Revising the DOJ / FTC Horizontal Merger Guidelines
1. PLI Briefing
January 25, 2010
Revising the
DOJ/FTC Horizontal Merger Guidelines:
What is at Stake?
Mary L. Azcuenaga M. Howard Morse
1
2. AGENDA
1. Why merger guidelines are needed
2. History of the guidelines
3. The current guidelines
4. The merger guidelines review project
5. The scope of the review
6. Substantive focus of the review
7. Predictions
2
3. Why Merger Guidelines?
No bright line answers in the law
Explain analytical framework used by DOJ/FTC to assess
whether a merger or acquisition may lead to a
substantial lessening of competition
How to determine whether a transaction will likely
increase market power and result in higher prices, less
innovation, lower quality or less service
3
4. The Past as Prelude
1968 1982 1982 1984
DOJ Merger DOJ Merger Guidelines FTC Statement DOJ Merger
Guidelines _________ Concerning Guidelines
_________ 6/14/82 Horizontal __________
5/30/68 Mergers 6/14/84
William Baxter
Donald Turner _________ Paul McGrath
________
________ 6/14/82 _________
James Miller
Hypothetical Monopolist
Issuance of __________
(SSNIP)
Guidelines Treatment of
Considerable Imports
Herfindahl-Hirschman Weight to DOJ
Concentration and Index (HHI)
Market Share Guidelines
Most Recent
Thresholds Analysis of Non-
Expanded Discussion of Greater
Other Factors Horizontal Mergers
Consideration of
Evidence Beyond
Market Share 4
5. The Past as Prelude (cont’d)
1992 1997 2006 2010/2011
DOJ/FTC Horizontal DOJ/FTC Horizontal DOJ/FTC Commentary
Merger Guidelines Merger Guidelines on the Horizontal ?
________ ________ Merger Guidelines __________
4/2/92 4/8/97 ___________
James Rill Joel Klein 3/27/06 Christine Varney
Janet Steiger Robert Pitofsky Thomas Barnett Jon Leibowitz
________ ____________ Deborah Majoras __________
Joint DOJ + FTC Efficiencies __________
Guidelines Integrated Approach ?
Timely, likely and Unilateral Effects
sufficient entry Theories
Coordinated Examples
Interaction /
Unilateral Effects
5
6. Market Share Thresholds
1968
Highly Concentrated (4 firm CR >75%)
10% + 2% 4% + 4% 15% + 1%
Less Highly Concentrated (4 firm CR <75%)
5 % + 5% 15% + 3% 25% + 1%
10% + 4% 20% + 2%
1982
Highly Concentrated (post-merger HHI>1800)
Change > 100 – likely to challenge
Change 50 – 100 ?
Change < 50 – unlikely to challenge
HHI Between 1000 and 1800
Change > 100 more likely than not
Change < 100 unlikely to challenge
Un-concentrated (post-merger HHI <1000)
Unlikely to challenge
Leading firm Proviso
6
2010 ?
7. The Likelihood of Challenge
1968 “will ordinarily challenge”
1982 “likely to challenge”
“more likely than not”
“unlikely to challenge”
1984 “likely to challenge”
“unless the Department concludes … that the merger is not likely substantially
to lessen competition”
“will not challenge … except in extraordinary circumstances”
1992 “presumed likely to create or enhance market power or facilitate its exercise”
“potentially raise significant competitive concerns, depending on [other]
factors”
“unlikely to have adverse effects and ordinarily requires no further analysis”
7
8. The Likelihood of Challenge (cont’d)
1992 “The Guidelines are designed primarily to articulate the analytical
framework… not to describe how the Agency will conduct the
litigation of cases that it decides to bring… do not attempt to assign
the burden of proof”
“market share and concentration data provide only the starting
point for analyzing the competitive impact of a merger”
8
9. A Response to Court Decisions
1968
Philadelphia National Bank (1963)
Von’s Grocery (1966)
Pabst (1966)
Proctor & Gamble (1967)
“the only consistency is that the government always wins”
1982
General Dynamics (1974)
1984
1992
Baker Hughes (1990) / Syufy (1990)
2010
Sungard (2001) / Arch Coal (2004) / Oracle (2004) / Western Refinery (2007)
9
10. The Current 5-Step 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
or
COORDINATED 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 ?
