Yesterday, the U.S. Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) (the “Agencies”) jointly issued a draft update of their Merger Guidelines intended to describe and guide the Agencies’ review of mergers and acquisitions to determine compliance with federal antitrust laws.
The goal of the update is to better reflect how the Agencies determine a merger’s effect on competition in the current economic environment and evaluate proposed mergers under the law.
The public comment period is open for 60 days, with a deadline of Sept. 13, 2023.
The first merger guidelines were issued in 1968. Since then, the Agencies have issued and revised merger guidelines on multiple occasions, most recently in 2020.
In January 2022, the Agencies announced the launch of an initiative to evaluate potential updates and revisions to the guidelines aimed at strengthening enforcement against illegal mergers. According to the Agencies, recent evidence indicated that many industries were becoming more concentrated and less competitive – imperiling choice and economic gains for consumers, workers, entrepreneurs and small businesses – and these problems were likely to persist or worsen due to an ongoing merger surge that had more than doubled merger filings from 2020 to 2021.
To address these concerns, the Agencies began soliciting public input on ways to modernize the merger guidelines. The draft guidelines issued yesterday represent the culmination of that initiative.
The Draft Guidelines
In the draft issued yesterday, the Agencies set forth 13 guidelines to be used when determining whether a merger is unlawfully anticompetitive under the antitrust laws. As described in the draft, in summary, the 13 guidelines are:
- Mergers Should Not Significantly Increase Concentration in Highly Concentrated Markets
The Agencies will examine whether a merger between competitors would significantly increase concentration and result in a highly concentrated market. If so, the Agencies will presume that a merger may substantially lessen competition based on market structure alone.
- Mergers Should Not Eliminate Substantial Competition Between Firms
The Agencies will examine whether competition between the merging parties is substantial, since their merger will necessarily eliminate competition between them.
- Mergers Should Not Increase the Risk of Coordination
The Agencies will examine whether a merger increases the risk of anticompetitive coordination. A market that is highly concentrated or has seen prior anticompetitive coordination is, according to the Agencies, inherently vulnerable and the Agencies will presume that the merger may substantially lessen competition. In a market that is not yet highly concentrated, the Agencies will investigate whether facts suggest a greater risk of coordination than market structure alone would suggest.
- Mergers Should Not Eliminate a Potential Entrant in a Concentrated Market
The Agencies will examine whether, in a concentrated market, a merger would (a) eliminate a potential entrant or (b) eliminate current competitive pressure from a perceived potential entrant.
- Mergers Should Not Substantially Lessen Competition by Creating a Firm That Controls Products or Services That Its Rivals May Use to Compete
When a merger involves products or services rivals use to compete, the Agencies will examine whether the merged firm can control access to those products or services to substantially lessen competition and whether they have the incentive to do so.
- Vertical Mergers Should Not Create Market Structures That Foreclose Competition
The Agencies will examine how a merger would restructure a vertical supply or distribution chain. According to the Agencies, at or near a 50% share, market structure alone indicates the merger may substantially lessen competition. Below that level, the Agencies examine whether the merger would create a “clog on competition…which deprives rivals of a fair opportunity to compete.”
- Mergers Should Not Entrench or Extend a Dominant Position
The Agencies will examine whether one of the merging firms already has a dominant position that the merger may reinforce. They will also examine whether the merger may extend that dominant position to substantially lessen competition or tend to create a monopoly in another market.
- Mergers Should Not Further a Trend Toward Concentration
If a merger occurs during a trend toward concentration, the Agencies will examine whether further consolidation may substantially lessen competition or tend to create a monopoly.
- When a Merger Is Part of a Series of Multiple Acquisitions, the Agencies May Examine the Whole SeriesIf an individual transaction is part of a firm’s pattern or strategy of multiple acquisitions, the Agencies will consider the cumulative effect of the pattern or strategy.
- When a Merger Involves a Multi-Sided Platform, the Agencies Examine Competition Between Platforms, on a Platform, or To Displace a Platform
- When a Merger Involves Competing Buyers, the Agencies Examine Whether It May Substantially Lessen Competition for Workers or Other Sellers
The Agencies will apply the guidelines to assess whether a merger between buyers, including employers, may substantially lessen competition or tend to create a monopoly.
- When an Acquisition Involves Partial Ownership or Minority Interests, the Agencies Examine Its Impact on Competition
Acquisitions of partial control or common ownership may in some situations substantially lessen competition.
- Mergers Should Not Otherwise Substantially Lessen Competition or Tend to Create a Monopoly
The guidelines are not exhaustive of the ways that a merger may substantially lessen competition or tend to create a monopoly.
Beyond the summary, the draft includes sections discussing application of the guidelines in further detail, identifying some of the tools the Agencies will use to define relevant markets and explaining how the Agencies will approach several common types of rebuttal evidence. There are also detailed appendices that describe evidentiary and analytical tools the Agencies often use.
In the draft, the Agencies also explain that the guidelines:
- Are not exhaustive of the ways a merger may substantially lessen competition or tend to create a monopoly
- Are not intended to be mutually exclusive, i.e., a given merger may implicate multiple guidelines
- For any given transaction, the Agencies may limit their analysis to any one guideline or subset of guidelines that most readily demonstrates the risks to competition from the transaction
- Create no independent rights or obligations and do not limit the discretion of the Agencies or their staff in any way
- Must be applied to a broad range of factual circumstances and accordingly the Agencies will apply them “reasonably and flexibly” to the specific facts and circumstances of each merger
- Neither dictate nor exhaust the range of evidence that the Agencies may introduce in merger litigation. Instead, they set forth various methods of analysis that may be applicable depending on the availability and/or reliability of information related to a given market or transaction
In subsequent posts, we will discuss all of this in greater detail.