Glossier announced on Wednesday that it has raised $80 million in Series E funding. The round – which was led by Lone Pine Capital with participation from existing investors Forerunner Ventures, Index Ventures, IVP, Sequoia Capital, and Thrive Capital – values the millennial-focused beauty company at $1.8 billion. In a newly-issued release, the 7-year-old company states that it will “continue to scale its online and offline channels globally as it builds the world’s number 1 destination for beauty discovery,” with founder Emily Weiss saying that “beauty discovery increasingly begins online as people look for inspiration from friends and strangers alike, and customers want to move fluidly between immersive and personalized e-commerce and retail experiences.” And that is precisely “the future we have always been building for,” she noted. 

The company will use a portion of the new funding to build out its physical footprint following the permanent closure of its brick-and-mortar outposts in light of the pandemic. Last month, Glossier announced that it is planning to open three new stores in Seattle, Los Angeles, and London later this year. Beyond that, Glossier revealed this week that while it will take “an e-commerce-first approach to entering new international markets,” it is will also “deepen its presence through dozens of new stores planned for the United States and globally in the coming years,” noting that in 2019, alone, more than 1 million people visited its two permanent and five temporary stores, a nod to its belief that retail locations have a hand in “building the 3D world of Glossier and fostering meaningful connections with and between customers.” 

“Glossier is resonant across generations and geographies, not only for its products” – nearly 40 fragrance, body, makeup and skincare products that sell for between $12 and $60 – “but for the sense of connection and belonging the brand inspires,” Kelly Granat, Portfolio Manager at Lone Pine Capital, said on Wednesday. “The community that’s formed around Glossier’s approach to beauty, one that champions individual freedom and choice, has made Glossier’s direct relationship with its customers all the more powerful.” 

“This is already an iconic and era-defining beauty company,” Granat  further asserted. “We’re excited to play a role in bringing Glossier experiences and products to people everywhere.”

As for what Glossier could have in the works on the physical retail front, as TFL first reported in May, the buzzy beauty brand filed a handful of applications for registration with the U.S. Patent and Trademark Office for “Glossier Alley.” The proposed uses of the trademark, as cited in the applications that counsel for Glossier filed this spring: The “provision of food and drink, coffee shop, café, and restaurant services,” among other goods/services, such as “retail store services featuring cosmetics, [and] makeup,” “all-purpose carrying bags; clutches, shoulder bags, travel bags, [and] handbags;” and “apparel, clothing, footwear; hats; caps, scarves, [and] belts.” 

On the heels of CVC announcing early this month that it would buy Shiseido’s shampoo and affordable skin-care business for a whopping $1 billion, as the Japanese giant looks to focus exclusively on its upmarket offerings, and Function of Beauty touting a $150 million strategic minority investment from L Catterton before that, Estée Lauder Companies Inc. revealed that it is the latest mover in the beauty M&A (mergers and acquisitions) market. The New York-based cosmetics titan revealed in a statement on Tuesday that it has entered into an agreement to increase its investment in the burgeoning DECIEM Beauty Group Inc. from approximately 29 percent to roughly 76 percent. 

75-year-old Estée Lauder Co. confirmed on Tuesday that the deal with 8-year old DECIEM – a Toronto, Canada-based, vertically integrated, multi-brand company, whose labels include NIOD and The Ordinary, among others – is expected to close in the quarter ending June 30, 2021, with the cosmetics giant saying that it has “agreed to purchase the remaining [24 percent] interest after a three-year period” to complete the second phase of the transaction. The deal, as a whole, puts a $2.2 billion valuation on DECIEM, which generated net sales of about $460 million for the fiscal year ending on January 31, 2021. 

Founded in 2013 by Brandon Truaxe, the late “visionary who set out to change the beauty industry through authenticity and transparency,” according to Estée Lauder Co., DECIEM is one of the most successful skincare companies that has come from “an explosive growth in independent ‘disruptor’ brands” that were able to scale rapidly in recent years, driven in large part by their embrace of social media and e-commerce (oftentimes in a direct-to-consumer capacity), UDL Intellectual Property consultant Mark Green stated, reflecting on the boom in skincare and beauty startups, and the rise in trademark filings (and other protections) that have come with them. 

