July 21, 2023
When losing, some players seek to change the rules. Others seek to change the playing field. On July 19, 2023, the U.S. Department of Justice and the Federal Trade Commission (collectively, the “Agencies”) released much-anticipated proposed Merger Guidelines (the “Proposed Guidelines”), which, once finalized, will replace the Agencies’ 2010 Horizontal Merger Guidelines and the previously withdrawn 2020 Vertical Merger Guidelines. While prior merger guidelines generally represented consensus among lawyers and economists across administrations, the aggressive approach taken in the Proposed Guidelines risks undermining the credibility and persuasiveness of the guidelines as a tool for merging parties and judges.
The stated purpose of the Proposed Guidelines remains the same as their predecessors: to explain to antitrust practitioners and to judges how the Agencies will identify mergers that they allege violate the antitrust laws. However, the Proposed Guidelines include dramatic revisions that make it more likely that the Agencies will conclude that a much larger set of mergers harm competition and, if adopted by courts reviewing merger challenges by the Agencies, would significantly alter the M&A landscape.
The release of the Proposed Guidelines solidifies a stark transition towards an attempt for more aggressive merger enforcement by the Agencies that merging parties and antitrust practitioners have observed for several years. Despite purporting to reflect longstanding binding propositions of the law and developments in market realities, the Proposed Guidelines may be best understood as a formalizing of the Biden Administration’s Neo-Brandeisian antitrust analytical framework. While the Agencies will ultimately bear the burden of proving in merger litigations that courts should adopt the Proposed Guidelines, parties engaging in mergers or acquisitions, in particular those that are not prepared to litigate against the Agencies, will need to be mindful of the expanded factors under the Proposed Guidelines that the Agencies will use in analyzing transactions to determine if they purport to violate the federal antitrust laws. However, recent losses suffered by the FTC and DOJ in multiple merger enforcement actions attempting to push similar themes in court beg the question as to the likelihood of federal court judges embracing such a drastic shift in approach to merger review.
The Proposed Guidelines are subject to a 60-day comment period (which may be extended) followed by possible updates before being finalized, though we believe it unlikely that there will be material changes to the proposed framework.
Ten of the most significant aspects of the Proposed Guidelines are summarized below.
As was highly expected, the Proposed Guidelines reduce the threshold for a finding by the Agencies that a merger between two competitors is likely to substantially lessen competition. Under the 2010 Horizontal Merger Guidelines, the Agencies generally presumed that a merger between two competitors is likely to harm competition if it resulted in a post-merger level of concentration equivalent to four equal-sized firms (i.e., the merger resulted in the post-merger Herfindahl-Hirschman Index (HHI) being above 2,500). Under the Proposed Guidelines, the Agencies would generally presume that a merger is likely to substantially lessen competition if it (1) creates a firm with greater than 30% market share or (2) increases market concentration to the equivalent of between five or six equally sized competitors (i.e., resulting in a post-merger HHI above 1,800). In particular, any acquisition by a firm with a market share at or greater than 30% of a competitor with market share at or greater than 2% would be deemed presumptively anticompetitive. Both of these presumptions (laid out in more detail below) would significantly increase the number of mergers where the Agencies would find competitive harm and could seek to challenge.
Proposed Market Conditions for a Presumption of Harm for a Horizontal Merger
Threshold for Structural Presumption
Market HHI greater than 1,800
Change in HHI greater than 100
Merged Firm’s Market Share
Share greater than 30%
Change in HHI greater than 100
Both the 2010 Horizontal Merger Guidelines and the Proposed Guidelines note the potential harm to competition that may result from a merger that increases the risk of coordination among the remaining firms. The Proposed Guidelines take this theory one step further and introduce a new presumption for when a merger results in market conditions that are susceptible to coordinated action. Under the Proposed Guidelines, the Agencies will presume a merger increases the likelihood of coordination if any of the following three market conditions are present: (1) a highly concentrated market (i.e., a market with post-merger HHI greater than 1,800), (2) there has been prior actual or attempted coordination among market participants or (3) the merger would eliminate a “maverick” (i.e., a firm with a “disruptive” presence in the market). This is a significant departure from the 2010 Guidelines, which only said that the Agencies were “likely” to challenge a transaction if all three of those market conditions were present. If the Proposed Guidelines are implemented, it is likely that the Agencies will seek to challenge more transactions using a coordinated effects theory.
