studies on the functioning of industries or companies and has used these powers in the past to investigate mergers and competition in certain industries.
There are good reasons for the agency to conduct this particular study, the legal experts said. Not much is known about how all the small acquisitions by the technology giants affect competition in the industry.
As concerns grow that large companies are wiping out competition, "there have been no great studies and data showing that this is going on," said Prasad Krishnamurthy, a professor at the University of California. Berkeley Law School. He continued, "There is a lack of research on the subject."
It is too early to know what the study will reveal or how the agency or other policy makers will respond. However, one possible outcome could be that the FTC is forcing large technology companies to reverse some of their previous small-scale mergers. Simons himself suggested that the agency could go in this direction as part of its investigation.
The agency has the authority to subsequently reverse mergers and acquisitions – even those that did not have to be reported. It was just so late last year when it happened ordered the dissolution of a merger between two knee prosthesis companiesand found that their combination was anti-competitive. The merger had taken place two years earlier and was not subject to Hart-Scott-Rodino's reporting requirements.
Post-merger settlement is "not obvious for obvious reasons, but is happening"
and they have the power to do so, "said Donald Polden, a professor at the Santa Clara University School of Law.
The FTC could continue to step up its review of small acquisitions, whether by individual companies or across the board. The latter would likely require Congress to update Hart-Scott-Rodino, Polden said.
Krishnamurthy hopes that one of the results of the study will be that large technology companies must notify regulators even if they make such small acquisitions, as they are generally concerned about their impact on competition.
"This is not a worry that will go away," he said.
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