by Ilene Knable Gotts, Christina C. Ma, and Katharine R. Haigh

Left to right: Ilene Knable Gotts, Christina C. Ma, and Katharine R. Haigh (photos courtesy of Wachtell, Lipton, Rosen & Katz)

Recently, the Federal Trade Commission and Antitrust Division of the Department of Justice published a proposed replacement to the existing Horizontal Merger Guidelines and Vertical Merger Guidelines. The agencies’ draft guidelines (the “Guidelines”) do not have any independent legal effect, but are intended to influence the federal courts and to provide guidance as to how the federal antitrust authorities will analyze the competitive impact of transactions and decide whether to challenge them. 

In a joint statement announcing the Guidelines, FTC Chair Lina Khan and Assistant Attorney General Jonathan Kanter said the Guidelines contain “critical updates” to “respond to modern market realities.” The Guidelines underscore the Biden Administration’s commitment to aggressive enforcement of the antitrust laws (as we have discussed recently here and here) and demonstrate a fundamental ideological shift of antitrust enforcement under current agency leadership, including a belief that the “antitrust laws reflect a preference for internal growth over acquisition.”

Consistent with this belief, the Guidelines significantly lower existing market concentration thresholds at which the agencies will presume a transaction violates the antitrust laws and introduce new share-based thresholds: (1) transactions resulting in a combined share of greater than 30 percent where one party had a share of 10 percent of more; (2) transactions involving a party with a market share of over 50 percent and where the other party is active in a “related market,” and (3) transactions involving a party with a “dominant position” — presumed when a party has a market share of 30 percent — and where the transaction entrenches or extends this position.

In addition, the Guidelines memorialize more expansive theories of harm that have been pursued under the current administration:

• Vertical and conglomerate transactions come under increased scrutiny.  Under the Guidelines, transactions involving companies that do not compete but participate in related markets may substantially lessen competition by weakening or excluding rivals or by providing access to rivals’ competitively sensitive information. The Guidelines are consistent with recent merger challenges, including most prominently Microsoft/Activision and United Health/Change, both of which the agencies lost in federal court.

• Competition for labor is squarely in focus. The Guidelines provide the most comprehensive articulation to date of the agencies’ approach to labor market competition. Although labor markets have traditionally been viewed as relatively broad and fluid, the Guidelines focus on competition for specific job opportunities, stating that “labor markets are often relatively narrow” because “finding a job requires the worker and the employer to agree to the match” and “[t]his matching process often narrows the range of rivals competing for any given employee.” The Guidelines also make clear that a transaction’s harm to labor or any upstream market “is not offset by purported benefits in a separate downstream product market.”
  

• The agencies will scrutinize potential competition. The agencies will evaluate whether a transaction may substantially lessen competition by eliminating a potential entrant based on objective evidence, including “evidence that the firm has sufficient size and resources to enter; evidence of any advantages that would make the firm well-suited to enter; evidence that the firm has successfully expanded into other markets in the past [or] evidence that the firm has an incentive to enter.” Secondary to the agencies’ analysis is subjective evidence as to a party’s actual intent and plans to enter a new market.
  

• Private equity and technology companies are targeted.  The Guidelines make clear that the competitive effects of private equity roll-ups cannot escape scrutiny “even if no single acquisition on its own” is anticompetitive. Instead, where a transaction is part of a series, the agencies will consider whether the cumulative effect of the trend or strategy of serial acquisitions may result in a violation of the antitrust laws. The Guidelines also take direct aim at technology firms, including by adopting a holistic approach to reviewing transactions involving multi-sided platforms that includes competition between platforms, on a platform, and to displace a platform.

• Market trends toward concentration are relevant.  In a market with a trend toward concentration, the agencies will consider whether the transaction would “increase the existing level of concentration or the pace of that trend,” thus harming competition. As with the approach to private equity roll-ups, these Guidelines articulate the agencies’ desire to expand the scope of merger review beyond the particular transaction under review.

The proposed Guidelines are open to public comments until September 18. Although the final guidelines may evolve from the draft published yesterday, we anticipate the major themes will remain intact. While the agencies purport to ground the Guidelines in legal precedent, they do so selectively, including ignoring years of precedent in which courts applied modern economic theory to merger cases. Undeterred by an ongoing streak of litigation losses, where courts have rejected their novel theories of harm, the agencies now seek to incorporate these ideas into the Guidelines. The Guidelines, however, are not law. Indeed, rather than providing legal guidance, the Guidelines should be understood as a pronouncement of the agencies’ desire and intent to expand their influence over the private economy through merger review.

The proposed Guidelines should confirm to the business community that agency leadership is inherently skeptical of mergers and acquisitions. Transacting parties should anticipate and plan for broad and burdensome investigations in U.S. antitrust reviews, as well as a greater likelihood of litigation.

Ilene Knable Gotts and Christina C. Ma are Partners, and Katharine R. Haigh is an Associate at Wachtell, Lipton, Rosen & Katz. This post first appeared as a client alert.

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