Relatively “cheaper manufacturing costs have reduced the barriers to entry” for many modern brands, according to Green, who says that many savvy companies were able to avoid traditional – and eye-wateringly expensive – advertising methods to reach digitally-connected millennial and Gen-Z consumers. More than that, in addition to bringing something different to the table (affordability paired with “authenticity and transparency” in skincare in the DECIEM-owned The Ordinary’s case), many of the most successful players in the burgeoning beauty industry regularly “engage with their customers,” giving them to ability to identify and “react quickly to their needs and trends,” he says, in order to produce and/or pivot as necessary.  

“I believe this is the coolest, most interesting category around right now,” Ross Blankenship, a venture capitalist at Angel Kings, told Crunchbase News a few years ago, in reference to the skincare and beauty industry that was growing outside of the traditional realm of cosmetics titans. “The profit margins of beauty and cosmetics are so high, especially compared to perishables, which attracts investors” – and in some cases, most established market players – “to these fresh startups long-term.” And this remains true. It is, after all, precisely what has happened for DECIEM and other similarly-situated upstarts, such as Kylie Cosmetics, 51 percent of which was scooped up by cosmetics titan Coty, Inc., for instance, her sister Kim Kardashian’s KKW brand, which struck a similar deal with Coty, and Charlotte Tilbury’s eponymous label, which was snapped up by fragrance giant Puig

Certainly, the digitally-friendly nature – and the young(ish) consumer pools – of these acquirees is a draw for big beauty companies, which “have been on an acquisition spree” in recent years, per Bloomberg, in furtherance of an industry-wide quest “to court younger shoppers with upstart brands.” At the same time, the intellectual property assets of these formerly-indie brands are a big driver for buyers. After all, “If there is no IP,” there is “no brand protection, [and] no value,” Green says, asserting that indie brands – no matter the market segment – “need to build up their brand protection” in order to be “ready for investment and buy-outs [and thereby], make the next market leap.” (This is something that millennial beauty unicorn Glossier clearly understands).

This is significant not only because “brand and brand image is [a] paramount” factor for consumers when it comes to cosmetics (and fashion, too, of course), but it is also noteworthy given that such M&A activity is expected to continue in 2021 in light of a larger move towards consolidation, spurred at least in part by the onset and impact of COVID-19. Unilever, for one, expects to double-down on deals in the beauty space, with CEO Alan Jope saying at the Consumer Analyst Group of New York Conference this month that the American consumer goods behemoth is in the process of making “strategic choices,” including in the beauty space, for “organic investment and particularly, for acquisitions.” 

Jope revealed that Unilever has achieved “good progress” in terms of building out is beauty division, citing acquisitions of Dermalogica and Tatcha, and plans to continue its focus on skincare and upmarket beauty products in order to woo millennial and Gen-Z consumers, while also boosting its e-commerce capabilities since that channel has grown to account for more than half of “prestige” beauty product sales since the pandemic.  

With such enduring M&A at play in the beauty space and beyond, Green encourages brands to prioritize their efforts on the legal front: “Securing strong protection through trademarks is the first thing brand owners should do when going to market.” 

Procter & Gamble and Billie have called off their previously-announced merger on the heels of the Federal Trade Commission (“FTC”) filing an administrative complaint – and authorizing a federal lawsuit – against Proctor & Gamble in order to stop the multinational consumer goods giant’s proposed acquisition of shaving startup, Billie. According to a release from the FTC dated December 8, P&G’s acquisition of the 3-year old shaving company would enable it “to eliminate growing competition that benefits consumers,” and thus, should be prohibited on anticompetitive grounds.

Fast forward a few weeks and the two companies say that they are going their separate ways. “We were disappointed by the FTC’s decision [to oppose the deal] and maintain that there was exciting potential in combining Billie with P&G to better serve more consumers around the world,” the companies said in a joint statement on Tuesday. 

