New York’s Sweeping New Antitrust Bill—Requiring NY State Premerger Notification ($9.2M Filing Threshold) and Prohibiting “Abuse of Dominance”—Inches Closer to Becoming Law
18 min read
While Congress has been the epicenter of an ongoing antitrust debate—with US legislators on both sides of the aisle urging vast reforms—the New York State legislature is pursuing a state bill that would arguably ensnare more conduct and transactions in antitrust law’s web than anything proposed, or existing, at the federal level to date.
The New York Senate Bill, known as the “Twenty-First Century Anti-Trust Act,” would expand New York’s antitrust laws by establishing first-of-its-kind US state premerger notification requirements for mergers with as low as a $9.2 million threshold in New York, prohibiting “abuse of dominance” by companies with market shares as low as 30%, authorizing private class actions, and raising criminal penalties.
On June 7, 2021, the New York State Senate passed the legislation, indicating momentum is growing towards passage. If the Bill becomes law, companies doing business or buying business in New York1will navigate a more demanding state-law regime in addition to abiding by federal law.
Background: “Big Tech” concerns are catalyst for broad state law antitrust reform
A mere week after a US House of Representatives committee held a hearing with executives of several tech companies in July 2020, New York State Senator Mike Gianaris introduced the first version of what is now New York Senate Bill S933A. The original New York Bill sat in the New York State Senate, but on January 6, 2021, Senator Gianaris reintroduced the Bill with revisions. Echoing the separate legislations proposed by US Senators Klobuchar and Hawley, the Bill proposes to modify New York’s State antitrust act, the “Donnelly Act,” to broaden and enhance New York state antitrust prohibitions. This time, the Bill has found momentum: On Monday, June 7, 2021, the Bill cleared its first major legislative hurdle when the New York State Senate passed the Bill by a 43-20 vote along party lines.2
The Bill applies to all industries. But similar to the several antitrust reform bills proposed at the federal level, concerns about purported anticompetitive behavior in the “Big Tech” sector were the spark. According to the Sponsor Memorandum accompanying the Bill, the purpose of the Bill is to address the concern that “[p]owerful corporations, particularly in Big Tech, have engaged in practices such as temporary price reduction with the purpose of forcing competitors to sell their business to them,” and that “[u]nilateral actions that seek to create a monopoly” should be unlawful in New York.3 State Senator Gianaris explained: “[o]ur laws on antitrust in New York are a century old and they were built for a completely different economy,” and “[m]uch of the problem today in the 21st century is unilateral action by some of these behemoth tech companies and this bill would allow, for the first time, New York to engage in antitrust enforcement for unilateral action.”4
The Bill proposes several fundamental changes to New York antitrust law
The current version of the Twenty-First Century Anti-Trust Act would drastically change the antitrust landscape in New York. The Bill would most notably change New York’s antitrust-law in four main ways:
New York would have first-of-its-kind State premerger notification requirements in the US – with a $9.2M filing threshold
If passed into law, the Bill would create a premerger notification requirement for transactions meeting certain criteria provided that the parties have a qualifying presence in New York.5 At the federal level, the Hart-Scott-Rodino Act (“HSR Act”) requires parties to notify the Federal Trade Commission and the Antitrust Division of the US Department of Justice of certain mergers or acquisitions and to observe a waiting period before consummating the transaction.
Only 2 US states have any form of premerger notification, and they are limited. Although Connecticut and Washington have pre-merger notification statutes, these specifically target only healthcare mergers.
But if passed, the Bill would be the first to have a generalized state premerger reporting statute. The proposed New York Bill is not industry specific.6 If passed, the Bill would create separate, generally applicable state premerger notification requirement.
Nexus to New York, filing thresholds – only $9.2M. This new requirement appears modelled on the HSR Act, but has much lower thresholds that would obligate an acquirer to file a notification with the N.Y. Attorney General for many transaction valued at more than $9.2 million if either the acquiring or acquired person has assets or annual net sales in New York in excess of $9.2 million.7 The thresholds are listed as a percentage of certain federal HSR thresholds, which are adjusted annually based on gross national product.
