On 17 June 2011 the Antitrust Division of the U.S. Department of Justice (the Division) updated its policy guide to merger remedies.1 The new policy guide, which replaces the Division's 2004 guidance, is intended to serve as a tool for Division staff, merging parties, and the bar seeking greater transparency into the Division's current approach to merger remedies. Notably, the updated policy guide better reflects the Division's recent willingness to craft innovative and comprehensive remedies, including conduct remedies in vertical transactions and other appropriate cases. Until recent years, the Division had shied away from conduct remedies to avoid the perceived difficulties of enforcement and the costs of excessive government entanglement in the marketplace, but that was in the past because there was little vertical merger enforcement during the Bush Administration.

The press release accompanying the new policy guide notes that the goal of any merger remedy is to provide an effective remedy to eliminate the anticompetitive effects of a proposed transaction. However, the Division has now formalized its intention to seek a wide variety of conduct remedies in vertical transactions in order to prevent post-merger behavior that might harm consumers. Divestiture is still the preferred remedy for mergers that involve horizontal issues, although the new policy guide notes that even in horizontal matters, a mixture of structural and conduct remedies may be considered. To rebut the common criticism that conduct remedies are easily evaded because the provisions are often vague or subject to multiple interpretations, the new policy guide stresses that clear and careful drafting will be especially important in creating effective conduct relief. 

Since Christine Varney became Assistant Attorney General for Antitrust in April 2009, the Division has imposed a variety of conduct remedies in several important mergers. While vertical merger challenges and behavioral relief was exceedingly rare in the prior administration, the current Division has not hesitated to employ any form of relief to address competition concerns, even in some of its most high profile cases. For instance, conduct remedies are included in the consent decrees entered into by the Division in Live Nation Inc.'s acquisition of Ticketmaster Entertainment Inc., Google Inc.'s acquisition of ITA Software Inc., Comcast Corp.'s joint venture with NBC Universal Inc., and GrafTech International Ltd.'s acquisition of Seadrift Coke LP, each of which included vertical issues.

A "panoply" of potential conduct remedies to effectively preserve competition

The Division's new policy guide outlines a "panoply" of remedies available to address the unique competition concerns raised in vertical mergers. The most common conduct remedies include:

  • Firewalls are designed to prevent problematic information sharing within a firm, and may require separating the sensitive information and monitoring to ensure compliance with the policy.
  • Non-discrimination provisions prohibit an upstream firm from denying equal access, efforts, and terms to its downstream competitors. The Division may insist on including an arbitration provision, so controversies can be resolved without the Division's involvement.
  • Mandatory licensing prevents the merged firm from withholding a key input necessary to preserve competition. The remedy may require parties to license certain technology on fair and reasonable terms. Mandatory arbitration clauses may be required to enforce licensing agreements.
  • Transparency provisions seek to deter anticompetitive behavior and enable better monitoring by requiring the merged entity to regularly provide the Division with information, such as prices.
  • Anti-retaliation provisions prevent the merged entity from discriminating against customers for actions the merged entity does not like, e.g., contracting with its competitor or providing information to the Division.
  • Prohibitions on certain contracting practices prevent the merged entity from entering into restrictive contracts if it controls a vital input.

Other conduct remedies include requiring notice of non-reportable mergers, supply contracts, restriction on reacquisition of scarce personnel assets, and arbitration provisions. In addition, many cases will require some combination of structural and behavioral relief.2    

Compliance enforcement placed in the Office of the General Counsel

According to the new policy guide, no remedy is effective unless it can be enforced. To help ensure that parties comply with all remedies as they are designed, the Division has placed evaluation and oversight responsibility in the newly created General Counsel's Office, directed by J. Robert Kramer II, the Division's former Director of Operations. 

By concentrating enforcement in the General Counsel's Office, the Division hopes to ensure that remedies are strictly enforced. It also hopes to develop and disseminate remedy best practices and conduct ex post reviews of remedy effectiveness. And, consent decrees must include provisions that allow the Division to monitor compliance. For example, they may require that the parties agree to provide reports or allow the Division to inspect documents or interview employees.

If the parties violate a consent decree, they may be held in civil and/or criminal contempt. Civil contempt is meant to compel compliance with the court's order. Criminal contempt is meant to punish those that willfully violate a clear and definite order. Criminal penalties include fines, imprisonment, or both.