The Proposed Guidelines also suggest that the Agencies will find that harm to competition is likely from an increasing number of vertical transactions (i.e., transactions involving firms at different levels of the supply chain). Under both the Proposed Guidelines and the short-lived 2020 Vertical Merger Guidelines, the Agencies indicated they would be looking for transactions where it was likely that the combined firm had the incentive and ability to foreclose its competitors’ access to a vital input or distribution stream. However, the Proposed Guidelines introduce a new structural presumption where the Agencies will presume that a vertical transaction is likely to substantially lessen competition for any transaction where the “foreclosure share” (i.e., the combined firm’s market share for the product that it could foreclose) is above 50%. Whether this presumption will be followed by courts reviewing merger challenges remains a serious question as the Agencies have not successfully litigated a vertical merger in recent years.
The now-withdrawn 2020 Vertical Merger Guidelines contained a section articulating the procompetitive benefits that are often associated with vertical mergers. The most notable procompetitive benefit from vertical integration is the elimination of double marginalization, which suggests that the merged firm will incur lower costs for the upstream input than the downstream firm would have paid absent the merger, and these lower costs may be passed down to consumers. The Proposed Guidelines do not include any specific mention of the procompetitive benefits of vertical mergers or the elimination of double marginalization. This suggests the Agencies are unlikely to give these potential consumer benefits much weight in deciding whether to challenge a vertical merger.
In recent years, the Agencies have devoted more attention to transactions that may remove a potential entrant or a nascent competitor. The Agencies believe these transactions are likely to substantially lessen competition because, absent the transaction, there could have been increased competition in the market in the future. The Proposed Guidelines include new provisions specifically laying out these theories. Specifically, when a transaction takes place in a concentrated market (i.e., a market with HHI greater than 1,800), the elimination of a potential entrant may be viewed as likely to substantially lessen competition. Moreover, the Agencies’ assessment of the reasonable probability of entry to a market would focus more on the feasibility for such entry than on the actual likelihood of entry.
Recent public statements by the leaders of the Agencies have emphasized an increased focus on potential harms to labor markets resulting from mergers. The Proposed Guidelines include new provisions specifically noting the Agencies’ focus on whether a transaction is likely to involve two competing buyers of labor. Under the Proposed Guidelines, the Agencies will use the same tools used to analyze other horizontal transactions with respect to labor markets with a specific focus on whether the transaction is likely to result in lower wages or slower wage growth, worsen benefits or working conditions or result in other degradations of workplace quality. The recently proposed new HSR Form requiring production of various pieces of data related to workforce categories, commuting zones and workplace safety violations similarly reflect an emphasis on potential labor market effects arising from transactions. This is one area where the Agencies have been successful in court, with the Department of Justice’s successful effort to block Penguin Random House’s proposed acquisition of Simon & Schuster, which a court found would result in a substantial lessening of competition for the labor of authors.
The Proposed Guidelines seek to clarify the Agencies’ views on transactions involving multi-sided platforms. A platform is a business that provides different products and services to two or more different groups of customers who may benefit from each other’s participation. The most notable platforms are services offered by large technology companies. Under the Proposed Guidelines, the Agencies will analyze mergers involving platforms by assessing competition between platforms, competition on a platform and competition to displace the platform. Agencies will also focus on whether the transaction creates a potential conflict of interest for the platform operator by increasing the platform operator’s participation in competition on the platform.
