On Tuesday, January 18, 2022, the United States Federal Trade Commission (FTC) and Department of Justice Antitrust Division (DOJ) (collectively, the US Agencies) announced an initiative to revisit the agencies’ 12-year-old Horizontal Merger Guidelines (Guidelines), which lay out the framework the US Agencies use to assess the competitive effects of mergers between actual or potential competitors. The Agencies are also revisiting the 2020 Vertical Merger Guidelines, which relate to transactions that combine firms or assets at different stages of the supply chain. The FTC has already withdrawn its support for the jointly issued vertical Merger Guidelines in September 2021.
FTC Chair Khan and DOJ Antitrust Division AAG Kanter stated their intent to revise the guidelines to reflect “current learning about competition based on modern market realities.” The US Agencies’ announcement marks the start of a lengthy process, so no immediate changes to the issued Guidelines are anticipated. However, the announcement reflects yet another step in the Biden Administration’s merger control enforcement agenda.
The Horizontal Merger Guidelines have existed and evolved since 1968. The last significant revision in 2010 endeavored to provide businesses with more transparency about the US Agencies’ actual practices in reviewing transactions, update the standards used to define relevant product markets and assess whether a transaction warrants scrutiny, and account for legal and economic developments over intervening years.
Chair Khan and AAG Kanter’s announcement of a review of the Guidelines comes as no surprise. The initiative parallels legislative efforts to change the antitrust laws, and the announcement follows President Biden’s July 9, 2021 Executive Order on Promoting Competition, which encouraged the US Agencies to review and “consider whether to revise” the Guidelines. Further, the new leadership at the US Agencies have publicly expressed their concern that decades of perceived lax enforcement under the existing framework has resulted in problematic consolidation across industries. A review of the Guidelines is therefore a natural next step for agency leadership to take along the path to increased enforcement.
Last week’s decision to revise both sets of guidelines also follows a record year in deal making across the globe and a gradual increase over the last few years in legislative and heightened regulatory scrutiny of companies in the technology, healthcare, pharmaceutical, and agriculture industries. In her remarks, FTC Chair Khan emphasized that “major technological and economic changes” led to transformations in how “businesses compete and grow, creating interconnections and dynamics across multiple dimensions,” which cannot be adequately assessed under guidelines that do not reflect “these new realities.”
Kicking-off the review process, the US Agencies have issued a Request for Information (RFI) seeking public comment on how they can “modernize enforcement of the antitrust laws regarding mergers.” The RFI specifically calls for feedback on aspects of competition that current Agency leadership contend have been underemphasized or neglected by the existing Guidelines, including “labor market effects and non-price elements of competition like innovation, quality, potential competition, or any ‘trend toward concentration.’” Specifically, the US Agencies direct attention to a few key topics under consideration:
- Nature of Mergers. Whether traditional distinctions between horizontal and vertical mergers should be revisited?
- Analysis of Merger Effects. What evidence should the Guidelines consider when analyzing non-price effects of a merger? Are there specific metrics or observable features in a transaction that ought to trigger a presumption that the transaction is anticompetitive?
- Market Definition. How should markets be defined when the competitive harm stems from long-term non-price factors, such as innovation loss, changes to product quality, or creation of new barriers to entry? Should market definitions play a secondary role to analysis of how mergers directly affect innovation incentives?
- Nascent Competition. What sources of evidence should the Guidelines consider to better assess the importance of a potential competitor to market competition?
- Remedies. Should the Guidelines adopt a formal process and deadlines for remedy proposals?
- Monopsony Power. Should analysis of monopsony power differ from that of monopoly power?
- Digital Markets. Should the analysis of transactions in digital markets differ from the analysis of other markets?
This development tracks the messaging and actions already coming from leadership at FTC/DOJ, such as greater scrutiny of deals and skepticism of merger benefits. In that context, even though the process to officially change the Guidelines could take up to a year (or more), we can expect increased scrutiny from the US Agencies in the meantime.
But not everyone is on board. While applauding the use of critical self-examination to inform merger policy and define new terms like “digital market,” FTC Commissioners Phillips and Wilson emphasized the need to “proceed with care and caution” given the potential impact that revisions could have on the economy, noting that the RFI relies on outdated caselaw, mistakenly equates “difficulty for rivals [and] harm to competition,” and suggests that the US Agencies “should discount or ignore efficiencies when analyzing mergers.”
While the efforts to revise the Guidelines proceed, we expect the US Agencies to continue applying heightened scrutiny to all transactions through their existing tools (i.e., process and policy changes that don’t require notice or public comment). For this reason, parties should engage antitrust counsel early to build a strategy that accounts for the aggressive and evolving enforcement environment, allows for longer timelines, and includes litigation as a possibility to test the US Agencies’ new interpretations of legal standards.