Federal Antitrust Agencies
Federal Merger Enforcement
Federal Non-merger Civil Enforcement
State Antitrust Enforcement
Private Antitrust Litigation
Federal Antitrust Agencies
Department of Justice Antitrust Division
The Antitrust Division, which is within the Executive Branch of the government, is headed by Charles A James, appointed by President George W Bush and confirmed by the Senate. He was confirmed as assistant attorney general on June 14 2001. Before that, James practised antitrust law in the Washington office of a US-headquartered multinational law firm. (Three of his top deputies were also recruited from private law practice in 2001.) James had served as a deputy to the head of the Antitrust Division under the first President Bush and also as a staff attorney at the Federal Trade Commission Bureau of Competition. James is expected to remain in his position at least through the 2004 presidential election.
James formally reports to Attorney General Ashcroft, but the attorney general rarely becomes actively involved in antitrust matters. Moreover, there is a tradition that the president almost never comments publicly upon or plays any role in antitrust enforcement decisions.
Each of James' five deputy assistant attorney generals oversees a major programme area, namely:
- civil enforcement;
- regulatory matters;
- criminal enforcement;
- economic analysis; and
- international enforcement.
The Antitrust Division has several regional field offices, but the bulk of the work is handled by its Washington, DC (District of Columbia) personnel, who are divided into sections that specialize in merger and non-merger matters in particular business sectors (designated currently as Litigation 1; Litigation 2; Litigation 3; Networks and Technology; Telecommunications and Media; and Transportation, Energy and Agriculture) or particular activities (National Criminal Enforcement; Foreign Commerce; Legal Policy; Appellate; Competition Policy; Economic Litigation; and Economic Regulatory).
Federal Trade Commission
The Federal Trade Commission (FTC), an independent agency sometimes denominated as "an arm of the Congress", is chaired by Timothy J Muris, a widely published law professor who was appointed by the current president and confirmed by the Senate in 2001. Muris headed the Bureau of Competition and then the Bureau of Consumer Protection during the Reagan administration in the 1980s. The commission comprises a further four commissioners.
The director of the Bureau of Competition is Joseph J Simons, who practised antitrust law in Washington at several private firms both before and after serving as an FTC staff attorney. There is also a separate Bureau of Economics, which assigns staff economists to competition investigations.
Allocation of responsibilities
There is a very broad overlap in the antitrust jurisdiction of the Department of Justice and the FTC, the principal exceptions being that:
- the Department of Justice handles all criminal matters (including any referred by the FTC);
- the FTC writes and interprets the Hart-Scott-Rodino pre-merger notification regulations; and
- the FTC is excluded from a few particular industries and situations.
The Department of Justice enforces the Sherman Act, which deals with (i) agreements, combinations and conspiracies that restrain trade, and (ii) monopolization and attempts and conspiracies to monopolize. However, the FTC incorporates those same Sherman Act principles (as well as Clayton Act principles) in its enforcement of the FTC Act, which covers (i) unfair or deceptive acts and practices, and (ii) unfair methods of competition.
Both agencies enforce the Clayton Act - which covers (i) mergers and acquisitions and exclusive dealing arrangements which might substantially lessen competition or tend to create a monopoly, and (ii) interlocking directors or officers involving competing firms - as well as the Robinson-Patman amendments to the Clayton Act (certain forms of price discrimination).
In its criminal antitrust enforcement capacity, the Department of Justice may convene grand juries and also may employ various non-antitrust criminal statutes, including those authorizing court-approved wiretapping and interception of emails, and those forbidding wire and mail fraud.
To avoid conflicts and preserve limited resources, the Department of Justice and the FTC have long had an agreement, periodically amended, to clear each proposed merger and civil non-merger investigation in advance with the other. Over time, each agency has tended to become more experienced with particular industries. However, there have been notable clearance delays and disagreements, especially when both agencies claimed superior expertise or when other factors came into play, including:
- industry convergence;
- past clearance compromises;
- individual personalities and enforcement philosophies;
- the FTC's ability to hold its own quasi-judicial proceedings;
- the FTC's collegial and bi-partisan structure, as against the Antitrust Division's hierarchical structure; and
- expressions of interest from Congress.
