US antitrust authorities reviewing vertical merger guidelines will likely look to address key concerns with vertical combinations that have been widely discussed in scholarly and legal circles, said antitrust professors, attorneys and an economist.
Merger guidelines act as roadmaps for the agencies’ antitrust reviews and can be considered by the courts in litigated merger challenges. While guidelines on horizontal mergers involving the combination of direct competitors have been updated every decade or so, antitrust enforcers last revised over 30 years ago guidelines for vertical transactions, which involve the combination of companies that operate in different stages of a supply chain. Horizontal mergers have historically been considered much more problematic from an antitrust standpoint.
Empirical and economic work has identified a number of ways in which vertical mergers can be harmful, a situation that has become more widely recognized by the antitrust bar, said Peter Carstensen, a University of Wisconsin law professor. With the rise of mega mergers and concentrated markets, acquirers have greater capacity to control upstream and downstream supply chains, he said. This change has brought about calls for new guidelines to address probable adverse effects.
Vertical mergers have come into focus in recent years with rise of technology giants that have expanded into new business areas through acquisitions. The guidelines should clarify the circumstances under which vertical deals are deemed anticompetitive and better equip enforcers with leverage to bring challenges in court, the antitrust attorneys and economist said.
“If you don’t have good guidance as to what to look for, it creates a big problem for the courts, and that makes the government more timid about bringing a case if they don’t have standards they can point to,” Carstensen said.
Changes will likely address concerns that arose in recent deals, including the DoJ’s failed suit to block telecom giant AT&T [NYSE:T] from acquiring content provider Time Warner, the sources said. In that case the court rejected the DoJ’s claim that competition would be hurt by the merger.
“The DoJ didn’t like losing the Time Warner/AT&T case,” the economist said. “One of the reasons to put out guidance like this is because you think the courts may have gotten it wrong.”
The Time Warner case demonstrated the need for updated guidelines as evidenced by the court’s uncritical acceptance of the parties’ efficiencies arguments, and its ruling against the DoJ despite the evidence of anticompetitive conduct, said University of Arizona Law Professor Barak Orbach.
While officials at the Department of Justice (DoJ) and Federal Trade Commission (FTC) have said separately that they are working on vertical guidelines, it is unclear whether they will issue joint or separate documents, as this news service previously reported.
Neither agency has provided a specific publication date for vertical guidelines and officials have wavered in public comments as to whether they are working together or separately on the matter. The DoJ and FTC declined to comment for this story.
Public in-fighting between the DoJ and FTC is very likely exacerbating work on the guidelines, all of the sources said. Evidence of this includes a Qualcomm [NASDAQ:QCOM] case filed by the FTC that was later opposed by the DoJ.
Separate FTC and DoJ guidelines for vertical mergers would create significant challenges for attorneys counseling merging parties, given the unpredictability over which agency will review a transaction, the attorneys said.
by Esther D’Amico and Christopher Kane in Washington DC