Addressing the FTC’s move to block P&G’s acquisition of Billie, FTC Bureau of Competition director Ian Conner said in a statement that the government agency – which is tasked with policing unfair, deceptive or fraudulent practices in the marketplace, and enforcing federal antitrust laws that prohibit anticompetitive mergers and other business practices that “could lead to higher prices, fewer choices, or less innovation” –  voted to challenge the merger “because it would have eliminated dynamic competition from Billie.” 

It is significant in the eyes of the FTC that while New York-based Billie’s share of the shaving market is relatively small, the budding young company – which has put an aim to counter the notorious “pink tax” that results in an upcharge on products traditionally intended for/marketed to women at the center of its brand – “targets customers who are tired of paying more for comparable razors.” 

Interestingly enough, the FTC’s action to halt the Billie acquisition was not the first of its kind in 2020. In fact, the government agency filed an administrative complaint in February, asserting that it has “reason to believe that Edgewell Personal Care Company and Harry’s, Inc. executed a merger agreement in violation of [various sections] of the FTC Act,” as well as the Clayton Antitrust Act. As it turns out, Edgewell, the shaving company that owns a stable of household names from Playtex and Skintimate to shaving brands Schick Edge and Wilkinson Sword, had made Harry’s a $1.37 billion dollar offer, and the burgeoning direct-to-consumer (“DTC”) shaving company took it. 

As we stated in a previous article about the FTC’s opposition of the Billie deal, the two shaving-centric blockades should not necessarily be too surprising, since over the past several years, federal antitrust agencies, including the FTC, have been judging M&A deals through a “nascent competition” lens, and opposing deals in which the acquisition target is a small, but rapidly growing entity – or a “disruptive” competitor of a larger, dominant company. This stands in contrast with the longstanding approach taken by antitrust agencies, in which they traditionally examine the current level of competition between – and the respective market share levels of – the merging parties in order to determine if there are antitrust issues at play. 

In short: the larger the market shares of the merging companies, the more likely there will be FTC pushback on the basis of competition, and thus, small share gains – such as 2.5 percent – have traditionally fallen outside of the realm of FTC activity. However, regulatory action over the now-defunct Harry’s-Edgewell and Billie-P&G deals, in which both of the acquisition targets maintained relatively small stakes in the relevant market, stands in contrast with that approach, and highlights the FTC’s enduring willingness to look beyond a purely market share-centric analysis to consider the disruption capabilities and growth potential of a small player in the market. 

Ultimately, the breakdown of the respective Harry’s and Billie deals provide some relevant takeaways for others in the DTC space, particularly in light of looming concerns about what this growing pattern of FTC actions means for similarly situated companies. 

Reflecting on the two deals gone awry, Baker & Hostetler LLP’s Ann O’Brien, Linda Goldstein, Marc Schildkraut and Alyse Stach state that the FTC’s actions drive home the point that “market disruptors, especially those challenging large incumbent competitors through marketing and advertising, may be viewed by regulators as strong potential competitors likely to restrain competitor market power,” and that DTC advertising, marketing and pricing practices “could significantly impact how the FTC views a prospective merger.” 

This is noteworthy – albeit unsurprising – given that innovative DTC marketing tactics (whether that be the mission-driven and community-centric messaging that has saturated the space starting with the likes of Warby Parker, TOMS, etc., or the consistent and all-encompassing use of inherently-Instagrammable branding elements, something that Glossier, for one, has mastered), and pricing strategies (i.e., lower pieces as a result of DTC entities cutting out the middle man) have proven central to the allure and the success of these younger upstarts. This is especially relevant given that many DTC darlings’ products are not earth-shatteringly different than those of their much more established competitors. 

The fact of the matter is that there is a double-edge sword in the mix as a result of DTC players’ ability to lure consumers – and thereby, compete with much larger rivals – in ways that may have been formerly unimaginable pre-internet (and likely pre-social media, as well) via effective marketing efforts and pricing metrics. As such, the very things that have enabled DTC brands to thrive may be the things that prevent them from being bought out. In other words, O’Brien, Goldstein, Schildkraut and Stach assert that “disruptive brands that successfully challenge the competition through advertising and more competitive pricing may inadvertently weaken their ability to be acquired if regulators take an adverse view regarding that activity.”