On March 5 2002 the assistant attorney general and the chairman of the FTC formally announced an agreement explicitly dividing industries between the agencies. However, bowing to pressure from Senator Hollings (who chairs both the Commerce Committee, which oversees the FTC, and the Senate appropriations subcommittee that funds the Department of Justice, and who was particularly upset about the Department of Justice reviewing all media mergers), the assistant attorney general announced on May 20 2002 that the Department of Justice "will no longer be adhering to the agreement". Although the March 5 agreement is no longer in force, the industry allocation therein may be a reasonably accurate predictor of how matters will be allocated in the immediate future - the principal exception perhaps being that some media matters may still go to the FTC on a case-by-case basis. The March 5 agreement allocated the following areas to the FTC:
- airframes, including civilian and military airframes, helicopters and airframe components;
- cars and trucks, including related parts and dealers;
- building materials;
- chemicals, including paints and plastics;
- computer hardware (matters involving computer hardware do not become matters involving computer software, for purposes of this allocation, merely because software is being shipped with the hardware. In matters involving both hardware and software, clearance will be determined on the basis of the market in which the competitive effects being investigated are predominantly likely to occur);
- energy, including gas, electric, coal, pipelines, petroleum and gas stations;
- healthcare, including hospitals, professional services, medical equipment and medical devices;
- industrial gases;
- operation of grocery stores and grocery manufacturing, including distilled spirits and tobacco products;
- operation of retail stores;
- pharmaceuticals and biotechnology (other than that associated with agriculture), including human and animal pharmaceuticals;
- professional services;
- satellite manufacturing and launch, and launch vehicles; and
The areas allocated to the Antitrust Division of the Department of Justice are as follows:
- agriculture and associated biotechnology, which includes (i) all seeds, crops and livestock; (ii) produce, meat, poultry, fish, seafood and dairy products; (iii) herbicides, fungicides, insecticides and fertilizers; and (iv) all associated biotechnology;
- avionics, aeronautics and defence electronics;
- computer software (again, matters involving computer software do not become matters involving computer hardware, for purposes of this allocation, merely because the software is being shipped with hardware. Clearance will be determined on the basis of the market in which the competitive effects being investigated are predominantly likely to occur);
- cosmetics and hair care;
- financial services/insurance/stock and option, bond and commodity markets;
- flat glass;
- health insurance, and healthcare products and services over which the FTC determines it may lack jurisdiction;
- industrial equipment, including stationary or mobile equipment or machinery (excluding primarily on-road transportation vehicles) employed in agricultural, manufacturing, construction, refining, fabricating, processing, extraction and power generation operations;
- media and entertainment, including cable services, satellite services, television and radio broadcasting, publishing, newspapers, magazines, films, cinemas and upstream video distribution, advertising, music, toys and games, gaming and sports;
- metals, mining and minerals, including steel and steel products;
- missiles, tanks and armoured vehicles;
- naval defence products;
- photography and film;
- pulp, paper, lumber and timber;
- telecommunications services and equipment, including set-top boxes, cable plant and related infrastructure, satellite data and programming, communications infrastructure and telecommunications equipment (eg, telephones, pagers, switches, internet backbone and telephone cable);
- travel and transportation, including airlines, railroads, trucking, ocean shipping, cruise ships, oil tankers, travel agents and computerized reservation systems; and
Comparison between George W Bush and Clinton regimes
US antitrust enforcement tends to have bi-partisan political support, and usually there is no sharp shift in priorities or major reduction in antitrust funding when the administration or either house of Congress changes from Democratic to Republican or vice versa. The transfer from Carter to Reagan, temporarily reducing the perceived vigour of US antitrust enforcement, was a departure from the norm.
Republicans James and Muris envision no sea change in enforcement policy and have predicted "continuity" with their Democratic predecessors, any differences being noticeable only at the margin or in those areas where policy has been evolving anyway. Muris even warned the press and Bar that antitrust enforcement, including merger review, would not be relaxed during the current Bush administration and that lawyers who advise their clients to the contrary are doing them "a big disservice". James added: "Anyone who is expecting a major shift in enforcement policy is likely to be disappointed."
James and Muris have said repeatedly that they intend to enforce the antitrust laws vigorously on the merits and in accordance with established case law, and without regard to partisan politics or narrow economic ideology. Both believe that the purpose of antitrust is to protect consumers, and that case selection should be guided by thorough factual investigation and well-disciplined economic analysis. Muris has said he is "personally uncomfortable with pushing hard on theories that do not have a firm foundation in the law". James has also said he is "very uncomfortable" with the notion of pursuing theories for enforcement purposes when those theories are not grounded in the legal framework of the antitrust laws.
