In April 2010, the U.S. Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice (DOJ) (collectively, “the Agencies”) released for public comment substantial proposed revisions to the Horizontal Merger Guidelines. These Guidelines set forth how the federal antitrust agencies evaluate the likely competitive impact of mergers and whether those mergers comply with U.S. antitrust law.
The Horizontal Merger Guidelines were created in 1992 by the Agencies and were then revised in 1997 The proposed revisions are stated as intending to more accurately reflect how the FTC and DOJ currently conduct merger reviews. “Eighteen years have passed since the Horizontal Merger Guidelines were revised. During that time the agencies’ approach has evolved significantly, and the Guidelines should reflect that,” said FTC Chairman Jon Leibowitz. “The proposed Guidelines put out for comment today reflect the current state of merger analysis at the FTC and DOJ, and will help make the process more transparent to American businesses and courts. By inviting comments from all stakeholders, we’ll make sure that the final Guidelines are clear and accurate in conveying the Agencies’ merger enforcement intentions.”
In general, the FTC and DOJ review mergers for violations of section 7 of the Clayton Act, which prohibits acquisitions of assets or voting securities that are likely to substantially lessen competition or tend to create a monopoly in any area of commerce in the United States. On their face, the proposed Guidelines merely spell out current practice at the FTC and DOJ, which share responsibility for antitrust enforcement. But in practice, the revisions could give regulators a stronger hand when challenging merger deals in court by making it harder for companies to argue that the Agencies failed to follow their own procedures to the letter. Some believe that the proposed revisions may please those in favor of more rigorous antitrust enforcement while others believe that companies will proceed more cautiously as potentially more deals will be flagged for scrutiny.
The Guidelines allow for more flexibility in analyzing the potential anticompetitive effects of a merger than the 18-year-old predecessors they replace, which laid out a sequence of steps that regulators were supposed to follow. They also give regulators new tools to test whether a merger will result in higher prices or market dominance that could hurt consumers.
Among the clarifications and differences between the current and proposed Guidelines are the following:
• The proposed Guidelines clarify that merger analysis does not use a single methodology, but is a fact-specific process through which the Agencies use a variety of tools to analyze the evidence to determine whether a merger may substantially lessen competition.
•The proposed Guidelines introduce a new section on “Evidence of Adverse Competitive Effects.” This section discusses several categories and sources of evidence that the Agencies, in their experience, have found informative in predicting the likely competitive effects of mergers. With the revisions, the Agencies will regard “any reasonably available and reliable evidence” in order to analyze if a merger could cause anticompetitive effects.
•The proposed Guidelines explain that market definition is not an end itself or a necessary starting point of merger analysis, but instead a tool that is useful to the extent it illuminates the merger’s likely competitive effects. This is a significant change because this new definition is more focused on the competitive effects created by the transaction. With this “new” definition, the Agencies intend to explain that defining a market is not necessary to prove an antitrust violation, especially in cases involving unilateral effects.
• The proposed Guidelines provide an updated explanation of the hypothetical monopolist test used to define relevant antitrust markets and how the agencies implement that test in practice.
• The concentration levels that are likely to warrant either further scrutiny or challenge form the agencies are updated in the proposed Guidelines.
•The proposed Guidelines provide an expanded discussion of how the agencies evaluate unilateral competitive effects, including effects on innovation.
• The proposed Guidelines provide an updated section on coordinated effects and clarify that these, like unilateral effects, include conduct not otherwise condemned by the antitrust laws.
• The proposed Guidelines provide a simplified discussion of how the agencies evaluate whether entry into the relevant market is so easy that a merger is not likely to enhance market power.
• The proposed Guidelines add new sections on powerful buyers, mergers between competing buyers, and partial acquisitions. In this approach, Agencies will consider whether large purchasers can serve as a shield against anticompetitive behavior. The revised Guidelines clarify that the analysis of the competitive effects of a transaction between buyers is almost the same as the analysis of a transaction between sellers.
Because mergers in the U.S. can only be blocked by going to court, the real question will be what effect the revisions will have in court. One clear goal of the revisions is to try to persuade the courts to consider complex economic analyses as persuasive evidence. The revisions are written to explain why particular economic analyses are used and should be credited by courts. It will remain to be seen whether courts actually accept such arguments, even in the face of Guideline revisions.
Additionally, because the revised Guidelines are intended to more accurately reflect how the Agencies actually review present-day mergers, the revisions themselves in theory should not make it more difficult to get deals approved by the Agencies. Some commentators view the revisions as a shift towards more aggressive enforcement. While the Guidelines do contain some provisions that are more pro-enforcement, it is fair to say that the revisions primarily (on their face) stay within the mainstream of antitrust enforcement. Politics, of course, will also play a role in the effect on mergers.
The Agencies are soliciting comments from (electronically or in paper form) on the new Guidelines, and they must be received on or before May 20, 2010.
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