New Merger Guidelines – What Clues Can We Learn from the Public Comments?
New Merger Guidelines – What Clues Can We Learn from the Public Comments?
The Biden Administration intends to reshape merger enforcement as part of its broader initiative to change U.S. antitrust law. In keeping with the Administration’s goals, the Federal Trade Commission (FTC) and the Department of Justice Antitrust Division (DOJ) (collectively, the “Agencies”) are currently evaluating revisions to their Merger Guidelines. While not binding law, Merger Guidelines shape merger enforcement more than any other mechanism because most decision making in contested mergers occurs within the enforcement agency and parties must typically exhaust a lengthy agency review process before they can be heard by a judge.
Earlier this year, the Agencies issued a request for information (RFI) to inform their work on the new Merger Guidelines. The RFI gives significant clues to the direction the Agencies intend to take. The tone of the RFI was not neutral; consistent with rhetoric from Biden administration enforcers, the RFI all but presupposes the insufficiency of the current merger guidelines and, indeed, the past forty years of merger enforcement.
The comment period closed this spring. The Agencies received over 5,800 comments, posting around 1,900 of them. Hundreds of these comments included detailed analysis and argument that offered a range of opinions on how the Agencies should analyze mergers. In anticipation of the Agencies’ issuance of new proposed Merger Guidelines, we evaluate the public comments submitted this spring and provide insight into the deep divergence of viewpoints. We also explain what to expect next in the process.
The RFI included 15 broad categories, ranging from questions of general approach such as “Purpose, Harms, and Scope” to more targeted issues including “Digital Markets” and “Innovation and IP.” By a significant margin, the most frequently commented upon topics were, unsurprisingly, the general topics namely “Purpose, Harms, and Scope” and “Types and Sources of Evidence.” Within the more targeted questions, the most popular topics were “Special Characteristics Markets,” “Labor and Monopsony,” and “Digital Markets.” Each of these latter topics received a disproportionate number of comments, reflecting the significant public debate surrounding these issues.
A broad array of individuals and organizations from across the political spectrum commented. No clear majority prevailed on any issue. Many comments expressed support for significant changes, including those that argued for deemphasizing (or even abandoning) the consumer welfare standard. However, there was also a strong (if smaller) contingent of comments arguing against any reforms at all and a similar number that supported limited, incremental changes to the Merger Guidelines. Many of the comments supporting broad change were from progressive advocacy organizations and labor groups, including the Center for American Progress, the American Economic Liberties Project, the American Federation of Teachers, and the Communication Workers of America. Comments opposing sweeping changes originated largely from major industry groups, bar associations, and conservative- or libertarian-leaning think tanks including the United States Council for International Business, PhRMA, the International Bar Association, and Global Antitrust Institute.
Smaller industry groups tended to break both ways, depending on their particular position in the economy. Representatives of smaller entities low on the supply chain, especially within the healthcare and agriculture sectors—for example R-CALF USA, a trade association of live cattle producers, the American College of Emergency Physicians, and the National Community Pharmacists Association—advocated for changes to the guidelines and enforcement priorities that would provide them increased protection from the Agencies against larger upstream purchasers including meat packers, large hospital chains, and PBMs, who they argue exert monopsony power and have grown through consolidation. On the other hand, representatives for small startup companies and entrepreneurs, including the Small Business & Entrepreneurship Council and Engine Advocacy, worry that changes to the guidelines, especially strict rules regarding nascent competition or vertical transactions, will cut off acquisition as a viable exit option for founders and investors in startups, leading to decreased funding and innovation.
While a handful of comments argued that the distinction between vertical and horizontal merger guidelines should be abolished, most comments addressing this topic (from all political perspectives) recognized the value of guidelines tailored to these different categories of mergers. Many stated that this approach was most appropriate when enforcers used these frameworks to analyze the horizontal and vertical aspects of a particular transaction, rather than attempting to define a transaction as purely “vertical” or “horizontal.” The debate about whether the treatment of efficiencies should continue to differ between horizontal and vertical transactions—with vertical efficiencies historically given credence compared to horizontal efficiencies, which are currently regarded as minimally persuasive—rages on in the comments. However, the FTC, when withdrawing its support from the Vertical Guidelines last year telegraphed that the Democratic majority of Commissioners then felt that the presumption of vertical efficiencies is inappropriate and ought to be significantly curtailed. While Commissioner Chopra has now been replaced by Commissioner Bedoya, there is little reason to expect this change in personnel will change the FTC’s outlook on this issue. In recent comments to reporters, the head of the Antitrust Division indicated that the new guidelines would reconsider crediting efficiencies in merger reviews, calling past (favorable) treatment of efficiencies an area where law and policy diverged.
