revising the doj / ftc horizontal merger guidelines
DESCRIPTION
Slides prepared for a PLI webcast, "Revising the DOJ/FTC Horizontal Merger Guidelines: What is at Stake?" January 25, 2010TRANSCRIPT
11
PLI BriefingPLI Briefing
January 25, 2010January 25, 2010
Revising the Revising the
DOJ/FTC Horizontal Merger Guidelines:DOJ/FTC Horizontal Merger Guidelines:
What is at Stake?What is at Stake?
Mary L. Mary L. AzcuenagaAzcuenaga M. Howard MorseM. Howard Morse
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AGENDAAGENDA
1.1. Why merger guidelines are neededWhy merger guidelines are needed
2.2. History of the guidelinesHistory of the guidelines
3.3. The current guidelinesThe current guidelines
4.4. The merger guidelines review projectThe merger guidelines review project
5.5. The scope of the reviewThe scope of the review
6.6. Substantive focus of the reviewSubstantive focus of the review
7.7. PredictionsPredictions
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Why Merger Guidelines?Why Merger Guidelines?
�� No bright line answers in the lawNo bright line answers in the law
�� Explain analytical framework used by DOJ/FTC to assess Explain analytical framework used by DOJ/FTC to assess
whether a merger or acquisition may lead to a whether a merger or acquisition may lead to a
substantial lessening of competitionsubstantial lessening of competition
�� How to determine whether a transaction will likely How to determine whether a transaction will likely
increase market power and result in higher prices, less increase market power and result in higher prices, less
innovation, lower quality or less serviceinnovation, lower quality or less service
44
The Past as PreludeThe Past as Prelude
19841984
DOJ Merger DOJ Merger
GuidelinesGuidelines
____________________
6/14/846/14/84
Paul McGrathPaul McGrath
__________________
Treatment of Treatment of
ImportsImports
Most Recent Most Recent
Analysis of NonAnalysis of Non--
Horizontal MergersHorizontal Mergers
19821982
FTC Statement FTC Statement
Concerning Concerning
Horizontal Horizontal
MergersMergers
__________________
6/14/826/14/82
James MillerJames Miller
____________________
Considerable Considerable
Weight to DOJ Weight to DOJ
GuidelinesGuidelines
Greater Greater
Consideration of Consideration of
Evidence Beyond Evidence Beyond
Market ShareMarket Share
19821982
DOJ Merger GuidelinesDOJ Merger Guidelines
__________________
6/14/826/14/82
William BaxterWilliam Baxter
________________
Hypothetical Monopolist Hypothetical Monopolist
(SSNIP)(SSNIP)
HerfindahlHerfindahl--Hirschman Hirschman
Index (HHI)Index (HHI)
Expanded Discussion of Expanded Discussion of
Other FactorsOther Factors
19681968
DOJ Merger DOJ Merger
GuidelinesGuidelines
__________________
5/30/685/30/68
Donald TurnerDonald Turner
________________
Issuance of Issuance of
GuidelinesGuidelines
Concentration and Concentration and
Market Share Market Share
ThresholdsThresholds
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The Past as Prelude (cont’d)The Past as Prelude (cont’d)
2010/20112010/2011
??
____________________
Christine VarneyChristine Varney
Jon LeibowitzJon Leibowitz
____________________
??
20062006
DOJ/FTC Commentary DOJ/FTC Commentary
on the Horizontal on the Horizontal
Merger GuidelinesMerger Guidelines
______________________
3/27/063/27/06
Thomas BarnettThomas Barnett
Deborah Deborah MajorasMajoras
____________________
Integrated ApproachIntegrated Approach
Unilateral Effects Unilateral Effects
TheoriesTheories
ExamplesExamples
19971997
DOJ/FTC Horizontal DOJ/FTC Horizontal
Merger GuidelinesMerger Guidelines
________________
4/8/974/8/97
Joel KleinJoel Klein
Robert PitofskyRobert Pitofsky
________________________
EfficienciesEfficiencies
19921992
DOJ/FTC Horizontal DOJ/FTC Horizontal
Merger GuidelinesMerger Guidelines
________________
4/2/924/2/92
James RillJames Rill
Janet Janet SteigerSteiger
________________
Joint DOJ + FTC Joint DOJ + FTC
GuidelinesGuidelines
Timely, likely and Timely, likely and
sufficient entrysufficient entry
Coordinated Coordinated
Interaction /Interaction /
Unilateral EffectsUnilateral Effects
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Market Share ThresholdsMarket Share Thresholds
�� 1968 1968
�� Highly Concentrated (4 firm CR >75%)Highly Concentrated (4 firm CR >75%)
�� 10% + 2%10% + 2%
�� Less Highly Concentrated (4 firm CR <75%)Less Highly Concentrated (4 firm CR <75%)
�� 5 % + 5%5 % + 5%
�� 10% + 4%10% + 4%
�� 1982 1982
�� Highly Concentrated (postHighly Concentrated (post--merger HHI>1800)merger HHI>1800)
�� Change > 100 Change > 100 –– likely to challengelikely to challenge
�� Change 50 Change 50 –– 100 ?100 ?
