On December 18—nearly two years after announcing plans to revise the Merger Guidelines—the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) (together, “the Agencies”) issued a final version of their new Merger Guidelines.[1] In many ways, these new Guidelines memorialize the Biden administration’s aggressive and skeptical approach to analyzing proposed transactions, introducing thresholds and criteria that will likely subject many more transactions to regulatory scrutiny. Although not legally binding, the Merger Guidelines provide a framework for understanding how the Agencies will seek to enforce merger laws.
The final Guidelines largely mirror the draft issued for public comment in July. Compared to prior iterations of the Guidelines, the 2023 version presumes more mergers to be illegal (including almost any combination with a combined market share greater than 30%), articulates a new test for markets, departs from the established consumer welfare standard, increases the focus on platforms and labor markets, and downplays market definition, among other changes. For an in-depth analysis of the key changes included and their implications, please see our prior client alert on the draft Guidelines.[2] The final Guidelines, however, include several notable revisions from the draft version.
1. Fewer Guidelines – Guideline on Vertical Mergers Gets Cut
The draft Guidelines from July included 13 primary guidelines,[3] but the final Guidelines include only 11.[4] The final Guidelines omit a catchall category for mergers that “otherwise substantially lessen competition or tend to create a monopoly” and a guideline that sought to set a threshold to presume anticompetitive effects for vertical mergers.[5] That proposed guideline would have expressly presumed a vertical merger to be anticompetitive if the combined firm had 50% foreclosure share. The final Guidelines demote that concept to a footnote and instead address vertical merger issues through another guideline discussing the analysis of competitive effects when a merger “creates a firm that can limit access to products or services that its rivals use to compete.”
The Agencies have been highly focused on vertical mergers in recent years, but most case law is not supportive of the Agencies’ views. This revision regarding vertical mergers is likely more an acknowledgment by the Agencies that these Guidelines represent aspirational policy goals rather than consensus legal precedent and is not an indication that the Agencies intend to challenge fewer vertical mergers.
2. Greater Acknowledgment of Rebuttal Evidence
The final Guidelines give more detailed guidance about what evidence parties can offer to rebut a presumption of anticompetitive harm, although the Guidelines are still quick to note that efficiencies “cannot justify a merger that may tend to create a monopoly.”[6] Notably, the Guidelines indicate that the higher the parties’ market shares are, the stronger the rebuttal evidence will need to be. The Guidelines also say the Agencies are “unlikely to credit claims or commitments to protect or otherwise avoid weakening the merged firm’s rivals that do not align with the firm’s incentives.”[7] Reports indicated that the public was unclear from the draft Guidelines how the Agencies viewed rebuttal evidence, so this change likely sought to clarify that.
3. Greater Emphasis on Market Power
The final Guidelines further stress the Agencies’ concern regarding the different types of competitive harm that can be achieved using acquired market power. For example, with regard to vertical mergers, the final Guidelines expand the Agencies’ concerns to include mergers that merely risk the post-merger entity acquiring market power through control of an input. However, the final Guidelines also remove language that industry concentration itself is a basis for finding anticompetitive harm from a merger. The text of the final Guidelines also includes nearly 50% more references to “power” than the prior draft Guidelines.
4. Stripping Ideologically Driven Language
Another meaningful change to the Guidelines is the shift from language in the draft version providing “mergers should not . . .” to new language in the final version that “mergers can violate the law when . . . .” During the public comment period, the Agencies received significant criticism that the draft Guidelines appeared to be an ideological manifesto and attempted to recognize competitive harms in ways that courts and the various statutes have not. This language change seems to be an attempt by the Agencies to appear more as enforcers rather than policymakers, but ultimately represents little change to the substance of the Guidelines.
5. More Citations – Including to Recent Illumina/Grail
Another criticism of the draft Guidelines was the increased citation to older case law and outdated modes of analysis, and less frequent reference to recent case law. The criticism revolved around the view that the draft Guidelines promoted outdated legal precedent and did not appear to address legal developments from federal court decisions from the past decades. Others criticized the lack of citations on the basis that the draft Guidelines were largely ideological and not rooted in case law. Perhaps in an attempt to address these criticisms, the final Guidelines now include more citations, but they are largely self-serving examples of cases supporting the Agencies’ policies rather than a representative sample of leading case law.
Most notably among the citations are several footnotes to the Fifth Circuit’s Illumina/Grail decision issued only three days before the final Guidelines were released. There, the Fifth Circuit spoke of a proposed vertical merger as anticompetitive—of which such precedent is scarce—but ultimately criticized the FTC for applying the wrong legal standard and remanded the case.[8]
6. Further Downplaying Economics
The draft and final Guidelines deemphasize the analysis of economic effects in favor of a focus on market structure. The draft Guidelines used an appendix to discuss economic analysis, but that appendix was cut from the final version. Instead, the final Guidelines include “a non-exhaustive discussion of analytical, economic, and evidentiary tools the Agencies use to evaluate facts, understand the risk of harm to competition, and define relevant markets.”[9]
Takeaways
The new Merger Guidelines memorialize the aggressive and broad approach to antitrust enforcement implemented under the Biden administration. While the Merger Guidelines mark a clear regulatory shift, it is unclear how courts will receive these Guidelines and whether they will be given weight similar to past Merger Guidelines. Indisputably, though, these Guidelines open more transactions to regulatory scrutiny, including under theories of harm not previously included in merger review analyses. Accordingly, companies considering mergers or acquisitions should involve antitrust counsel early in the deal process to evaluate antitrust risk, prepare for the regulatory process, and implement compliance programs to avoid unnecessarily complicating a regulatory merger review.
[1] DOJ, Justice Department and Federal Trade Commission Release 2023 Merger Guidelines (Dec. 18, 2023); FTC, Federal Trade Commission and Justice Department Release 2023 Merger Guidelines (Dec. 18 2023).
[2] Client Alert, DOJ and FTC Release Draft of New Merger Guidelines (July 27, 2023).
[3] U.S. Department of Justice & Federal Trade Commission, Draft Merger Guidelines (July 19, 2023).
[4] U.S. Department of Justice & Federal Trade Commission, Merger Guidelines (Dec. 18, 2023).
[5] U.S. Department of Justice & Federal Trade Commission, Merger Guidelines (Dec. 18, 2023).
[6] U.S. Department of Justice & Federal Trade Commission, Merger Guidelines (Dec. 18, 2023).
[7] U.S. Department of Justice & Federal Trade Commission, Merger Guidelines (Dec. 18, 2023).
[8] Law360, 5th Circ. Says FTC Must Reconsider $8B Illumina-Grail Merger (Dec. 16, 2023).
[9] U.S. Department of Justice & Federal Trade Commission, Merger Guidelines (Dec. 18, 2023).
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