January 27, 2022
W. Todd Miller, Lucy Clippinger
On 18 January 2022, with less than 24 hours’ notice to the public, the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) held a joint press conference to announce that they were beginning to redevelop their merger guidelines – the agencies’ published framework for the antitrust analysis of mergers and acquisitions. The statements made by FTC Chair Linda Khan and Assistant Attorney General for Antitrust Jonathan Kanter at the press conference, as well as a request for information on merger enforcement released shortly thereafter, made clear that the agencies are contemplating revisions focused on several areas consistent with the new agency heads’ anticipated progressive antitrust agenda. Those areas include:
- the potential competitive impact of mergers on labor markets;
- harm to non-price aspects of competition (eg, quality or innovation);
- situations warranting presumptions of harm; and
- a broader view of modern digital markets.
The agencies will also consider returning to the previous practice of having one set of guidelines that cover both horizontal and vertical mergers. The agencies anticipate the process to be completed by the end of the calendar year and emphasized their desire for input from many different types of stakeholders in the form of public comments. Until then, merging parties may face significant ambiguity and confusion regarding the agencies’ current approaches, particularly regarding vertical mergers.
There has been a long tradition of the federal antitrust enforcement authorities promulgating guidelines that set forth their enforcement intentions and modes of analysis for certain behaviour. This tradition began with the issuance of merger guidelines in 1968 that were intended to inform the business community of the analytical approach to merger analysis that the DOJ would take. Those guidelines introduced a number of economic concepts to the debate and were promptly seen by the courts as a guide for applying the relevant case law.
Since then, the DOJ and FTC have revised those guidelines several times, such that beginning in 1992, there were different guides governing horizontal (competitor to competitor) and vertical (supplier/customer) transactions. Since at least 1992, the agencies have jointly issued their horizontal merger guidelines.
The antitrust enforcement agencies have viewed their merger guidelines as critical statements about how they will apply the law and how they would like to see courts apply the law. At the same time, in an infamous decision by then-Court of Appeals Judge Clarence Thomas, the DOJ was strictly held to the standards set forth in the guidelines that were extant at that time, which resulted in a loss for the DOJ’s challenge to an acquisition. This caused the agencies to be somewhat more circumspect in the statements made in the guides to preserve litigation and analytical flexibility.
While there is a political element to the statements contained in the guidelines, there is generally a recognition that the guidelines do not have the force of law, and the more far afield the guides appear to be from case law or from common understanding of the appropriate analysis, the less likely they are to influence the courts. This has left the Biden administration’s progressive antitrust agenda with a dilemma. As previously reported, the administration is committed to expanding the effects considered in the analysis of mergers and other conduct (for further details please see “Biden administration’s antitrust blitz – progress and ongoing uncertainty“). The prior and current versions of the merger guidelines were strongly premised on a “consumer welfare” centric approach. This includes the 2010 horizontal merger guidelines, which are currently used by both agencies, as well as the vertical guidelines that were jointly issued by the agencies in 2020; however, the latter guidelines are currently only used by the DOJ after the FTC withdrew them in September 2021.
The agencies’ request for information lists a litany of questions related to potential guidelines revisions. However, during the press conference, the agencies flagged specific topics on which they hope to receive public comments, broadcasting the subject areas on which the agencies are most focused. A major emphasis is consideration of non-price harms to competition. In addition to potential harm to labor markets, the agencies are focused on potential harms to innovation and quality of products and services. John Kwoka, an economics professor and advisor to Khan, stated during the press conference that the current guidelines’ focus on consumer prices may have been too narrow, and that they want to get input on other effects on competition. The agencies also are considering whether new or different circumstances warranting presumptions of harm to competition should be included.
The agencies emphasized the importance of ensuring the guidelines are broad and dynamic enough to enable application of existing antitrust laws to evolving markets and prevent harm to nascent competition, with Kanter noting that the digital economy has profoundly changed the nature of business. This notion goes hand-in-hand with the focus on non-price harms to competition, as fast-changing markets may lead to an increased prevalence of other types of competitive harm. In addition to dynamic markets, the agencies expressed a particular interest in revising the guidelines to account for unique issues raised by digital markets, such as data aggregation and multi-sided markets, in addition to non-price competition.