As such, they caution DTC players that “these competing goals will need to be carefully balanced,” and companies need to be “mindful of how regulators might perceive that activity” should they be angling for a buyout. They also note that the blocked Billie merger firmly suggests that things like the pink tax and nascent competitors’ ability to address the pink tax – as well as other competitive advantages that DTC entities bring to the table – “are issues on the FTC’s radar,” and thus, they should be issues that DTC players and larger acquiring entities keep in mind in an M&A context, as well. 

The color pink applied to the inside of boxes that are not otherwise pink. That is what is at the center of the new trademark registration that the U.S. Patent and Trademark Office (“USPTO”) has issued to Glossier. A year and a half after it filed an application for registration for its millennial pink hued product packaging, the USPTO has handed the direct-to-consumer beauty brand a win and agreed to register “the color pink as applied to the inner surface of portions of boxes that contrast with the color of the rest of the boxes, which form packaging for the goods” as a trademark for use in connection with an array of cosmetics products. 

The registration – which was issued on December 15 (the same day that USPTO doled out three registrations for Valentino’s Rockstud footwear) – comes up a bit short of what Glossier initially set out in its application, with the buzzy New York-based brand originally seeking protection for “the color pink … as a feature of the mark which is displayed on boxes” in its May 2019 application. Glossier walked back a bit early this year following pushback from the USPTO, and amended the description of the mark to a slightly-less-sweeping: “the color pink as applied to the inner surface of portions of boxes that contrast with the color of the rest of the boxes, which form packaging for the goods.” 

In making such a “contrasting color” modification to the language identifying its mark, the description of Glossier’s mark mirrors the language that Christian Louboutin was forced to adopt in connection with its trademark registration in light of the outcome of the trademark infringement case that it filed against Yves Saint Laurent in April 2011. Louboutin’s trademark registration now extends to a lacquered red sole on contrasting-colored footwear; as opposed to broadly covering a “lacquered red sole on footwear.”

(And in fact, Glossier’s counsel pointed to Louboutin’s trademark rights – “by way of analogy” – in its February 2020 response to the USPTO’s Office Action to support its quest for “protection for a narrowly defined display of the color pink that is capable of acquiring distinctiveness just as Louboutin’s red sole was.” It is worth noting that Glossier’s registration does not cite a specific Pantone hue like Louboutin’s does.)

The description of Glossier’s mark also notes that “the shape and configuration of the box is not a part of the mark,” and instead, “merely represents boxes of various sizes and serves to show positioning of the mark,” thereby, enabling Glossier to claim rights in any of the shapes/sizes of boxes that it uses to package and ship its hot-selling cosmetics products – from its Cloud Paint cream blush to its Generation G sheer matte lipstick. This is no small matter given the fact that Glossier almost certainly does the vast majority of its sales via e-commerce both in a pre- and post-pandemic given its relatively limited brick-and-mortar footprint.

While the concept of a color – or better yet, the specific use of a specific color on a specific category or categories of goods/services – as a trademark is well established (Owens-Corning, Qualitex, Tiffany & Co., Louboutin, UPS, Home Depot, etc.), the USPTO was still slightly hesitant when it came to Glossier’s mark, and issued an Office Action in August 2019 on the basis that its use of the color pink on the inside of a box is functional and decorative and thus, not an indicator of source.. 

According to the USPTO, consumers are unlikely “to perceive the color pink as identifying the origin of [Glossier’s] goods; but rather, as [a] decorative feature … because they are accustomed to encountering various colors, including pink, on various packaging for cosmetics and beauty care goods.” (The examining attorney pointed to pink boxes utilized by Kylie Jenner’s eponymous cosmetics brand, subscription box company Fab Fit Fun, and Sephora as examples). 

Counsel for Glossier responded to the USPTO’s Office Action by way of a 160-page filing in February 2020, in which it argued that the company’s use of the color is not functional. Not only are there “numerous other color options available for other parties to use on the interior of boxes for cosmetic products,” Glossier cited the Federal Circuit’s 1985 decision in In re Owens-Corning Fiberglas Corp. (which found that “depriving the public of the right to color insulation pink does not hinder competition or take from the goods something of substantial value”) in asserting that“there is no particular value or advantage to making a pink interior that contrasts with the rest of the box.” 