This means that if the Bill is enacted into law, any business in the world that holds more than $9.2 million of assets or has more than $9.2 million of “net annual sales” in New York State—regardless of where headquartered or incorporated—would have to check virtually every transaction for a potential New York State premerger filing.
While the Bill excludes certain transactions from its requirements8 and authorizes the NY Attorney General to issue rules to implement the Bill’s premerger requirement and to exempt transactions not likely to violate the statute, the $9.2 million threshold in the Bill is substantially lower than the current $92 million size-of-the-transaction test for reportability under the federal HSR Act.9 As such, transactions that fall well below the reporting threshold under the federal HSR Act and with seemingly little nexus to New York may still be reportable to the NY Attorney General under the Bill.
60-day notice period for closing (longer than the 30-day HSR period). Moreover, if passed, the Bill presents new timing considerations for parties negotiating reportable transactions. Under the HSR Act, once filings are submitted, there is an initial 30-day waiting period during which the parties can neither close nor take steps to implement control over the other company’s business. The waiting period is 15 calendar days for cash tender offers and acquisitions of assets out of Chapter 11 proceedings.
The Bill, on the other hand, would require notification to be made 60 days prior to closing the acquisition, including for transactions that are also HSR reportable, (although unlike under the HSR Act, the Bill provides no additional waiting period to bar the parties from closing during the pendency of an investigation, should the New York Attorney General open one).10 So for certain acquisitions subject to the HSR Act notification requirements as well as the Bill’s proposed notification, a transaction may be able to close after 30 days under the HSR Act but would need to wait 60 days under the Bill.
This could have severe timing consequences for transactions. For example, parties to a $10 million deal with absolutely no competitive overlap could still be forced to wait 60 days to close.
Penalty for non-reporting. The penalty for noncompliance with the premerger notification obligations of the Bill is $10,000 per day.11
Whether there may be any arguments that the premerger notification requirement in the Bill is in conflict with—and therefore preempted by—the HSR Act is yet to be seen, and will likely turn on the various rules and regulations New York State will have to promulgate to implement this section. But the Connecticut and Washington notification requirements, though notably more limited, are alive and well.
Finally, when considering whether to approve a merger, the Bill would require the NY Attorney General to specifically take into account a merger’s potential effects on labor markets.12
- New York would prohibit “abuse of dominance”—a standard that would apply to firms with low market shares—as well as prohibiting monopolization (as under current federal law
New York’s antitrust law, (the Donnelly Act), currently prohibits only antitrust conspiracies, making unlawful only a “contract, agreement, arrangement or combination” in restraint of trade.13 Thus, New York’s antitrust law currently aligns with Section 1 of the Sherman Act (which prohibits anticompetitive agreements), but has no parallel provision for Sherman Act Section 2 (which prohibits monopolization). The proposed Bill, however, seeks to amend the Donnelly Act law to add a new Subdivision 2 that declares unlawful any monopolization, attempted monopolization, or assertion of dominance that restrains trade or commerce.14
Specifically, Subdivision 2, if enacted, would provide that:
It shall be unlawful: (a) for any person or persons to monopolize or monopsonize, or attempt to monopolize or monopsonize, or combine or conspire with any other person or persons to monopolize or monopsonize any business, trade or commerce or the furnishing of any service in this state; (b) for any person or persons with a dominant position in the conduct of any business, trade or commerce, in any labor market, or in the furnishing of any service in this state to abuse that dominant position.
Thus, on monopolization, the Bill seems to be aimed at bringing New York’s antitrust law in line with the Sherman Act, as Section 2 of the Sherman Act prohibits monopolization, but the Bill goes much further.15
If passed, New York would be the first US jurisdiction with an “abuse of dominance” standard. The Bill’s proposed prohibition of “abuse of dominance,” however, adds a concept that does not appear in the Sherman Act and generally appears to be more far reaching. Using language similar to that in Article 102 of the Treaty of Functioning of the European Union, which has been interpreted to prohibit broader conduct that Section 2 of the Sherman Act, the Bill apparently seeks to expand antitrust enforcement in New York along the lines of the European counterpart.
