Antitrust Law Daily Draft vertical merger guidelines released by FTC and Antitrust Division
Monday, January 13, 2020

Draft vertical merger guidelines released by FTC and Antitrust Division

By Peter Reap, J.D., LL.M.

Agencies seek public comment through February 11 on the proposed guidelines describing how vertical mergers are evaluated for compliance with the antitrust laws. Democratic FTC commissioners express concerns.

The FTC and the Department of Justice Antitrust Division have released for public comment draft 2020 Vertical Merger Guidelines, describing how the federal antitrust agencies review vertical mergers to evaluate whether the mergers violate the antitrust laws. The draft guidelines outline the agencies’ principal analytical techniques, practices, and enforcement policy for vertical mergers. They are intended to assist the business community and antitrust practitioners by increasing the transparency of the analytical process underlying the agencies’ enforcement decisions and may also assist the courts in developing an appropriate framework for interpreting and applying the antitrust laws, according to the announcement.

Vertical mergers combine two or more companies that operate at different levels in the same supply chain. In early 2019, both FTC Chairman Joe Simons and Makan Delrahim, Assistant Attorney General in charge of the Department of Justice Antitrust Division, said that their agencies were looking into providing guidance to practitioners and business on vertical mergers at the ABA Section of Antitrust Law Spring Meeting. The newly released draft 2020 Vertical Merger Guidelines should be read in conjunction with the previously released (2010) Horizonal Merger Guidelines because they adopt the principles and analytical frameworks used to assess horizontal mergers, the analytic framework for evaluating entry considerations, the treatment of the acquisition of a failing firm or its assets, and the acquisition of a partial ownership interest.

In any merger enforcement action involving a vertical merger, the sections of the draft guidelines outline how the agencies will normally approach certain considerations including:

  • Market definition and related products—guided by certain provisions of the Horizontal Merger Guidelines, the agencies will identify relevant markets and related products;
  • Market participants, market shares, and market concentration—in evaluating competitive effects, the agencies may consider market shares and concentration, using the methodology set out in the Horizontal Merger Guidelines;
  • Evidence of adverse competitive effects—describes the types of evidence used by the agencies to address the central question of whether a merger under review will substantially lessen competition;
  • Unilateral effects—common types of unilateral effects arising from vertical mergers are discussed, such as (a) foreclosure and raising rivals’ costs, and (b) access to competitively sensitive information;
  • Elimination of double marginalization—describes how the agencies assess whether and how the merger eliminates double marginalization which can occur when two vertically related firms that individually charge a profit maximizing margin on their products choose to merge;
  • Coordinated effects—describes how the agencies evaluate coordinated effects, in particular referring to sections of the HMG, when a vertical merger diminishes competition by enabling or encouraging post-merger coordinated interaction among firms in the relevant market that harms consumers; and
  • Efficiencies—the agencies will evaluate any efficiency claims by the parties in conjunction with Section 10 of the HMG.

In announcing the request for comments, Delrahim stated that: "The revised draft guidelines are based on new economic understandings and the agencies’ experience over the past several decades and better reflect the agencies’ actual practice in evaluating proposed vertical mergers. Once finalized, the Vertical Merger Guidelines will provide more clarity and transparency on how we review vertical transactions. I look forward to receiving comments on these draft guidelines and working with the Federal Trade Commission in finalizing them."

Divided FTC. FTC Chairman Simons observed that: "Challenging anticompetitive vertical mergers is essential to vigorous enforcement. The agencies’ vertical merger policy has evolved substantially since the issuance of the 1984 Non-Horizontal Merger Guidelines, and our guidelines should reflect the current enforcement approach. Greater transparency about the complex issues surrounding vertical mergers will benefit the business community, practitioners, and the courts. We invite comments from all stakeholders to help ensure that the guidelines clearly and accurately convey the agencies’ antitrust enforcement policy with respect to vertical mergers." Commissioner Christine S. Wilson issued a concurring statement.

FTC Commissioners Rebecca Kelly Slaughter and Rohit Chopra issued statements as they abstained from the vote approving the publication of the draft guidelines and to solicit comment, which was 3-0-2. Slaughter pointed to two primary objections: (1) the effective safe harbor for firms with less than 20 percent market share, and (2) the departure from Section 7 of the Clayton Act’s mandate to stop anticompetitive mergers in their incipiency. Chopra said that the proposed guidelines were "not comprehensive or reflective of modern economic realities."

Comments on the draft guidelines can be submitted to VMG Comments, and must be received no later than February 11, 2020.

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