Out with a Bang as FTC Beats the PharmaBros
The FTC won a huge merger case yesterday to cap off the year. Plus, major decisions on crypto and private equity.
Welcome to BIG, a newsletter on the politics of monopoly power. If you’d like to sign up to receive issues over email, you can do so here.
Today I was going to write the annual review of BIG. But some bigger antitrust news hit yesterday - Lina Khan’s FTC won an important court fight over a merger, and it looks like this might start reshaping corporate America. And that’s not all. There were two other rulings - one on crypto and one on private equity - that are helping to move us towards a better society.
Generally speaking we don’t choose to see court decisions - except extremely high-profile ones on social questions - as part of politics. But judges are politicians, and they often make policy just as much as they rule on factual questions.
So that’s what this issue is about. I’ll write the year end review of BIG and monopolies/finance in 2023, as well as predictions for 2024, in a day or so.
On Monday, I did a profile of an important merger trial that otherwise got zero press, where a $40 billion medical data corporation called IQVIA was trying to monopolize the business of advertising to doctors by buying an adtech company called DeepIntent. This acquisition was the same strategy, in miniature, that Google pursued fifteen years ago when it rolled up the general advertising market by purchasing DoubleClick, among other firms. The FTC challenged IQVIA’s buy-out of DeepIntent as unlawful, and yesterday an Obama appointed judge named Edgardo Ramos ruled in favor of the government, granting a preliminary injunction to block the merger.
Ramos didn’t release the full opinion, just the decision, as he didn’t want to divulge confidential business information. Ramos will let the parties redact what they want, and then publish the opinion at some point in January. It’s likely an important ruling, but since I don’t know what it says, I can only speculate on the legal questions. Practically, what this means is that the merger cannot be consummated unless IQVIA wins in the administrative court at the FTC. Typically parties abandon acquisitions after losing at the preliminary injunction stage, but they don’t have to, and maybe IQVIA won’t. But I think this one’s over.
Ok, so why does this decision matter? A few reasons. First, it’s a win for enforcers, and a real blow to the immensely arrogant antitrust bar. It took me awhile to understand the IQVIA case, but after reading the transcripts I realized the key theme was a culture of entitlement that is pervasive in corporate America.
The lawyers in the case were fancy, ex-government, and paid large sums of money. Yet they were quite… mediocre, with one arguing that the case, in his ‘gut,’ was meritless. There were very bro-y executives talking about bags of money and domination. It was as if none of these people had ever been told no when trying to grab something they wanted from someone less powerful than they are. It was beyond their comprehension that laws are anything more than polite suggestions. They hate Lina Khan, and as I found out when speaking to a room full of angry lawyers in April at the American Bar Association, they hate you and me. But it’s not personal, fundamentally the anger comes from a rage towards the concept of equality under the law, the idea that the peasants have rights.
More practically, this loss discredits the main argument from Wall Street. Dealmakers, and thinkers like Larry Summers, have often said that while Biden antitrust enforcers are aggressive, if corporations are willing to go to court, the government is likely to lose because judges won’t let them rewrite the law. This narrative was so strong that Lina Khan and Jonathan Kanter were questioned in Congress as to whether they were even trying to win. It’s always been a narrow and bad faith critique, but this victory, plus, the win in the Fifth Circuit over Illumina, should put that narrative to rest. Antitrust lawyers will tell their clients to go to court at their peril.
Second, this case had a few unusual legal elements, such as blocking an acquisition in which a firm was buying a supplier. These kinds of mergers weren’t challenged for forty years until Trump’s 2018 AT&T-Time Warner challenge, which means the dominant business model in everything from streaming to big tech to health insurance to shipping has become vertically integrated monopolies. When the government did start challenging these mergers, it lost, from AT&T-Time Warner to UnitedHealth Group-Change to Microsoft-Activision. But then Illumina-Grail happened. I suspect this one is another win, though we won’t know the legal details until the full decision is released.
Third, the Antitrust Division has a monopolization case against Google in Virginia, and the Texas AG has one in Texas, over the search firm’s vertical consolidation of the adtech space. This decision will help those cases, because it’s a very similar argument in a similar industry, which is to say, IQVIA does adtech in a healthcare vertical.
Fourth, this decision could buttress adoption of the new merger guidelines by the courts. The FTC didn’t rely on the new guidelines for its arguments, as they weren’t in force when the commission brought the case. But guideline five - mergers that “limit access to products or services that its rivals use to compete” are often unlawful - as well as guideline two on direct rivals being a signal of competition - were in play.