Definition of a “dominant” firm: 40% share for sellers, 30% for buyers. The Bill provides that a “dominant position” can be established by direct evidence (like increased prices or reduced output) or indirect evidence (market share), or a combination of the two.16 As an initial matter, under the Sherman Act, it is uncommon for plaintiffs to attempt to prove monopoly power through direct evidence at all, let alone do so successfully. Under the Bill, if the direct evidence is sufficient to show a dominant position, conduct that “abuses” that dominant position is unlawful without regard to a defined relevant market (or the conduct’s effects in that market). This means that an antitrust plaintiff need not define a “relevant antitrust market,” as is the normal first step of an antitrust rule-of-reason analysis under the Sherman Act.17
As to indirect evidence of a “dominant position,” the Bill provides that a market share of 40% or greater for a seller and 30% or greater for a buyer will be “presumed” to have a dominant position.18 In contrast, it is unlikely that a market share of less than 70% is sufficient as a matter of law to prove the existence of monopoly power under Section 2 of the Sherman Act.19
Conduct prohibited as “abuse” of dominance. The Bill does not fully itemize what kinds of conduct constitute an “abuse” of a “dominant” firm’s position, but broadly provides that conduct that “tends to foreclose or limit” the ability of competitors (or potential competitors) to compete is unlawful. The Bill provides several examples, including “leveraging a dominant position in one market to limit competition in a separate market,” and “refusing to deal with the effect of unnecessarily excluding or handicapping actual or potential competitors.”20 The Bill adds that “abuse” of a “dominant position” in a labor market includes, “but is not limited to,” imposing restrictive covenants, or covenants not to compete on employees, or restricting the ability of workers to disclose their wages and benefits.21 The Bill also empowers the NY Attorney General to adopt rules on what constitutes abuse of dominance and issue guidance as to how the AG will interpret market shares and relevant market conditions for a finding of abuse of dominance.22
Importantly, many of these practices are not illegal under federal law and the Bill could capture conduct that is nothing more than hard-nosed competition generally agreed by economists to lead to lower prices and benefits to consumers. Thus, the Bill appears inconsistent with decades of federal law establishing that antitrust is designed to protect competition, not competitors.23
Pro-competitive effects not a defense. In addition, the Bill provides that “[e]vidence of pro-competitive effects shall not be a defense to abuse of dominance and shall not offset or cure competitive harm.”24 This is in sharp contrast to federal law, under which challenged conduct is generally evaluated under the rule of reason and thus procompetitive effects must be considered in assessing whether that conduct is unlawful. By attempting to remove procompetitive effects from the analysis, the Bill may be interpreted to have the effect of creating per se liability for any “abuse” of a “dominant position,” even though under federal law and state law today per se liability applies only to a small subset of conspiratorial conduct.25
In sum, if the Bill is passed, there is a risk that it could prohibit broad swaths of conduct that is not unlawful under the Sherman Act, which contains no language prohibiting the “abuse” of a “dominant position.” Further, any such “abuse” may be interpreted to subject the offender to per se liability, no matter how much the procompetitive effects of a course of conduct outweighed its allegedly anticompetitive effects, thereby depriving all market participants of significant benefits merely because some deleterious effects came along with them. Finally, the Bill appears to dramatically increases the power of the State’s chief antitrust regulator, the AG, apparently granting her the authority to declare any conduct (by large enough companies) to be an unlawful “abuse” of a “dominant position,” simply by adopting a rule banning such conduct. As we said, this Bill would enact drastic changes.
- Enhances criminal penalties for antitrust violations
The Bill would amend Section 341 of the Donnelly Act, which provides for criminal penalties for violations of Subdivision 1 (prohibiting an agreement in restraint of trade) and Subdivision 2(a) (prohibiting monopolization) of the proposed Bill. If passed, a violation of the Donnelly Act would now constitute a class D felony.26
For individuals, the Bill increases the maximum fine from $100,000 to $1 million, and the maximum imprisonment term from 4 years to 15 years.27 For corporations, the Bill increases the maximum fine from $1 million to $100 million.28 And for any type of defendant, the Bill would expand the statute of limitations for criminal violations from 3 to 5 years (not retroactive).29
- Permits NY State antitrust class actions and recovery of treble damages
Finally, the Bill amends the Donnelly Act to explicitly permit class actions and the recovery of treble damages.30 Currently, antitrust class plaintiffs cannot seek treble damages for Donnelly Act violations (and it is an open question whether plaintiffs can bring a class action for Donnelly Act violations at all).31 But if the Bill passes, class-action plaintiffs will likely be eligible to seek treble damages for antitrust violations in New York.