Private equity firms have also been a particular focus of recent agency investigations. In particular, the Agencies have been concerned about efforts by private equity firms to concentrate certain sectors using “roll-up” strategies. Roll-up strategies involve multiple transactions where a single buyer acquires many companies in the same sector. The Proposed Guidelines take aim at these strategies with a new section noting that “a firm that engages in an anticompetitive pattern or strategy of multiple small acquisitions in the same or related business lines may violate [the antitrust laws], even if no single acquisition on its own would risk substantial lessening of competition.” Thus, the Agencies propose to challenge transactions in industries where there “is a trend towards concentration” before the industry concentration hits the 1,800 mark on the HHI Index. Additionally, when a merger is deemed part of a strategy for multiple acquisitions, under the Proposed Guidelines, the Agencies are likely to threaten to challenge transactions based on the impact of the cumulative “strategy of pursuing consolidation through acquisition.”
Under the Proposed Guidelines, any firm that possess 30% or greater share in a market will be considered to have a “dominant” position. When assessing transactions involving firms with a dominant position, the Agencies will evaluate whether the transaction is likely to entrench the dominant position or extend that dominant position to a related market—regardless of whether the transaction involves a horizontal acquisition of a competitor. Entrenching a dominant position would include, for example, increasing barriers to entry, increasing switching costs or eliminating a nascent competitive threat. These theories, in particular the theory of extending a dominant position to a related market, have not been litigated in recent years and it remains to be seen whether courts will adopt the Agencies’ positions. The Federal Trade Commission’s pending case seeking to block Amgen’s proposed acquisition of Horizon Therapeutics may be a telling case for how courts will interpret these theories.
While much of the treatment of efficiencies claims remains unchanged in the Proposed Guidelines, the Proposed Guidelines specifically note that the Agencies believe that possible efficiencies are not a defense to illegality of a merger. This is a significant departure from the 2010 Horizontal Merger Guidelines, which said that the Agencies “will not challenge a merger if cognizable efficiencies are of a character and magnitude that the merger is not likely to be anticompetitive in any relevant market.” The Proposed Guidelines are consistent with recent positions taken by the Agencies in court and reflect an increased skepticism of any efficiencies claims by merging parties.
While the Agencies’ effort to build a new playing field for the examination of mergers is certainly bold, pursuing a strategy of dramatic and wholesale rewrite of a largely consensus-driven prior approach risks casting the Proposed Guidelines as an overreach, not reflective of more modern case law. Ultimately, judges may not come to view this new framework as a sensible evolution of the framework through which mergers should be examined. Instead, judges may view the Proposed Guidelines as merely another advocacy brief cited by the Agencies. But citing one’s own opinion doesn’t make it more persuasive. Nevertheless, merging parties will need to play on this new playing field, at least until they are able to have their case reviewed by a judge.
 U.S. Dep’t of Justice & Fed. Trade Comm’n, Draft Merger Guidelines (proposed July 19, 2023) (hereinafter “Proposed Guidelines”).
 For the first time since merger guidelines were issued in 1968, the Proposed Merger Guidelines include citations to case law. Additionally, both Assistant Attorney General Jonathan Kanter of the DOJ and Chairwoman Khan of the FTC have noted in interviews with CNBC on July 19, 2023, that in drafting the Proposed Merger Guidelines, their respective agencies reviewed every litigated merger decision that resulted in a decision from an appellate court or the Supreme Court. The citations used by the Agencies refer mostly to cases from the 1960s, 1970s or earlier, and there is little mention of more recent cases that may take a contrasting view with the proposed revisions.
 Proposed Guidelines, at 6; see also FTC and DOJ Seek Comment on Draft Merger Guidelines, July 19, 2023 (the Agencies noting in their press release they had sought and received over 5,000 comments and conducted four listening sessions in preparation for the Proposed Merger Guidelines).
 The “New Brandeis” movement, started by a group of academic scholars and lawyers, believes that recent merger enforcement, with its focus on the consumer welfare standard, has led to extreme and growing concentration in many sectors of the economy, leading to inequality and other ills. See L. Khan, “The New Brandeis Movement: America’s Antimonopoly Debate,” Journal of European Competition Law & Practice, Volume 9, Issue 3 (March 2018).
