On September 13, Deputy Attorney General Jonathan Kanter delivered a remark[1] at the Antitrust Law Symposium in Georgetown, under his leadership focusing primarily on merger control enforcement at the Department of Justice (DOJ). After touting the Antitrust Division’s increased appetite for merger control in the 10 months since his appointment, he made good on a promise that negotiated divestitures should be “the exception, not the rule.”[2] Kanter previewed the DOJ’s thoughts as it works with the Federal Trade Commission (FTC) to update their joint guidelines for horizontal mergers and vertical mergers. President Biden instructed agencies to review merger guidelines in his 2021 executive order on promoting competition in America’s economy.[3]
Two themes emerged from Kanter’s remarks that point to likely targets of the new merger guidelines: that speculative theories of harm are sufficient to block a transaction under the Clayton Act, and that sometimes direct evidence of competitive dynamics can supplant a structural concentration analysis in a sophisticatedly defined one Market.
First, Kanter claimed that regulators interpreted antitrust laws too narrowly. According to his critique, the agencies erred in “treating illegality testing as essentially a balance of reason rulebook,” as if a challenge could only succeed if regulators “explored the exact implications of a merger on… concretely predict prices.” The finding, he argued, “violates a law that was intended to be prophylactic.” Instead, Kanter claimed that the law is not limited to mergers where regulators see precise, tangible harm to the market Citing the 1990 Supreme Court decision in California versus American storesKanter claimed that Section 7 provides “a relatively broad definition of antitrust liability” that requires the regulator “only to demonstrate its effectiveness perhaps to significantly reduce competition.” Kanter specifically noted that the court italicized the words “may be” to emphasize that speculative theories of harm should be sufficient to block a Clayton Act deal.
Second, Kanter indicated that agencies should consider direct evidence as an alternative to concentration analysis in a relevant market. He made it clear that increased concentration in a highly concentrated market should still lead to the well-known “structural conjecture” that “always points to a prima facie Risk of oligopoly behavior.” However, Kanter emphasized that regulators are “obsessed with market definition” and argued that they do not need to “focus on the structure of the market” to argue against a merger. In some cases, Kanter wants regulators to look for direct evidence of direct competition, which “will often be more useful than a market definition exercise.” In doing so, he argued, the DOJ and FTC would “adjust” their analytical framework to accommodate different types of competition exhibited in different transactions. It remains to be seen how this “adaptive” approach will translate into generalized policies that offer real transparency and predictability to the business community.
Kanter’s brief comments failed to address every issue likely to be addressed in the updated guidelines. In particular, he did not address how vertical fusion analysis can change; since September 2021, the FTC has withdrawn its approval of the Vertical Merger Guidelines,[4] Rejecting their treatment of efficiencies in general and the elimination of double marginalization in particular.[5] (The DOJ has not revoked its approval of the Vertical Merger Guidelines, and the Horizontal Merger Guidelines remain in effect at the DOJ and the FTC while the agencies work through their revisions.)
Still, companies can expect the updated policies to win more deals than their predecessors. The DOJ has already reviewed the 5,000 public comments it requested and received earlier this year, and staffers from both agencies are preparing a draft of the new guidelines, which will eventually be released for further public comment before the guidelines are finalized. But even before this draft is released, companies will see the “prophylactic” effect of this new rule on a deal-by-deal basis. Companies proposing transactions that may be subject to DOJ review should consider DOJ’s expressed preference for litigation over negotiated remedies. While this approach might mean less enforcement overall, since the DOJ decides which matters to process and which to “let go,” it can also mean that quick and efficient resolutions are rare. The parties may want to consider these dynamics when drafting transaction agreements and allocating risks related to merger clearance.
[1] “Deputy Attorney General Jonathan Kanter Delivers Keynote Address at Antitrust Law Symposium in Georgetown” (September 15, 2022)
[2] “Deputy Attorney General Jonathan Kanter of the Antitrust Division delivers remarks to the New York State Bar Association Antitrust Section” (January 24, 2022)
[3] “President Biden’s Executive Order: A Revolution in Antitrust Enforcement?” (July 14, 2021)
[4] “Federal Trade Commission Retires Guidelines and Commentary on Vertical Mergers” (September 15, 2021)
[5] “Statement by Chairperson Lina M. Khan, Commissioner Rohit Chopra and Commissioner Rebecca Kelly Slaughter on the Rollback of Vertical Merger Guidelines” (September 15, 2021)
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