The first half of 2018 has seen the announcement of high-profile and potentially transformative transactions, including in the healthcare and telecommunications sectors. I say “potentially” because, among other things, the transactions are still subject to regulatory review. This, along with recent court decisions, has thrust antitrust enforcement regimes, especially as they relate to merger review, back in the spotlight. Indeed, some would say that antitrust never left the spotlight, but those people are probably antitrust attorneys.
There are two parallel and complementary antitrust enforcement regimes. The federal regime, which is enforced by the Department of Justice (DoJ) and the Federal Trade Commission (FTC), has its statutory basis in the (1) Sherman and Clayton Acts and (2) in the case of the FTC, the Federal Trade Commission Act. The state regime, enforced by state attorneys general (state AGs), has its basis in several sources, including: (1) the Sherman and Clayton Acts, (2) state laws, some of which recognize remedies not available under federal law (including the right of recovery for indirect purchasers) and (3) relatedly, the doctrine of parens patriae, which recognizes the power of a sovereign to act on behalf of her citizens. Both regimes rely on the dedication and hard work of exceptionally talented attorneys and other professionals.
The state enforcement regime has been a source of focus over the past 18 months, and this article will provide a brief overview of some of the advantages state enforcers enjoy in, and bring to, the merger review process.
In a merger review, and in very broad strokes, enforcers look to the impact of a proposed transaction in particular product markets (which can consist of goods or services) and geographic markets. Put differently, how would a proposed transaction impact this product sold in this place? If, in that place and with respect to that product, the proposed transaction makes it more likely that consumers will see an increase in price or a decrease in availability, quality, or innovation, then the transaction likely is anticompetitive.
The “place,” or geographic market, often can be local (e.g., either a state or an area within the state such as a county, city, or even smaller geographic area). State AGs, in turn, are uniquely positioned to assess the local impact of transactions. For example, merging parties with operations or sales in one city may point to companies selling substitutable products in another city in that state and argue that those companies are properly thought of as competitors or potential competitors. This would reduce the merging companies’ market share, market concentration, and potentially the risk of competitive harm. A state AG is well positioned to assess the validity of this argument. By way of illustration, Chicago and Aurora are, respectively, the first and second largest cities in Illinois. Merging companies that sell a product in Chicago may argue that companies in Aurora are competitors. Depending on the product at issue, that well may be the case. But the two cities are also roughly an hour-plus drive apart and have distinguishing characteristics. These are factors that could impact the merging parties’ argument and of the type the Illinois AG would be well positioned to evaluate.
Similarly, state AGs enjoy access to local market participants, including customers. The views of market participants are vital to understanding a proposed transaction and as such, sought out as a matter of course. Market participants include private companies, who see the value in having a constructive relationship with their state’s top law enforcement official. Market participants also include other state institutions, such as departments of insurance or health and family services. These institutions are important as they may be large purchasers of products. They also can provide insight into the regulatory framework that governs the provision of a particular product in the state and the market dynamics for that product in that state. For example, a state department of health and family services likely will be responsible for the provision of Medicaid. Consequently, that department may be an important resource in understanding the impact of a transaction in the healthcare sector. Similarly, a state department of insurance may promulgate regulations regarding operating requirements (e.g., capitalization and surplus), regulations which could affect the ability of competitors to enter or expand in a geographic market.
Finally, and in the context of a federal challenge to a merger, the participation of state AGs increases the likelihood that challenge will be successful. As a preliminary matter, and as noted above, state AGs are uniquely positioned when it comes to knowledge of local markets and access to local market participants. Moreover, participation of a state AG demonstrates that an independent enforcer—and one with the most intimate knowledge of the relevant local market—has examined the facts and the law and reached the same conclusion as the federal enforcer. This bolsters the enforcement case and undercuts the defense. Accordingly, the Antitrust Bureau of the Illinois AG presented opening argument in connection with the FTC and Illinois AG’s successful challenge to the proposed merger of two Illinois hospital chains: Advocate and NorthShore. Similarly, the DoJ and state AGs of several states (including Illinois) successfully challenged Aetna’s proposed merger with Humana.
The federal and state enforcement regimes have much in common, including an overlapping statutory basis for their enforcement authority and talented and dedicated staff carrying out their respective mandates. By virtue of their status as local and independent enforcers, the state AGs also enjoy specific benefits that they can bring to the merger review process. By recognizing and utilizing these benefits, the state AGs can continue to be an impactful force in antitrust enforcement generally, and merger review specifically.