The Antitrust Division of the U.S. Department of Justice (“DOJ”) announced on August 16 that two directors of Pinterest Inc. and Nextdoor Holdings Inc. have resigned in response to an investigation into whether the corporations shared directors in violation of Section 8 of the Clayton Act, 15 U.S.C. § 19. Section 8 prohibits director and officer interlocks between competing corporations meeting certain size thresholds that are updated yearly. The Biden Administration has revived once-dormant enforcement of a statute designed to lessen the opportunity for competitors to tacitly coordinate with one another or exchange competitively sensitive information through such interlocks, and this week’s announcement marks the 15th director resignation (from 11 boards) secured by the Biden DOJ.
Section 8 enforcement is part of a broader effort by the Federal Trade Commission (“FTC”) and DOJ to address their concerns about entities with influence falling short of control over two or more competitors. In the context of merger and acquisition review, for example, the FTC and DOJ have published draft Merger Guidelines that would focus more explicitly on acquisitions that confer or enhance minority ownership positions. Such partial cross-ownership interests may, in the agencies’ view, give the partial owner the ability to influence the target firm through voting interests or governance rights, reduce the incentive of the partial owner to compete with the target firm, or give the acquiring firm access to non-public, competitively sensitive information of the target firm. And to facilitate the agencies’ review, the FTC has proposed extensive revisions to the pre-merger notification process under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR Act”) that would expand the amount of information filing parties would have to provide to the agencies about their minority holdings in other entities.
The proposed revisions to the Merger Guidelines and the HSR regulations are in the public comment period and may be altered, perhaps significantly, before final adoption. What will not change in the near term is the antitrust agencies’ continued focus on interests in and influence on companies by their competitors, whether that occurs through cross-partial ownership, common partial ownership by investment companies, or interlocks between the officers or directors of one company and the board of a competitor.