Assistant Attorney General Makan Delrahim, head of the Justice Department’s Antitrust Division, told a standing-room-only crowd of lawyers, judges and enforcement officials at the ABA Section of Antitrust Law’s Fall Forum on Thursday, Nov. 16, at the National Press Club in Washington, D.C., that the department is taking a new approach to antitrust merger deals, leaning less heavily on consent decrees and suggested that companies consider divesting in order to gain approval on major merger deals.
Delrahim’s speech came one day after published reports that the Justice Department was considering filing a lawsuit to block AT&T’s proposed $85 billion acquisition of Time Warner if the government and the companies can’t agree on conditions to win approval of the deal. The speculation that Delrahim might use the occasion to make a major announcement relating to the proposed merger drew the attention of national media to the forum, including film crews from CNN and Bloomberg along with The New York Times, The Washington Post, The Wall Street Journal, Law360, National Law Journal and others.
Instead, Delrahim used the 15-minute speech to lay out the reasons behind the department’s new approach to merger deals. Consent decrees are considered a behavioral remedy.
“At times antitrust enforcers have experimented with allowing illegal mergers to proceed subject to certain behavioral commitments,” Delrahim said. “That approach is fundamentally regulatory, imposing ongoing government oversight on what should preferably be a free market. As we reduce regulation across the government, I expect to cut back on the number of long-term consent decrees we have in place and to return to the preferred focus on structural relief to remedy mergers that violate the law and harm the American consumer.
Delrahim wasted little time putting that policy into practice and on Monday, Nov 20, filed a lawsuit to the AT&T-Time Warner merger, setting up a showdown over the first blockbuster acquisition to be considered by the Trump administration. Delrahim told The New York Times that a union of the two companies would harm consumers and weaken competition.
“This merger would greatly harm American consumers,” Delrahim said in a statement. “It would mean higher monthly television bills and fewer of the new, emerging innovative options that consumers are beginning to enjoy.”
AT&T told The Times that it would defend the proposed deal in court, arguing that companies don’t directly compete against each other and that the government hasn’t challenged a similar kind of merger in decades.
In his speech to the ABA, Delrahim said consent decrees are considered a behavioral remedy and are difficult to enforce. On the other hand, structural remedies generally involve the sale of assets or creation of new competitors through licensing of intellectual property and are more likely to ensure compliance.
“When competition policy works well, it maintains economic liberty and leaves decision-making to the markets. Our goal in remedying unlawful transactions should be to let the competitive process play out,” Delrahim explained. “Unfortunately, behavioral remedies often fail to do that. Instead of protecting the competition that might be lost in an unlawful merger, a behavioral remedy supplants competition with regulation; it replaces disaggregated decision-making with central planning.”
He said there are inherent problems in using regulatory solutions to address antitrust violations.
“Behavioral remedies often require companies to make daily decisions contrary to their profit-maximizing incentives, and they demand ongoing monitoring and enforcement to do that effectively,” Delrahim said. “It is the wolf of regulation dressed in the sheep’s clothing of a behavioral decree. And like most regulation, it can be overly intrusive and unduly burdensome for both businesses and government.”
Delrahim said in recent years antitrust enforcers have struggled more and more with the challenges of crafting and enforcing effective behavioral relief.
“Without getting into specifics, I can say that behavioral remedies have proven challenging to enforce today. In recent years, the division has investigated a number of behavioral decree violations, but has found it onerous to collect information or satisfy the exacting standards of proving contempt and seeking relief for violations,” he said.
Another problem with behavioral remedies, Delrahim said, is determining their expiration. “A short-term remedy is a band-aid, not a fix,” he said. “On the other hand, if we make behavioral commitments indefinite, then we really are becoming full-time regulators instead of law enforcers.
“That is not to say we would never accept behavioral remedies,” Delrahim continued. “In certain instances where an unlawful vertical transaction generates significant efficiencies that cannot be achieved without the merger or through a structural remedy, then there’s a place for considering a behavioral remedy if it will completely cure the anticompetitive harms. It’s a high standard to meet.”
Delrahim said the Antitrust Division should fairly review offers to settle but also be skeptical of those consisting of behavioral remedies or divestitures that only partially remedy the likely harm. “We should settle federal antitrust violations only where we have a high degree of confidence that the remedy does not usurp regulatory functions for law enforcement, and fully protects American consumers and the competitive process,” he said.
He said decrees should avoid taking pricing decisions away from the markets, and should be simple and administrable by the Justice Department. “We have a duty to American consumers to preserve economic liberty and protect the competitive process, and we will not accept remedies that risk failing to do so,” Delrahim said.
Delrahim said the department is thinking hard about ways that consent decrees can be improved and is taking steps to improve the enforceability of consent decrees.
“Although generally a contempt action must be proven by a clear and convincing evidence standard, we are incorporating language that provides for agreement by parties that alleged violations will be evaluated under a preponderance standard,” Delrahim said. “We recently included such a provision in the Entercom-CBS decree, which was a structural remedy. We will also be seeking agreement on attorney’s fees and costs provisions to compensate American taxpayers for the burdens of ongoing monitoring and enforcement of consent decrees.”
Later in the day, Deputy Assistant Attorney General Donald G. Kempf talked about the merger review process and possible remedies to improve it. He said merger reviews take a long time and are getting longer. In 2016, according to Kempf, significant merger reviews took an average of 11.6 months to complete compared to 7.6 months to review in 2011.
Kempf offered five suggestions to improve the merger review process:
- We at the agencies can strive to identify and clear more transactions that do not threaten harm to competition during the initial HSR waiting period without issuing a second request. To help facilitate this, if you are aware of competitive issues from the get-go, meet with us early and often. Help us investigate quickly by being ready to provide information such as lists of overlapping products, strategic and marketing plans and lists of top customers early in the waiting period. If you push for early termination, do what you can to get us there.
- When a second request appears necessary, tell us how you think we can make the investigation more efficient by improving our ability to identify the information we need to make our enforcement decisions. Our goal should not be more information, but better information. The division is looking for relevant documents, not a needle in a haystack.
- Work with the division to tailor document requests to those most likely to be relevant to assessing whether the likely effect of the transaction may be substantially to lessen competition. All of the second requests are preliminarily based on division’s model second request, which is continually revised to clarify definitions, reduce burdens and address issues that have arisen in past investigations.
- Urge the parties to provide relevant information early in the investigation. The parties can prioritize certain custodians or categories of documents. And documents can be produced on a rolling basis rather than altogether at the end of the gathering process. The prompt production of data will speed our economic analysis of the likely competitive effects of the transaction.
- We will endeavor to reduce the number of custodians whose documents we request. In many routine investigations, the incremental benefit of seeking documents from additional custodians or from investigating additional markets is small in comparison with the burdens the additional requests impose on parties.
“The parties’ role in – and the division’s commitment to – shortening merger reviews does not end with substantial compliance. Negotiating consent decrees can be a lengthy process. And the timing of decree negotiations can be used for strategic advantages,” Kempf said. “As Assistant Attorney General Makan Delrahim said earlier today, the Antitrust Division’s present leadership is less interested in behavioral remedies and more interested in structural remedies. Behavioral remedies can be appropriate in some instances, of course, but we do not view ourselves as regulators, and we cannot predict market conditions in the future. So, we do not want to hamstring the merged entity going forward. Rather, we want to unleash it to compete.”