But relief for filers may ultimately arrive with a decision on the merits. The findings of the Eastern District will be hard to for the Federal Trade Commission to argue away:

 [T]he Final Rule exceeds the FTC’s statutory authority because the agency has not shown that the Rule’s claimed benefits will ‘reasonably outweigh’ its significant and widespread costs…  Though the FTC asserts that the Rule will detect illegal mergers and save agency resources, the FTC fails to substantiate these assertions. The Final Rule is therefore not ‘necessary and appropriate….  

In an unsparing opinion the District Court took the Commission at its word that the Rule would triple the costs of compliance and then found that the “the benefits of the Final Rule identified by the FTC are illusory or, at least, unsubstantiated.” Especially sharp was the Court’s reference to the Commission’s boast that the prior form had been a success, which led the court to ask rhetorically why the agency had not identified one harmful merger that former filings had failed to detect. 

When only 8% of reportable transactions resulted in open investigations – and only 3% received second requests – the judge saw no basis for tripling the burden on the vast majority of ordinary deals. He could have added that only a fraction of the second requests lead to challenges in court and that the Commission also has the ability to obtain all the information it wants simply by asking for it during the initial waiting period or through the second request process.  That process is sufficiently intrusive and expensive to inspire parties to give the Commission whatever it wants to avoid it.  

Not revealed in the decision was another aspect of modern merger review. These days, A-sides with large portfolios around the world face costs of three to four times what a filing once required, and the information takes significantly longer to pull together than the ten days most merger agreements allow for filing.  To allay concerns over mistakes, the agencies have encouraged filers to make use of 803.3 in explaining noncompliance.  Not so long ago, parties rarely invoked 803.3; they simply found the materials.  It's more widely accepted now.  

It is disappointing to see the agencies fighting to impede a hundreds innocent deals to find a few worth investigating.  Other options are available to target potentially relevant information – perhaps expanding the definition of 4(c) to capture the documents reflecting competition.  But there’s no reason to front-load inquiries into supply and distribution arrangements and overlapping directorates; those were fishing expeditions of the last administration. 

The only beneficiary of the new Rules were merger lawyers who earned more fees collecting and filing information. Fortunately for clients and the economy, that’s not a benefit that counts in the law. The agencies should embrace the vacation and drop the appeal.

The thresholds are much less, and the States you have to be concerned about, are many more, if you are a health care provider. Those States include California, Colorado, Connecticut, Hawaii, Illinois, Indiana, Massachusetts, Minnesota, Nevada, New Mexico, New York, Oregon, Rhode Island, Vermont, and Washington. Pharmaceuticals do not appear to be included in the term health care providers which seems to track entities covered by Certificate of Need statutes.

The new HSR form asks if parties consent to sharing the federal filing with State authorities. These new laws seem entirely pro forma then as very few States would sue to block an HSR-reportable merger that the federal government does not think is anticompetitive, and States with an interest would likely be contacted anyway by the federal authorities even if the federal authorities cannot disclose confidential information. No State has sued parties for consummating an HSR-/State-reportable transaction before the 60 days is over so far, but that does not mean they would not. I would anticipate at least a few of those suits much like the federal agencies periodically challenge consummated, non-reportable transactions.

My HSR information requests will now include questions about revenues (headquarters are rather obvious) in Washington State and Colorado, and will expand as more States adopt these statutes.

Perhaps the biggest question – with implications far beyond our day-to-day advertising and privacy worlds – is whether the Supreme Court will overturn its 1935 decision in Humphrey’s Executor, a decision that forms the longstanding constitutional basis for independent agencies like the FTC, Consumer Product Safety Commission (CPSC), Securities and Exchange Commission (SEC), Federal Communications Commission (FCC), Equal Employment Opportunity Commission (EEOC), and the National Labor Relations Board (NLRB), amongst others. As a refresher, in Humphrey’s Executor, the Supreme Court upheld the insulation of FTC Commissioners from removal by the President at will – finding that the Constitution permits Congress to create expert independent agencies led by a group of principal offers removable only for cause.

