Tuesday, January 18th, the Federal Trade Commission (“FTC”) and the U.S. Justice Department’s Antitrust Division (“DOJ”) launched a joint public inquiry regarding the agencies’ horizontal and vertical merger guidelines. As part of this inquiry, the agencies are soliciting public comment via a Request for Information (“RFI”) on a wide range of topics that could lead to significant changes in the merger guidelines and increased scrutiny of a broad array of transactions. The agencies’ inquiry will address numerous themes of the merger guidelines including those highlighted below.
Review Includes Vertical and Horizontal Merger Guidelines
Chair Khan and Assistant Attorney General Kanter announced that the review will focus on whether the merger guidelines properly implement the statutory ban on transactions that “may” substantially lessen competition or tend to create a monopoly. The agencies will also consider whether there is a basis to distinguish between horizontal and vertical transactions in the modern economy. Specifically, Kanter noted that the current vertical merger guidelines “overstate the potential efficiencies of vertical mergers” and do not sufficiently consider theories of competitive harm. The agencies will focus on areas that the current guidelines “underemphasize or neglect” such as labor market effects and non-price competition like innovation, quality, potential competition, “or any trend toward concentration.” The agencies have also invited comments on mergers that have harmed competition.
Extensive RFI includes Inquiry into Presumptions, Unilateral and Coordinated Effects, Market Definition, Potential Competition, Innovation and IP, and Buyer Power
Currently, the merger guidelines identify certain types of transactions that carry a presumption of anticompetitive harm based on market concentration thresholds. The newly announced inquiry will test this presumption and whether to adjust the market concentration thresholds or supplement them with additional metrics or factors.
In addition, the agencies are seeking information regarding the types of evidence they should consider in assessing the effects of a merger; revisions to the assessment of possible coordinated and unilateral effects; tools used to define markets; changes in standards to strengthen enforcement involving potential and nascent competition; and whether the guidelines should use a different approach to market definition when considering innovation effects.
The inquiry will also review of how monopsony (buyer side) power should be assessed, including, specifically, monopsony power in labor markets. Chair Khan highlighted the impact of mergers on competition in labor markets as a focus area in order to address potential competitive harm to workers.
Focus on Digital Markets and “Special Characteristics” Markets
Notably, the inquiry addresses whether the agencies should analyze mergers involving digital markets and “special characteristics markets” differently than other markets. Chair Khan drew attention to “moat-building or data-aggregation strategies by digital platforms” as examples of business incentives that may facilitate acquisitions in digital markets. Similarly, Assistant Attorney General Kanter argued that the “complex interactions and business relationships” underlying consumers’ use of new technologies “present an opportunity to create or exploit market power.” With the agencies spotlighting the impact of digital transformations across a wide array of markets, this review of the merger guidelines could lead to an aggressive tightening of standards applied to proposed tech transactions, in particular.
In addition, the agencies will examine the guidelines approach to a number of markets with special characteristics including markets characterized by bargaining leverage, auctions, and clusters. The request also includes information on common ownership, consummated mergers, and acquisitions by private equity firms.
Public Comment Period
The agencies’ RFI provides for a 60-day public comment period. Parties may submit comments to regulations.gov until Monday, March 21, 2022. The RFI and page for comment submission can be found here.
Dissent within the FTC
FTC Commissioners Noah J. Phillips and Christine S. Wilson issued their own statement highlighting key divergences between the Democrat and Republican appointed members. Commissioners Phillips and Wilson agreed that the RFI should inquire into the notion of “digital markets”, acquiring nascent competitors, the impact on labor markets, and effects on incentives to innovate. They suggested, however, that the parties submitting responses to the agencies’ RFI address any assumptions that equate post-merger difficulties for rival firms with harm to competition and consumers or that consummated transactions fail to lead to cognizable efficiencies. Phillips and Wilson also noted that much of the legal authority cited by the agencies’ RFI “is nearly or more than half a century old,” stressing that any update to the merger guidelines should incorporate more recent precedents on antitrust law.
How Covington Can Help
A potential overhaul of the merger guidelines raises the degree of uncertainty for companies contemplating transactions. Our antitrust practice group has decades of experience in advising on the merger review process before the agencies. Our team can provide detailed and practical insight into how these proposed changes may apply to various types of transactions across a range of industries.
If you have any questions concerning the material discussed in this client alert or would like to consider submitting a public comment, please contact the members of our Antitrust/Competition practice.
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