Several comments were submitted by coalitions of state attorneys general (AG), including a coalition of 23 (predominantly Democrat) state AGs led by New York and California. This comment expressed strongly progressive views, advocating for materially changing the Guidelines and addressing a supposed trend of under-enforcement that “may have led to over-concentration.” More specifically, their demands include adoption of (1) a presumption that potential competitor acquisitions are anticompetitive, (2) Tim Wu’s Attentional-SSNIP test or the SSNDQ test to address zero-price markets, and (3) more specific Guidelines for private equity transactions.
Another notable comment arguing for significant change was submitted by Colorado AG Phil Weiser (D) and Nebraska AG Doug Peterson (R), who together serve as co-chairs of the National Association of Attorneys General Antitrust Committee. AGs Weiser and Peterson recommended making it easier for the Agencies to challenge mergers by lowering the level of concentration at which the Agencies would apply a structural presumption of anticompetitiveness. They also advocated for a more exacting standard to credit claimed merger efficiencies, which would make it more challenging for merging parties to overcome any presumption.
Several organizations opposed the calls for more aggressive enforcement. For example, the International Center for Law and Economics argued that there is insufficient evidence to support the presumption that market concentration harms innovation, investment, and other non-price factors. Other comments argued against expanding the structural presumption because it would be both a harmful over-deterrent and inconsistent with existing law, as only the courts can actually modify the burdens of proof or persuasion by adopting a presumption.
Many commenters warned against hasty, dramatic changes in the name of “reform.” They emphasized the need to evaluate each transaction individually as there is a fine line between anticompetitive mergers and procompetitive ones and there are significant error costs associated with over-deterrence. For example, depending on the nature of the market, concentration can harm innovation, but it can also lead to higher investment capabilities ultimately directed toward innovation. Bright-line rules are incompatible with the wide diversity of the modern economy. The Antitrust Law Section of the American Bar Association echoed this point, noting that a so-called “trend towards concentration” could easily reflect efficient market adjustments rather than a reduction in competition. Accordingly, a one-size-fits-all presumption based on concentration trends would be inappropriate. Many commenters broadly in favor of the status quo made similar arguments about labor markets, observing that mergers may reduce demand for labor because of increased efficiency and laborsaving improvements unrelated to any increase in labor monopsony power.
Several comments addressed the Agencies’ questions whether new Merger Guidelines should include industry-specific rules. The U.S. Chamber of Commerce argued what seemed to be the prevailing view on this issue: that special rules for certain markets are not necessary. Greg Werden, a former senior economic counsel at the DOJ, agreed, arguing that the Guidelines should not commit to particular frameworks for particular markets. Similarly, many commenters argued that the Guidelines should not identify sectors of the economy in which mergers are more or less likely to harm competition. Academics from the University of Maryland argued that focusing on tech companies is misguided, noting that Big Tech companies account for only 1.5% of acquisitions, and that acquisitions are one way that tech companies compete with each other. Many acquisitions of tech startups are designed not to kill competition but to allow the acquirer to offer better and complementary technology to compete with other Big Tech companies. The American Investment Council commented that many specific markets are already closely scrutinized (e.g., private equity by SEC, labor markets by the Department of Labor) and do not require special antitrust focus.
However, other groups disagreed and commented to support market-specific rules. A coalition of several prominent labor organizations advocated for numerous labor-market-specific rules, including a presumption of market power triggered when an employer possesses 20% of the relevant labor market. This is a lower threshold relative to what is needed to establish market power in a goods market, but this comment argues that such a change is necessary because of differences between goods markets and labor markets, such as search frictions, reduced (or even negative) labor supply elasticity, and high switching costs. The same comment also argued for collective bargaining to be used as a structural remedy where an otherwise permissible merger would increase labor market concentration. The American Pharmacy Cooperative argued for more specific guidelines regarding mergers in the healthcare industry. At an even more granular level, the American Hospital Association advocated for special rules for hospital mergers and argued that the benefits like increased geographic coverage and efficiency in operations should receive special consideration in their field.
This public comment period was only the first significant step toward new Guidelines. For the next step, we expect the Agencies to release draft Guidelines later this year. In a recent speech, Assistant Attorney General Jonathan Kanter noted that the Agencies are “undertaking a major revision to our merger guidelines” and noted DOJ has read every comment. Based on public statements by leadership at the Agencies, and bolstered by the numerous comments advocating for far-reaching changes, we expect that these new guidelines will be more aggressive and interventionist. Kanter noted that the Agencies have guidelines drafted and are currently canvassing the entire merger staff at DOJ and FTC to elicit their views “before broadening the discussion to public comment.”