�� Change < 50 Change < 50 –– unlikely to challengeunlikely to challenge
�� HHI Between 1000 and 1800HHI Between 1000 and 1800
�� Change > 100 more likely than notChange > 100 more likely than not
�� Change < 100 unlikely to challengeChange < 100 unlikely to challenge
�� UnUn--concentrated (postconcentrated (post--merger HHI <1000)merger HHI <1000)
�� Unlikely to challengeUnlikely to challenge
�� Leading firm ProvisoLeading firm Proviso
�� 2010 ?2010 ?
�� 15% + 3%15% + 3%
�� 20% + 2%20% + 2%
�� 4% + 4%4% + 4% �� 15% + 1%15% + 1%
�� 25% + 1%25% + 1%
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The Likelihood of ChallengeThe Likelihood of Challenge
�� 1968 “will ordinarily challenge”1968 “will ordinarily challenge”
�� 1982 “likely to challenge”1982 “likely to challenge”
“more likely than not”“more likely than not”
“unlikely to challenge”“unlikely to challenge”
�� 19841984 “likely to challenge”“likely to challenge”
“unless the Department concludes … that the merger is not likely“unless the Department concludes … that the merger is not likely substantially substantially
to lessen competition”to lessen competition”
“will not challenge … except in extraordinary circumstances”“will not challenge … except in extraordinary circumstances”
�� 19921992 “presumed likely to create or enhance market power or facilitate“presumed likely to create or enhance market power or facilitate its exercise”its exercise”
“potentially raise significant competitive concerns, depending o“potentially raise significant competitive concerns, depending on [other] n [other]
factors”factors”
“unlikely to have adverse effects and ordinarily requires no fur“unlikely to have adverse effects and ordinarily requires no further analysis”ther analysis”
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The Likelihood of Challenge (cont’d)The Likelihood of Challenge (cont’d)
�� 19921992 “The Guidelines are designed primarily to articulate the analyt“The Guidelines are designed primarily to articulate the analyticalical
framework… not to describe how the Agency will conduct the framework… not to describe how the Agency will conduct the
litigation of cases that it decides to bring… do not attempt to litigation of cases that it decides to bring… do not attempt to assign assign
the burden of proof”the burden of proof”
“market share and concentration data provide only the starting “market share and concentration data provide only the starting
point for analyzing the competitive impact of a merger”point for analyzing the competitive impact of a merger”
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A Response to Court DecisionsA Response to Court Decisions
�� 19681968
�� Philadelphia National Bank (1963)Philadelphia National Bank (1963)
�� Von’s Grocery (1966)Von’s Grocery (1966)
�� Pabst (1966)Pabst (1966)
�� Proctor & Gamble (1967)Proctor & Gamble (1967)
“the only consistency is that the government always wins”“the only consistency is that the government always wins”
�� 19821982
�� General Dynamics (1974)General Dynamics (1974)
�� 19841984
�� 19921992
�� Baker Hughes (1990) / Baker Hughes (1990) / SyufySyufy (1990)(1990)
�� 20102010
�� SungardSungard (2001) / Arch Coal (2004) / Oracle (2004) / Western Refinery (2(2001) / Arch Coal (2004) / Oracle (2004) / Western Refinery (2007)007)
1010
The Current 5The Current 5--Step Analytical FrameworkStep Analytical Framework
CONCENTRATION
depends on
product / geographic market definition,
only a “starting point for analysis”
ENTRY
timely, likely and sufficient
to deter or counteract effects
UNILATERAL MARKET POWER
orCOORDINATED INTERACTION
EFFICIENCIES
lower costs, increased output or new products
enhance competition
BOTTOM LINE:
will prices rise, quality fall,
service decline or innovation slow
to detriment of consumers ?
1111
Why Review the Guidelines Now?Why Review the Guidelines Now?
