On January 10, 2020, the Department of Justice (DOJ) and Federal Trade Commission (FTC) jointly released for public comment draft Vertical Merger Guidelines. Together, these two regulatory agencies are responsible for federal antitrust enforcement in the United States. The Vertical Merger Guidelines provide a rubric for how U.S. antitrust agencies will enforce the U.S. antitrust laws related to a vertical acquisition or merger, i.e., a combination of two or more companies that operate at different levels in the same supply chain. If adopted, the Vertical Merger Guidelines would supersede, in their entirety, DOJ’s 1984 Merger Guidelines.
According to Assistant Attorney General Makan Delrahim, “The revised draft guidelines are based on new economic understandings and the agencies’ experience over the past several decades and better reflect the agencies’ actual practice in evaluating proposed vertical mergers.” FTC Chairman Joseph J. Simons stated, “Challenging anticompetitive vertical mergers is essential to vigorous enforcement. The agencies’ vertical merger policy has evolved substantially since the issuance of the 1984 Non-Horizontal Merger Guidelines, and our guidelines should reflect the current enforcement approach. Greater transparency about the complex issues surrounding vertical mergers will benefit the business community, practitioners and the courts.”
The draft Vertical Merger Guidelines rely heavily on the 2010 Horizontal Merger Guidelines, referencing and noting analysis that would be applied in similar fashion in a vertical merger. In a vertical merger, the agencies typically look for competitive concerns in a relevant market and how access to a related product or service supplied by the merged firm might affect competition in the relevant market. The draft guidelines state that the agencies are unlikely to challenge a merger where the parties have less than 20 percent of the relevant market and the related product or service is used in less than 20 percent of the relevant market. The draft guidelines describe some ways in which adverse effects on competition may arise in a vertical merger, including unilateral effects such as foreclosure and raising rivals’ costs or coordinated effects, for example, based on market structure changes or access to competitively sensitive information. Specifically, the draft guidelines note the agencies’ use of economic models, including merger simulation without market definition, and acknowledge potential procompetitive effects of elimination of double marginalization and creation of efficiencies.
FTC Commissioners Rebecca Kelly Slaughter and Rohit Chopra abstained from the FTC’s vote to publish the draft Vertical Merger Guidelines and solicit public comments, but issued statements explaining alleged deficiencies with the draft as proposed. Commissioner Slaughter abstained because of two main issues with the draft: “(1) the effective safe harbor for firms with less than 20 percent market share, and (2) the departure from Section 7 of the Clayton Act’s mandate to stop anticompetitive mergers in their incipiency.” Commissioner Chopra abstained because the draft guidelines “are not supported by an analysis of past enforcement decisions, perpetuate an overdependence on theoretical models, and do not reflect all of the ways that competition can be harmed.”
The draft guidelines are tentative until formal adoption by the agencies. “We invite comments from all stakeholders to help ensure that the guidelines clearly and accurately convey the agencies’ antitrust enforcement policy with respect to vertical mergers,” stated Simons. Comments on the draft guidelines can be submitted to VMG Comments, and must be received no later than February 11, 2020.
The question of whether a business transaction is legal under the U.S. antitrust laws depends on the facts and circumstances in each case and usually requires careful analysis. The outcome of that question can have significant consequences for the transaction parties. Noncompliance with the U.S. antitrust laws carries serious penalties, and parties should seek experienced antitrust counsel to advise them on the applicability to any proposed business combinations.
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