James's decision to settle the Department of Justice's Microsoft Case on remand from the appellate court, while some of the litigating state attorneys general continue to press for additional relief, has generated discussion regarding whether the current Antitrust Division leadership is less inclined than its predecessor to challenge monopoly practices, at least in the computer software industry. Additionally, because some of Muris's past writings were highly critical of certain government antitrust positions, there is an expectation in some quarters that his FTC will be less likely than some past FTCs to experiment with novel theories for challenging business practices and combinations. In any event, it remains to be seen precisely how each new leader will make his mark.
The Department of Justice under James has expended considerable Front Office resources pressing the European Commission to accept the notion that "competition is enhanced when a firm improves its efficiency, even if competitors are harmed". Having made this message such an international priority, James may well look for opportunities to show the decisive weight that demonstrated efficiencies would receive in the Department of Justice's own domestic enforcement decisions. Moreover, Muris has said that "the treatment of efficiencies in [US] merger enforcement has room for improvement", that "the agencies should recognize additional classes of efficiencies", and that court consideration of efficiency claims "is still much too hostile".
Recent generic enforcement initiatives
Throughout the spring of 2002 the FTC and the Department of Justice have held a series of joint hearings entitled "Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy". The purpose of the hearings is to explore the implications of antitrust/competition and patent law and policy for innovation and for other aspects of consumer welfare. The hearings are focusing on specific licensing practices, practical issues encountered in antitrust analysis of licensing practices and an international comparative competition law perspective on IP licensing practices.
FTC disgorgement authority inquiry
In late 2001 the FTC began soliciting comments on the factors it should consider in applying its disgorgement authority in competition cases and in determining how the amount of disgorgement should be calculated. The FTC has said it is not re-examining its statutory authority to seek disgorgement or other monetary equitable relief in competition cases. Cases in which the FTC has exercised these powers include Mylan Laboratories (2000) - where the FTC ordered disgorgement of $100 million from a settling respondent that allegedly engineered an illegal scheme to prevent price competition for certain pharmaceuticals - and Hearst/Medi-Span (2001), where the FTC ordered $19 million disgorgement from a settling respondent that allegedly had profited from a merger to monopoly that temporarily escaped the FTC's full inquiry because of the failure to include required documents in a Hart-Scott-Rodino merger notification.
In recent years the globalization of business and markets has led the US antitrust agencies and their foreign counterparts, particularly the European Commission, to devote considerable resources to international enforcement and cooperation. In 1995 the Department of Justice and the FTC released joint International Guidelines describing their policies for antitrust enforcement involving international issues.
In June 1998 the Department of Justice and the European Union agreed on a new 'positive comity' resolution to supplement the 1991 resolution. Under the agreement, the government requesting action relies on the other to take action under its own laws, consulting frequently in the process. A positive comity referral is intended to lead to efficient enforcement, as each side deals with conduct occurring primarily in its own territory, and to help resolve disputes over access to foreign markets. This agreement improves upon the old comity agreement by adding a presumption that positive comity will be used in certain situations, and by providing details about each party's responsibilities.
Negotiations with foreign governments for agreements to implement the International Antitrust Enforcement Assistance Act are ongoing. To avoid concerns by foreign governments about US efforts to impose extraterritorial reach of its antitrust laws, the Department of Justice negotiates individual bilateral agreements for cooperation with foreign governments in which those governments will enforce their competition laws as to conduct occurring in those countries designed to impair imports from the United States or affect US commerce.
In July 2000 the Department of Justice and the FTC signed an antitrust cooperation agreement with Mexico, providing for:
- enforcement cooperation and coordination;
- notification about enforcement activities that may affect the other country;
- conflict avoidance measures; and
- effective confidentiality protections.
The agreement contains a positive comity provision under which each party agrees to consider the other's request to take antitrust enforcement action against illegal conduct occurring within its jurisdiction that injures the other party's interests. The agreement is similar to agreements the United States has in place with Brazil (signed October 1999), Canada (signed 1995), the European Union (signed 1991), Israel (signed March 1999) and Japan (signed October 1999). The United States also has long-standing agreements in place with Germany and Australia.
Consequently, there is extensive ongoing communication between US antitrust enforcement agencies and those of numerous other countries and groups, especially the European Union, on civil and criminal matters.
