On July 19, the Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”) (collectively, the “Agencies”) published Draft Merger Guidelines. The Draft Merger Guidelines, if adopted, would replace both the Agencies’ 2010 Horizontal Merger Guidelines and the DOJ’s 2020 Vertical Merger Guidelines (which were rescinded by the FTC in 2021). The Draft Guidelines reflect the Agencies’ current view toward a more aggressive approach to merger enforcement.  As such, they align with the Biden administration’s call in its 2021 competition Executive Order for revision of the Merger Guidelines and expanded merger enforcement.

The Merger Guidelines do not have the force of law, although courts have cited to previous versions in litigated cases as persuasive authority.  They represent the Agencies’ current approach to merger review and enforcement and were foreshadowed by challenges the Biden Administration already have brought, with mixed success.  When coupled with the proposed revision of the Hart-Scott-Rodino filing requirements, the Agencies’ intent to go broader and deeper in their merger review activities is apparent.

In revising the Merger Guidelines, the Agencies indicated that they “focused on three core goals: First, the guidelines should reflect the law as written by Congress and interpreted by the highest courts. The guidelines are built around statutory text and relevant case precedent, citing cases in order to clarify the connection between the law and the analytic frameworks described.  The draft Merger Guidelines also make clear that they are not a substitute for the law itself, and do not create new rights or obligations. Second, the guidelines should be accessible, increasing transparency and awareness.  Third, the guidelines should provide frameworks that reflect the realities of our modern economy and the best of modern economics and other analytical tools.”  

The Draft Guidelines move away from—and in fact never mention—the “consumer welfare” standard that has been the North Star of antitrust enforcement for over forty years.  The Supreme Court has not issued a substantive antitrust merger opinion since 1974.  As a consequence, by citing to Supreme Court opinions and characterizing them as “good law,” particularly the 1962 Brown Shoe opinion, which is cited 14 times in the Draft Guidelines, the Agencies rely upon pre-consumer welfare authority to ground much of its approach.[1] The Draft Guidelines’ key changes include:

• Lowering thresholds for identifying deals subject to a structural presumption of illegality, while removing the “safe harbor” that existed in previous Guidelines;
• Diminishing further the role of efficiencies;
• Introducing the historically European concept of the “dominant position”;
• Concentrating on the cumulative effect of roll-ups or serial acquisition in a single industry, as well as the effect of acquisitions of minority ownership interests; and
• Focusing on a merger’s impact on labor markets as a relevant line of inquiry and presumably enforcement.

The Agencies are seeking comments on the Draft Guidelines through September 18, 2023. Public comments may be submitted on Regulations.gov.  While there is currently no timeline for adoption following the public comment period, Mintz expects that the Draft Guidelines will be adopted, at the earliest, in early 2024.  However, we also understand that the Draft Guidelines reflect the Agencies’ approach to merger investigations presently, and do not expect significant changes to the document when it’s published in final.

Guideline 1 – Mergers should not significantly increase concentration in highly concentrated markets.

Guideline 1 is the so-called Structural Presumption, whereby “the Agencies presume that a merger may substantially lessen competition based on market structure alone.”[2]  Notably, the thresholds for concentration levels using the Herfindahl-Hirschman Index (“HHI”) are decreased to pre-2010 guideline levels “to better reflect both the law and the risks of competitive harm.”[3]  The concentration analysis “begins with calculating pre-merger market shares within a relevant market,”[4] where the 2023 draft guidelines point to Section III: Market Definition[5] and Appendix 4: Calculating Market Shares & Concentration.[6]  The Agencies will utilize tools, including Brown Shoe indicia, to define relevant markets and are also free to choose any relevant market that satisfies the Hypothetical Monopolist Test (“HMT”).[7]  The Guidelines emphasize that there is no one way to define the relevant markets.  Upon calculation of pre-merger market shares within the relevant market, the Agencies proceed to “assess whether the merger would lead to or increase undue concentration in that market” using the lowered thresholds discussed above.[8]

Guideline 2 – Mergers should not eliminate substantial competition between firms.

Guideline 2 addresses unilateral effects and describes the evidence and tools the Agencies will use to assess competition between rival firms.[9]  These include such indicators as strategic deliberations or decisions in the regular course of business and during due diligence, or prior merger, entry, or exit.[10]  The Agencies will also consider customer substitution based on changes in price or changes to other terms and conditions.[11]  Additionally, the Agencies may gauge competition between the firms through the impact of competitive actions, such as lowering price or increasing output, on rivals.[12]  Finally, the Agencies may consider the impact of eliminating competition between the firms by comparing how the firms make decisions about price, quality, or wages as separate entities with how they would make the same decisions jointly.[13]

Guideline 3 – Mergers should not increase the risk of coordination.