�� To incorporate learning and experience gained To incorporate learning and experience gained
since 1992since 1992
�� To describe agency practice more accuratelyTo describe agency practice more accurately
�� To improve the usefulness of the guidelines as a To improve the usefulness of the guidelines as a
practical toolpractical tool
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The Merger Guidelines Review ProjectThe Merger Guidelines Review Project
�� Announced September 22, 2009Announced September 22, 2009
�� 20 Questions Posed20 Questions Posed
�� Invitation for Public Comment by Nov. 9, 2009Invitation for Public Comment by Nov. 9, 2009
�� 49 comments submitted to date49 comments submitted to date
�� Five Workshops December Five Workshops December -- JanuaryJanuary
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Scope of the ReviewScope of the Review
�� ““The Agencies anticipate retaining …”The Agencies anticipate retaining …”
�� the basic ‘hypothetical monopolist” testthe basic ‘hypothetical monopolist” test
�� the the HerfindahlHerfindahl--Hirschman Index (HHI) to measure concentrationHirschman Index (HHI) to measure concentration
�� the basic structural presumptionsthe basic structural presumptions
�� the basic timeliness, likelihood, sufficiency approach to entrythe basic timeliness, likelihood, sufficiency approach to entry
�� the fundamental approach to efficiencies and the failing firm dethe fundamental approach to efficiencies and the failing firm defensefense
�� See also C. Varney, “Merger Guidelines Workshops” (Sept. 22, 200See also C. Varney, “Merger Guidelines Workshops” (Sept. 22, 2009)9)
“Although I am not prejudging the process … I would not anticipa“Although I am not prejudging the process … I would not anticipate te
departing form some of the basic elements in the current Guidelideparting form some of the basic elements in the current Guidelines”nes”
1414
Questions for Public CommentQuestions for Public Comment
� Areas of Focus
1.1. FiveFive--step analytical approachstep analytical approach
2.2. Direct evidence of competitive effectsDirect evidence of competitive effects
actual effects, natural experiments, postactual effects, natural experiments, post--merger plans, evidence merger plans, evidence
from customers, headfrom customers, head--toto--head competition, historic actual and head competition, historic actual and
attempted coordinationattempted coordination
� Market Definition
3.3. Use of “critical loss analysis,” priceUse of “critical loss analysis,” price--cost margins to define marketscost margins to define markets
4.4. “Next best substitute” / smallest market” principle“Next best substitute” / smallest market” principle
5.5. 5% or 10% SSNIP5% or 10% SSNIP
6.6. Geographic markets based on location of affected customers as Geographic markets based on location of affected customers as
well as location where product is producedwell as location where product is produced
1515
Questions for Public Comment (cont’d)Questions for Public Comment (cont’d)
� Market Shares
7.7. Measurement of market sharesMeasurement of market shares
8.8. Market shares in dynamic markets technological changeMarket shares in dynamic markets technological change
9.9. HHI levelsHHI levels
� Unilateral effects
10.10. Recent learningRecent learning
localized effects, auctions, diversion ratios, simulation localized effects, auctions, diversion ratios, simulation
models, repositioningmodels, repositioning
11.11. Price discriminationPrice discrimination
1616
Questions for Public Comment (cont’d)Questions for Public Comment (cont’d)
�� OtherOther
12.12. Large buyersLarge buyers
13.13. Uncommitted vs. committed entryUncommitted vs. committed entry
14.14. Fixed vs. marginal cost efficienciesFixed vs. marginal cost efficiencies
15.15. NonNon--price effects / innovationprice effects / innovation
16.16. Minority interestsMinority interests
17.17. Failing firm / exiting assetsFailing firm / exiting assets
18.18. Remedies Remedies –– preserving prepreserving pre--merger competition, shortcomings merger competition, shortcomings
of behavioral remediesof behavioral remedies
19.19. ExamplesExamples
20.20. Retrospective studiesRetrospective studies
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Topics Discussed at the WorkshopsTopics Discussed at the Workshops
�� December 3 December 3 –– Washington, DCWashington, DC
�� Overview, Historical Perspectives, Role of GuidelinesOverview, Historical Perspectives, Role of Guidelines
�� Direct Evidence of Competitive EffectsDirect Evidence of Competitive Effects
�� Market DefinitionMarket Definition
�� Unilateral EffectsUnilateral Effects
�� December 8 December 8 –– New York, NYNew York, NY
�� International / State AuthoritiesInternational / State Authorities
�� Market Concentration and the Structural PresumptionMarket Concentration and the Structural Presumption
�� Minority Interests / Failing FirmsMinority Interests / Failing Firms
�� Merger RemediesMerger Remedies
1818
Topics Discussed at the Workshops (cont’d)Topics Discussed at the Workshops (cont’d)
