Background
The principal U.S. law governing mergers is Section 7 of the Clayton Act, which makes illegal mergers whose “effect … may be substantially to lessen competition, or to tend to create a monopoly.” The DoJ does not have the authority to promulgate legally binding regulations setting forth how that general prohibition in Section 7 applies to specific circumstances. Instead, the DoJ must institute legal proceedings asking a court to find that a merger is illegal.
Although it lacks rule-making authority, the DoJ issued merger guidelines in 1968 “outlining its standards for determining whether to oppose corporate acquisitions or mergers under Section 7” in order “to insure that the business community, the legal profession and other interested persons are informed of the Department’s policy of enforcing Section 7.” The 1968 guidelines addressed horizontal, vertical, and conglomerate mergers. The DoJ issued updated guidelines in: (i) 1982 (dealing with horizontal and vertical mergers) (“1982 Merger Guidelines”), (ii) 1984 (dealing with horizontal and vertical mergers), (iii) 1992 (dealing with horizontal mergers), (iv) 1997 (dealing with the efficiencies of horizontal mergers), (v) 2010 (dealing with horizontal mergers) (“2010 Horizontal Merger Guidelines"), and (vi) 2020 (dealing with vertical mergers) (“2020 Vertical Merger Guidelines”). The FTC, which, like the DoJ, also enforces laws prohibiting anticompetitive mergers, joined the DoJ in 1992, 1997, 2010, and 2020, and then withdrew its endorsement of the 2020 Vertical Merger Guidelines in 2021.
In issuing their guidance in guidelines, the DoJ and the FTC have traditionally noted the importance of transparently explaining how they intend to exercise their prosecutorial discretion in evaluating and possibly challenging merger transactions. For instance, the 2010 Horizonal Merger Guidelines explain that they “intended to assist the business community and antitrust practitioners by increasing the transparency of the analytical process underlying the Agencies’ enforcement decisions.” As noted above, the guidelines are not law but rather statements of enforcement intention. Nonetheless, the guidelines have been an important guide for U.S. courts because they have been viewed as analytically rigorous explanations of when mergers do and do not threaten competitive harm. They also have been important in developing merger law outside the United States For example, jurisdictions that have issued their own merger guidelines that have, as a general matter, incorporated aspects of the U.S. guidelines include Canada (originally in 1991), Australia (1996), the United Kingdom (2003), and the European Union (2004).
Lead up to the Draft Merger Guidelines
In July 2021, President Biden issued an Executive Order that “encouraged” the Attorney General and the Chair of the FTC “to review the horizontal and vertical merger guidelines and consider whether to revise those guidelines.” In his signing ceremony remarks, President Biden signaled a significant shift from the framework established in the 1982 Merger Guidelines and generally followed since then, explaining that “[f]orty years ago, we chose the wrong path, in my view … and pulled back on enforcing laws to promote competition.” In January 2021, the DoJ and the FTC issued a detailed Request for Information on Merger Enforcement (“January 2021 RFI”) featuring questions that also signaled potential fundamental change, such as “Does the guidelines’ framework suggest limiting enforcement to a subset of the mergers that are illegal under controlling case law?”
The Draft Merger Guidelines
The Draft Merger Guidelines differ materially from prior versions of the guidelines. The 1982 Merger Guidelines announced a “unifying theme” that “mergers should not be permitted to create or enhance ‘market power’ or to facilitate its exercise,” a theme repeated with only minor modification in 1984, 1992, 1997, and 2010. The Draft Merger Guidelines break from that tradition and unified focus, instead announcing 13 separate “guidelines” that “are not mutually exclusive.” Also, in contrast to prior versions of the guidelines—none of which contained any citations to judicial decisions—the Draft Merger Guidelines contain 111 citations, about 75% of which are to decisions more than 40 years old. Other significant changes are summarized briefly below:
- Dominance: The concept of a “dominant position” is well established in the law in Europe and other jurisdictions, both in merger control and behavioral competition law, which prohibits certain types of conduct by so-called “dominant” firms. Despite the absence of a similar prohibition against the creation or exercise of dominance under U.S. laws, the Draft Merger Guidelines state that the DoJ and the FTC will closely evaluate mergers involving “dominant” firms possessing “at least 30 percent market share” and consider whether the merger would “entrench or extend” a firm’s dominant position. Several hypotheticals are offered as the foundation of this concern, including the possibility that “would-be rivals” might be deprived of attractive opportunities and the possibility that the merged firm might engage in “tying, bundling, conditioning, or otherwise linking sales of two products.” The heightened concern with any merger involving a large firm, even if it involves products and services in which the large firm has historically not been involved, is a new policy for the United States.
