On June 17, the Antitrust Division of the Department of Justice (“DoJ”) issued an updated policy guide to merger remedies (“Updated Remedy Guide”). In transactions raising competitive concerns, the DoJ often agrees to remedies (e.g., divestitures) to resolve those concerns and allow the merger to proceed. These remedies are typically implemented pursuant to a court-approved consent decree entered into by the DoJ and the merging parties.
Although the key principles remain the same – the purpose of any remedy being to preserve competition – the Updated Remedy Guide includes some significant changes from the DoJ’s 2004 guide, which reflect a shift in its approach to remedies over the past two years under Assistant Attorney General Varney. In particular, among other changes, the Updated Remedy Guide endorses behavioral remedies, adopts changes to its approach to structural remedies, and places the Office of the General Counsel in charge of compliance.
Clear Endorsement of Behavioral Remedies
The Updated Remedy Guide memorializes the DoJ’s approach to remedies over the past two years in vertical mergers like Google/ITA and Comcast/NBC Universal, where it conditioned approval of those transactions on a number of conduct restrictions. Whereas the 2004 guide stated that structural remedies were preferred and conduct relief had limited application, the Updated Remedy Guide endorses a variety of behavioral remedies to address competitive concerns raised by vertical mergers (and, in more limited circumstances, horizontal mergers typically in conjunction with a structural remedy). Among other things, these include:
- Firewalls (e.g., prohibitions on the dissemination of customer or competitor information within the merged firm);
- Non-discrimination provisions (e.g., prohibiting the merged firm from offering products or services to customers on different terms in a manner that disadvantages the merged firm’s competitors);
- Mandatory licensing provisions (e.g., requirements for licensing certain technology on fair and reasonable terms to a competitor);
- Transparency provisions (e.g., requiring the merged firm to make certain information available to a regulatory authority);
- Anti-retaliation provisions (e.g., barring the merged firm from retaliating against customers who enter into contracts with the merged firm’s competitors); and
- Prohibitions on certain contract practices (e.g., barring the merged firm from entering into exclusive contracts).
Despite the DoJ’s endorsement of behavioral remedies, it remains to be seen how effective such remedies will be. The Updated Remedy Guide acknowledges that clear and careful drafting is important for conduct remedies, so that the parties understand what must be done to satisfy the consent decree terms. There is also a risk that behavioral remedies that require significant regulatory oversight can hinder competition as opposed to preserving it. This may be particularly true in fast-changing industries such as high-technology where competitive dynamics are rapidly evolving.
Changes to Structural Remedies
The Updated Remedy Guide also includes changes to the DoJ’s approach to structural remedies. Structural remedies generally involve the divestiture of physical assets or the sale or licensing of intellectual property rights by the merged firm. Among the changes, the Updated Remedy Guide states that the DoJ may require the use of an “upfront buyer” or a “crown jewel” where the divestiture involves less than the entirety of an existing business.
- Upfront Buyers. Upfront buyers may be required when the divestiture includes less than an existing business “to ensure that the package results in a buyer that will preserve competition in the market.” In contrast, the 2004 guide did not endorse an upfront buyer requirement, and, in practice, the DoJ has historically been less inclined to impose such a condition on parties.
- Crown Jewels. The DoJ may require the use of so-called “crown jewels,” where additional assets are included in the divestiture package, if an acceptable divestiture cannot be accomplished with the original asset package. In contrast, the 2004 guide “strongly disfavored” the use of crown jewels.
Office of the General Counsel to Monitor Compliance
The Updated Remedy Guide places the evaluation and oversight over all DoJ remedies in the recently-created Office of the General Counsel. The Office of the General Counsel will monitor consent decree compliance and evaluate potential decree violations, with appropriate assistance by DoJ staff familiar with the matter. Historically, consent decree compliance has been monitored only by the DoJ staff that conducted the merger investigation.
Centralizing consent decree compliance brings the DoJ’s practice closer to the Federal Trade Commission’s (“FTC”) practice, which also has a separate consent decree compliance office. If properly administered, centralizing oversight and compliance in the Office of the General Counsel may produce more consistent consent decree provisions and consent decree enforcement, which would be beneficial to merging parties and interested third parties. If the DoJ fully adopts the FTC model, however, the process must be carefully managed as the introduction of an additional level of review by Office of the General Counsel staff, which may be less familiar with the particular facts of the specific matter than reviewing staff, creates new complexities, including the potential for delay.
Updated Policy Guide Applies to DoJ Practices Only
It is notable that unlike the Horizontal Merger Guidelines, which set forth the substantive standards and framework used by the agencies in analyzing horizontal mergers and were jointly issued by the DoJ and the FTC, the DoJ and the FTC each have separate remedy policies. Although there are many similarities between those policies (e.g. both aim to preserve competition) and in many respects the Updated Remedy Guide brings the DoJ closer in line with the FTC’s approach (e.g., upfront buyers), differences still remain (e.g., the DoJ is more willing to accept “fix-it-first” remedies). Having different remedy policies increases the possibility of different treatment depending on which agency reviews a particular merger.