�� December 10 December 10 –– Chicago, ILChicago, IL�� EntryEntry
�� Direct Evidence of Competitive EffectsDirect Evidence of Competitive Effects
�� Unilateral EffectsUnilateral Effects
�� EfficienciesEfficiencies
�� January 14 January 14 –– Stanford, CAStanford, CA�� Direct Evidence of Competitive EffectsDirect Evidence of Competitive Effects
�� Price Discrimination / Large BuyersPrice Discrimination / Large Buyers
�� Unilateral EffectsUnilateral Effects
�� Market Dynamics and InnovationMarket Dynamics and Innovation
�� January 26 January 26 –– Washington, DCWashington, DC�� Market Concentration and the Structural PresumptionMarket Concentration and the Structural Presumption
�� Price Discrimination / Large BuyersPrice Discrimination / Large Buyers
�� EntryEntry
�� Efficiencies / Merger RemediesEfficiencies / Merger Remedies
1919
PredictionsPredictions
�� When will new guidelines be issued?When will new guidelines be issued?
�� Will there be opportunity for comment on a draft?Will there be opportunity for comment on a draft?
�� Refinement rather than radical changeRefinement rather than radical change
�� Greater insight into agencies’ approachGreater insight into agencies’ approach
�� New economic toolsNew economic tools
�� Same outcomes but with better understandingSame outcomes but with better understanding
�� More guidance aimed at influencing courtsMore guidance aimed at influencing courts
2020
� Mary L. AzcuenagaBaker & McKenzie LLP
202-835-6143
� M. Howard MorseDrinker Biddle & Reath LLP
202-842-8883
2121
Mary L. AzcuenagaMary L. Azcuenaga
Mary L. AzcuenagaMary L. Azcuenaga joined Baker & McKenzie in Washington, D.C., as a Partner in thjoined Baker & McKenzie in Washington, D.C., as a Partner in the e Antitrust and Competition Practice Group in 2008. Prior to joinAntitrust and Competition Practice Group in 2008. Prior to joining Baker & McKenzie, Ms. ing Baker & McKenzie, Ms. Azcuenaga was a partner at Heller Ehrman LLP, where she served fAzcuenaga was a partner at Heller Ehrman LLP, where she served for six years as coor six years as co--chair of the firmwide Antitrust and Trade Regulation Practice Grchair of the firmwide Antitrust and Trade Regulation Practice Group. Prior to joining oup. Prior to joining Heller Ehrman, she served as a Commissioner of the U.S. Federal Heller Ehrman, she served as a Commissioner of the U.S. Federal Trade Commission for Trade Commission for nearly 14 years.nearly 14 years.
Ms. Azcuenaga focuses her practice in the area of antitrust, parMs. Azcuenaga focuses her practice in the area of antitrust, particularly mergers and ticularly mergers and acquisitions and the intersection of antitrust and intellectual acquisitions and the intersection of antitrust and intellectual property law. She property law. She represents clients throughout the Hartrepresents clients throughout the Hart--ScottScott--Rodino process and the antitrust review of Rodino process and the antitrust review of mergers and acquisitions before both the department of Justice amergers and acquisitions before both the department of Justice and the FTC. She hasnd the FTC. She haslitigated at the trial and appellate level, including the represlitigated at the trial and appellate level, including the representation of clients in the defense and prosecution of entation of clients in the defense and prosecution of
antitrust counterclaims in patent litigation.antitrust counterclaims in patent litigation.
Before her appointment as a Commissioner of the FTC, Ms. AzcuenaBefore her appointment as a Commissioner of the FTC, Ms. Azcuenaga spent more than eleven years at the FTC ga spent more than eleven years at the FTC
in various litigating and supervisory positions. In that capaciin various litigating and supervisory positions. In that capacity and as a Commissioner, she reviewed and handled ty and as a Commissioner, she reviewed and handled
matters in a full range of industries, including but not limitedmatters in a full range of industries, including but not limited to the pharmaceutical, medical devices, to the pharmaceutical, medical devices,
biotechnology laboratory products, biobiotechnology laboratory products, bio--engineered products, biometrics, software, internet infrastructuengineered products, biometrics, software, internet infrastructure, wireless re, wireless
infrastructure, data storage, data and einfrastructure, data storage, data and e--mail security, highmail security, high--quality radio frequency and microwave components, quality radio frequency and microwave components,
defense, information technology applications and consulting, condefense, information technology applications and consulting, construction materials, consumer and industrial struction materials, consumer and industrial
tools, large industrial equipment, electric utility, natural gastools, large industrial equipment, electric utility, natural gas, fishing, retail, cable television, and cruise line , fishing, retail, cable television, and cruise line
industries.industries.
