On January 18, 2022, Lina Khan, the Chair of the Federal Trade Commission (FTC), and Jonathan Kanter, the Assistant Attorney General in charge of the Antitrust Division of the Department of Justice (DOJ), held a joint press conference to announce that the agencies would be requesting comments on considerations for new horizontal and vertical merger guidelines. The comments will help inform the agencies in drafting new guidelines for vertical and horizontal mergers. Once the new guidelines are drafted, the agencies plan to hold another comment period, with the goal of finalizing the guidelines by the end of 2022.
The agencies last revised the Horizontal Merger Guidelines in 2010. The Vertical Merger Guidelines were more recently updated in 2020. After the change in administration following the 2020 election, President Biden emphasized antitrust enforcement as a way to increase competition in the American economy. In particular, he issued an Executive Order on Competition, which, among other actions, requested that the DOJ and the FTC re-examine the vertical and horizontal merger guidelines. (For more coverage of the Executive Order on Competition, visit Steptoe’s Executive Order Tracker.) The FTC acted swiftly, voting along party lines to withdraw its approval of the Vertical Merger Guidelines due to concerns about placing too much emphasis on potential procompetitive benefits of vertical mergers. On the same day that the FTC withdrew its approval of the Vertical Merger Guidelines, the DOJ announced that it would be carefully reviewing the analytical methodology of the Vertical Merger Guidelines and would seek further comment at a later date.
That date finally arrived on January 18. Statements from both Chair Khan and Assistant Attorney General Kanter emphasized that the point of the proceeding was to modernize the guidelines to reflect new economic understanding and lessons from past mergers. They noted that while traditional merger enforcement had focused on the first prong of the Clayton Act’s prohibition of mergers that “may substantially lessen competition,” it would be important in revising the guidelines to ensure that the second prong, barring mergers that “tend to create a monopoly,” is also respected. And, in so doing, they invited comments from a wide range of interested parties, particularly those who are beyond the traditional antitrust community, such as consumers and farmers.
The agencies’ request for information (RFI) raises questions and issues that may represent a substantial shift in antitrust enforcement. Many of the questions indicate a clear skepticism for the conventional antitrust enforcement tools of analysis. For instance, the comments on efficiencies bluntly question whether the guidelines’ approach is consistent with congressional directives and case law. The questions suggest a potential shift toward expressly stating a goal of preserving small businesses, favoring non-efficiency-related social and environmental causes, and perhaps eschewing a goal of maximizing economic efficiency in favor of adopting a total welfare standard. This would be a sharp departure from the economics-based approach that has characterized the guidelines since the adoption of the horizontal guidelines of 1982.
The RFI is another indication that the Biden administration plans to take a more aggressive approach to antitrust enforcement that is a departure from the trend over the past 40 years. Several days after the RFI was issued, Assistant Attorney General Kanter explained that when the Antitrust Division “concludes that a merger is likely to lessen competition, in most situations we should seek a simple injunction to block the transaction. It is the surest way to preserve competition.” He continued: “We must give full weight to the benefits of preserving competition that already exists in a market, rather than predicting whether a divestiture will actually serve to keep a market competitive. That will often mean that we cannot accept anything less than an injunction blocking the merger – full stop.” Assistant Attorney General Kanter stated that while it is easier for courts to “carry forward a test, even when that test was developed at a time when markets functioned in radically different ways,” that “it’s our job as enforcers to ensure that courts engage with markets as they actually exist.” This tough talk raises expectations that new guidelines will be paired with aggressive action, including more litigated challenges to deals.
So, what does the RFI request? In a relatively short document, the agency seeks public input on 15 categories of issues. The RFI begins by asking if the current guidelines accurately reflect the text of the second prong of Section 7 of the Clayton Act, which prohibits mergers that “may … tend to create a monopoly.” In this regard, the RFI asks for input on how rollups and tendencies toward concentration in an industry should be evaluated. The RFI asks what kinds of evidence should be considered and whether the guidelines have focused too much on certain types of evidence while placing insufficient reliance on evidence such as head-to-head competition between the merging parties. The RFI also questions whether predictive quantification has been overemphasized. The RFI suggests that evidence of the harms of past mergers may help to identify characteristics that could be used going forward to anticipate adverse outcomes from transactions.
With regard to coordinated and unilateral effects, the RFI specifically requests information about developments in research and practice, reflecting a potential interest in research that breaks from traditional antitrust analysis. The RFI also asks whether the current guidelines adequately identify mergers that are presumptively unlawful or if revisions are necessary to help identify the characteristics of mergers that may be anticompetitive. In what would be a substantial departure from the approach adopted first in the 1982 merger guidelines, the RFI also asks whether there are alternatives or replacements for HHI-based metrics.
In line with some current economic thinking, the RFI asks whether markets need to be precisely defined. The RFI appears skeptical of many of the traditional tools for market definition, even asking if the exercise of defining a market masks the potential for dynamic competition to be lost. The RFI also seeks comment on whether the guidelines should move away from a quantitative-based approach to market definition in favor of considering more qualitative evidence.
With regard to potential and nascent competition, the RFI asks for comments on how the agencies can assess whether a nascent competitor could grow into a plausible competitor and what degree of probability should be sufficient to condemn a proposed acquisition. In connection with remedies, the RFI seeks comment on whether the remedies process should be formalized and deadlines erected for remedy proposals, which would likely strengthen the agencies’ hands when negotiating remedies with merging parties.
Finally, the RFI asks for comments on several additional issues, including monopsony power and labor markets, innovation and IP, digital markets, and special characteristics markets. The RFI ends with a series of fundamental questions about barriers to firm entry, efficiencies, and failing and flailing firms claim.
Comments are due on or before March 21, 2022.