Before his election to the presidency, then-Senator Obama drafted a statement to the American Antitrust Institute regarding his stance on antitrust enforcement. In it, he criticized the Bush administration for having “the weakest record of antitrust enforcement of any administration in the last half century,” and promised to “direct [his] administration to reinvigorate antitrust enforcement… [and to] step up review of merger activity… tak[ing] effective action to stop or restructure those mergers that are likely to harm consumer welfare….” [1]

Similarly, Christine Varney’s first public remarks as Assistant Attorney General focused on reinvigorating antitrust and on the agency’s need to “push forward with merger … investigations … [and] to explore vertical [merger] theories.” [2]

It was those types of remarks that led business people and antitrust practitioners to brace for four years of real trust-busting. In reality, however, the antitrust agencies have not filed many suits to stop mergers over the last two years. On the other hand, the agencies have been busy investigating and challenging mergers. Indeed, in fiscal year 2009, the percentage of transactions resulting in the issuance of a Second Request was 4.5 percent -- the highest point in the last decade. Additionally, more consummated, non-HSR reportable mergers have been challenged under the current administration, than during the prior seven years combined, including a $5 million deal, and a $3 million deal.

What is surprising, though, is the clear pattern that has developed of allowing large mergers that raise anticompetitive concerns to proceed, while saddled with behavioral remedies that call for significant oversight by the agencies. Historically, the agencies shied away from behavioral remedies and, instead, preferred structural relief, in part because the latter did not warrant long-term monitoring. The current administration, however, is not afraid to be more of a watchdog than a bulldog. At the ABA Antitrust Spring Meeting in 2010, AAG Varney noted that behavioral remedies would be used whenever the transaction required them, and that merger remedies generally should be both “creative” and flexible.

The agencies’ flexible approach to merger remedies

The following are summaries of certain mergers that the current administration approved after requiring changes to the parties’ behavior:

Ticketmaster Entertainment Inc./Live Nation Inc.: (January 25, 2010) Ticketmaster sought to purchase Live Nation, the country's largest concert promoter, and a long-time primary ticketing client of Ticketmaster. After spending two years developing its own primary ticketing program, Live Nation entered that market in 2009 as a direct competitor to Ticketmaster. Live Nation succeeded in significantly reducing Ticketmaster’s share of the primary ticketing market, which dropped from 82 to 66 percent after Live Nation’s entry.

To eliminate the possible anticompetitive effects of Ticketmaster’s acquisition of Live Nation, the Antitrust Division required the parties to enable Live Nation’s largest competitor in promotion (Anschutz Entertainment Group) to enter the primary ticketing market by: (i) giving it access to Ticketmaster’s primary ticketing platform, and (ii) providing it with an option to acquire a perpetual, fully paid-up license to the thencurrent version of Ticketmaster’s host platform. Additionally, Ticketmaster had to divest certain of its primary ticketing business to establish another independent competitor in the market. Moreover, the merged entity was prohibited from: (i) retaliating against any venue owner that uses another ticketing service, (ii) bundling promotion and artist services, or (iii) using ticketing information to gain an unfair advantage in the promotion business.

PepsiCo, Inc./Pepsi Bottling Group, Inc./Pepsi Americas, Inc. (February 6, 2010) PepsiCo intended to acquire the outstanding voting securities of two of its independent bottlers, Pepsi Bottling Group and Pepsi Americas. Additionally, PepsiCo obtained a license agreement to assume the bottling and distribution functions of its competitor, Dr Pepper Snapple Group, Inc., which had been previously performed by the independent bottlers. The FTC was concerned that as a result of these agreements, PepsiCo would have access to its competitor’s commercially sensitive confidential data and plans. Accordingly, the FTC approved the deal on the condition that firewalls were implemented so that only PepsiCo employees who perform traditional “bottler functions” would have access to Dr Pepper Snapple’s competitively sensitive data. PepsiCo also was required to wall-off those employees involved in concentrate-related functions from seeing such information.

Comcast Corp./General Electric Co./NBC Universal, Inc. (January 18, 2011) Comcast, GE, and NBC announced plans at the end of 2009 to form a new joint venture that Comcast would control, and the assets of which would include the NBC broadcast network as well as certain popular cable programming networks (e.g., USA Network, Bravo, CNBC, and MSNBC). Competitors of Comcast -- video programming distributors, including other cable companies, satellite providers, broadband services providers and online video distributors -- use their content and pricing to lure customers. The Antitrust Division was concerned that the proposed joint venture would deny access to (or make access difficult for) Comcast’s video programming distribution competitors who needed access to highly sought-after content, like NBC and the cable networks, within the proposed joint venture to effectively compete in the market.  

The parties and the Antitrust Division settled the matter. The Division required the joint venture to license its content to online video distributors[3] on terms that are economically equivalent to the terms of the joint venture contracts with “traditional” distributors, including those that do not compete against Comcast. The joint venture was also required to license to online video distributors, content of the same scope and quality of the content offered by the joint venture’s programming peers (e.g., CBS, Fox and ABC). Additionally, if a dispute arose between an online video distributor and the joint venture, the former would be authorized to apply to the Antitrust Division for permission to submit its dispute to commercial arbitration.  