The Supreme Court, however, has been chipping away at the scope of that holding – finding, for example, in Seila Law LLC v. CFPB in 2020 that Congress’s insulation of the CFPB Director for removal only for “inefficiency, neglect of duty, or malfeasance in office” was unconstitutional and distinguishing Humphrey’s Executor on the grounds that the FTC is a multi-member body of experts balanced along partisan lines, appointed to staggered terms, and performing only “quasi-legislative” and “quasi-judicial functions.” Assuming last night’s dismissals ultimately reach the Supreme Court, the justices will be faced with the question of whether to overturn Humphrey’s Executor altogether – a move that Justices Thomas and Gorsuch already endorsed in a concurring opinion in Seila Law.

Meanwhile, other federal courts remain bound by Humphrey’s Executor and have generally applied it to rebuke President Trump’s attempts to dismiss members of independent agencies on similar grounds. Most recently, a judge for the District Court for the District of Columbia applied Humphrey’s Executor to invalidate the removal of Gwynne Wilcox from the NLRB (Wilcox v. Trump). Similar decisions have been reached upholding removal restrictions for the CPSC, the Merit Systems Protection Board, and the FTC.

As we wait to see how this progresses in court, we will of course also be watching to see how this plays out on the ground at the FTC. Assuming the dismissals are upheld in the interim, one immediate consequence will be the likely absence of dissents from forthcoming actions. In the last administration under Chair Khan, dissents were issued frequently and furiously by then-minority Commissioners Ferguson and Holyoak to voice disapproval and highlight legal questions underlying certain actions, as discussed here. If there are only two sitting commissioners of the same party – with a third Republican likely to be confirmed by the Senate soon in Mark Meador – the likelihood for dissents becomes remote.

We also anticipate that state attorneys general will become more proactive if the dismissals of the Democratic Commissioners are upheld and the FTC becomes an inherently more political body. We plan to cover likely state AG priorities in the wake of the recent dismissals in a separate post coming soon, along with a recap of the FTC’s first 50 days under Chair Ferguson.

History of FTC Quorums

Congress created the FTC in 1914 as a five-member commission, with seven-year staggered terms for commissioners. Under that framework, no more than three commissioners could hail from the same political party. The statute did not expressly address how many commissioners constitute a quorum for FTC actions, but, as former FTC Chair Edith Ramirez stated in 2015, “[t]he FTC’s architects believed that decisions made by consensus through a collective body, rather than by a single agency head, would make for better policy.” Accordingly, for many years the FTC adhered to a rule mirroring what the Supreme Court described as “[t]he almost universally accepted common-law rule,” namely, that “a majority of a quorum constituted of a simple majority of a collective body is empowered to act for the body.”

But, in September 2005, the FTC acted—on its own—to lower its quorum threshold. It adopted a new quorum rule (16 CFR § 4.14) providing that “[a] majority of the members of the Commission in office and not recused from participating in a matter ... constitutes a quorum for the transaction of business in that matter.”

Can the FTC Take Formal Action By a 2-0 Vote?

According to Rule 4.14, a quorum is a “majority of members” who are “not recused from participating in a matter.” So, where there are only two commissioners, can a quorum exist where one commissioner votes in favor of an action and the other votes against? We think not, given that a majority means “more than half.” What about when both commissioners vote in favor of an action? Can a two commissioner vote ever constitute a quorum? Although the issue has not been litigated, there is relevant precedent. In 2017, the FTC, during the last weeks of the Obama administration, authorized the filing of a complaint by a vote of 2-0, with Chair Edith Ramirez (D) and Terrell McSweeney (D) voting in favor. (Commissioner Maureen Ohlhausen recused herself. (Professor Stephen Calkins and I elaborated on this issue in 2018.) In light of this relatively recent precedent, Democrats would need to distinguish that 2017 vote from any forthcoming 2-0 votes in the Ferguson-led FTC.