The availability of class actions and treble damages in antitrust cases is particularly notable in an “Illinois Brick repealer” state, like New York, which permits indirect purchasers to bring antitrust claims (not permitted in federal antitrust cases, pursuant to the Supreme Court’s Illinois Brick decision). The Bill does, however, instruct courts to take steps to avoid duplicative recovery for direct and indirect purchasers, and permits a defendant to prove that damages were “passed on” as a partial or full defense to damages by either direct or indirect purchasers.32
Although the Bill adds a right of class action, it does not change the 4-year statute of limitations, effectively cutting any class-action damages at 4 years prior to filing, just like any individual action.33
What’s Next for NY Bill S933A?
Having passed the New York State Senate, the Bill was pending in the New York State Assembly when the legislative session ended on June 10. When the session resumes, the Bill will need to pass both the Senate (again) and the Assembly without amendment to reach the Governor and be signed into law. Although we will likely have to wait until next year to see if the Bill ultimately passes, and in what form, Senator Gianaris plans to continue to push the Bill towards law next session.34 The Bill appears to have support from New York enforcers—New York Attorney General Letitia James expressed support for the Bill when it was first introduced last year, noting that it is “aggressive” and modeled after Europe’s approach to “abuse of dominance.”35
And there could be legal challenges, even if passed. Even if the Bill becomes law in New York, legal challenges could be brought to strike down or neutralize provisions, including for areas that may be in conflict with federal law, or provisions that are vague and ambiguous.
But if this “aggressive” Bill passes and survives challenges, it has the potential to greatly expand the scope of antitrust enforcement under New York law. It may also signal a trend as other states continue to zero in on the tech industry other large companies.
In particular, if every state had its own unique premerger notification requirement, it would create an almost impossible thicket, even for the most complementary and commonplace transactions, and as such companies in all industries should continue to monitor these developments. And similarly, if “abuse of dominance” becomes the law in many states, private plaintiffs and state enforcers may become emboldened to bring more cases involving single-firm conduct.
The Bill also serves as a reminder that companies need to be mindful not just of potential changes in the federal antitrust laws, but to state laws as well, which may change faster than at the federal level and be even more sweeping in reach.36
1 The threshold requirements for the application of New York’s antitrust law, the Donnelly Act, are unchanged by the proposed Bill. Currently, the Donnelly Act applies to any conduct that restrains “any business, trade or commerce or in the furnishing of any service in [New York] . . . .” N.Y. Gen. Bus. Law § 340.
2 Ryan Tracy, New York Senate Passes Antitrust Bill Targeting Tech Giants, The Wall Street Journal (June 7, 2021), https://www.wsj.com/amp/articles/new-york-senate-passes-antitrust-bill-targeting-tech-giants-11623098225.
3 Senate Bill S933A, 2021-2022 N.Y. Leg. Sess., THE NEW YORK STATE SENATE, www.nysenate.gov/legislation/bills/2021/s933; see also Assembly Bill A1812A, 2021-2022 N.Y. Leg. Sess., THE NEW YORK STATE SENATE, www.nysenate.gov/legislation/bills/2021/a1812/amendment/a.
4 New York Unveils Landmark Antitrust Bill that Makes it Easier to Sue Tech Giants, THE GUARDIAN (Aug. 5, 2020), www.theguardian.com/technology/2020/aug/05/antitrust-bill-new-york-easier-to-sue-big-techCMP=Share_iOSApp_Other.
