The United States federal antitrust agencies (the Antitrust Division of the Department of Justice and the Federal Trade Commission) today released revised Horizontal Merger Guidelines – a document intended to set forth the process by which horizontal mergers are evaluated by the agencies and (in their view) should be evaluated by the courts. The Guidelines are open for public comment for 30 days, but are quite unlikely to change in any material way before they are finalized. The changes from the current Guidelines are significant and in general reflect a more aggressive approach to merger analysis than the previous Guidelines – but not really much difference from the actual practice of the agencies today.
The first Merger Guidelines were issued in 1968; they were significantly revised in 1982 and 1992 and slightly revised again in 1997. Given the changes in economic and legal analysis of mergers over the last two decades, the current Guidelines were significantly out of date and have not actually reflected the way the agencies (under both Republican and Democrat administrations) have evaluated mergers for some years now. A revision was long overdue.
Having said that, there was some considerable anxiety in the antitrust bar about this effort. Elections matter, and this Administration and its new antitrust agency heads have asserted that they plan to be more aggressive than their predecessors. In fact, despite the rhetoric, there has not to date been a dramatic change in enforcement practice; the differences so far have largely (with only a few exceptions) been fairly measured and well within the antitrust mainstream. Nevertheless, there was some concern that, given the opportunity to rewrite the entire process of merger analysis, the new Administration might try to dramatically ratchet up the antitrust hurdles for transactions.
Those concerns can be laid to rest. The revised Guidelines do reflect a more aggressive approach to a limited extent, especially in some of the language chosen and in the flexibility in which they articulate how to determine potential anticompetitive effects. But substantively, they are a well-crafted and predominantly mainstream application of economic and legal principles and techniques. Indeed, the change that will initially draw the most attention is the expansion of the market concentration (HHI) safe harbors, which can hardly be described as overly aggressive. The current Guidelines describe markets with an HHI below 1000 as unconcentrated; from 1000 to 1800 as moderately concentrated; and above 1800 as highly concentrated. The revised Guidelines change 1000 to 1500 and 1800 to 2500, bringing the Guidelines closer to reality; it is a rare merger challenge where the resulting HHI is not above 2500, and many times it is even higher. The revised Guidelines also point out that the HHI is not the only tool for identifying potentially problematic mergers and note that it is not a decision tool but rather just an initial indication – again, points that correspond with actual practice at the agencies.
Like its predecessors, the revised Guidelines continue to focus on facts and emphasize the need for an intensely fact-specific analysis of each transaction and the specific markets at issue. Having said that, the revised Guidelines do, to a much greater extent than the current Guidelines, describe the kinds of facts that will be influential and those that generally will not, and in this way they more clearly explain what can be a fairly opaque process to those who do not do this for a living. Because of this, the agencies have accomplished their goal of increased transparency and made the revised Guidelines more accessible to lawyers and businesspeople who are not antitrust experts but nevertheless want to understand more about how merger analysis works in the United States.
Yes, there are certain revisions that some will question, such as the entirely new section on "Evidence of Adverse Competitive Effects" and an emphasis on trying to determine the likely price effects of a merger through economic techniques that are not commonly understood or universally accepted. And there is the occasional concept that leaves one asking, "Huh?" References to potential adverse effects on product variety, and to the possible use of intent evidence, are two examples of this. But on the whole, the revised Guidelines are understandable (especially as documents like this go) and a clear improvement on at least the primary purpose of merger guidelines – explaining how the agencies go about analyzing mergers.
These Guidelines quite accurately describe the kinds of techniques that the agencies use today in merger analysis. As the revised Guidelines note, all of the techniques will not be used in all transactions; the relevant data will not always be available; and sometimes it will not be necessary to do detailed economic work to come to a conclusion. The proposed Guidelines in some respects also may be an attempt to raise the bar on certain defenses. This is most apparent in the sections on entry and efficiencies. But these are incremental, not order of magnitude, changes, and within what is today the broad mainstream consensus on antitrust (albeit perhaps on the aggressive end of that spectrum).
One area where the agencies clearly hope the revised Guidelines will have influence is in the courts. It is this second purpose of guidelines – to influence how courts approach merger analysis – where it will not be possible to offer a final verdict for several years. In the past, courts have increasingly relied on the previous versions of the Guidelines, and they may be somewhat reluctant to depart from the precedent that has created. On the other hand, the revised Guidelines are likely to have at least some, and perhaps significant, influence on the courts over time. We will have to wait to see exactly how this plays out.
One group that the new Guidelines will instantly affect is the antitrust bar. The ABA Section of Antitrust Law is having its annual meeting this week in Washington, and the new Guidelines will no doubt be the talk of the meeting. There will be more analyses and commentaries released soon than could possibly be read by anyone wanting a life, and some of them will even be useful. Jones Day shortly will produce what we hope will be one of the useful commentaries, which will describe in more detail the important changes in the revised Guidelines. Please save room to read that one.
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