The US Department of Justice (DOJ) and Federal Trade Commission (FTC) released new Merger Guidelines on December 18, 2023—dramatically expanding the number and type of transactions that the agencies will consider presumptively unlawful.

The new Guidelines replace the 2010 Horizontal Merger Guidelines and the 2020 Vertical Merger Guidelines. Their release coincides with the agencies’ aggressive enforcement rhetoric, [1] substantial increases in their funding, [2] and pending Hart-Scott-Rodino (HSR) Act premerger notification requirements that are likely to substantially increase burdens on filing parties. [3] The Guidelines apply to all transactions and all industries, but the agencies have indicated that they are especially interested in the life sciences, healthcare, technology, and private equity sectors.

The Guidelines are a statement of the factors and frameworks the agencies use to determine whether a merger is unlawful—they are not binding on the courts. While courts have often relied on the Merger Guidelines, they have not always done so and, indeed, both the DOJ and the FTC have lost several merger cases in the last few years. In addition, it is possible that a future administration would replace the Guidelines, as has happened in the past. For instance, in September 2021, the FTC withdrew its support for the 2020 Vertical Merger Guidelines. [4]

Finally, the Guidelines identify the types of mergers where, in the view of the agencies, there is a presumption of unlawfulness. However, merging parties can and do use evidence—before the agencies or in court—to rebut the presumption by showing why the specific merger is not anticompetitive.

Highlights

• Concentration: The Guidelines presume transactions to be unlawful at much lower levels of concentration than in the past. As one example, a merger of two competitors with slightly above 15% market shares each would be presumptively illegal under the Guidelines, even if they have six substantial competitors. [5]
• Roll-Ups: When a buyer purchases multiple firms in the same industry, the agencies can examine the series of acquisitions (which could cumulatively create a large market share) rather than each acquisition on its own (which may be small). The FTC recently sued US Anesthesia Partners Inc. (USAP) and its private equity sponsor, Welsh, Carson, Anderson & Stowe, after USAP acquired a series of anesthesia practices, most of which had individually tiny market shares but cumulatively resulted in USAP having up to a 70% market share in certain alleged geographic markets in Texas. [6]
• Vertical Mergers: The Guidelines expand the theories of harm from vertical mergers beyond the ability-and-incentive foreclosure framework described in the 2020 Vertical Merger Guidelines. The new Guidelines identify several market characteristics that can raise vertical concerns, including the measurement of a “foreclosure share.” Under this foreclosure share approach, where the merged firm would have a share of greater than 50% in the market for a “related product”—that is, any product, service, or route to market that rivals use or could use to compete—the agencies will generally infer the merging firm has or is approaching monopoly power in that related product market. If the related product is competitively significant for the merging firms’ rivals, a foreclosure share above 50% creates an inference of ability to foreclose rivals.
• Entrenchment of Dominant Position: Under a new entrenchment theory, the agencies will consider whether a merger can enable parties to extend or entrench dominant positions by various means, including by raising “barriers to entry or competition” or by “tying, bundling, conditioning, or otherwise linking sales of two products.” The FTC pursued such a theory in connection with its challenge to Amgen’s proposed acquisition of Horizon Therapeutics. While Amgen and Horizon offered no competing products, the FTC nevertheless alleged that Amgen’s leading market position in a wide portfolio of drugs would enable it to entrench the monopoly that Horizon had on treatments for two medical conditions by, for example, requiring cross-market bundling or conditioning rebates to payers. [7]
• Potential Competition: The new Guidelines signal the agencies’ continuing interest in deals that involve an incumbent firm and a potential entrant, including potential competitors that are in the research and development phase. [8] This is especially significant in the technology, healthcare, and life sciences industries. [9]
• Platforms: The Guidelines address unique ways that mergers involving platforms can harm competition, including (1) between platforms (either by purchasing competitors or suppliers of competitors’ inputs), (2) between platform participants (if a platform purchases a platform participant), or (3) between companies that could displace platforms.

Labor: The Guidelines create a framework for analyzing whether a merger could reduce competition for labor, reduce wages, slow wage growth, worsen benefits or working conditions, or otherwise harm workplace quality. The Guidelines note that the level of concentration at which competition concerns can arise may be lower in labor markets than in product markets.

[1] See, e.g., Jonathan Kanter, Assistant Attorney General, DOJ Antitrust Division, Address at Press Conference Announcing Call for Public Comment on Merger Guidelines (Jan. 18, 2022) (“I’ll end where I began, however, with a focus on the need to strengthen our guidelines to ensure they are fit for purpose in the modern economy.”); Lina M. Khan, Chair, FTC, Statement, In the Matter of Sanofi/Maze Therapeutics (Dec. 20, 2023) (“The FTC will continue to challenge illegal pharmaceutical mergers and other unlawful practices that would deny patients the benefits of fair competition and deprive them of access to affordable, innovative medicines.”).

[2] Morgan Lewis LawFlash, New Legislation Dramatically Increases Funding to US Antitrust Agencies Over Five Years, Ensuring Aggressive Enforcement (Jan. 10, 2023).

[3] Morgan Lewis LawFlash, New HSR Form Will Transform the US Merger Review Process (June 30, 2023).

[4] FTC Press Release, Federal Trade Commission Withdraws Vertical Merger Guidelines and Commentary (Sept. 15, 2021). The DOJ did not withdraw from the 2020 Vertical Merger Guidelines, but it agreed with the FTC that those guidelines may not be “appropriately skeptical of harmful mergers.” Press Release, Justice Department Issues Statement on the Vertical Merger Guidelines (Sept. 15, 2021).

[5] Specifically, if the merging firms had shares of 15.2% and their six competitors had shares of 11.6%, the merger creates a combined share of 30.4% (exceeding the threshold of 30%), with a change in HHI of 462 (exceeding the threshold of 100). Under the prior 2010 Horizontal Merger Guidelines, such merger would be “unlikely to have adverse competitive effects” and “ordinarily require no further analysis” because the premerger market would be unconcentrated, with an HHI of 1,269. See DOJ & FTC, Horizontal Merger Guidelines § 5.3 (Aug. 19, 2010).

[6] See Compl., FTC v. US Anesthesia Partners, Inc., No. 23-cv-3560 (S.D. Tex. filed Sept. 21, 2023).

[7] See Compl., FTC v. Amgen Inc., No. 23-cv-3053 (N.D. Ill. filed May 16, 2023).

[8] FTC Chair Khan has publicly stated that the antitrust laws “express a preference for building over buying,” i.e., to enter a market, firms should develop their own products in-house, rather than acquiring an existing firm in that market. See Al Barbarino, FTC’s Khan Says Antitrust Laws Favor “Building over Buying,” Law360 (Apr. 26, 2023).

[9] See, e.g., Admin. Compl., In the Matter of Sanofi et al., No. 9422 (FTC filed Dec. 11, 2023).

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