As many proposed mergers, joint ventures and acquisitions have international implications, multiple investigations of transactions involving US and foreign firms, or just two US or two foreign firms, are now common. Fairly representative examples include WorldCom/MCI, BP/Amoco/Arco, Exxon/ Mobil, Daimler/Chrysler, BT/MCI, Air Liquide/Air Products/BOC, Boeing/Hughes, BT/AT&T, Alcoa/Reynolds and Halliburton/Dresser. Boeing/McDonnell Douglas was another example of trans-Atlantic cooperation, but the European Commission ultimately took a different tack from the FTC and required additional remedies in the form of undertakings that the US authorities thought unnecessary.
GE/Honeywell was different. First the Department of Justice cleared the merger, requiring only a limited consent decree, but then the European Commission rejected the merger as incompatible with its common market. The Department of Justice expressed great concern that the European Commission's rejection of the merger was based on:
- a disregard for efficiencies that would benefit consumers;
- an inappropriate concern for the merger's impact on individual complaining competitors; and
- the use of a theory regarding bundling or 'portfolio effects' that was bad economics.
There was consternation on both sides of the Atlantic over the public criticism of one enforcement agency by another and the heated debate that ensued.
In September 2001, however, in the wake of these disagreements over the GE/Honeywell proposed merger, the US-EU Merger Working Group began extensive non-public videoconferences and meetings of the Department of Justice, the FTC and EU Directorate General of Competition officials to examine merger process and timing, conglomerate mergers and the role of efficiencies in merger analysis.
International Competition Network
This loose organization of US and non-US competition enforcement authorities was launched in October 2001 to seek consensus on proposals for procedural and substantive convergence in worldwide antitrust enforcement. The network is examining issues such as the multiplicity of different merger control processes applied to multi-jurisdictional mergers and the proper competition advocacy role of antitrust agencies, particularly in emerging economies. In the past, the United States has firmly resisted allowing antitrust enforcement to become converged through application of the World Trade Organization (WTO) process. US antitrust officials have said the United States should try to lead more countries to something similar to what the United States has, rather than have the United States allow its antitrust enforcement to be 'dumbed down' to the levels of antitrust enforcement in less advanced economies.
Department of Justice/FTC clearance process
The James-Muris endeavour to revise formally the Department of Justice/FTC clearance agreement, although aborted in deference to Hollings, may still produce some benefits in terms of a better public understanding of which agency is likely to investigate and a shared Department of Justice/FTC staff mindset favouring quicker clearances to the more experienced agency in the vast majority of cases.
Federal Merger Enforcement
Statistical trends in merger filings and investigations
Both federal agencies are devoting considerable resources to merger enforcement and treat it as an important priority. However, as of April 2002 Hart-Scott-Rodino pre-merger filings were down by two-thirds from their volume in 2001, and three-quarters from their total in 2000. Much of the decline is due to the reduction in the number of mergers announced (which in turn is attributable to the recession and significant stock market declines), but also to the increase in the Hart-Scott-Rodino minimum size-of-transaction threshold and other changes, which took effect on February 1 2001. Prior to that, the number of reported transactions had grown steadily from 1,529 in 1991 to 4,926 in 2000.
According to the Department of Justice/FTC's most recent available annual Hart-Scott-Rodino report to Congress (for 2000 at the end of the Clinton presidency), the agencies issued second requests for additional information (thus extending the waiting period) with respect to only 98 of the 4,926 transactions notified, a statistically significant percentage decrease from previous years. Of the notified 4,926 transactions the parties requested early termination of the waiting period in 4,324. Early termination was granted in 3,515 instances, a statistically significant percentage increase over prior years.
In 2000 the Antitrust Division challenged 48 transactions. Eighteen of the challenges were resolved by consent decrees, 29 transactions were either restructured or abandoned after the Department of Justice communicated its intention to sue, and one transaction was successfully litigated against by the Department of Justice. Also in 2000 the FTC challenged 32 transactions, leading to 18 consent orders, nine abandoned transactions and the authorization of five preliminary injunction proceedings.
Pre-merger notification law revisions
Hart-Scott-Rodino pre-merger notification forms (with all required attachments) must be submitted to the Department of Justice and the FTC by acquiring and acquired parties for acquisitions of assets and/or voting securities that meet the regulatory thresholds and are not exempt.
The Hart-Scott-Rodino regulations are minutely detailed and have been subject to hundreds of textual changes, as well as numerous informal (and often non-published) interpretations and a few formal statements and rulings by the FTC's Pre-merger Office. As with complex business tax matters, it is usually wise to consult a Hart-Scott-Rodino expert because the interrelationships and histories of the regulations and interpretations may lead to unexpected results, often not turning upon obvious points or substantive antitrust considerations. Counsel who have cultivated a long-standing working relationship with the Pre-merger Office can be especially useful advisers.
