5 Ways The Self-Preference Bill May Affect Tech Mergers | Blogs | Foley ignite

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This article originally appeared in Law360 July 25, 2022, and is republished here with permission.

Congress is currently considering proposed antitrust legislation known as the American Innovation and Choice Online Act,1 or the Bill of Self-Preference.

If passed, the bill would prohibit some of the largest U.S. internet platforms from engaging in certain practices that favor their own products, services or industries over those offered by other users of those platforms.

Although the bill has drawn stiff opposition, pressure is mounting to put it to a floor vote before Congress leaves for its August recess.

The bill would apply to any covered platform defined as a “website, online or mobile application, operating system, digital assistant or online service” with at least 50 million users active per month – or 100,000 professional active users per month – and an annual market capitalization or US net sales greater than $550 billion.

This would apply as long as the platform has been designated as a covered platform by the Federal Trade Commission and the US Department of Justice or is otherwise deemed an essential trading partner based on additional criteria.

This definition of “covered platform” would likely only apply to a small handful of top-tier tech companies.

The bill would make it illegal for covered platforms to engage in several types of conduct to the extent that such conduct would materially harm competition, including:

  • Give preference to its own products, services or industries over those of another Professional User on the Covered Platform;
  • Limit other users’ ability to compete on the Covered Platform versus the Platform’s own products;
  • Discriminate in the application or enforcement of their terms of service; and
  • Use non-public data obtained through the use of the Platform to support their own products.

Affirmative defenses for such conduct would include showing that “the conduct was narrowly tailored, non-pretextual, and reasonably necessary” for other legal reasons, to protect user privacy or data security, or to “maintain or significantly improve the core functionality of the Covered Platform.”

The FTC and the DOJ’s Antitrust Division would be responsible for issuing enforcement guidelines “describing policies and practices relating to conduct that could materially harm competition,” as well as interpreting affirmative defenses and policies for determining amounts. appropriate civil penalties.

It remains to be seen whether the bill will be able to cross the threshold of 60 votes necessary to pass in the Senate. And if it becomes law, implementation and enforcement by the FTC and DOJ will be key to understanding its true implications.

However, the prospect of the bill becoming law raises several questions that should be carefully considered by anyone considering starting a new business, making a venture capital investment, or considering a business for merger or expansion activity. acquisition that may involve technology platforms.

Discourage big tech from mergers and acquisitions

One of the consequences of the bill could be to discourage covered platforms from engaging in pro-competitive mergers and acquisitions, such as mergers and acquisitions aimed at developing new technologies.

Consider a startup developing a flying car — yes, meet George Jetson. On its own, the flying car business may very well not be viable; however, under the control of a large technology platform capable of integrating its own software and products into the cockpit of the car, perhaps the product could have wider market appeal and the company could have a more realistic towards sustainability.

Under the bill, however, a covered platform interested in buying this business could be prohibited from favoring its own apps over those of its competitors, preventing the platform from realizing synergies with the ‘company. In this case, the bill could discourage any plausible buyer from acquiring the company, literally preventing the flying car from ‘taking off’.

Discourage mergers and acquisitions of medium-sized companies

For the same reasons, the bill could also discourage mergers and acquisitions activity by small and medium-sized technology companies. Companies aspiring to become the next Amazon.com Inc. may be deterred from making investments in mergers and acquisitions that could put the buyer in the position of becoming a covered platform. In this regard, the bill risks sanctioning legitimate success.

Start-up capital

Taken together, the two scenarios above can lead to a longer-term shift in how founders and newbie investors view their return potential.

Over time, the overall effect of reduced appetite for mergers and acquisitions in the technology sector could discourage investors from taking the risks necessary to develop innovative and disruptive technologies.

Big Tech spinoffs

Conversely, companies approaching or exceeding Covered Platform thresholds may seek to split parts of their business, or even split into multiple companies, to fall below a Covered Platform’s thresholds. This dynamic could create interesting M&A opportunities for opportunistic investors.

Cross-industry mergers

Finally, the bill creates potential complications for mergers and acquisitions involving cross-industry mergers. As an extreme example, if a non-technology company with $550 billion in annual net sales in the United States were to acquire an internet platform with 50 million US users but $0 in annual net sales to United States, then the new combined entity could be considered a Covered Business. platform subject to the bill’s restrictions, even if the entity’s revenue is based entirely on non-technology related operations.

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1 https://www.klobuchar.senate.gov/public/_cache/files/b/9/b90b9806-cecf-4796-89fb-561e5322531c/B1F51354E81BEFF3EB96956A7A5E1D6A.sil22713.pdf.

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