United States: DOJ And FTC Seek Information On New, Stricter Merger Guidelines

On January 18, 2022, the Department of Justice ("DOJ") and the Federal Trade Commission ("FTC") announced a comprehensive review - and in fact a revision - of the horizontal and vertical merger guidelines with the apparent goal of finding more mergers anticompetitive. Indeed, FTC Chair Lina Khan recently professed "to act with a 'fierce sense of urgency' to police competition in the economy and reverse what she described as a pattern of inaction by previous antitrust enforcers."¹

The DOJ and FTC are seeking public comment on mergers and their competitive effects through a request for information ("RFI") to the general public that, they say, will inform the guidelines' revision.² Public comments are due by March 21, 2022.

We are pleased to assist with public comments or to submit comments anonymously on behalf of clients. We are also pleased to assist you in navigating the antitrust regulatory uncertainty, especially with respect to mergers. Clients may wish to account for that uncertainty in merger-agreement covenants, closing conditions, and termination rights.

The guideline revision process indicates stricter merger review even now while new guidelines are being drafted.³ At a joint press conference held earlier this week, Chair Khan expressed an interest in the impact of mergers on labor and job loss. She also discussed the importance of evaluating the parties' reasons for a transaction as well as its non-price effects. Merging parties should be aware that the documents they generate regarding the reasons for the proposed transaction and its effects - whether on prices, labor, or non-price elements of competition⁴ - will receive particularly close regulatory scrutiny.

Jonathan Kanter, head of the Antitrust Division at the DOJ, suggested that the traditional distinction between horizontal and vertical mergers and the emphasis on market shares may be ill-suited for digital markets. Combinations of companies that are not direct competitors and lack high market shares may thus receive searching antitrust scrutiny on an expanded interpretation of "anticompetitive" effects.

Khan and Kanter further suggested that excessive consolidation has slowed the growth of both wages and output. The agency heads thus echoed an earlier era of antitrust enforcement in which market structures with relatively low concentration were deemed unduly conducive to oligopolistic conduct.

Indeed, the RFI footnotes cite many restrictive Supreme Court merger cases from the 1960s and early 1970s, including those that identified a presumption of illegality associated with market shares and concentration levels.⁵ Since the late 1970s, antitrust law has become less restrictive and more receptive to the efficiencies and disciplines of free markets.

The Supreme Court, however, has not had the opportunity to revisit the older merger cases, largely due to the adoption in 1976 of the premerger notification system under the Hart-Scott-Rodino Act. Most of the earlier cases reviewed recently closed transactions that were no longer subject to termination due to timing. Premerger clearance allows for divestiture settlements, and contested pre-closing cases typically do not reach the Supreme Court before the merger contract terminates. In the absence of a substantive merger case in the last several decades, the earlier Supreme Court merger cases remain intact.

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Footnotes

1. David McLaughlin, FTC's Khan Vows to Act With 'Fierce Urgency' on Antitrust Front, BLOOMBERG LAW (Jan. 19, 2022), available here.

2. Request for Information on Merger Enforcement, DEP'T OF JUSTICE & FED. TRADE COMM'N (Jan. 18, 2022), here (hereinafter, "RFI").

3. The DOJ and FTC issued revised joint vertical merger guidelines in June 2020. The 2020 guidelines indicated increased agency attention to possible anticompetitive effects of vertical mergers. The FTC withdrew its approval of those guidelines in September 2021, after Lina Khan's confirmation as Chair, demonstrating a preference for an even stricter approach. We issued a memorandum regarding navigating M&A deals through the uncertainty caused by the FTC's withdrawal from the vertical merger guidelines and other changes related to obtaining Hart-ScottRodino ("HSR") clearance.

4. RFI at 2.

5. RFI at 2 nn.6, 8.

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