Ms. Azcuenaga has authored numerous Federal Trade Commission opiMs. Azcuenaga has authored numerous Federal Trade Commission opinions and statements, articles, and nions and statements, articles, and
speeches, and has lectured widely in the field of antitrust.speeches, and has lectured widely in the field of antitrust.
Ms. Ms. AzcuenagaAzcuenaga is a graduate of the University of Chicago School of Law and Stis a graduate of the University of Chicago School of Law and Stanford University.anford University.
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M. Howard MorseM. Howard MorseHoward MorseHoward Morse is a Washingtonis a Washington--DC based partner and coDC based partner and co--chair of Drinker Biddle’s chair of Drinker Biddle’s Antitrust Practice Group. He regularly represents businesses befAntitrust Practice Group. He regularly represents businesses before the Federal Trade ore the Federal Trade Commission, the Department of Justice, and State Attorneys GenerCommission, the Department of Justice, and State Attorneys General in investigations al in investigations involving mergers, acquisitions and joint ventures as well as alinvolving mergers, acquisitions and joint ventures as well as alleged monopolization and leged monopolization and restraint of trade cases. He also counsels clients on antitrust restraint of trade cases. He also counsels clients on antitrust issues and represents issues and represents companies in private antitrust litigation.companies in private antitrust litigation.
Before joining the firm, Howard served for ten years at the FTC Before joining the firm, Howard served for ten years at the FTC as Deputy Assistant as Deputy Assistant Director for Policy and Assistant Director of the Bureau of CompDirector for Policy and Assistant Director of the Bureau of Competition. At the etition. At the Commission, he was responsible for more than 50 enforcement actiCommission, he was responsible for more than 50 enforcement actions including Hartons including Hart--ScottScott--Rodino Act civil penalty and merger enforcement actions in the pRodino Act civil penalty and merger enforcement actions in the pharmaceutical, harmaceutical, medical device, computer hardware and software, and other industmedical device, computer hardware and software, and other industries.ries.
Howard has been active for many years in the American Bar AssociHoward has been active for many years in the American Bar Association Section of Antitrust Law. He is currently ation Section of Antitrust Law. He is currently chair of the Section’s Federal Civil Enforcement Committee, whicchair of the Section’s Federal Civil Enforcement Committee, which monitors and reports on developments at the h monitors and reports on developments at the FTC and DOJ. He has previously served on the Section Council andFTC and DOJ. He has previously served on the Section Council and as chair of its Computer Industry, Intellectual as chair of its Computer Industry, Intellectual Property, and Exemptions and Immunities committees.Property, and Exemptions and Immunities committees.
Howard has testified before Congress, the Antitrust ModernizatioHoward has testified before Congress, the Antitrust Modernization Commission and the DOJ/FTC hearings on n Commission and the DOJ/FTC hearings on Competition and Intellectual Property Law and Policy in the KnowCompetition and Intellectual Property Law and Policy in the Knowledgeledge--Based EconomyBased Economy. He has published articles . He has published articles on such antitrust topics as innovation markets, vertical mergerson such antitrust topics as innovation markets, vertical mergers, “gun jumping,” and product market definition in , “gun jumping,” and product market definition in the pharmaceutical industry.the pharmaceutical industry.
Howard is listed as a leading antitrust lawyer in the Legal MediHoward is listed as a leading antitrust lawyer in the Legal Media Group’s Guide to the World’s Leading Lawyers a Group’s Guide to the World’s Leading Lawyers and in the and in the Chambers USA 2009 Guide Chambers USA 2009 Guide which describes him as “a tireless advocate for his clients" whowhich describes him as “a tireless advocate for his clients" who "impresses "impresses with his superb analytical and communications skills.”with his superb analytical and communications skills.”
Howard is a summa cum laude graduate of Dartmouth College and cuHoward is a summa cum laude graduate of Dartmouth College and cum laude graduate of Harvard Law School.m laude graduate of Harvard Law School.