Two key questions are on everyone’s mind as we await these new guidelines. First, how aggressive will they be? Second, how durable will they be—in other words, how will courts treat them and will they survive this Administration? While the Guidelines have enjoyed respect and deference from courts when the Agencies have brought merger challenges, the Guidelines are not binding law. Rather, they describe the analytical techniques typically used by the Agencies to evaluate mergers, rooted in law and practice and guided by the best economic thinking. A fundamentally prescriptivist recasting of the Guidelines that breaks from the consensus legal and economic approaches developed over the last four decades would create uncertainty, both for parties contemplating mergers and for the Agencies contemplating enforcement actions. Courts are unlikely to accept novel theories that contradict decades of precedent. Overly aggressive Guidelines that are not tethered to economics or existing case law are also likely to undermine the credibility of the Agencies with Courts, consumers, and other stakeholders. We can only wait to see if this Administration will take a more modest approach to their revisions or if they are willing to risk converting what has historically been a useful tool for the bench, the bar, and the business community into just another policy document subject to the shifting political winds in D.C.
Jose L. Urteaga also contributed to this article.
 See Client Alert, Charting a New Course for Antitrust: President Biden’s Executive Order Promoting Competition in the American Economy, Morrison Foerster (July 14, 2021) https://www.mofo.com/resources/insights/210714-president-biden-executive-order-antitrust.html
 Daniel A. Crane, Antitrust Antitextualism, 96 Notre Dame L. Rev. 1205, 1242-45 (2021)
 U.S. Dep’t of Justice & Fed. Trade Comm’n, Request for Information on Merger Enforcement (hereinafter “RFI”) (January 18, 2022) available at https://www.regulations.gov/document/FTC-2022-0003-0001
 An example of this tone is found in the implication that current guidelines are insufficient and the Agencies need more power to police what they identify as unlawful and anticompetitive conduct. Id. (“A key overriding question is…whether these [current guidance documents] adequately equip enforcers to identify and proscribe unlawful, anticompetitive transactions.”) The 2020 Vertical Merger Guidelines were officially withdrawn by the FTC citing substantive concerns, and Assistant Attorney General Kanter who heads the Antitrust Division has expressed he shares those concerns, although the DOJ has not officially withdrawn the guidelines. Federal Trade Commission Withdraws Vertical Merger Guidelines and Commentary, Federal Trade Commission (September 15, 2021) https://www.ftc.gov/news-events/news/press-releases/2021/09/federal-trade-commission-withdraws-vertical-merger-guidelines-commentary Justice Department Issues Statement on the Vertical Merger Guidelines | OPA | Department of Justice (September 15, 2021) https://www.justice.gov/opa/pr/justice-department-issues-statement-vertical-merger-guidelines
 supra note 3
 E.g., Comment ID: FTC-2022-0003-0418; Comments arguing against the consumer welfare standard are in line with previous statements from current Agency leadership. See Karis Paul, ‘They should be worried’: will Lina Khan take down big tech?, The Guardian (August 2021) https://www.theguardian.com/us-news/2021/aug/14/lina-khan-big-tech-ftc-antitrust
 Press Release, Federal Trade Commission Withdraws Vertical Merger Guidelines and Commentary, (September 15, 2021) https://www.ftc.gov/news-events/news/press-releases/2021/09/federal-trade-commission-withdraws-vertical-merger-guidelines-commentary.
 Id. For additional information on Tim Wu’s writing on the A-SSNIP test, see Tim Wu, Blind Spot: The Attention Economy and the Law, 82 Antitrust L. J. 771 (2019).
 Robert Pitofsky, New Definitions of Relevant Market and the Assault on Antitrust, 90 Colum. L. Rev. 1805, 1807 (1990) (“Unfortunately, no aspect of antitrust enforcement has been handled nearly as bad as market definition.”)
 supra note 17
 Jonathan Kanter, AAG, Antitrust Division, Dep’t of Justice, Respecting the Antitrust Laws and Reflecting Market Realities (Sept. 13, 2022), https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-delivers-keynote-speech-georgetown-antitrust.
 See FTC v. Staples, 970 F. Supp. 1060, 1081-1082 (D.D.C. 1997) (“The Merger Guidelines, of course, are not binding on the Court, but, as this Circuit has stated, they do provide ‘a useful illustration of the application of the HHI,’…and the Court will use that guidance here.”) (quoting FTC v. PPG Indus., Inc., 798 F.2d 1500 (D.C.Cir. 1986))e.