In addition to not being functional, Glossier asserted that its mark has acquired distinctiveness “based on five years’ use of the mark, as well as extensive evidence that when the relevant consumers see the color pink on the interior of a box for cosmetics, and the rest of the box is a contrasting color, they immediately recognize it as emanating from Glossier.” 

According to the nearly 7-year old brand, “The ultimate test in determining whether a designation has acquired distinctiveness is an applicant’s success in educating the public to associate the proposed mark with a single source.” Here, Glossier claimed that it has done so by “consistently promot[ing] the Pink Box by featuring it in social media posts and other advertising,” and being the subject of unsolicited social media attention from purchasers, who “make a point to share photos of not just [its] cosmetic products, but also the box they come in,” which Glossier says “speaks to the distinctiveness of the packaging.”

These social media posts – in which “consumers frequently post their own images of the Pink Box and identify Glossier in tags and hashtags” – not only “demonstrate that many consumers already associate the Pink Box with [Glossier], but they also serve to educate even more consumers and reinforce the association between the Pink Box and Glossier,” the brand asserted. It also submitted 98 customer declarations, examples of third-party social media posts and unsolicited media coverage, and copies of the pouch by other brands as evidence of acquired distinctiveness. 

Fast forward to December 15, and Glossier can add a registration for the pink interior of its product packaging to the registration it was issued in August for its pink bubble wrap pouch, or “the claimed color pink as applied to bags featuring lining of translucent circular air bubbles and a zipper closure” to be exact. 

The registration is certainly striking given the ripe not-old age of the Glossier brand, and it may suggest that the digitalization of consumption and the rise of social media is making it easier for brands to establish the requisite level of acquired distinctiveness for their source-identifying use of the color. However, it should not necessarily be viewed as an indication that such plays for color are likely to be a sure-fire for other young brands given that Glossier is, in many ways, an outlier.

In addition to courting a cult fan base, which arguably dates back before the launch of the brand in 2014 to 2010 when Glossier founder Emily Weiss first launched her heavily-followed Into the Gloss beauty blog, the company’s “no-makeup” beauty products and Instagram-centric aesthetic benefit from the backing of nearly $200 million in funding from sophisticated VCs, including Forerunner Ventures, Thrive Capital, Index Ventures, and Sequoia Capital, among others. In other words, Glossier – which nabbed a valuation of a whopping $1.2 billion in March 2019 at the close of its $100 million Series D funding round – is hardly the average beauty startup. It is a resource-flush machine that is well-equipped (both in terms of its consistent and sweeping marketing strategy, and its established legal prowess, of course, courtesy of Barnes & Thornburg) to demonstrate the its specific use of a color – millennial pink – is a distinctive identifier of a single source among its target consumers.

As Osler Hoskin & Harcourt LLP’s May Cheng and Maryna Polataiko asserted in connection with the protection of color marks, the “hurdle” that is acquired distinctiveness “may be difficult to overcome for less-established brands or those with lower brand consistency” and presumably, those with lower brand reach. And that likely remains true even as Glossier continues to build up its trademark portfolio. 

Nonetheless, Glossier is certainly shedding light on how forward-thinking companies are approaching branding, which includes going beyond merely word marks and logos to product packaging and color to build – and consistently reinforce – brand awareness in a heavily (and increasingly) digital market. 

In one of the other actions initiated this week by the Federal Trade Commission (“FTC”), its antitrust case against Facebook takes the headline-grabbing cake on all fronts, the government agency has filed an administrative complaint – and authorized a suit in federal court – against Proctor & Gamble in order to stop the multinational consumer goods giant’s acquisition of shaving startup, Billie. According to a release from the FTC on Tuesday, the proposed acquisition of the 3-year old shaving company would allow P&G “to eliminate growing competition that benefits consumers,” and thus, should be prohibited on anticompetitive grounds.

