January 19, 2022
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On January 18, 2022, the United States Federal Trade Commission (“FTC”) and the Antitrust Division of the Department of Justice (“DOJ”) held a press conference to announce a joint public inquiry to revise the guidelines merger agencies. The agencies’ Horizontal Merger Guidelines, previously revised in 2010, reflect the framework used by the agencies to assess whether mergers and acquisitions transactions between actual and potential competitors violate antitrust laws. The 2020 vertical merger guidelines — which the FTC previously announced it will no longer follow — address combinations of businesses at different levels of a supply chain (for example, manufacturers and their customers.
FTC Chairman Lina Khan and Assistant Attorney General (“AAG”) Jonathan Kanter opened the conference with remarks on the agencies’ decision to undertake a review of the merger guidelines, as well as details on the request for information (“RFI”) which accompanies it. The theme of their remarks was a shared desire to strengthen “common orientations for mergers to respond to the challenges and realities of the modern economy”.[1]
The RFI covers fifteen topics related to merger review,[2] but President Khan and AAG Kanter focused their remarks on a few priorities:
- Monopolies: The agencies plan to consider how the merger guidelines should deal more specifically with transactions likely to create or strengthen dominant firms, taking into account a range of “business strategies and incentives” likely to favor acquisitions by these companies. For example, the agencies’ RFI asks how the guidelines should address “serial” and “rollup” acquisitions of competitors by large corporations and private equity firms – and whether these transactions collectively could “tend to create a monopoly “in violation of Section 7 of the Clayton Act.
- Labor issues: The agencies are seeking comments and information on whether the guidelines should specifically address the possible effects of mergers on employees and workers. In doing so, the agencies point out that they can take into account factors such as the impact of a merger on wages, salaries and other forms of compensation. They will also consider whether the guidelines should treat job cuts as a recognizable efficiency of a merger.
- Evidence of anti-competitive effects: Agencies request information on whether current guidelines and agency merger analysis are unduly limited in their focus on the effects of a merger on price. Specifically, the agencies will consider whether more weight should be given to other indicia of anti-competitive effects, such as direct competition between merging parties, and whether such evidence is more appropriate for analyzing mergers in certain sectors.
- Consideration of “market realities”: » The agencies are asking for comments on whether, in a “dynamic and multidimensional economy”, market definition is a reliable tool for assessing the potential harm of mergers. They further seek information on how to capture market momentum and whether the guidelines should consider competition in terms of “stacks” or “bundles” of component products and services that drive supply chains. digital and physical procurement.
- Convergence of horizontal and vertical merger analysis: The agencies are investigating whether the traditional separation of horizontal and vertical merger analysis accurately reflects the realities of modern economics. They will, in general, assess whether rigid categories accurately reflect complex and dynamic business relationships, especially in technology markets.
Focus on digital markets
The above concerns reflect the view of agency leaders that current merger guidelines do not fully address the types of anti-competitive mergers present in today’s technology markets generally, and in digital markets in particular. Indeed, AAG Kanter stated that “[o]Our country depends on competition to drive progress, innovation and prosperity. . . [and for that reason] [w]We need to understand why so many industries have too few competitors and think carefully about how to ensure our merger enforcement tools are fit for purpose in the modern economy. The RFI specifically addresses the digital markets. Agency officials said they wanted to establish an analytical roadmap for evaluating digital markets, as these markets raise “different issues” such as tipping, zero-pricing issues and data aggregation.
Statement from Commissioners Noah Joshua Phillips and Christine S. Wilson
Following the announcement, FTC Commissioners Noah Joshua Phillips and Christine S. Wilson issued a joint statement endorsing the effort to seek public comment on the guidelines, as “it reflects [the FTC’s] continuous learning posture. Their comments also point out that the 2010 Horizontal Merger Guidelines have been widely accepted by the courts because they are based on a consensus framework developed over decades. They noted that the 2010 Guiding Principles had succeeded in providing transparency and predictability to the business community. Any revisions to the guidelines must reflect the considerations of manageability, transparency and predictability that made the 2010 guidelines so successful. In order to take these considerations fully into account, Commissioners Phillips and Wilson encourage the public to submit comments. and concerns about the legal and economic issues presented in the RFI, as well as the assumptions underlying those particular issues.
Next steps and implications
President Khan remarked that “[t]his investigation. . . is designed to ensure that [the agencies’] merger guidelines accurately reflect modern market realities and equip [the agencies] to forcefully enforce the law against illegal transactions. [3] As many expected, the FTC and DOJ under the Biden administration are making revisions to federal merger guidelines that will reflect the administration’s goal of strengthening antitrust enforcement. It remains to be seen if and how the revised guidelines address this wide range of topics, and whether they will be adopted by the courts. Commissioners Phillips and Wilson observed that the existing guidelines embraced well-established legal and economic principles and enhanced transparency for merging parties. For the new guidelines to have the same impact, they will need to reflect a similar approach.
Companies concerned about the upcoming guidelines should start planning now to ensure those concerns are amply documented before the agency. As Commissioners Wilson and Philips have pointed out, substantial evidence-based feedback, whether submitted directly by a company or a trade association, has always led to guidelines that reflect a consensus framework. Companies and agencies share an interest in a merger review framework that results in necessary enforcement while avoiding undue deterrence in merger and acquisition activity.
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[1] Statement from AAG Jonathan Kanter (January 18, 2022).
[2] The full list of topics is: Purpose, Harms and Scope, Types and Sources of Evidence, Coordinated Effects, Unilateral Effects, Presumptions, Market Definition, Potential and Incipient Competition, Remedies, Monopsony Power and Labor Markets, Innovation and intellectual property, digital markets, markets with special characteristics, barriers to entry and business growth, efficiency, and failing and distressed businesses.
[3] Statement by President Lina Khan (18 January 2022).
The following Gibson Dunn attorneys prepared this Client Alert: Adam Di Vincenzo, Rachel Brass and Kareem Ramadan.
Gibson Dunn attorneys are available to answer any questions you may have regarding these developments. Please feel free to contact the Gibson Dunn lawyer with whom you usually work in the firm’s Antitrust and Competition practice group, the authors, or any of the following:
Rachel S. Brass – San Francisco (+1 415-393-8293, [email protected])
Adam Di Vincenzo – Washington, DC (+1 202-887-3704, [email protected])
Kristen C. Limarzi – Washington, DC (+1 202-887-3518, [email protected])
Joshua Lipton – Washington, DC (+1 202-955-8226, [email protected])
Richard G. Parker – Washington, DC (+1 202-955-8503, [email protected])
Michael J. Perry – Washington, DC (+1 202-887-3558, [email protected])
Stephen Weissman – Washington, DC (+1 202-955-8678, [email protected])
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