Addressing labour markets, the agencies expressed an interest in how mergers impact monopsony power for employers and competition for labor, what aspects of those impacts should be considered in a merger analysis, and how the agencies should weigh those impacts against cost savings caused by elimination of jobs or capacities or other efficiencies. How to balance the loss of employment against the cost savings from reduction of the work force to produce the same amount of goods or services will be a difficult policy and practical question. (For more information about the expected scrutinization of the efficiencies defense, please see “Merger review: FTC attempts to correct “failed experiment”“.)
The request for information also raises the interesting issue of how to define labor markets, including geographically, and the governments’ existing frameworks for defining those market areas. With the revised guidelines anticipated to be finalized within the year, these questions raise an even broader one: how might the current labor market upheaval from the ongoing coronavirus pandemic and the unknown future prevalence of remote work impact any framework for defining relevant labor markets? When companies themselves are unclear about the degree to which labor will be required to work on-site or have geographic flexibility, it may pose unique challenges to defining the breadth of a competitive labor market.
The agencies’ press conference made clear that an area of consideration will be returning to the agencies’ prior practice of issuing merger guidelines that cover both horizontal and vertical mergers, rather than the more recent practice of issuing separate horizontal and vertical guidelines. In the meantime, the ongoing application (or non-application) of the 2020 Vertical Merger Guidelines may cause significant confusion for companies considering mergers. As explained above, those guidelines were jointly adopted by both agencies. However, in a move foreshadowed by the FTC’s unusual challenge to a vertical merger last year (for more details please see “Expect more of the same: FTC’s novel challenge to Illumina’s acquisition of Grail“), the FTC withdrew those guidelines in September 2021, claiming that they were not grounded in the law or market realities. The FTC has not adopted any previous guidelines or interim guidelines to clarify its policies and/or framework for vertical mergers. The FTC has now pursued another vertical merger, challenging Lockheed’s proposed acquisition of Aerojet in late January 2022. Meanwhile, the DOJ has not withdrawn the vertical guidelines, but it expressed in the 18 January 2022 request for information on merger enforcement that it “shares the [FTC]’s substantive concerns with economic and legal errors in [the vertical guidelines] and seeks to replace them expeditiously with a document better reflecting its current approach”. Similarly, in response to a question at the 18 January 2022 press conference, David Lawrence, the DOJ’s competition policy and advocacy section chief, commented that the vertical guidelines are actively under review.
The parties’ differing tacks mean that vertical mergers reviewed by the FTC are currently viewed through a black box framework, with no agency guidance for the merging parties; parties to vertical mergers reviewed by the DOJ are guided at least in part by official merger guidelines that the DOJ has explicitly acknowledged do not reflect its current approach to merger reviews. However, precisely what part of those guidelines have been abandoned in current practice is not a matter of public knowledge. The DOJ’s decision to keep the current guidelines while publicly expressing concerns about them is puzzling, given that, as discussed above, the courts have previously rejected the DOJ’s attempts to apply frameworks differing from those in the currently operative merger guidelines. Regardless, parties before either agency will have difficulty predicting the framework used to review vertical mergers unless and until new revised guidelines are issued.
The agencies will be accepting public comments related to the revision of the merger guidelines until 21 March 2022. After that period has closed, the agencies anticipate releasing proposed merger guidelines, and the public will have another opportunity to submit comments on the proposal. The agencies hope to issue the finalized revised guidelines by the end of 2022.
While the agencies have emphasized the work and effort that this will entail, the difficulty may ultimately pale in comparison to the future work of persuading courts to embrace any revised guidelines. The agencies are free to follow their own guidelines when determining whether to seek additional information, to bring an administrative case or to file suit. However, to the extent the revised guidelines invoke broader readings of the antitrust laws than those previously embraced by appellate courts, such as by abandoning the consumer welfare standard or embracing lower standards for presumptions of competitive harm, convincing the courts to agree with the agencies’ interpretations may prove a difficult or even fruitless pursuit. Of course, the agencies need not rely on guidelines to try to influence the courts or the merger review process more broadly. As Kanter made clear in a speech on 24 January 2022, the agencies are committed to using every tool available to promote competition. This confirms that the antitrust review of mergers and other transactions – and the cases that the government brings – will continue to be an important area to watch.
This content was originally published on January 27, 2022, via the International Law Office (ILO) newsletter. It can be found here: FTC and DOJ announce plans for merger guidelines overhaul and seek public input
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