On the heels of P&G and Billie announcing the acquisition in January 2020, the FTC – which is tasked with “enforcing antitrust laws” and “challenging anticompetitive mergers and business practices that could harm consumers by resulting in higher prices, lower quality, fewer choices, or reduced rates of innovation,” among other things – has swooped in to call foul. The basis for its action? Put simply: The acquisition would “eliminate substantial and growing head-to-head competition” between Cincinnati, Ohio-based P&G – “the market-leading supplier of both women’s and men’s wet shave razors” – and “nascent competitor Billie” in U.S. wet shave razor markets.

The FTC says that it will file a complaint in the U.S. District Court for the District of Columbia seeking a Temporary Restraining Order and Preliminary Injunction to stop the deal pending an administrative trial. 

Nascent Competition

The FTC’s newly-initiated action to halt the Billie acquisition is not the first of its kind this year. In fact, the government agency filed an administrative complaint in February, asserting that it has “reason to believe that Edgewell Personal Care Company and Harry’s, Inc. have executed a merger agreement in violation of [various sections] of the FTC Act,” as well as the Clayton Antitrust Act. As it turns out, Edgewell, the shaving company that owns a stable of household names from Playtex and Skintimate to shaving brands Schick Edge and Wilkinson Sword, had made Harry’s a $1.37 billion dollar offer, and the burgeoning direct-to-consumer (“DTC”) shaving company took it. 

Edgewell and Harry’s boasted that the merger would “create a complementary portfolio of global brands built for the modern consumer and powered by world-class omni-channel capabilities,” and analysts looked favorably upon the combination of “the brand affinity of Harry’s” and the sheer “scale” of Edgewell’s operations. The FTC did not quite see the beauty of the deal, though, with Daniel Francis, the Deputy Director of the FTC’s Bureau of Competition, stating in conjunction with the February 2020 administrative filing that “Harry’s and [its female focused] Flamingo brand represent a significant and growing competitive threat to the two firms that have dominated the wet shaving market for decades,” Edgewell and P&G. 

As such, “Edgewell’s effort to short-circuit competition by buying up its newer rival promises serious harm to consumers,” Francis argued. 

Both Edgewell and Harry’s continued to extoll the values of the proposed merger in statements following the start of the FTC’s action in February, but ultimately, Edgewell called it quits, citing “uncertainty about the potential outcome” of – and the time/resources required for – a legal fight with the FTC, and the parties went their separate ways. (Harry’s allegedly threatened legal action against Edgewell for pulling the plug on the deal, but never filed suit). 

Many were struck by the FTC intervention in light of the fact that Harry’s reported market share was only about 2.5 percent at the time and presumably, given the lack of regulatory intervention in Unilever’s 2016 acquisition of Dollar Shave Club for $1 billion. However, “The business community should not have been quite so surprised by the outcome in the Edgewell-Harry’s deal,” according to Baker & Hosteler attorneys Marc Schildkraut and Alyse Stach, and they should not be surprised now. 

Such regulatory blockades should not necessarily be striking, since “for several years, the federal antitrust agencies, particularly the FTC, have been developing a concept known as ‘nascent competition,’” Schildkraut and Stach assert. In other words, the agency has been opposing instances in which the acquisition target is a small, but rapidly growing entity – or “disruptive” competitor of a larger, dominant company. 

This budding new development is noteworthy, as antitrust agencies, such as the FTC, “traditionally consider current competition between merging parties and look to their existing market shares as indicators of competitive strength,” Shearman & Sterling’s David Higbee, Jessica Delbaum, Ben Gris, and John Skinner previously stated. The larger the market shares at play, the more likely there will be FTC pushback on the basis of competition, and thus, small share gains – such as 2.5 percent – have traditionally fallen outside of the realm of FTC action. 

However, instances like the failed Harry’s-Edgewell merger and the more recent Billie-P&G case, among others in which the acquisition target has maintained a relatively small stake in the relevant market, “show an emphasis on preventing an established incumbent from acquiring a smaller, disruptive competitor that threatens to shake up the status quo – even when there is only a small incremental increase in market share.”

