While structural remedies remain the primary remedy of choice, and virtually the only option in the case of horizontal mergers, under the Obama Administration and with respect to vertical mergers, the agencies increasingly embraced the use of remedies that regulate the combined firm’s conduct, also known as behavioral remedies. This trend, however, may soon come to an abrupt halt as the Department of Justice’s (DOJ) new Assistant Attorney General of the Antitrust Division, Makan Delrahim, has made it clear that his regime will look at behavioral remedies with a much more critical eye.

The DOJ was not always keen on employing behavioral remedies. Prior to 2011, the DOJ’s 2004 Antitrust Division Policy Guide to Merger Remedies (2004 Merger Remedies Guide) illustrated skepticism towards remedies that regulate conduct. The 2004 Merger Remedies Guide had stated that “[s]tructural remedies are preferred to conduct remedies in merger cases because they are relatively clean and certain, and generally avoid costly government entanglement.”1 The 2011 Merger Remedies Guide, on the other hand, took a different approach. Not only did the 2011 version remove the statement illustrating preference of structural remedies, but also deleted comments that behavioral remedies were only appropriate in a narrow set of circumstances. Taking a more accepting approach, the 2011 Merger Remedies Guide state that “[i]n certain factual circumstances, structural relief may be the best choice to preserve competition. In a different set of circumstances behavioral relief may be the best choice.” 2

Needless to say, several of the DOJ’s challenges to vertical mergers in the following years resulted in consent decrees that focused on regulation of the combined firm’s conduct. Specifically, the consent decrees in Live Nation/ Ticketmaster, Comcast/NBCU and Google ITA Software contained a number of behavioral remedies, including anti-retaliation provisions protecting customers contracting with the firms’ competitors, obligations to provide non- discriminatory access to necessary inputs, requirements to continue to develop upgrades and invest in specific products, the creation of informational firewalls and various reporting requirements, including reporting competitors’ complaints.3

There are several problems that emanate from the use behavioral remedies, especially in the merger context, which Delrahim addressed in a recent keynote at the American Bar Association Antitrust Fall Forum on November 16, 2017. As Delrahim noted, the DOJ’s goal in remedying anti-competitive transactions should be “to let the competitive process play out.” However, by replacing competition with regulation, behavioral remedies often fail to achieve this goal, requiring “centralized decisions instead of a free market process.” Behavioral remedies inevitably are static, based on the view of competitive market conditions at a specific point in time (i.e., the time of the merger). However, markets are often dynamic, particularly those in rapidly evolving industries, such as those in tech-based industries. Unsurprisingly, behavioral remedies often fail to predict the ways in which the market and competition may evolve and have the effect of locking the combining firm into a behavior that may ultimately restrict its ability to adapt to the changing market conditions. Thus, in regulating how a firm interacts with its customers and competitors, it is very difficult for regulators to fashion rules that ban anti- competitive conduct without precluding the pro-competitive. Furthermore, given the ever-changing nature of markets, it is difficult to determine when behavioral remedies should expire. Short-term remedies simply serve as a ‘band-aid’ rather than a fix, only delaying the firm’s exercise of market power. However, as Delrahim notes, indefinite commitments would transform the DOJ into “full-time regulators instead of law enforcers.”

This leads to another issue with behavioral remedies: the challenge of enforceability. Although he did not touch upon specifics, Delrahim mentioned in his keynote that the DOJ is investigating behavioral decree violations over recent years and that it has proven to be very difficult to collect information or satisfy the standards of proving contempt and seeking relief for the violations. Regulators do not have a continuous view into the day-to-day operations of a business, which makes it difficult to monitor and enforce “granular commitments like non-discrimination and information firewalls.” Requiring the DOJ to enforce such remedies would involve constant oversight into the affairs of a business, which, even if it was feasible, would detract the agency’s attention from other investigations that might warrant intervention to prevent anti-competitive conduct.

This is not to say that behavioral remedies should be banned outright. In fact, Delrahim did acknowledge in his keynote that his remarks should not be interpreted as a blanket statement that the DOJ will never accept behavioral remedies. As the 2004 Merger Remedies Guide conceded, there are certain circumstances where behavioral remedies can be beneficial in the merger context. For instance, one could conceive of a pro-competitive merger where no divestiture is feasible, yet if allowed to proceed, would result in net benefits to customers. In this situation, the implementation of behavioral remedies would allow such a merger to proceed, where the DOJ would have otherwise challenged such merger absent such remedies.

However, such instances are a small percentage of all merger activity, and it does not appear the DOJ will be as accepting as the Obama administration. Indeed, the DOJ seems to already be employing Delrahim’s philosophy, suing to block the AT&T/Time Warner merger. As AT&T has argued, any anti-competitive concerns caused by their proposed merger with Time Warner could be cured by behavioral remedies, similar to those the DOJ has employed in past cases, specifically the Comcast/NBCU merger.

So what does all this mean for the future? As Delrahim stated, the DOJ should strive to employ consent decrees that are administrable and do not take “pricing decisions away from the markets.” As such, the DOJ will continue to review settlement offers but will be skeptical of any remedy – be it behavioral or divestiture – that does not completely remedy the competitive harm. If the AT&T/Time Warner challenge is any indication, in the context of behavioral remedies, it seems that the DOJ will be employing a very critical eye indeed.