Can President Trump Refuse to Appoint More Democrats?

The FTC Act does not, by its terms, require a president to appoint commissioners—Section 1 merely provides that “[n]ot more than three of the commissioners shall be members of the same political party.” Thus, President Trump, could, in theory, appoint an additional Republican Commissioner (he nominated Mark Meador in January 2025) and leave the two Democratic spots vacant—an action that would certainly be challenged given that the Commission is contemplated as a five-member commission.

What Happens Now?

Commissioners Bedoya and Slaughter have called their termination illegal and plan to fight the Trump administration in court. There is precedent for this: in January 2025, President Trump fired Gwynne A. Wilcox, a Democratic member of the National Labor Relations Board. She sued to challenge her dismissal, and a judge reinstated her early this month. The administration has appealed that ruling. As discussed in more detail here, this line of cases is likely to ultimately result in the Supreme Court’s reconsideration of a 1935 precedent, Humphrey’s Executor.

Thus, it is possible that the Democratic commissioners will refuse to step down from service pending litigation. If that happens, will the Commission recognize their votes? Highly unlikely. In any event, in that case, every FTC action would be subject to challenge—especially before Meador is confirmed—until a court rules on the termination.

We covered the Rule and its potential effects in a series of blogs and articles, beginning with this report on the proposal and the dissent it provoked in January 2023. Fifteen months later a divided Commission issued the Rule, despite vigorous dissents from two other commissioners who doubted its wisdom and disputed the agency’s authority to issue it.

Almost immediately, companies and associations sued the FTC in three federal courts. Two judges entered preliminary injunctions against its enforcement, first in Texas in Ryan LLC[1] and then in Florida in Properties of the Villages (POV).[2] The Ryan court then rendered a summary judgment setting aside the Rule in its entirety and permanently barring its enforcement. A Pennsylvania court, holding that compliance costs did not amount to irreparable harm, was unwilling to add a third injunction.[3]

Now that the FTC has appealed both losses, it’s time to weigh the odds that the Rule will ever take effect. Its controversial inception, troubled rise, and sudden fall lay bare the long odds facing the Commission and the encouraging signs for the companies it sought to regulate. Here are a few of the highlights:

A Commissioner’s Warning at the Inception

When the FTC proposed the rule, Commissioner Christine Wilson dissented, citing a lack of rulemaking authority, a flawed concept of competitive harm, and evidence from earlier FTC hearings that the economic literature was “far from reaching a scientific standard for concluding [noncompete clauses] are bad for overall welfare.” One study, she noted, had found such clauses in the brokerage sector were associated with lower prices and higher customer satisfaction. After questioning the Commission’s legal authority to proceed at all, she warned:

The Commissioner predicted numerous successful legal challenges to the FTC’s authority to issue the Rule, if it were to become final.

Two Commissioners Protest the Promulgation

By the time the FTC issued the final rule, Commissioner Wilson had resigned and two new Commissioners had the opportunity to weigh in on it, now with the benefit of a record containing thousands of comments, annals of published literature, and extensive analysis by FTC staff. It all led the Commissioners to the same conclusions Wilson had expressed fifteen months earlier.

In a forty-five-page dissent joined by Commissioner Holyoak, Commissioner Ferguson summarized his position with this:

On the merits of a categorical ban, he reminded his colleagues that noncompete clauses had been recognized as potentially beneficial since the beginning of antitrust jurisprudence three hundred years earlier in Mitchel v. Reynolds,[5] a case upholding such a clause. Common law and state statutes have reconfirmed the ruling again and again.

Dissenting separately, and joined by Ferguson, Commissioner Holyoak examined the language of the FTC Act, the cases construing it, and the academic literature (including my article). She concluded, as had I, that the agency did not have the authority to issue substantive competition rules. Reviewing the economic evidence, she opined, “Based upon the mixed effects from both the theory and the empirics, continued enforcement under the rule of reason seems more appropriate than a wide-sweeping rule that fails to grapple with the economics or the specific context of individual non-compete clauses.”