Guideline 3 addresses coordinated effects and describes the three primary and five secondary factors the Agencies use to assess the likelihood, stability, or effectiveness of coordination – any one of which is enough to raise concern with the Agencies.[14]  The primary factors are 1) a highly concentrated market (as described by guideline 1); [15] 2) prior actual or attempted coordination, and 3) the elimination of a maverick.[16]  The secondary factors, examine market concentration, market transparency competitive responses, aligned incentives, and profitability (or other advantages of coordination).[17]  Here, the Agencies are concerned with affirmative responses to such questions as: is the market concentrated with an HHI of 1000 or above?  Are a firm’s behaviors promptly and easily observed by rivals?  Will a firm’s competitive reward be significantly diminished by strong, rapid responses from rivals from which it lures customers away?  Will the merger remove from the market a firm with different incentives from most others?  Will participants in the market stand to gain more from successful coordination?

Guideline 4 – Mergers should not eliminate a potential entrant in a concentrated market.

Guideline 4 addresses entry and expansion.  The Agencies consider both elimination of 1) a probable entrant[18] and 2) a perceived entrant,[19] the latter considered to stimulate competition and prompt market participants to make investments, expand output, raise wages, increase quality, or lower prices.[20]  The Agencies continue to assess whether entry induced by a merger is timely, likely, and sufficient.[21]  The case law is sparse on potential entry, but here, the Merger Guidelines suggest the Agencies apparent concern with elimination of potential entrants.

Guideline 5 – Mergers Should Not Substantially Lessen Competition by Creating a Firm That Controls Products or Services That Its Rivals May Use to Compete.

Guidelines 5-9 explain vertical foreclosure theories and the competitive harms that may arise from a merged firm’s ability to deny or curtail rivals’ access to critical inputs, or the ability to access competitively sensitive information.

Guideline 5 outlines the Agencies’ position on mergers which substantially lessen competition by creating a “firm that controls products or services that its rivals may use to compete.”  Notably, this guideline deals with harms arising from access to competitively sensitive information, consistent with the DOJ’s challenge last year to the UnitedHealth-Change acquisition.  The DOJ lost that case due in part to firewall policy commitments by the parties.  The guidelines deal with the competitive significance of a merged firm’s ability to limit or foreclose access from rivals to inputs necessary to compete.

The Agencies are concerned with the merged firm’s ability and/or incentive to limit rivals’ access to critical inputs and subsequently weaken or foreclose rivals from the product or service.  Additionally, the Agencies articulate in the draft guidelines the concern that access to competitively sensitive information could undermine competition by giving the new firm a competitive advantage or facilitating coordination in the industry.

Guideline 6 – Vertical Mergers Should Not Create Market Structures That Foreclose Competition.

Guideline 6 further elaborates on vertical foreclosure analysis, suggesting 50% as the structural threshold sufficient to conclude that the effect of the merger may be to substantially lessen competition.  Additionally, the Agencies offer “Plus Factors” such as whether there is a trend toward vertical integration in the industry, the nature and purpose of the merger, existing concentration in the industry, and increased barriers to entry as part of the analysis.  The Agencies have lost as many as four cases on vertical foreclosure theories, and the guidelines move away from distinctions between vertical and horizontal theories of harm in favor of a presumption that high concentration, significant barriers to entry, and trends toward vertical integration in any industry are the defining features of a vertical merger likely to substantially lessen competition.

Guideline 7: Mergers Should Not Entrench or Extend a Dominant Position.

Guidelines 7 and 8 deal with extension or entrenchment of a dominant market position and mergers which may tend to further concentrate a market.  Here, the Agencies attempt to deal with novel theories pursued in recent years, such as nascent competition theories and platform economics.  The Agencies say they will look at how a merger will increase the incentive and ability to deprive a rival of scale economies and network effects, as well as whether the merger eliminates a nascent threat or firm that “could grow into a significant rival, facilitate other rivals’ growth, or otherwise lead to a reduction in dominance.”  The Guidelines state that a 30% market share is enough to establish a dominant position for purposes of merger analysis.

Guideline 8 – Mergers Should Not Further a Trend Toward Concentration.

Most notably, Guideline 8 attempts to lower the HHI threshold presumption which indicates a merger would “further a trend toward concentration sufficiently that it may substantially lessen competition.”  The draft guidelines state that an HHI ranging between 1,000 and 1,800 or an increase of HHI which exceeds 200 may establish that a merger would “increase the pace of concentration” and thus provide evidence that the merger is likely to further a trend toward concentration.

Guideline 9 – When a merger is part of a series of multiple acquisitions, the Agencies may examine the whole series.

