In September 2021, the five-member Federal Trade Commission voted 3-2 along party lines to withdraw its support for the Vertical Merger Guidelines1 ("Guidelines") and related FTC commentary on vertical merger enforcement.2 At the same time—indeed, only hours later on the same day—the acting head of the Antitrust Division of the Department of Justice issued a statement indicating that the Guidelines "remain in place" at the DOJ while the agency conducts a "careful review" of its process for making enforcement decisions.3

What a difference a year makes. The Guidelines had been jointly adopted by the FTC and the DOJ in mid-2020, marking the first revision in more than 35 years and following the DOJ's failed attempt to block AT&T's acquisition of Time Warner.4 At that time, Republican leadership at both agencies lauded the new Guidelines. The head of the DOJ's Antitrust Division said the new Guidelines would "give greater predictability and clarity to the business community, the bar, and enforcers." The FTC Chair echoed this sentiment, explaining that the "new guidelines reflect our current enforcement approach and, through increased transparency, will help businesses and practitioners understand how we evaluate vertical transactions."

As the saying goes, elections have consequences. The last two administration changes resulted in repeals of antitrust guidance. The Obama Administration repealed the Bush Administration's monopolization guidance, and the Trump Administration repealed the Obama Administration's guidance on merger remedies. The Biden FTC's repeal of the Vertical Merger Guidelines continues that pattern and builds on a number of personnel announcements and policy decisions by President Biden squarely directed at increasing enforcement of U.S. antitrust laws. Since taking office in January 2021, President Biden has named pro-enforcement leadership to key positions in the White House and at both federal antitrust agencies; he also issued a sweeping executive order instructing federal agencies to promote competition in the American economy.

Within the world of merger enforcement, U.S. enforcement actions historically have been focused most on horizontal transactions—combinations involving direct current or future competitors. The prevailing view had been that these deals were more likely than vertical transactions to raise significant competitive concerns due to the agencies' conclusion that transactions involving parties operating at different levels in the same supply chain often resulted in efficiencies that benefit competition and consumers.

The sands, however, are shifting. The drafting and adoption of the Guidelines, including their recognition that vertical deals often result in efficiencies that are pro-competitive, generated significant controversy with some in the antitrust bar and within the agencies themselves. The current FTC majority believes the Guidelines rely on "unsound economic theories that are unsupported by the law or market realities." Some of the FTC majority's objections have been criticized as inconsistent with accepted economic principles.5 Other aspects of the majority's critique simply reflect a more pro-enforcement policy position.

We describe below the creation of the 2020 Vertical Merger Guidelines, the FTC's decision to withdraw the Guidelines, and what merging parties should expect going forward.

New Guidelines Emerge After Extensive Public Input

The DOJ issued its first Non-Horizontal Merger Guidelines in 1984. These original Guidelines remained officially on the books for almost 40 years but were widely understood to no longer reflect actual agency practice by the time the DOJ and FTC jointly revisited them in 2020.

While there was nearly unanimous consensus that the Guidelines required updating, there was little agreement on what the new version should say. The DOJ and FTC issued draft guidelines and invited public comment. During a contentious six-month public comment period, the agencies received more than 70 comments from the private bar, economists, state enforcers, and academia. Depending on your perspective, the draft document was either too anti- or pro-enforcement. The agencies made several changes to the draft Guidelines to address criticism received, including removing a non-binding "safe harbor" for vertical mergers where the parties' combined share was less than 20% in either the upstream or downstream market. Although the proposed market share screen was a flashpoint among commenters, the agencies rarely have challenged vertical mergers in practice unless the parties' upstream and downstream market shares were substantial, often above 50%.6

1 U.S. Dep't of Justice & Fed. Trade Comm'n, Vertical Merger Guidelines, June 30, 2020, available at nts/reports/us-department-justice-federal-trade-c ommission-vertical-merger-guidelines/vertical_ merger_guidelines_6-30-20.pdf.

2 Fed. Trade Comm'n, Commentary on Vertical Merger Enforcement, Dec. 22, 2020, available at nts/reports/federal-trade-commissions-commenta ry-vertical-merger-enforcement/p180101vertical mergercommentary_1.pdf.

3 Press Release, U.S. Dep't of Justice, Justice Department Issues Statement on the Vertical Merger Guidelines (Sept. 15, 2021), available at t-issues-statement-vertical-merger-guidelines.

4 See United States v. AT & T Inc., 310 F. Supp. 3d 161, 2018-1 Trade Cas. (CCH) ¶ 80407 (D.D.C. 2018), aff'd, 916 F.3d 1029, 2019-1 Trade Cas. (CCH) ¶ 80685 (D.C. Cir. 2019).

5 See, e.g., Carl Shapiro and Herbert Hovenkamp, How Will the FTC Evaluate Vertical Mergers?, ProMarket (Sept. 23, 2021), https://promark hapiro-hovenkamp/.

6 Letter from Am. Bar Ass'n Antitrust Law Sec. to Fed. Trade Comm'n and Dep't of Justice, Comments on the Draft Vertical Merger Guidelines Issued by the Department of Justice and Federal Trade Commission Comments (Feb. 24, 2020), available at content/dam/aba/administrative/antitrust_law/co mments/february-2020/comment-22420-ftc-doj. pdf.

Originally Published by The M&A Lawyer

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