Antitrust 2.0

High technology companies will likely bear the brunt of the Obama administration's drive to beef up antitrust enforcement.

The personal experience of the Department of Justice's new competition chief as well as the state of the economy have put Silicon Valley under the government's microscope. As a member of the Federal Trade Commission a decade ago, Christine Varney carved out a niche for herself in high-tech issues, including the Internet and privacy concerns. Antitrust lawyers say that background has prepped Varney, now the DOJ's assistant attorney general for antitrust, to focus investigations on the tech industry.

Varney honed her interest in technology after she left the FTC and returned to Hogan & Hartson LLP, where her private practice centered on Internet issues, giving her additional insight into competition within the tech sector.

-- Browse all stories in this Technology Special Report --
The new normal
Honey, I shrunk the VCs
Antitrust 2.0
The other exit

Varney has brought top-flight litigators William Cavanaugh and Molly Boast to work as deputies in the antitrust division, and technology cases are likely to be among their first assignments. On May 29, The Deal was the first to report that Varney's lawyers have launched an investigation into a possible illegal pact among technology firms not to poach each other's employees. Companies the DOJ queried include Google Inc., Yahoo! Inc. and Apple Inc., as well as biotech giant Genentech Inc.

Antitrust experts say Varney, a savvy politician, appears to be encouraging staffers to quickly terminate investigations unlikely to result in court challenges and spend time looking for likely targets. As a result, staff lawyers are expected to approve corporate software specialist Oracle Corp.'s proposed $7.4 billion purchase of hardware maker Sun Microsystems Inc., according to a lawyer briefed on the case. Swift approval of the deal by Larry Ellison's acquisitive company is a bit of a surprise, given lingering skepticism among DOJ staffers about business practices at Oracle, which the DOJ unsuccessfully sued in 2004 to block the purchase of PeopleSoft Inc.

Economic upheaval will also put the tech industry under greater scrutiny, spurring the FTC to take a harder look at the business, too. After dominating tech dealmaking for years, private equity acquisitions have largely dried up. Now, tech companies are begging for new investors, and strategic rivals that had a hard time matching debt-driven private equity bids are finding the prices much more affordable. The revival of strategic deals -- mergers of competitors -- means more antitrust investigations.

As a result, staff lawyers at both the FTC and the DOJ are busy with tech deals. FTC Chairman Jon Leibowitz and his fellow commissioners in recent months also have taken a harder look a technology and filed suits in specialized software and biotechnology deals. In March, the FTC won a case aimed at preventing the merger of two of the nation's three largest developers of software for estimating auto repair costs. The FTC's victory also strengthened its ability to obtain preliminary injunctions against mergers on grounds that it needn't prove likelihood of ultimate success in court just to suspend a merger's closing.

And, just last month the FTC filed a court challenge to a biotech merger -- CSL Ltd.'s proposed $3.1 billion acquisition of blood plasma products competitor Talecris Biotherapeutics Holdings Corp. In this deal too, the exit of private equity capital is playing a role -- Cerberus-Plasma Holding LLC now owns Talecris. Given the dearth of PE interest, that means the most likely purchaser would be a rival.

The resurrection of strategic tech mergers means the DOJ and the FTC will have more deals to choose from as they hunt for threats to competition.