5 Senate Bill S933A, supra note 3, § 340(10).
6 And California attempted a similar bill in 2020 with SB 977. See Barabara Sicalides et al., State Enforcers Expanding Premerger and Antitrust Jurisdiction Over Healthcare Transactions: Guidance for This Growing Trend, American Bar Association (Dec. 15, 2020), https://www.americanbar.org/groups/health_law/publications/aba_health_esource/2020-2021/december-2020/sta-enf/
7 Senate Bill S933A, supra note 3, Id. § 340(10)(i)-(ii). Under 15 U.S.C. § 18a, the HSR thresholds are established and are adjusted each year based on gross national product. The Bill lists its premerger reporting thresholds as a percentage of the HSR thresholds.
8 Exempt transactions include: (i) “acquisitions of goods or realty transferred in the ordinary course of business;” (ii) acquisitions of “bonds, mortgages, deeds of trust, or other obligations which are not voting securities;” (iii) transfers to/from the government; (iv) and other transactions that are exempted by the Attorney General. Senate Bill S933A, supra note 3, Id. § 340(10)(d)(i)-(v), 10(g).
9 Id. § 340(10)(d)(h).
10 Id. § 340(10)(b).
11 Id. § 340(10)(f).
12 Id. § 340(10)(g).
13 N.Y. Gen. Bus. Law § 340(1). While some states similarly prohibit both types of conduct, other states such as Kansas and Tennessee are like New York and only prohibit antitrust conspiracies between two or more parties that restrain trade. See, e.g., Kan. Stat. § 50-101 (prohibiting trusts, which are defined as requiring “two or more persons”); Tenn. Code §§ 47-25-101 to -112 (barring only “arrangements, contracts, agreements, trusts, or combinations” in restraint of trade).
14 Senate Bill S933A.
15 15 U.S.C. §§ 1-2.
16 Senate Bill S933A § 340(2)(b)(i).
17 Id. § 340(2)(b)(i)(1)-(3). According to the bill, direct evidence includes, among other types evidence, “the unilateral power to set prices, terms, conditions, or standards.”
18 Id. § 340(2)(b)(i)(2).
19 See, e.g., United States v. Aluminum Co. of Am. (“ALCOA”), 148 F.2d 416, 424 (2d Cir. 1945) (L. Hand, J., writing for U.S. Supreme Court) (“[I]t is doubtful whether sixty or sixty-four percent would be enough [to constitute a monopoly]; and certainly thirty-three percent is not.”); Sterling Merch., Inc. v. Nestlé, S.A., 656 F.3d 112, 121 (1st Cir. 2011) (70% market share, while “considerable,” insufficient to show “market has suffered a reduction in output or an increase in consumer prices”).
20 Senate Bill S933A, § 340(2)(b)(ii).
22 Id. § 340(2)(c)(i)-(iii). Either house of the N.Y. state legislature can deny the AG’s proposed rules within 60 days. Id. § 340(2)(c)(ii).
23Brown Shoe v. U.S., 370 U.S. 294 (1962).
24 Id. § 340(2)(b)(iii).
25 See, e.g., FTC v. Actavis, 570 U.S. 136 (2013) (applying rule of reason to reverse payment cases); Albrecht v. Herald Co., 390 U.S. 145 (1968), overruled by State Oil Co. v. Khan, 522 U.S. 3 (1997) (maximum resale price maintenance); Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911), overruled by Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S. 877 (2007) (minimum resale price maintenance).
26 Id. § 341.
30 Id. § 340(8).
31 Sperry v. Crompton Corp., 8 N.Y.3d 204, 214 (N.Y. 2007).
33 Senate Bill S933A § 340(6).
34 Ryan Tracy, New York Senate Passes Antitrust Bill Targeting Tech Giants, The Wall Street Journal (June 7, 2021), https://www.wsj.com/amp/articles/new-york-senate-passes-antitrust-bill-targeting-tech-giants-11623098225.
35 Khushita Vasant, Proposed Update to New York’s Antitrust Statute Gains AG’s Support, with Feedback from Industry Split, MLEX (Sept. 14, 2020).
36 Kristen O’Shaughnessy, Jaclyn Phillips, Max Kalmann, and Michael Kucharski, Senator Hawley Joins Growing Number in Congress Proposing Sweeping Antitrust Reform Legislation, White & Case (Apr. 29, 2021), https://www.whitecase.com/publications/alert/senator-josh-hawley-joins-growing-number-congress-proposing-sweeping-antitrust.
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