Promoting Innovation Through Antitrust Enforcement

Antitrust Division Spring Update 2019

Consumers win when companies compete against one another to develop innovative new products and services. That is why one of the missions of the Antitrust Division is to preserve and promote incentives to innovate. The Division has advanced that mission in several ways this year.

Bayer/Monsanto Merger

In May 2018, the Division took action to preserve the competition to innovate in agricultural product markets when it secured the largest negotiated merger divestiture ever, valued at approximately $9 billion, as a settlement condition in Bayer/Monsanto. The U.S. District Court for the District of Columbia approved the settlement and entered the Division’s proposed final judgment as an order on February 8, 2019.

As originally proposed, Bayer’s acquisition of Monsanto would have resulted in reduced competition in 17 distinct agricultural product markets fitting into four broad categories: (1) genetically modified seeds and traits; (2) foundational herbicides; (2) seed treatments; and (4) vegetable seeds. The transaction would have significantly affected innovation in the agricultural sector, since, in the absence of the merger, Bayer and Monsanto would have intensified competition in offering “integrated solutions,” i.e., combinations of seeds, traits, and crop protection products, supported by digital farming technologies and other services.

The court filings quote the companies’ ordinary course documents, which reveal that their rivalry drove investment in developing products, including herbicides. As a result, the divestiture package included certain intellectual property and research capabilities, including “pipeline” R&D projects, to support this and other innovative efforts. The innovation-focused remedy ensures that the divestiture buyer, BASF, will continue the legacy of R&D that Bayer had before it.

Thales/Gemalto Merger

In February 2019, the Division entered a consent decree requiring Thales to divest its General Purpose Hardware Security Module (GP HSM) business in order for Thales to proceed with its proposed $5.64 billion acquisition of Gemalto. GP HSMs are secure encryption processing and key management devices that are most frequently included as components of complex encryption solutions used by government and private organizations to safeguard their most sensitive data.

The Division filed a complaint and a proposed final judgment in the U.S. District Court for the District of Columbia. The Division is currently waiting on the court’s review of those filings.

According to the complaint, Thales and Gemalto are the world’s leading providers of GP HSMs and are significant direct competitors in the United States. They compete head to head in the development, marketing, service, and sale of GP HSMs.

The proposed settlement requires Thales to divest, as a viable ongoing business, Thales GP HSM products business. The Division analyzed the divestiture to ensure it would preserve the incentive and ability to innovate: because Thales and Gemalto compete to develop new products and services, the settlement requires the divestiture of certain intellectual property and research capabilities for products under development. As in Bayer/Monsanto, the divestiture requirement ensures that the structure of the market post-transaction will promote the race to innovate in this high-tech industry.

Amicus Brief in Intellectual Ventures v. Capital One

In May 2018, the Division filed an amicus brief in the Federal Circuit to clarify the appropriate scope of antitrust law as it relates to the exercise of intellectual property rights in Intellectual Ventures v. Capital One. The Division argued that although the Noerr-Pennington doctrine protects a patent holder from antitrust liability when it enforces its intellectual property rights through litigation, the doctrine does not extend to protect a patent acquirer from liability for an anticompetitive patent acquisition, even if the patent is later enforced through litigation.

By advocating for the application of antitrust law to anticompetitive acquisitions of patents, the Division seeks to promote innovation by protecting implementers who use patented technologies to develop innovative new products. Where patented technologies are substitutes for each other, patent owners have to compete against one another to offer attractive terms or better quality technology for inclusion in a new product. Anticompetitive acquisitions would harm that competition, and thus the implementers and consumers who enjoy their products.

Updated March 26, 2019

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