 See, e.g., FTC v. Microsoft Corp., No. 23-cv-02880-JSC, 2023 WL 4443412 (N.D. Cal. July 10, 2023) (denying FTC request for a preliminary injunction seeking to block Microsoft/Activision vertical transaction); FTC v. Meta Platforms, Inc., No. 5:22-cv-04325-EJD, 2023 WL 2346238 (N.D. Cal. Feb. 3, 2023) (denying FTC request for a preliminary injunction seeking to block Meta/Within horizontal transaction involving potential entrant); United States v. Booz Allen Hamilton, Inc., No. CCB-22-1603, 2022 WL 9976035 (D. Md. Oct. 17, 2022) (denying DOJ action for permanent injunction seeking to block Booz Allen Hamilton/EverWatch horizontal transaction); United States v. U.S. Sugar Corp., No. 21-1644 (MN), 2022 WL 4544025 (D. Del. Sept. 28, 2022) (denying DOJ action for permanent injunction seeking to block U.S. Sugar/Imperial Sugar horizontal transaction); United States v. UnitedHealth Group Inc., 630 F.Supp.3d 118 (D.D.C. 2022) (denying DOJ action for permanent injunction seeking to block UnitedHealth/Change Healthcare horizontal/vertical transaction).
 The Agencies measure concentration levels using the Herfindahl-Hirschman Index (HHI), which is defined as the sum of the squares of the market shares for firms in a particular market. The HHI is small when there are many small firms in a market and grows larger as a market becomes more concentrated, reaching 10,000 if a market is controlled by a single firm.
 Coordination involves conduct by multiple firms that is profitable for each of them only as a result of the accommodating reactions of competitors in the market that are contrary to the incentive to offer customers lower prices, increased output or improved service. Coordination can either be explicit (e.g., through collusive agreements such as price-fixing or wage-fixing agreements) or it can be tacit (through observation and response to competitors).
 See, e.g., FTC v. Microsoft Corp., No. 23-cv-02880-JSC, 2023 WL 4443412 (N.D. Cal. July 10, 2023); United States v. UnitedHealth Group Inc., 630 F. Supp. 3d 118 (D.D.C. 2022); United States v. AT&T, Inc., 310 F. Supp. 3d 161 (D.D.C. 2018) (denying DOJ action for permanent injunction seeking to block AT&T/Time Warner vertical transaction).
 See Fed. Trade Comm’n, Statement of Chair Lina M. Khan, Commissioner Rohit Chopra, and Commissioner Rebecca Kelly Slaughter on the Withdrawal of the Vertical Merger Guidelines, FTC File No. P810034 (Sep. 15, 2021), (“As an immediate step, the FTC is withdrawing its approval of the Vertical Merger Guidelines issued in 2020 (‘2020 VMGs’) to prevent further industry or judicial reliance on certain flawed provisions. In particular, the 2020 VMGs’ flawed discussion of the purported procompetitive benefits (i.e., efficiencies) of vertical mergers, especially its treatment of the elimination of double marginalization (‘EDM’), could become difficult to correct if relied on by courts.”).
 Ben Gris et al., “Proposed Overhaul of HSR Form will Dramatically Increase Burden on Filers,” Shearman & Sterling LLP: Perspectives (June 30, 2021).
 Proposed Guidelines at 22.
 Id. at 21; see also Section 1 above for discussion of HHI thresholds for structural presumptions of anticompetitive transactions.
 Proposed Guidelines at 23.
 Complaint, FTC v. Amgen, Inc., No. 23-CV-3053 (N.D. Ill. May 16, 2023).
 Under both the 2010 Horizontal Merger Guidelines and the Proposed Guidelines, any claimed efficiencies must be (1) merger-specific, (2) verifiable and (3) cognizable for the Agencies to consider them in determining the likely competitive effects of a transaction.