Effective February 1 2001, several important changes were made with respect to minimum thresholds. Generally, transactions valued at more than $50 million (the prior threshold was $15 million) may be reportable, provided the ultimate parent entities for each of the parties exceed the size-of-parties threshold ($100 million worldwide sales or assets for one; $10 million for the other), if applicable, and are not exempt. The size-of-parties requirement no longer applies with respect to transactions valued at more than $200 million.
In the first part of 2002 the Hart-Scott-Rodino regulations exempting transactions that have an insufficient nexus with the United States were revised and clarified. However, many transactions between non-US entities involving principally businesses located outside of the United States may still require Hart-Scott-Rodino filings if some part of the transaction has the requisite US connection (location of some assets in the United States or some sales into the United States of a certain threshold size).
It is illegal to consummate a reportable transaction during the statutory waiting period. The waiting period measured from the date of filing is 30 calendar days (extended to the next business day if the 30th day is a weekend or holiday), and 15 days in the case of all-cash tender offers and bankruptcy filings, unless terminated early by mutual decision of the enforcement agencies. The waiting period is automatically extended if the investigating agency timely issues to the parties a second request for additional information. Such requests are often based on a generic Model Second Request jointly developed by the agencies and may be very broad-reaching, although the breadth is subject to narrowing through negotiation. The extended waiting period expires 30 days after both parties have substantially complied with the second requests, and 10 days in the cash tender offer and bankruptcy situations.
The acquiring party must submit with its notification a filing fee of:
- $45,000 for transactions valued above $50 million but below $100 million;
- $125,000 for larger transactions that are less than $500 million; and
- $280,000 for those at or above $500 million.
The fees help fund the antitrust agencies.
Hart-Scott-Rodino compliance enforcement
The federal antitrust agencies are very vigilant in requiring strict compliance with Hart-Scott-Rodino regulations - even in the case of reportable transactions that all would agree both beforehand and post-consummation raise no substantive antitrust concern.
In recent years several companies have paid large fines for failing to submit the required Hart-Scott-Rodino notification, such as Mahle GmbH ($5.1 million), Sara-Lee ($3.6 million), Foodmaker ($1.45 million) and Loewen Group ($500,000). In 1996 the FTC fined Automatic Data Processing $2.97 million for failing to append to its Hart-Scott-Rodino notification required documents that would have identified competitive problems regarding the transaction; the FTC also sought to unwind the consummated transaction. In 1999 a Blackstone leveraged buyout investment fund that had submitted a tardy Hart-Scott-Rodino filing, and one of its general partners who signed the Hart-Scott-Rodino certification of completeness, agreed to pay $2.78 million and $50,000 respectively for failing to submit an internal document required by the Hart-Scott-Rodino rules. Significantly, this was the first instance of an individual being required to pay such a fine. In October 2001 Hearst Trust and Hearst Corporation jointly agreed to pay a $4 million civil penalty to resolve an FTC suit for failing to include in Hearst's Hart-Scott-Rodino notification for the since-consummated Medi-Span acquisition three Hearst board recommendation documents and a list of other documents withheld as attorney-client and work-product privileged.
'Gun-jumping' - that is, engaging in impermissible pre-merger coordination prior to the expiration of the Hart-Scott-Rodino waiting period - is an especially controversial enforcement topic and the Department of Justice's James recently pledged to provide further clarification of Antitrust Division policy regarding that subject. Normally, parties to pending mergers (even if they are competitors) may use the pre-clearance/consummation period for:
- conducting reasonable due diligence of each other;
- planning for the post-merger environment; and
- ascertaining that each is complying with its obligations to satisfy the merger agreement's pre-conditions to closing, such as the seller's obligation not to encumber or dissipate the business being acquired.
Several years ago Input/Output, Inc and Laitram Corp each agreed to pay $225,000 in civil penalties to settle charges that they failed to observe the Hart-Scott-Rodino waiting period before combining operations. In April 2002 the Department of Justice announced that Computer Associates International had agreed to pay the maximum $638,000 fine to settle a September 2001 lawsuit alleging illegal pre-merger coordination between Computer Associates and a company it was acquiring (Platinum Technology International) in violation of the Sherman and Hart-Scott-Rodino Acts. The merger itself had been cleared by the Department of Justice in May 1999 pursuant to a consent decree requiring divestiture of certain assets. The Department of Justice said the illegal gun-jumping included the following pre-merger conduct: (i) the then-competing parties' agreeing that Platinum would avoid price discounts of more than 20% and not amend its standard contract terms without Computer Associates' approval, and (ii) their agreement that Computer Associates would install one of its employees at Platinum's headquarters to review and approve customer contracts and undertake other activities relating to management of Platinum (for further details please see Companies Penalized for Pre-merger 'Gun-Jumping').
