On September 3, 2020, the Department of Justice Antitrust Division (DOJ) released a Merger Remedies Manual, updating its 2004 Policy Guide to Merger Remedies. (DOJ’s 2011 Policy Guide to Merger Remedies was withdrawn by DOJ in 2018.) As noted in the Manual and DOJ’s concurrent Press Release, a primary theme is that “structural remedies are strongly preferred in horizontal and vertical merger cases because they are clean and certain, effective, and avoid ongoing government regulation of the market.”
Unlike the new Vertical Merger Guidelines, jointly issued by DOJ and the Federal Trade Commission (FTC) on June 30, 2020, the new remedies Manual was issued unilaterally by DOJ. How FTC Commissioners may view the 2020 Manual remains to be seen.
Much of the remedy analysis set forth in the 2004 Policy Guide is repeated in the new 2020 Manual. For example, a divestiture must include all assets necessary for the purchaser to be an effective, long-term competitor; the divestiture of a standalone business is preferred over an asset “carve-out;” and additional businesses, products, or assets may be required in a divestiture package, even where DOJ’s antitrust concerns relate only to a subset of products included in the package.
The new 2020 Manual, however, articulates a higher level of concern with conduct remedies. While the 2004 Policy Guide commented that structural remedies “are preferred to conduct remedies in merger cases,” the 2020 Manual states that structural remedies “are strongly preferred in horizontal and vertical cases.” Both documents note that structural remedies are more common than conduct remedies; the 2004 Policy Guide states that standalone conduct remedies are “rare,” while the 2020 Manual states that “[a]lmost all merger remedies are structural.” These comments do not differentiate between horizontal and vertical transactions, although DOJ historically has been more accepting of standalone conduct remedies in vertical transactions.
One question for businesses and antitrust practitioners is whether this higher level of concern with conduct remedies, as articulated in the 2020 Manual, raises the threshold for successfully proffering behavioral relief in a vertical transaction. (We set aside short-term behavioral relief incidental to structural relief, such as a short-term supply agreement for some input or a transition services agreement, required by the divestiture buyer to effectuate the transfer of assets, as such short-term behavioral relief does not appear particularly controversial within DOJ.)
The 2020 Manual certainly sets forth a new and more restrictive list of requirements for standalone conduct remedies. According to the 2020 Manual, “[s]tand-alone conduct relief is appropriate only when the parties prove that: (1) a transaction generates significant efficiencies that cannot be achieved without the merger; (2) a structural remedy is not possible; (3) the conduct remedy will completely cure the anticompetitive harm; and (4) the remedy can be enforced effectively.”
With respect to criterion (2), the question arises as to when a structural remedy will in practice be recognized as “not possible.” The 2020 Manual does cite the situation where a structural remedy “unnecessarily” sacrifices significant efficiencies or “would result in the loss of pre-existing internal efficiencies,” but it remains to be seen how the DOJ will apply these criteria in practice.
DOJ’s heightened opposition to conduct remedies traces back to DOJ’s rejection of proposed conduct remedies and a decision to litigate the merger of AT&T and Time Warner Inc. That vertical deal, announced in 2016, combined AT&T’s media and MVPD distribution businesses (DirecTV, U-Verse, etc.) with various Time Warner media content production businesses. DOJ had previously supported conduct remedies to address vertical concerns in 2011, in a facially similar vertical merger involving the media distribution and content businesses of Comcast and NBCUniversal, respectively.
The same U.S. District Court judge, Richard Leon, who reviewed and eventually blessed, under the Tunney Act, DOJ’s proposed Consent Agreement imposing behavioral relief in Comcast/NBCU, later tried DOJ’s vertical merger challenge of TWX/T. Following the trial in TWX/T, Judge Leon in 2018 rejected DOJ’s request for a merger injunction, and his decision was affirmed by the D.C. Circuit Court in 2019.
A part of Judge Leon’s rationale for denying DOJ injunctive relief in TWX/T was commitments that Time Warner’s Turner business had offered to media distributors, soon following the DOJ complaint. These commitments included an arbitration and standstill agreement intended to address DOJ’s asserted vertical risk of content withholding by AT&T in the case of a failure to reach a carriage agreement with the distribution competitor. According to Judge Leon’s decision, the “commitment guarantees that no blackout of Turner content can occur once arbitration is invoked.” Judge Leon also noted that the “arbitration proceedings envisioned by Turner's offer were similar in many of ‘the fundamental ways’ to those blessed by the FCC, DOJ, and this Court in the Comcast-NBCU merger” and that “Turner's arbitration offer will have real-world effect.”
DOJ, in the 2020 Manual, recognizes that an “acceptable fix-it-first remedy eliminates the Division’s anticipated (and yet to be determined) competitive concerns and therefore the need to file a case.” However, DOJ goes on to state (in a footnote) that “[i]f the parties unilaterally decide to restructure their transaction to eliminate any potential competitive harm, it is not considered a fix-it-first remedy for the purposes of this manual since the Division did not ‘accept’ the fix.”
While DOJ envisions fix-it-first remedies only to encompass structural fixes (in addition to requiring DOJ to “accept” the fix), and DOJ’s 2020 Manual sets forth a new and more restrictive list of requirements for standalone conduct remedies, the reality appears to be that courts may consider and accept, in the context of a litigated merger challenge by DOJ, unilateral conduct remedies proffered and implemented by the merging parties. DOJ, of course, remains free to set forth its views of when unilateral efforts by the parties will or will not be entertained by DOJ, but DOJ will presumably need to consider the implications of such consideration of unilateral conduct remedies in the context of a litigated merger challenge.