Moreover, under the settlement, the joint venture is prohibited from discriminating against, retaliating against, or punishing any content provider for providing programming to any online distributor, or taking such action against any online distributor for obtaining video programming from other providers. The joint venture is also prohibited from unreasonably discriminating in the transmission of lawful traffic over its Internet access service, which requires Comcast to treat all Internet traffic the same and to ensure that online video distributor traffic is treated no worse than any other traffic on Comcast’s Internet access service.  

Google Inc./ITA Software, Inc. (April 8, 2011) Google entered into a merger agreement to acquire ITA, the developer of QPX, which is a software product used by airlines, travel agents and Internet travel sites to provide customized flight information searches to consumers. The Antitrust Division described QPX as a “critical input” to certain websites known as online travel intermediaries (which include online travel agencies, e.g., Expedia and Travelocity; and travel meta-search engines, e.g., TripAdvisor and Bing Travel). Post-consummation, Google intended to offer an online travel search product that would compete with providers of comparative flight search services. The Antitrust Division alleged that Google could decrease such competition by denying access to QPX, or by making access to it more difficult for its competitors. The Antitrust Division and the merging parties settled this issue by requiring that Google ensure ongoing access to QPX for current licensees of the product, and that it not discriminate in price or terms to new users/licensees. Among other things, Google is required to:

  • Honor existing QPX licenses for online travel intermediaries;
  • Renew existing licenses under similar terms and conditions;
  • Offer licenses to any online travel intermediary not already under contract on fair, reasonable, and non-discriminatory terms;
  • Continue with the development of ordinary course upgrades and enhancements to QPX;
  • Devote substantially as many resources to research and development for QPX as ITA did prior to the acquisition;
  • License a QPX add-on that enables consumers to enter more flexible and creative queries for flights;
  • Observe strict firewalls to ensure the confidentiality of licensee information; and
  • Report allegations of unfair behavior on Google’s part, if any should arise.

Opposition to flexibility

Critics of the antitrust enforcement agencies’ more flexible merger approach stress that the agencies should be preventing more mergers rather than trying to fix them with complex behavioral remedies. For example, in a statement about the Google/ITA deal, the American Antitrust Institute commented that,

the result [of the agencies’ flexible stance] is that massive, vertically integrated firms are being allowed to form in key industries, with the DOJ accepting oversight responsibility for such firms and agreeing to perform a day-to-day monitoring function for which it may be ill-staffed, ill-funded and ill-equipped.[4]

Critics are concerned that the more resources the agencies need for monitoring postmerger behavior, the less resources they will have to block mergers that need to be stopped.

Recent rise in merger enforcement

In recent weeks, the enforcement agencies appear to have stepped up their enforcement activities. At the end of April, the FTC: (i) filed an administrative complaint challenging the acquisition of Palmyra Park Hospital in Albany, Georgia, by Phoebe Putney Health System, and (ii) required divestitures to allow Hikma Pharmaceuticals' proposed acquisition of Baxter Healthcare's injectable pharmaceutical business to proceed. In June, the FTC required divestitures in an acquisition in the plasma-derived drug market.

In May, the DOJ challenged (i) George, Inc.'s already-consummated $3 million acquisition of a Tyson Foods' chicken processing facility, (ii) required divestitures in Unilever's proposed acquisition of Alberto-Culver to stop anticompetitive effects in the value shampoo and conditioners (usually selling at less than $2.00 a bottle) and hairspray markets, (iii) filed suit to prevent VeriFone Systems’ proposed acquisition of Hypercom Corp, which the Division alleged would substantially lessen competition in sales of point-of-sale terminals in the United States, and (iv) filed suit to prevent a transaction between the second and third-largest providers in the digital do-it-yourself tax preparation product market.

It is unlikely that this activity is in response to the recent criticism of lax enforcement, and it also likely does not signify a sea-change in the administration’s antitrust enforcement stance. Rather, the agencies appear to be evaluating each transaction on its own facts.

Conclusion

It appears that the two federal antitrust enforcement agencies will continue to investigate and review mergers on a case-by-case basis. This administration has shown that it is particularly amenable to creative remedies that repair a merger’s potential anticompetitive effects. Counsel and merging parties should also take note, however, that clearing a merger through the antitrust agencies may require a reduction in the flexibility of the parties in their post-acquisition behavior. Whether a potentially anticompetitive merger will be approved with structural and/or behavioral remedies will depend on the facts of each case, and on whether the proposed remedies will provide relief, and restore competition that would be lost as a result of the merger.

As to the success of the fix-it-first trend, it is difficult to predict whether the behavioral remedies will restore competition in the cases discussed above, or whether they will increase administrative costs, and ultimately harm consumers. Only time will tell.