The 1992 Department of Justice/FTC Horizontal Merger Guidelines, revised in 1997 to expand the discussion of efficiencies as a defence, describe the basic legal and economic methodology followed by the Department of Justice and the FTC in determining whether to challenge a merger or other acquisition involving horizontal competitors. The guidelines are widely respected and generally used by Department of Justice and FTC staffs in identifying key issues and in formulating recommendations to challenge or allow a merger. Both the Department of Justice's James and the FTC's Muris have indicated their basic satisfaction with these 1992 guidelines (as amended in 1997) and their intention to follow them.
Although the 1992 guidelines are supposed to be a reasonably flexible and general statement of current enforcement agency policy and methodology, and are emphatically not a compendium of governing judicial precedents, courts frequently rely upon portions of the 1992 guidelines to justify their rulings.
Portions of the 1992 guidelines relating to issues that include the following are widely used by the enforcement agencies in their consideration of non-merger matters and also non-horizontal (ie, vertical or conglomerate) mergers:
- the identification of relevant product and geographic markets;
- the significance of market shares;
- the ascertainment of entry conditions;
- the identification and measurement of market power;
- the lessening of competition through coordinated interaction or unilateral action; and
- the verification and evaluation of efficiencies.
There are no recent guidelines (nor apparently any ongoing initiative to develop such guidelines) for non-horizontal mergers. Section 4 of the otherwise repealed 1984 merger guidelines ("Horizontal Effect from Non-Horizontal Mergers") remains in effect. To some limited extent, Section 4 provides guidance regarding antitrust agency analytical methodology and intentions with respect to vertical and conglomerate mergers.
Other potentially relevant guidelines, depending on the circumstances, are:
- the 1995 Department of Justice/FTC Antitrust Enforcement Guidelines for International Operations;
- the 1995 Department of Justice/FTC Antitrust Guidelines for the Licensing of Intellectual Property;
- the 1996 Department of Justice/FTC Statements of Antitrust Enforcement Policy in Health Care; and
- the 2000 Department of Justice/FTC Antitrust Guidelines for Collaborations among Competitors.
In June 2002 the FTC staff began a series of public workshops regarding merger remedies. The topics include:
- purposes of remedies;
- FTC concerns in evaluating a proposed buyer and divestiture agreement;
- FTC concerns about continuing entanglements between merging parties and the buyer;
- the requirement of having a buyer up front;
- hold separate orders;
- 'crown-jewel' provisions; and
- designation of a compliance monitor trustee.
On a parallel track, the Antitrust Division is conducting a comprehensive review of its practices and policies in seeking remedies in merger litigation and consent decrees, and is working with the FTC to identify 'best practices' and possibly eliminate differences between the two agencies' practices. The Department of Justice is looking at:
- the FTC's up-front buyer requirement;
- the FTC's requirement that there be a "clean sweep" divestiture of an ongoing business rather than a "mix and match" to create the divested business;
- the occasional FTC and Department of Justice requirement of licensing or supply contracts as remedies in lieu of hard asset divestiture;
- the imposition of 'firewalls' in lieu of divestitures in cases of partial ownership;
- the typical 10-year Department of Justice decree duration versus occasional shorter terms for rapidly changing industries;
- the occasional Department of Justice and FTC requirement that if the primary divestiture assets are not sold, more desirable crown-jewel assets will have to be divested;
- use of an independent trustee to monitor compliance with complex ongoing decree obligations; and
- efforts by parties to "litigate a proposed fix" in court even though rejected by the agency.
In August 1999 the FTC released its Divestiture Study, which surveyed FTC-ordered divestitures between 1990 and 1994 in order to draw some conclusions with respect to fashioning successful divestiture remedies. The study found that, in general, divestitures are more successful when they involve up-front buyers, measures to expedite the divestiture (eg, the appointment of a trustee and crown-jewel provisions), and divestiture of an ongoing business to an experienced firm in a related business.