Federal Judges Side with the Dissents

My colleague John Villafranco recently wrote that dissents play important roles in the development of law and policy. The Noncompete Rule could be a case study, since the arguments in the Commissioners’ dissents proved persuasive in the courts. The Ryan court rendered two decisions – one granting a preliminary Injunction (Ryan I) and another granting a permanent Injunction (Ryan II).

The decisions were not close calls. Among the conclusions the courts delivered with the preliminary injunctions were rebukes such as these:

• The “FTC provides no evidence or reasoned basis [for prohibiting] “virtually all non-competes.” Sweeping away all, “instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious.” Ryan I
• The Rule is “based on inconsistent and flawed empirical evidence, fails to consider the positive benefits of non-compete agreements, and disregards the substantial body of evidence supporting these agreements.” Ryan I
• The Rule “makes unenforceable long-standing contractual agreements that have been judicially recognized as lawful and beneficial to the public interest.” Ryan I
• The FTC “has acknowledged that the cost of compliance in the aggregate will be in the billions of dollars.” POV
• The Commission “has never tried substantive rulemaking of this magnitude before this and had never even brought non-compete enforcement actions until it announced some consent decrees literally the day before it announced its Notice of Proposed Rulemaking.” POV
• “The Court rejects the FTC's argument that by not filing suit and its motion immediately after the rule was passed, POV sat on its rights and forfeited any argument that the harm is irreparable.” POV
• If “injunctive relief is not granted, the injury to both Plaintiffs and the public interest would be great. Granting the preliminary injunction serves the public interest by maintaining the status quo and preventing the substantial economic impact of the Rule, while simultaneously inflicting no harm on the FTC.” Ryan I

Rendering summary judgment and effectively making the injunction permanent and nationwide, the Ryan II court again rejected the Commission’s argument that it had authority to promulgate the Rule:

Off to the Circuits

Either or both circuit courts could concur and obviate review of the factual analysis. But the merits will be tempting to address, because a dual analysis would buttress the opinions should the FTC take one last gamble and petition the Supreme Court.

Should either court of appeals delve into the factual findings, it will be hard to escape this assessment in Ryan II.

An intriguing question outside control of the courts is whether the FTC will abandon the appeals. Under new leadership, the agency may decide to cut its losses and avoid two circuit court decisions declaring that unfair methods of competition are not amenable to nationwide rules and regulations and affirming that the FTC’s rulemaking was arbitrary and capricious. On the other hand, it would be tempting for the new leadership to let the courts resolve these issues once and for all.

Meanwhile, companies can continue to rely on the law that has governs noncompete clauses – state laws, the Sherman and FTC Acts. In federal cases, the precedent supports Commissioner Holyoak’s conclusion that the rule of reason should and will apply, case-by-case.

________________________

[1] Ryan LLC v. Federal Trade Commission, Civil Action No. 3:24-CV-00986-E, N.D. TX, (Preliminary Injunction, July 3, 2024) (Permanent Injunction, August 20, 2024).

[2] Properties Of The Villages, Inc., v. Federal Trade Commission, Case No. 5:24-cv-316-TJC-PRL, M.D. FL. (August, 2024).

[3] ATS Tree Services, LLC V. Federal Trade Commission, No. 24-1743, E.D. PA. (July 23, 2024) (explaining, “nonrecoverable compliance costs are not a valid basis for a finding of irreparable harm.”

[4] Footnotes omitted.

[5] 24 Eng. Rep. 347 (Q.B. 1711).

[6] Ryan II at 21-22 (citations omitted).

[7] Id. at 24 (citations and footnotes omitted).

A Problem with Market Share

The Complaint alleges that the combined entities would have over 30% of the market, and that they are two of the three largest. ¶¶7, 29.[1] This allegation sounds potentially meaningful until you do the math.