Against that background, “a key component” of the FTC’s complaint in its case to block Edgewell and Harry’s nearly $1.4 billion dollar deal was Harry’s role as “‘a uniquely disruptive competitor that interrupted the P&G/Edgewell duopoly’ in a wet shave razor market, which was ‘ripe for disruption,’” Higbee, Delbaum, Gris, and Skinner note. While the FTC did not assert that Harry’s success had hindered Edgewell – or fellow shaving giant P&G – from continuing to raise their own prices on an annual basis, it did place significant weight on the fact that Harry’s expanded from its online-only existence into brick-and-mortar retail in August 2016 when it partnered with Target. 

The FTC argued that “Harry’s took shelf space at Target away from Edgewell’s Schick brands, among others, and quickly took share from both Edgewell and P&G due to aggressive pricing,” thereby, giving rise to competitive significance. 

The same logic appears to be at play in the Billie-P&G case. “As its sales grew,” Billie – which operates in a purely DTC capacity, selling razors and shaving supplies to consumers via its e-commerce site (and without retailer and wholesaler middlemen) in line with the enduring trend initiated by the likes of Warby Parker, Dollar Shave Club, Harry’s and co. about a decade ago – “was likely to expand into brick-and-mortar stores, posing a serious threat to P&G,” Ian Conner, director of the FTC’S Bureau of Competition, said in a statement this week. 

As a matter of fact, the FTC asserted in its statement, “The proposed acquisition also halted Billie’s anticipated expansion into brick-and-mortar retail stores, which would have benefitted consumers through intensified competition between Billie and P&G at retail locations.” 

“If P&G can snuff out Billie’s rapid competitive growth, consumers will likely face higher prices,” Conner argued. 

As for Billie’s status as an industry upstart, and a “nascent” competitor capable of “disrupting” the market, one need not look further than the media attention it has received. A 2018 Time article, for instance, details how “Billie Razors is Disrupting the Shaving Industry.” In other words, the very thing that has made the brand successful – its “disruptive qualities,” or more specifically, its quest to cut out the “pink tax” on women’s shaving goods, its special soap-infused razor blades, its competitive pricing, etc. – is now proving to stand in its way of a buy-out. 

The Impact for DTC

This growing trend of FTC blockades raises questions about the future for the sizable number of buzzy DTC companies that have flooded well-established market categories in recent years, offering up everything from suitcases and sneakers to beauty products and supplements to digitally-grounded millennial and Gen-Z consumers, and thriving based on their “disruptive” qualities – whether that be competitive prices, new tech., compelling brand messaging, or otherwise-missing elements of community, and so on. Higbee, Delbaum, Gris, and Skinner claim that taken together, these challenges, among others, “show that considering the target’s level of sales or market share, alone, can ignore other indicia that a transaction will raise antitrust concerns.” And this is particularly true in instances when the transaction involves a relatively new market recent entrant with “new technology, aggressive pricing, or other innovative qualities.”  

Reflecting on the status quo of most regulatory actions to date, they contend that “incremental share gains as low as 2 percent resulting from a transaction typically suggest a low risk of an agency challenge.” That is clearly changing, though, where a target company “represents a unique competitive threat that has the potential to disrupt incumbents,” in which a simple reliance on market share, alone, “can understate the significance of the transaction’s likely effect on competition.” 

Ultimately, the “nascent competition” label is helpful in gauging potential FTC attention when the party on the other side of the equation is a dominant firm,” Schildkraut and Stach argue. However, just as an over-reliance on market share in a vacuum is ineffective, “we have to be careful not to make too much of the label.”

“The real test will come if and when one of the antitrust agencies challenges the acquisition of a nascent competitor that has not yet entered the market.” Until then, the most useful analysis involves determining whether that nascent competitor at issue is “unique in some way despite a small share of the market,” and if so, considering the following questions: “Does it have a one-of-a-kind technology? Has it grown rapidly? Does it have a credible plan showing likely speedy growth? Has it already had a pro-competitive effect on market prices? Is it otherwise a disruptive competitor?” 

The more “yes” answers, they say, “the more likely it is that the merging parties will be spending some quality time at the FTC or DOJ.”