Merger investigation process
In Spring 2002 the FTC began a series of public workshops on developing best practices for merger investigations, including emails and other electronic records, accounting and financial data, the best use of the waiting period, the content and scope of second requests, reducing burdens and so on.
In October 2001 the Antitrust Division announced a willingness to:
- enter into procedural agreements that might narrow an investigation to key dispositive issues;
- provide for periodic substantive status reports from the Department of Justice to the parties; and
- create detailed investigative schedules with a date certain for the ultimate enforcement decision, while expediting production of certain materials and protecting the division's substantive and procedural enforcement prerogatives.
Renewed interest in investigating coordinated effects
Prior to the 1992 guidelines, the principal focus of US merger analysis was often whether the transaction would raise concentration and entry barriers, thereby making it easier for firms to collude, expressly or tacitly, to force prices above (or further above) cost, all to the eventual detriment of consumers. The tendency of a merger to facilitate collusion or interaction is known as 'coordinated effects'.
Although the Department of Justice and FTC never stopped bringing coordinated-effects cases, and although the 1992 guidelines extensively address the subject, the merger enforcement emphasis since the early 1990s has often appeared to be premised largely or exclusively upon a concern about 'unilateral effects'. Investigative and litigation resources have been directed at preventing mergers where the merged firm would become able to exercise market power either market wide, or with respect to some subset of readily identifiable consumers for whom the merging firms are 'next best substitutes' and no other firm could/would successfully reposition itself to be an equally close and price-constraining alternative.
In the past year or so speeches and other commentary by the new leadership at the Antitrust Division and the FTC suggest a renewed interest in coordinated-effects cases, and some discomfort with loose application of unilateral-effects theories. Deputy Assistant Attorney General William Kolasky said in April 2002 that the Antitrust Division continues to bring five-to-four and four-to-three coordinated-effects cases, especially where there is a history of prior coordination and market conditions that facilitate coordination, such as homogeneous products, transparent pricing and stable demand. He said that the Department of Justice would continue to evaluate whether a merger may eliminate a 'maverick' (provided the market has no probable substitute), thereby increasing the likelihood of collusion, or may possibly create a maverick, thereby diminishing such a likelihood. Kolasky also said that the Department of Justice would draw upon lessons learned from its criminal cartel prosecutions, namely that:
- cartels may involve a fairly large number of firms (even 10 or more);
- collusive industries are usually highly concentrated, with the largest firms acting as ringleaders;
- multiple instruments of coordination may be employed;
- large sophisticated buyers' ability to defeat cartel activity is overrated;
- excess capacity can be used effectively to punish deviators;
- cartels can last decades; and
- large publicly traded companies may become cartel participants if their antitrust compliance programmes are sloppy or non-existent.
In mid-2001 the FTC chairman mentioned, while not necessarily endorsing the notion, that the FTC had gone too far in applying unilateral effects theories to the point of ignoring market-wide competition and focusing only on elimination of competition between the parties. He expressed concern regarding merger simulation models that assume a price increase and regarding econometric analysis that relies upon data while ignoring that data's limitations. Muris is frustrated that regression analyses sometimes yield results that conflict with common sense and other times are improperly disregarded by courts. Somewhat by contrast, Muris has shown interest in whether theories of coordinated interaction may explain systematic discriminatory pricing policies.
David Scheffman, director of the FTC Bureau of Economics, has also said that the economic analyses to support a unilateral effects case against a merger of manufacturers must have solid empirical data at the manufacturing level and not rely unduly on scanner data at the retail level. He has also indicated that coordinated interaction has been "much too de-emphasized as a potential concern" in mergers, and that personally he expects there may be an increase in such cases.
Efficiencies as a defence
As noted above, an expanded discussion of efficiencies was released in 1997, updating the 1992 Horizontal Merger Guidelines. These guidelines explain that efficiencies can affect the analysis of mergers if they will enhance the merged firm's ability and incentives to behave competitively (by making coordination less likely or by enhancing the ability or incentive to lower prices) and result in lower prices, improved quality, enhanced service or new products. To be considered seriously, such efficiencies:
- cannot be vague or speculative;
- must be merger-specific (and not practicably achievable through some other means); and
- will rarely be sufficient to prevent challenges of mergers to monopoly or near-monopoly.