Guideline 9 appears aimed squarely at private equity operations.  Focusing on multiple acquisitions or roll-ups, it advises that “a firm that engages in an anticompetitive pattern or strategy of multiple small acquisitions in the same or related business lines” may be engaging in illegal behavior, even if “no single acquisition on its own would risk substantially lessening competition or tending to create a monopoly.”[22]  The Agencies will consider “the cumulative effect of the pattern or strategy,” and the Draft Guidelines cite to U.S. v. Brown Shoe as supporting this approach.[23]  Guideline 9 also notes that the Agencies will pay close attention to historical evidence of the firm’s acquisition patterns as well as current and future strategic incentives, as indicated in documents and testimony.  As noted elsewhere, to provide the Agencies the ability and opportunity to undertake such analysis, the proposed expansion of the Hart-Scott-Rodino initial filing materials would call for relevant documents on this subject.

Guideline 10 – When a merger involves a multi-sided platform, the Agencies examine competition between platforms, on a platform, or to displace a platform.

Guideline 10 introduces the idea of multi-sided platforms (e.g., online marketplaces that connect buyers and sellers directly) to the Merger Guidelines.  The Guideline defines the general attributes of a platform and then includes the specific criteria for evaluating mergers involving multi-sided platforms, noting that the Agencies will consider “competition between platforms, competition on a platform, and competition to displace the platform.”[24]  The Agencies intend to protect competition between platforms “by preventing the acquisition or exclusion of other operators that may substantially lessen competition or tend to create a monopoly.”[25]  To protect competition on a platform, the Agencies will evaluate whether the merger would create conflicts of interest that would harm competition.  Lastly, the Agencies will protect competition to displace the platform by, assuming the platform owners are dominant, seeking to prevent even relativity small accretions of power from inhibiting the prospects for displacement.

While a non-merger case, the Proposed Guidelines attempt to diminish the relevance of the Supreme Court’s Ohio v. American Express case[26] in a footnote.[27]  The Draft Guidelines suggest that the two-sided market present in American Express are best analyzed as “transaction platforms” and are actually offering only one product—transactions.[28]

Guideline 11 – When a merger involves competing buyers, the Agencies examine whether it may substantially lessen competition for workers or other sellers.

In line with the FTC’s and DOJ’s recent enforcement activities, the Draft Guidelines seek to incorporate labor considerations into the Agencies’ merger review investigations.  The Draft Guidelines categorize labor markets as “important buyer markets” that are subject to the “same general concerns as in other markets . . . where employers are the buyers of labor and workers are the sellers.”[29]  Guideline 12 explicitly rejects potential efficiency arguments with respect to a merger reducing the costs of labor, stating that “if the merger may substantially lessen competition or tend to create a monopoly in upstream markets, that loss of competition is not offset by purported benefits in a separate downstream market.”[30]

Guideline 12 – When an acquisition involves partial ownership or minority interests, the Agencies examine its impact on competition.

Guideline 12 addresses acquisitions involving partial ownership and minority interests that may harm competition, similar to a section in the 2010 Horizontal Merger Guidelines.  The Guideline notes that the Agencies may consider the post-acquisition relationship between the parties and the independent incentives of the parties outside of the acquisition to determine whether a partial acquisition may substantially lessen competition.  Importantly, the Guideline identifies three “principal effects” on which the Agencies will focus with regard to small acquisitions: (1) the acquiring firm obtains the ability to influence the competitive conduct of the target firm; (2) the partial acquisition reduces the incentive of the acquiring firm to compete; and (3) the partial acquisition gives the acquiring firm access to non-public, competitively sensitive information from the target firm, enabling the acquiring firm to act in anticompetitive ways.

Guideline 13 – Mergers should not otherwise substantially lessen competition or tend to create a monopoly.

The last guideline is a “catchall provision,” which makes clear that the Draft Guidelines “are not exhaustive of the ways that a merger may substantially lessen competition or tend to create a monopoly.”[31]  This provides the Agencies some flexibility to pursue allegedly anticompetitive mergers even if they do not fit neatly into one of the other twelve Draft Guidelines.

Key Takeaways

The Draft Guidelines have immediately drawn criticism for abandoning the “consumer welfare” approach to antitrust; for their implicit hostility to many types of merger transactions; and for the lack of concrete guidance as to where “the out of bounds lines” lie.  If the judicial rejection of several Biden Administration merger challenges represent a “dry run” of how the courts will treat the Draft Guidelines, they are unlikely to receive a warm reception (although they may provoke the first Supreme Court merger decision in 50 years).  Nonetheless, Mintz expects the Draft Guidelines to be finalized in substance very close to the current draft.

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