I’m sure there are other things I’m missing, since the decision isn’t public yet. (There is likely something on the standard the FTC must use in getting a preliminary injunction, which will annoy the defense bar. But I don’t know.)
And yet, that’s not all that happened over the past few days. Here are two other decisions by judges that are creating useful case law.
BIG is a reader-supported newsletter focused on the politics of monopoly and finance. This is journalism and advocacy that challenges power, so please consider a paid subscription. Lies are free, the truth costs a few bucks. You can subscribe by clicking here.
A Crypto Loss
Judge Jed Rakoff, who is a legend on the bench on laws around finance, ruled on Thursday that a bunch of crypto assets are securities, and thus subject to basic securities regulation. The specific case here is over the Terra/Luna Ponzi Scheme by Do Kwon, and whether by offering crypto assets Kwon was engaged in securities fraud. Rakoff ruled that he was doing so. There’s been a fight between the Securities and Exchange Commission and the crypto world since 2021 over this question, so Rakoff’s ruling is a major win for the SEC. It also conflicts with an earlier ruling by Judge Analisa Torres over a different crypto purveyor named Ripple Labs, during which Torres said crypto assets sometimes aren’t securities. The appeals court will have to clear up the conflict.
I honestly can’t believe we’re still having this debate after the Sam Bankman-Fried debacle, which is the biggest and most high-profile fraud, but not the only one. Crypto is obviously a scam. But as we’re finding out, our faith in the rule of law is so feeble that it’s hard to shut down an ‘industry’ that has been operating illegally for over a decade, even with a dedicated regulator like Gary Gensler, even when that ‘industry’ has no value or purpose except money laundering, speculation and fraud, and even after the major Ponzi schemes blew up. The reason for this is some bad judging, but also that the right-wing has not spent the time rethinking financial regulation the way they have begun reconsidering antitrust. So Republicans in Congress simply have no framework for doing something about financial scams. It’s too bad, but hopefully it’s changing as crypto boosters like Patrick McHenry retire and Republicans get more concerned over common ownership by asset managers.
The Rent Is Too Damn High, Private Equity Edition
In October of 2022, ProPublica published a blockbuster article over rent-fixing software called YieldStar made by a firm named RealPage. YieldStar allowed large property managers to collude with one another over prices and vacancies. Since then, multiple antitrust lawyers have brought price-fixing cases, supported by the Antitrust Division. These cases have been consolidated in Tennessee.
It’s a remarkable set of claims alleging a vast conspiracy. As stated in the judicial order, “as of December 2020, RealPage ‘had over 31,700 clients, including each of the 10 largest multifamily property management companies in the United States.’” By the end of 2022, YieldStar was being used to price 4 million apartments in the United States.
And it wasn’t just a software package, RealPage sought to get its clients to raise rents instead of competing against each other based on price. The firm hired and assigned ‘pricing advisors’ to ‘closely monitor clients' conformance with RealPage's pricing recommendations,’ challenging the property managers when they didn’t raise rents enough.
Ok, so that’s the case. The judge, an Obama appointee named Waverly David Crenshaw Jr., mostly ruled for the plaintiffs, which means this case is going to discovery and a possible trial. But here’s what’s interesting. Crenshaw also ruled that the owner of RealPage, a private equity firm called Thoma Bravo, must also be a defendant, because the firm was aware of and potentially participated in the scheme. It’s no different, argued the judge, than private equity giant Bain Capital’s role in the Varsity Brands cheerleading antitrust case. So this is now the second judge putting liability on the private equity owner for a price-fixing or monopolization scheme by a subsidiary. And there could be a third, as the FTC has a case against private equity firm Welsh Carson for monopolizing certain aspects of healthcare in Texas.
Judges to the Rescue?
So multiple cases have good outcomes, and set up for a different legal environment. This is how good case law develops, and ultimately reshapes corporate behavior. It’s slow, and it would be even better if Congress and state legislatures acted. It’s also subject to the whims of judges, many of whom are still libertarians by instinct and training. But enforcement, by both public servants and private plaintiff lawyers, sets up the possibility to improve our laws.
To put it differently, you miss 100% of the shots you don’t take. And we’re starting to put points on the board.
Thanks for reading. Send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.