At $2.2 billion and $2.3 billion in revenues, respectively, Amedisys and UnitedHealth would have approximately the same market share, or about 15% each. ¶¶29-30. Since they are the first and third largest competitors in the market, no other competitor would have more than 15%. To find the smallest number of competitors you can have based on those allegations, you divide the 70% remaining by 15%, and you get around 5 competitors of about the same size. If you have more than 5 competitors, the market becomes less concentrated. Worst case scenario, this is a 7-6 merger.[2]

The main problem with the Complaint is that the allegations only go to how much UnitedHealth and Amedisys compete against each other. The Complaint alleges almost nothing about the other competitors. It could very well be that UnitedHealth competes vigorously against the other five competitors as well. It’s simply not plausible that, because they compete aggressively against each other, or have a “30% market share,” the merger will harm competition because the remaining competition, which is not addressed, could be sufficient. You can have atomistic markets where two competitors compete vigorously against each other for any number of reasons, but any attempted price increase by a merged entity would be defeated by the remaining competition.

And if the geographic market is in fact local, a large national footprint would not be necessary to provide services within that market, making it plausible that small local providers do in fact compete with the larger providers. If the allegation that “[m]any of Defendants’ smaller, local competitors lack the resources to invest in larger workforces and programs, such as local quality improvement coordinators, that create these advantages,” ¶39, is true, one would expect the market shares to be much higher and the geographic market much larger. Only larger competitors would be able to service these markets. The small geographic market allegation, ¶58, therefore contradicts the suggestion that large national providers only compete against other large national providers.

DOJ also acknowledges there is presently price competition in the market. “Amedisys, for example, acknowledges that rates with Medicare Advantage plans are ‘driven down by price competition.’” ¶42. The vast majority of hospice care is paid for by the United States government. ¶24. It is implausible to allege the government does not have buyer power or could not resist the combined entity’s ability to raise price or lower quality in a market with at least 6 participants.

According to the Complaint, UnitedHealth believes “Amedisys does a lot of things that we do not do—if they get a foothold in [the] county, they will likely push us out.” ¶33. This allegation suggests the two are not close substitutes and that their products are differentiated reducing the chance the merger would harm competition.

The Complaint also alleges that “entry barriers are high” because “laws and regulations” such as “certificates of need” prevent entry, and the factual evidence of this assertion is “UnitedHealth’s and Amedisys’s strategies of growth by acquiring other home health and hospice providers reflect the difficulty of entry or expansion in home health and hospice services.” ¶76. There is nothing in law or economics that compels a party to enter a market organically. Section 7 only bars mergers that substantially lessen competition. In any event, these assertions are vague, conclusory and unsupported with plausible facts.

A Problem with HSR

The HSR Act forbids companies from consummating transactions before they have filed notification and observed the applicable waiting periods. The Agencies can extend the initial waiting period by issuing a Second Request. When the parties are in “substantial compliance” they certify so to the Agencies which begins a second waiting period. The Agencies must sue under Section 7 to enjoin parties to an anticompetitive transaction. If there is no injunction in place when the second waiting period expires, the parties may consummate their transaction without violating HSR. You don’t have to have a reportable transaction under HSR to violate Section 7.

The Complaint alleges that Amedisys certified substantial compliance in December 2023. ¶14. The Complaint also alleges that Amedisys knew that it was not in substantial compliance but submitted the certification anyway and without a statement of noncompliance, and so violated Section 7A.

Section 7A(g)(1) provides that if a person fails to comply with “any provision” of Section 7A they will be liable for the HSR fine. 7A(e)(2)(B) requires a statement of noncompliance if the parties have not substantially complied. So presumably the DOJ is arguing that by failing to provide the statement of noncompliance, Amedisys has failed to comply with a “provision” of Section 7A and is therefore subject to fines.

