The FTC and DOJ have done it: on July 19 they released the long awaited (or dreaded) draft merger guidelines, which . . . well, could have been worse, given current agency leadership, but could have been better (as demonstrated by the certainly imperfect, but still better, 2010 guidelines they replaced). Jumping on the agencies’ myopia bandwagon, I protest: it’s late July and I’m on vacation, damnit! Having been deep in the central American jungle, I’m late to this party, even as the party I’d long planned has been interrupted.
Serious analysis will take a bit of time. For now, I have a few preliminary, if not entirely original, observations.
First, the new guidelines have an old soul. They are heavy on case citations – mostly hoary case citations – with sources dating to 1930. My colleague Geoff Manne created a helpful table tracking citations by year here.
The Supreme Court’s famously incoherent 1962 opinion in Brown Shoe seems a retro favorite, first cited in footnote four and then 14 more times. Philadelphia National Bank (1964), cited 8 times, and Marine Bancorp (1963), cited 7 times, are a distant second and third. Cases from the ‘60s and ‘70s predominate (81 citations to 22 cases). Citations to cases from this century (17 citations to 12 cases) are given relatively short shrift.
What of it? Antitrust law may rest on economic foundations – or should – but it is, after all, a body of law, and citations to the case law are hardly impertinent. And weighing precedent is not simply a matter of counting the cases. Still, one cannot help but notice that cases from the past forty years or so are slighted.
That brings us to a second point: It’s conspicuous that this is a highly selective appeal to the case law – hardly comprehensive (or a random sample, for that matter) – and one wonders what the courts will make of that. True, the Supreme Court hasn’t taken the trouble to reverse Brown Shoe, but that doesn’t mean that courts give it the same effect they once did. As Geoff Manne pointed out, bad cases can be “still nominally ‘good law’ even though unlikely to be persuasive in court.” Or, as Joe Sims (who may have handled more merger challenges than just about anyone else alive) replied, “Geoff is being kind. Sure, there are old cases out there that have not been formally overruled, but does anyone want to make a wager about what would happen if a decision resting on Brown Shoe came to SCt today?”
The selective, dated, and skewed selection of cases might very well fail to persuade the courts, not least (but not only) because the careers of the judges now occupying the federal bench date to precisely those recent decades relatively ignored by the new draft guidelines. Clarence Thomas – the eldest justice of the U.S. Supreme Court – was appointed to the federal bench in 1990, and to the Supreme Court in 1991.
I’m reminded of the FTC’s November 2022 Policy Statement Regarding the Scope of Unfair Methods of Competition under Section 5 off the Federal Trade Commission Act. As Gus Hurwitz and I observed in an ICLE Issue Brief, the Commission there sought to articulate its competition policy with selective and often hazy citations to the case law, purporting to ground a laundry list of allegedly suspect conduct with terms that lacked “any clear meaning under U.S. antitrust law, even if they occur here and there in dicta in Supreme Court or lower court opinions.”
I’m a tad bitter that I’ve “had to” go to Twitter for some quick takes, but needs must, so I note Dan Crane’s twin observations: https://twitter.com/DanielDancrane/status/1681653394384068609?s=20
Doug Melamed, a former head of the Antitrust Division now teaching at Stanford, minced few words about the case selection: https://twitter.com/dougmelamed/status/1681753420087062529?s=20
Other than that, Doug, how did you like the play?
BTW, for a useful (and more thorough) discussion of prior merger guidelines, FTC enforcement, and antitrust jurisprudence – at least on the topics of potential entrants and emerging competitors – I recommend this discussion by Bilal Sayyed, a former Director of the FTC’s Office of Policy Planning. Even just a quick glance at Bilal’s article reveals scads of more recent merger case law that was studiously ignored by the draft guidelines. M&A attorneys with even passing knowledge of the relevant case law may search in vain for citations to prominent merger cases like Waste Management (1984), Syufy (1990), Staples (1997), Tenet Health (1999), Swedish Match (2000), Libbey (2002), Arch Coal (2004), Oracle (2004), Whole Foods (2007), Staples (2016), Anthem (2017), Deutsche Telekom (T-Mobile) (2020), and UnitedHealth (2022) (among many others). The government didn’t even lose all of these cases, which is not to say that their holdings were necessarily convenient for advocates of the new draft guidelines.