10
11. Why Review the Guidelines Now?
To incorporate learning and experience gained
since 1992
To describe agency practice more accurately
To improve the usefulness of the guidelines as a
practical tool
11
12. The Merger Guidelines Review Project
Announced September 22, 2009
20 Questions Posed
Invitation for Public Comment by Nov. 9, 2009
49 comments submitted to date
Five Workshops December - January
12
13. Scope of the Review
“The Agencies anticipate retaining …”
the basic ‘hypothetical monopolist” test
the Herfindahl-Hirschman Index (HHI) to measure concentration
the basic structural presumptions
the basic timeliness, likelihood, sufficiency approach to entry
the fundamental approach to efficiencies and the failing firm defense
See also C. Varney, “Merger Guidelines Workshops” (Sept. 22, 2009)
“Although I am not prejudging the process … I would not anticipate
departing form some of the basic elements in the current Guidelines”
13
14. Questions for Public Comment
Areas of Focus
1. Five-step analytical approach
2. Direct evidence of competitive effects
actual effects, natural experiments, post-merger plans, evidence
from customers, head-to-head competition, historic actual and
attempted coordination
Market Definition
3. Use of “critical loss analysis,” price-cost margins to define markets
4. “Next best substitute” / smallest market” principle
5. 5% or 10% SSNIP
6. Geographic markets based on location of affected customers as
well as location where product is produced
14
16. Questions for Public Comment (cont’d)
Other
12. Large buyers
13. Uncommitted vs. committed entry
14. Fixed vs. marginal cost efficiencies
15. Non-price effects / innovation
16. Minority interests
17. Failing firm / exiting assets
18. Remedies – preserving pre-merger competition, shortcomings
of behavioral remedies
19. Examples
20. Retrospective studies
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17. Topics Discussed at the Workshops
December 3 – Washington, DC
Overview, Historical Perspectives, Role of Guidelines
Direct Evidence of Competitive Effects
Market Definition
Unilateral Effects
December 8 – New York, NY
International / State Authorities
Market Concentration and the Structural Presumption
Minority Interests / Failing Firms
Merger Remedies
17
18. Topics Discussed at the Workshops (cont’d)
December 10 – Chicago, IL
Entry
Direct Evidence of Competitive Effects
Unilateral Effects
Efficiencies
January 14 – Stanford, CA
Direct Evidence of Competitive Effects
Price Discrimination / Large Buyers
Unilateral Effects
Market Dynamics and Innovation
January 26 – Washington, DC
Market Concentration and the Structural Presumption
Price Discrimination / Large Buyers
Entry
Efficiencies / Merger Remedies
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19. Predictions
When will new guidelines be issued?
Will there be opportunity for comment on a draft?
Refinement rather than radical change
Greater insight into agencies’ approach
New economic tools
Same outcomes but with better understanding
More guidance aimed at influencing courts
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20. Mary L. Azcuenaga
Baker & McKenzie LLP
mary.l.azcuenaga@bakernet.com
202-835-6143
M. Howard Morse
Drinker Biddle & Reath LLP
howard.morse@dbr.com
202-842-8883
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21. Mary L. Azcuenaga
Mary L. Azcuenaga joined Baker & McKenzie in Washington, D.C., as a Partner in the the
Antitrust and Competition Practice Group in 2008. Prior to joining Baker & McKenzie, Ms.
joining
Azcuenaga was a partner at Heller Ehrman LLP, where she served for six years as co-
for co-
chair of the firmwide Antitrust and Trade Regulation Practice Group. Prior to joining
Group.
Heller Ehrman, she served as a Commissioner of the U.S. Federal Trade Commission for
nearly 14 years.
Ms. Azcuenaga focuses her practice in the area of antitrust, particularly mergers and
particularly
acquisitions and the intersection of antitrust and intellectual property law. She
represents clients throughout the Hart-Scott-Rodino process and the antitrust review of
Hart- Scott-
mergers and acquisitions before both the department of Justice and the FTC. She has
and
litigated at the trial and appellate level, including the representation of clients in the defense and prosecution of
representation
antitrust counterclaims in patent litigation.
Before her appointment as a Commissioner of the FTC, Ms. Azcuenaga spent more than eleven years at the FTC
Azcuenaga
in various litigating and supervisory positions. In that capacity and as a Commissioner, she reviewed and handled
capacity
matters in a full range of industries, including but not limited to the pharmaceutical, medical devices,
biotechnology laboratory products, bio-engineered products, biometrics, software, internet infrastructure, wireless
bio- infrastructure,
infrastructure, data storage, data and e-mail security, high-quality radio frequency and microwave components,
e- high-
defense, information technology applications and consulting, construction materials, consumer and industrial
construction
tools, large industrial equipment, electric utility, natural gas, fishing, retail, cable television, and cruise line
gas,
industries.
Ms. Azcuenaga has authored numerous Federal Trade Commission opinions and statements, articles, and
opinions
speeches, and has lectured widely in the field of antitrust.
Ms. Azcuenaga is a graduate of the University of Chicago School of Law and Stanford University.
Stanford
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22. M. Howard Morse
Howard Morse is a Washington-DC based partner and co-chair of Drinker Biddle’s
Washington- co-
Antitrust Practice Group. He regularly represents businesses before the Federal Trade
before
Commission, the Department of Justice, and State Attorneys General in investigations
General
involving mergers, acquisitions and joint ventures as well as alleged monopolization and
alleged
restraint of trade cases. He also counsels clients on antitrust issues and represents
companies in private antitrust litigation.
Before joining the firm, Howard served for ten years at the FTC as Deputy Assistant
Director for Policy and Assistant Director of the Bureau of Competition. At the
Competition.
Commission, he was responsible for more than 50 enforcement actions including Hart-
actions Hart-
Scott-Rodino Act civil penalty and merger enforcement actions in the pharmaceutical,
Scott- pharmaceutical,
medical device, computer hardware and software, and other industries.
industries.
Howard has been active for many years in the American Bar Association Section of Antitrust Law. He is currently
Association
chair of the Section’s Federal Civil Enforcement Committee, which monitors and reports on developments at the
which
FTC and DOJ. He has previously served on the Section Council and as chair of its Computer Industry, Intellectual
Property, and Exemptions and Immunities committees.
Howard has testified before Congress, the Antitrust Modernization Commission and the DOJ/FTC hearings on
Modernization
Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy. He has published articles
Knowledge-
on such antitrust topics as innovation markets, vertical mergers, “gun jumping,” and product market definition in
mergers,
the pharmaceutical industry.
Howard is listed as a leading antitrust lawyer in the Legal Media Group’s Guide to the World’s Leading Lawyers
Media
and in the Chambers USA 2009 Guide which describes him as “a tireless advocate for his clients" who "impresses
with his superb analytical and communications skills.”
Howard is a summa cum laude graduate of Dartmouth College and cum laude graduate of Harvard Law School.
cum
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