- Vertical mergers: The Draft Merger Guidelines include an extensive discussion of vertical mergers. The Draft Merger Guidelines state a 50% share in a relevant market “alone is a sufficient basis to conclude that the effect of the merger may be to substantially lessen competition”, if the merged firm “could foreclose rivals’ access” to a product.
- Decrease in post-merger concentration levels warranting an inference of competitive harm: In the 2010 Horizontal Merger Guidelines, the DoJ and the FTC increased the level of post-merger industry concentration triggering a presumption of competitive harm to a post-merger Herfindahl-Hirschman Index (“HHI”) of 2,500 points. In its press release announcing the release of the 2010 Horizontal Merger Guidelines, the DoJ explained that the 2010 Horizontal Merger Guidelines “derive[d] from the agencies’ collective experience in assessing thousands of transactions.” The Draft Merger Guidelines revert to lower levels of industry concentration warranting a presumption of harm (in particular, a post-merger HHI of 1,800 points), citing “risks of competitive harm” from mergers involving those lower concentration levels. The Draft Merger Guidelines do not, however, cite any court decisions between 2010 and 2023 finding that a merger resulting in an HHI under 2,500 points was illegal.
- Efficiencies: Since 1997, the DoJ and FTC have stated that they “will not challenge a merger if cognizable efficiencies are of a character and magnitude such that the merger is not likely to be anticompetitive in any relevant market.” That statement does not appear in the Draft Merger Guidelines. Although the Draft Merger Guidelines do contain a discussion of efficiencies, the relevant discussion is preceded by the statement that “The Supreme Court has held that ‘possible economies [from a merger] cannot be used as a defense to illegality.’” Whether this means that the DoJ and FTC will seek to block efficient mergers that help consumers is uncertain.
Looking Forward
The DoJ and the FTC asked for public comment on the Draft Merger Guidelines. After the comment period closed in September, the DoJ and the FTC organized public hearings to discuss the Draft Merger Guidelines. As of the date of the submission of this article, the DoJ and the FTC have not stated when they intend to issue final merger guidelines.
Observations
In keeping with President Biden’s remarks at the signing ceremony for the Executive Order, the Draft Merger Guidelines reflect the DoJ’s and the FTC’s intention to reshape merger law and practice substantially. The lower concentration thresholds and addition of new theories for challenging transactions by “dominant” firms, in particular, suggest a significant departure from prior agency practice that is likely, at the least, to delay transactions that would not previously have been subject to in-depth scrutiny. In view of prior statements from the DoJ and the FTC officials, this change is not surprising. For example, in addition to the general guidance that President Biden offered in 2021, the DoJ and the FTC previewed many of their fundamental disagreements with the existing guidelines in their January 2021 RFI.
Whether and to what extent U.S. courts will rely on the anticipated final merger guidelines when applying the antitrust laws in future litigation is uncertain. Guided by the analytical rigor of prior guidelines, courts have embraced the consensus framework of the guidelines that existed during the prior 40 years. In light of the Draft Merger Guidelines’ break from many settled practices, the DoJ and the FTC may have an uphill battle convincing courts to disregard precedents that are based on their prior guidelines.
In the international context, it will also be important to watch whether other jurisdictions embrace the hostility to mergers reflected in the Draft Merger Guidelines. Parts of the Draft Merger Guidelines may be difficult for other jurisdictions to import, given the reliance on old Supreme Court precedent as the analytical justification for some of the new policies, as opposed to reasoned economic analysis. Nevertheless, U.S. guidelines historically have been influential throughout the competition world in setting merger policy, so there is a strong likelihood that other jurisdictions will be influenced by them in at least some manner.