Third, I wonder about the economic foundations of the new draft guidelines, even if I believe that two accomplished economists – Aviv Nevo and Susan Athey – had some salutary, or at least palliative, impact on their development. My ICLE colleague Brian Albrecht has a quick take from an economist’s perspective: https://twitter.com/BrianCAlbrecht/status/1682138463162728449?s=20
For a bit more discussion, I commend his TOTM post and his blog, Economic Forces. There, he notes, among other things, comments submitted just last year by John Asker, Kostis Hatzitaskos, Bob Majure, Ana McDowall, Nathan Miller, and Aviv Nevo (the last, of course, now the director of the FTC’s Bureau of Economics). For example, Guideline 1 of the new draft states: “Mergers Should Not Significantly Increase Concentration in Highly Concentrated Markets,” and explains that if it does, “the Agencies presume that a merger may substantially lessen competition based on market structure alone.” Guidelines 4, 6 and 8 continue the focus on market structure, with 6 extending the concern to Vertical Mergers, and 8 warning against mergers that occur “during a trend toward concentration.”
But Asker, et al., had this to say in 2022:
As noted by DOJ and FTC staff and front office economists in late 2020, the 2010 HMG continue to accurately reflect the practices of the agencies and highlight practices and techniques of continued relevance to modern practice. We agree. Despite concerns voiced by commentators and raised in some academic studies, our read of the evidence is that it does not support large deviations from the approach in the 2010 HMG or the 2020 VMG. Some proponents favor strengthening structural presumptions and lowering the presumption thresholds. This, they argue, would be an important step toward strengthening enforcement and reducing the number of harmful mergers passing unchallenged. Our view is that this would not be the most productive route for the agencies to pursue to successfully prevent harmful mergers, and could backfire by putting even further emphasis on market definition and structural presumptions. If the agencies were to substantially change the presumption thresholds, they would also need to persuade courts that the new thresholds were at the right level. Is the evidence there to do so? The existing body of research on this question is, today, thin and mostly based on individual case studies in a handful of industries. Our reading of the literature is that it is not clear and persuasive enough, at this point in time, to support a substantially different threshold that will be applied across the board to all industries and market conditions.
Of course, the literature continues to develop, and Nevo and others might now have concerns under any number of circumstances. And, in fact, there do seem to be ways in which their 2022 submission had some impact on the new draft guidelines – for example, in emphasizing a focus on competitive effects in market definition, or in distinguishing between one-side sellers and two-sided platforms. But the past year has not overturned the prior literature or suggested that decades of work diminishing the role of structural presumptions has become obsolete. For a new working paper, see Nathan Miller, et al. here.
Parting thoughts: As I said up top, a more thorough analysis of the new draft guidelines wants more time. But my quick take is this:
While the 2010 horizontal merger guidelines (and 2020 vertical merger guidelines) were not perfect, they were useful and grounded documents. The 2023 draft guidelines seem a significant step backward. That’s disappointing, even if it’s unsurprising. The new emphasis on concentration and, apparently, structural presumptions, seems unwarranted from several points of view: established agency practice, decades of case law, and developments in the economic literature. While it may be a shortcut, it’s one that’s likely to increase error costs no small amount.
Also, vertical mergers do not tend to be anticompetitive, even if they can be under specific facts and circumstances. They are certainly not amenable to the same presumptions that might apply to horizontal mergers (on which, see our amicus brief in the the FTC’s challenge to the Illumina/Grail merger). For that reason, and others, the blurring of the line between vertical and horizontal mergers seems unhelpful – and also likely to increase error costs.
Perhaps most of all, while the draft guidelines sketch any number of ways in which mergers may be deemed anticompetitive, they seem very little help to practitioners and firms that would like to distinguish between mergers that are likely violative of the antitrust laws and mergers that are lawful (which is, to say, most mergers). That is, while ominous, they do not appear super useful as guidelines if, indeed, that’s what they’re supposed to be.
Brown Shoe comprises the good, the bad, and the ugly of dicta. But if we have to go back to that musty old well, we might recall the Court’s remark that
Congress used the words “may be substantially to lessen competition” . . . , to indicate that its concern was with probabilities, not certainties. Statutes existed for dealing with clear-cut menaces to competition; no statute was sought for dealing with ephemeral possibilities. Mergers with a probable anticompetitive effect were to be proscribed by this Act. (italics in original; bold added)
How probable may be up for debate, and it may be hard to specify with any precision. But it cannot be the mere possibility of harm, lest antitrust law eat itself for breakfast: mergers and acquisitions – like other commercial conduct – commonly entail some possibility of both competitive harm and competitive (and consumer) benefit. So what’s a firm to do? Sadly, the draft guidelines offer very little to help.