On October 21, 2004, the U.S. Department of Justice (DOJ) issued the "Antitrust Division Policy Guide to Merger Remedies," which is designed to provide "the business community, antitrust bar, and economists with an understanding of the Division's analytical framework for crafting and implementing relief in merger cases." See www.usdoj.gov
This Update provides a short summary of the major elements and themes of the DOJ Remedies Guide, and discusses the key differences between the DOJ and Federal Trade Commission approaches to merger remedies. See "Statement of the Federal Trade Commission's Bureau of Competition on Negotiating Merger Remedies," (released April 2, 2003).
While the DOJ Remedies Guide provides some additional insight into DOJ's analysis of merger remedies, it is fundamentally a recitation of DOJ's established practice in this area.
The DOJ Remedies Guide is based on six "Guiding Principles":
- Remedies must address identified violations; DOJ will not accept a remedy unless it has conducted a sufficient investigation to conclude that a proposed merger will violate the antitrust laws.
- Remedies must be case-specific; they must be based upon an application of sound legal and economic principles to the particular facts of the case at hand.
- Remedies must restore lost competition; there is no requirement that they enhance competition.
- Remedies must promote competition, not individual competitors.
- Remedies must be enforceable.
- DOJ will commit the time and effort necessary to ensure full compliance with its remedies.
Key Remedies Issues
The DOJ Remedies Guide discusses DOJ's policy with respect to specific types of remedial provisions. The key points are:
- Structural remedies are strongly preferred over conduct remedies. Structural remedies typically involve divestitures or licensing, while conduct remedies restrict the conduct of the merged firm's business. DOJ believes that conduct remedies are more difficult and costly to enforce, and will approve a pure conduct remedy only in "limited" circumstances, such as when significant merger-related efficiencies cannot be achieved through a structural remedy.
- Divestiture must include all the assets necessary to ensure that the purchaser possesses both the "means and incentive" to preserve competition. DOJ thus prefers the divestiture of an existing business entity, which has already demonstrated its ability to compete, although it generally has no preference as to which of the merging parties' business units is divested. DOJ will consider exceptions to this general rule in the following circumstances: (a) there is no existing business entity smaller than either of the merging firms, and a set of acceptable assets may be assembled from both of the merging firms; (b) certain of the entity's assets are already in the possession of, or are readily available to, the potential purchaser; (c) more than an existing business entity must be divested to restore competition.
- Where the critical asset for competition is an intangible one e.g., a patent the merging firms must provide one or more parties with rights to that asset. The nature and scope of the rights that must be granted will depend on the facts of the particular industry. For example, a license to a single party may suffice in some cases, while other cases may require a license to multiple parties. Likewise, the merging firms may retain the right to use the asset in some cases (e.g., where it is necessary in order to realize merger-related efficiencies), while in other cases the merging firms may be required to surrender their rights to the asset.
Key Differences Between DOJ and FTC
The DOJ Remedies Guide also highlights certain differences between the DOJ and FTC approaches to merger remedies. The key differences are:
- "Fix-it-first" Remedies. DOJ explicitly endorses the use of the so-called "fix-it-first" approach; these are structural remedies, typically divestitures, that are proposed by the merging parties as a means of resolving a competitive problem without the need for a formal consent decree. The Division notes that "a fix-it-first remedy . . . removes the need for litigation, and saves society from incurring real costs." The FTC, in contrast, has no formal "fix-it-first" policy, and the Commission generally requires parties to enter into a consent order.
- "Up-front" Buyers. The FTC typically requires the specific buyer of the to-be-divested assets to be identified before the Commission will approve a consent decree and allow the deal to close. It justifies this "buyer up-front" requirement on the ground that it minimizes the risk that (a) there will not be a purchaser for the assets proposed to be divested, (b) the buyer will not be able to restore competition, and (c) the competitive value of the assets, and competition itself, will diminish while the merging parties search for a buyer. DOJ, in contrast, "focuses on specifying in the decree the appropriate set of assets to be divested quickly rather than on the identification of an acceptable buyer . . . before entering into a consent decree." Unlike the FTC, DOJ generally does not require that a specific buyer be selected and named in the consent decree before the decree is filed. DOJ, however, must approve the purchaser of the assets to be divested before the assets are sold pursuant to the decree. The Assistant Attorney General for Antitrust has previously noted that "permitting the parties to close prior to the identification of a buyer means that any procompetitive efficiencies of a deal are realized on a relatively faster basis than might otherwise occur if the parties could not close until a buyer had been approved."[fn1] DOJ typically provides the merging firms with 60 to 90 days to reach an agreement to sell the assets, but will grant extensions so long as the parties are making "good faith efforts" to locate a purchaser.
- "Crown Jewel" Provisions. DOJ "strongly disfavor[s]" the use of "crown jewel" provisions i.e., provisions that require the merging parties to add specific, more valuable assets to the divestiture package if they are unable to sell the assets to a viable purchaser within a pre-determined period of time. This is because such provisions "generally . . . represent acceptance of either less than effective relief at the outset or more than is necessary to remedy the competitive harm," and can encourage gamesmanship in the divestiture process. In contrast, the FTC embraces the use of crown jewel provisions in certain circumstances as a means of ensuring that a proposed remedy will be ultimately effectuated.
1:Address by R. Hewitt Pate before the Association of the Bar of the City of New York, Milton Handler Annual Antitrust Review, New York City, December 10, 2002.