The Federal Trade Commission (FTC) and the Department of Justice’s (DOJ) Antitrust Division announced this Tuesday, January 18, 2022, that they are seeking public comment on revising their merger guidelines. Public comments on the agencies’ questions are due on March 21, 2022.
FTC Chair Lina M. Khan followed up this announcement with an appearance Wednesday on CNBC, where she said that the growth of new technologies has changed market dynamics and that the agencies need to see if the tools and frameworks they use still map onto market realities. She said they are looking to identify blind spots, mentioning tech, as well as monopsony or labor effects. She expressed particular interest in “muscl[ing] up” the ability to show that companies have market or monopoly power, even if they are not charging prices, citing privacy degradation as an example. She also addressed companies that use their marketplaces to sell both their own products and others’ products, asserting that Congress has set rules requiring the separation of banking and commerce because it does not want banks competing with merchants that depend on them, and stating that it will be important to think about those types of “problematic dynamics” in such markets.
The agencies’ questions for public comment ask about every aspect of the merger review process. They range from the foundational (do the current guidelines reflect congressional intent?) to the tactical (what evidence should the agencies rely on?). They ask about mergers with nascent competitors; mergers that affect innovation, IP and digital markets; mergers that affect labor markets; and more.
The announcement is framed as merely soliciting information from the public to assist the agencies as they consider revisions to the guidelines. But the thrust of the questions strongly suggests that the agencies view the current guidelines as too permissive and are considering ways to both strengthen the agencies’ hand during the merger review process and to lower the substantive bar that the agencies must clear to successfully challenge mergers. Many of these issues could have immediate practical consequences for some deals. Two examples:
- Efficiencies. The agencies question whether efficiencies and synergies are relevant at all in considering the competitive effects of a merger, both from a factual (i.e., whether long-term cost savings from mergers actually occur) and legal (i.e., whether efficiencies can ever be a defense) perspective. And the questions link traditionally recognized efficiencies to potential public interest concerns, such as whether merger-related capacity reduction efficiencies may in fact relate to supply chain issues (i.e., asking whether the “potential for capacity reductions” may reduce the “resilience of supply”).
- Divestitures. The agencies also ask whether there should be deadlines for merging parties to propose divestitures. Parties “often” propose divestiture or other partial remedy proposals only after the agencies have “expended significant resources” investigating the deal, the agencies said. As a practical matter, rules such as this might make it hard for parties to propose divestiture or other partial remedies later in the process. It’s unclear, though, what effect that would have if the agencies challenge the deal in court, since the parties would likely present their divestiture or partial remedy to the court regardless.
The agencies’ questions are sweeping in scope, but along the way, they call out a few acquisition practices, market types, and business models in particular. A few worth noting:
- Serial acquisitions/roll ups. The agencies ask whether their statutory mandate is to “prevent monopolies in their incipiency such as through serial acquisitions, including rollups.”
- Private equity. The agencies ask if the guidelines’ approach to private equity acquisitions is adequate, and if not, what changes should they make.
- Tippy markets. The agencies ask how the guidelines should consider mergers in markets that are “subject to tipping toward oligopoly or monopoly, such as may result from significant network effects."
- Interoperability. The agencies ask how the guidelines should account for “multihoming or interoperability,” and whether that can “offset competitive concerns."
- Bargaining, auctions, bundled products, and cluster markets. The agencies ask about the adequacy of their analysis of each of these markets and practices.
- Common ownership. The agencies ask if the guidelines’ approach to common ownership and horizontal stockholding is adequate, and if not, what changes should be made.
After reviewing public comments, the agencies will release updated draft guidelines for further comment before issuing final guidelines.