Debevoise Files Amicus Brief on Behalf of Venture Capital Firms to Argue the Impacts of FTC’s Aggressive Merger Enforcement on Innovation

22 September 2023

Debevoise & Plimpton LLP recently filed an amicus brief on behalf of a group of venture capital firms in F.T.C. v. Microsoft Corp., and Activision Blizzard, Inc., which is currently on appeal to the U.S. Court of Appeals for the Ninth Circuit. In June 2023, the Federal Trade Commission (FTC) sued to enjoin the merger of Microsoft and Activision. The U.S. District Court for the Northern District of California denied the FTC’s bid for a preliminary injunction, and the FTC promptly appealed.

On appeal, the FTC argues that the legal standard to win a preliminary injunction should be lowered and that district courts should be limited in their ability to consider the full market reality of the transaction, including evaluating identified solutions to issues of potential competitive concern. The amici urge the Ninth Circuit to affirm the district court’s decision and highlight the negative effects that the FTC’s position would have on venture capital firms, the entrepreneurs they support, and the innovation ecosystem.

The amicus brief explains how venture capital firms and visionary entrepreneurs together drive innovation, competition, and economic growth. Venture capital firms not only provide much-needed funding to startups but also the expertise and support that entrepreneurs need to transform their innovative ideas into workable business models. Venture capital investment is not meant to sustain a business throughout its lifecycle. Rather, the goal is to invest in a startup in its early stages and support it until a successful exit is possible, typically through a merger or acquisition. A compensated exit allows venture capital firms to continue investing in companies that seek to bring new technologies and products to market, and it enables – and incentivizes – entrepreneurs to engage in the risk-taking necessary to build new businesses. Exit via acquisition thus plays an essential role in fostering a self-sustaining cycle of innovation.

Under the scheme envisioned by the FTC, many acquisitions would be subject to lengthy and expensive administrative review and could be abandoned upon challenge or never pursued at all. If acquisitions become costlier and more challenging to defend, venture capital firms will be reluctant to invest in nascent businesses, and entrepreneurs will be disincentivized to invest their time and money in a potentially game-changing idea, thereby stifling innovation, growth, and competition. In addition, the negative impacts of the FTC’s positions would be felt acutely by the current generation of entrepreneurs - far more diverse than the generation that preceded it - and thereby hinder ongoing efforts to increase diversity in the startup economy.

The Debevoise team was led by litigation partner Ted Hassi and counsel J. Robert Abraham and included associates Isabel Feldman and Jaime Fried.