The HSR Act prohibits the consummation of a reportable transaction before the termination of the applicable waiting period. DOJ is suing to permanently enjoin the consummation of the transaction. ¶102(b). The transaction has therefore not been consummated. Moreover, if parties have failed to produce something required, under Section 7A(g)(2), the DOJ may seek an order from a US District Court ordering compliance, extending the waiting period or other equitable relief.

There is no affirmative duty to make a notification under the HSR Act. It simply provides parties may not consummate reportable transactions until they have notified the agencies and the appropriate waiting periods have expired. If there is no affirmative duty to file, there can be no affirmative duty to submit a notice of substantial compliance or to state the reasons for noncompliance. Parties just cannot consummate the transaction before they do so. And DOJ’s only remedy if it was harmed by the premature certification at all is a (g)(2) action to compel production of the statement of noncompliance (or the missing materials). Since Amedisys did not consummate the transaction, Amedisys did not violate the HSR Act by submitting a certification that proved to be inaccurate or failing to state reasons for noncompliance, and is therefore not subject to a fine. The certification is signed under penalty of perjury. Presumably, DOJ would have pursued a perjury charge if it thought the certification was made intentionally knowing they were in fact not in substantial compliance.

Next Steps

The only case cited in the Complaint is United States v. Phila. Nat’l Bank, 374 U.S. 321, 362–64 (1963). There, the Supreme Court reversed a lower court’s finding that a merger to 30% of the market did not violate Section 7. PNB is generally viewed as holding a high market share allegation is sufficient to sustain a complaint under Section 7. The Complaint cites this case as “controlling.” ¶60. UnitedHealth is really just an attempt to resuscitate a discarded theory that market share alone is sufficient to show anticompetitive effect. Simply put, it is no longer plausible that a merger resulting in a 30% market share, without more, violates Section 7. I don’t think the United States Court of Appeals for the Fourth Circuit or the Supreme Court would uphold that as the rule. A motion to dismiss this complaint, particularly in light of the DOJ’s reliance on PNB, would be perfectly logical.

One of the more unconventional cases the United States antitrust agencies have brought in recent memory was Amgen/Horizon where the FTC alleged the merger violated Section 7 even though there were no horizontal overlaps or foreclosure. The Amgen/Horizon complaint was basically that a big company is bad, an attempt to resuscitate the conglomerate theory of harm from the 1970s. The parties in Amgen/Horizon filed an answer that looked a lot like a motion to dismiss. And ultimately they came up with a consent that gave the parties the vast majority of their transaction. I suspect that the inclusion of the HSR count here was to make Amedisys look bad to the court. In reality, I think it makes the DOJ look bad because the DOJ does not state a claim upon which relief may be based. The HSR count also serves as an invitation to move to dismiss the substantive Section 7 count. Motions to dismiss are very useful in antitrust suits generally because they offer the parties the opportunity to shape the court’s view of the counterarguments. Parties to governmental Section 7 challenges have been unwilling to do so because courts granted the agencies deference and because the complaints were usually sufficiently plead. The lesson of Amgen/Horizon is, I think, that sometimes you should file a motion to dismiss a merger complaint.
________________

[1] The only case the Complaint cites for its proposition that the merger is anticompetitive is United States v. Phila. Nat’l Bank, 374 U.S. 321, 362–64 (1963) (a merger to 30% of the market is anticompetitive); but see U.S. v. Baker Hughes, Inc., 908 F.2d 981 (D.C. Cir. 1990) (market shares alone are insufficient to establish liability). Philadelphia National Bank was decided before Bell Atlantic Corp. v. Twombly 550 U.S. 544 (2007) which held that plaintiffs, including the government, must allege a plausible cause of action to survive a motion to dismiss, and therefore arguably overruled Philadelphia National Bank.

[2] The Complaint does allege that the deal will result in UnitedHealth controlling 75% of the market on the Eastern Shore of Maryland, ¶60, and 90% in Parkersburg, West Virginia, ¶66. The Complaint then lists geographic areas where the combination will violate Section 7 but offers no basis for that conclusion, only their unsubstantiated allegation.