Initial concerns that these efficiency guidelines shifted the balance significantly in one direction or the other do not seem to have materialized. Enforcement agencies could still win merger cases in the face of efficiency claims, but efficiency claims nonetheless might make a difference for the defence. For example, in the FTC's Staples/Office Depot Case (1997) the court rejected an efficiency defence because internal documents showed the defendants' efficiency claims were exaggerated and because it was not necessary for the parties to merge in order to realize the efficiencies they sought. In the Department of Justice's Long Island Jewish Medical Center/North Shore Health System Case (1997) the court directed judgment for the defendants for other reasons, but concluded the merger would result in substantial savings for the hospitals that would be passed to consumers. In the FTC's Cardinal Health/Bergen-Brunswig and McKesson/AmeriSource Cases (1998) (both involving drug wholesalers) the district judge said that the defendants' arguments failed to show convincingly that "the projected savings from the mergers [were] enough to overcome the evidence that...possibly greater benefits can be achieved by the public through existing, continued competition".
Recently, in granting the FTC's preliminary injunction request, the influential DC Circuit seemed to accept the notion that substantial merger-specific efficiencies could be an adequate legal defence in some merger cases, but found the efficiencies arguments unpersuasive in the case before it.
The current heads of the Antitrust Division and the FTC have made clear their interest in focusing more on efficiencies in merger analysis, and have effectively invited parties to put before them a proper vehicle for demonstrating that efficiencies sometimes do overcome anti-competitive effects.
At present, in EchoStar/GM's Hughes Communications, the Department of Justice is considering the proposed merger of the only two multi-channel video direct broadcasting satellite services in the United States (DirecTV and DISH), where the parties argue that efficiencies to be achieved through the merger will enhance the ability of direct broadcasting satellite services to compete against the market power of cable television companies. In some more rural areas, however, there are no cable television companies or only weakly competitive cable systems using limited analogue capacity to offer far fewer programming channels than the two currently competing nationwide digital direct broadcasting satellite services companies.
In the past decade or so, although horizontal mergers between actual or potential competitors have received the most attention, there has been an increased interest in vertical mergers - that is, where a firm acquires a supplier or customer. The antitrust concerns are that:
- the merged firm may foreclose access to unique products which the acquired firm formerly supplied to its competitors;
- the merged firm may acquire information about its competitors if the acquired firm continues to do business with them; or
- the merged firm can adversely affect competitors in some other way.
For example, PRC supervised the Aegis destroyer programme for the Navy, and Litton and General Dynamics both manufactured Aegis destroyers. Litton proposed to acquire PRC, and the FTC was concerned that post-merger, PRC would favour Litton and disfavour General Dynamics. In 1996 Litton was forced to divest that portion of the PRC business to an independent firm.
Subsequently, the FTC reviewed a proposed acquisition of Ingram Book Group (the largest book wholesaler in the United States) by Barnes & Noble (the largest national book retailing chain). The transaction was abandoned after the FTC expressed serious concerns that Barnes & Noble could foreclose rivals' access to Ingram post-merger, or at the very least raise rivals' cost.
In 2000 the FTC allowed Boeing to acquire satellite manufacturer Hughes subject to a consent order that, among other things, prohibited Boeing's launch vehicle division from gaining access to non-public information its satellite division receives from competing launch providers. It also prohibited the satellite division from gaining access to non-public information that its launch division receives from competing satellite suppliers.
The agencies have challenged mergers in which the adverse competitive effects may involve products that are only under development. For example, in the 1996 merger of Sandoz and Ciba Geigy, the FTC was concerned about gene therapies that each firm had under development and that no other firm was poised to develop as quickly. The FTC concerns were resolved by divestitures and requirements that certain products be licensed to other firms. Thereafter, in 1999 the FTC challenged Zeneca Group's proposed acquisition of Astra because of a concern the merger would eliminate Zeneca as the only source of new competition in the market for long-acting local anesthetics. The concern was resolved by divestiture of Zeneca's rights and assets relating to the drug at issue.
The last competition bureau director in the Pitofsky FTC suggested that licensing may be the preferred remedy in innovation cases where divestiture could interrupt potentially successful research and development efforts.
In two 1999 cases the Department of Justice was concerned that mergers would have enhanced the market power enjoyed by buyers (monopsony), rather then sellers. The Department of Justice's complaint in the Aetna/Prudential merger alleged that the merger of two health plans would allow the combined entity to depress artificially physician reimbursement rates. In another merger the Department of Justice alleged that the combination between Cargill and Continental would be able to depress artificially the price paid to farmers for soybeans and grain.
In ATT Broadband/Comcast the Department of Justice now has before it assertions that the combined programming buying power of two of the largest cable television companies would adversely affect both programming production and competition for subscribers.
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