Antitrust writing awards
Free access to over 100 leading articles
Vote for the best antitrust Writing!
Previous business/academic article

The US DoJ issues the new policy guide to merger remedies

David S. Turetsky, Roxann E. Henry, Steven Levitsky, Dewey & LeBoeuf Antitrust News in Five Minutes, June 20, 2011

See Roxann E. Henry's resume See Steven Levitsky's resume See David S. Turetsky's resume

Vote for this articleHelp

* Average
** Interesting
*** Good
**** Excellent
***** Must receive an Award!

Readers vote is closed since March 1st, 2012. Readers’ vote has nominated 2 articles for each of the Awards. This short list has been communicated to the Board, with the articles nominated by the Steering Committees. The Board will decide on the award-winning articles on March 27, at the Awards ceremony to take place in DC. See vote results online here.

Summary

On Friday, June 17, 2011, the U.S. Department of Justice released the Antitrust Division’s Policy Guide to Merger Remedies. The Guide describes the conditions under which the DoJ might allow a transaction with anticompetitive aspects to proceed.

Traditionally, merging companies generally have fixed anticompetitive aspects of a deal with “structural remedies,” meaning permanent changes in the makeup of the merging companies, typically divestiture, rather than requiring a company to behave in certain ways (for example, by segregating confidential information, or granting open access to some of its resources). One of the important innovations in the Guide is greater receptivity to accept these “conduct remedies.”

*

The new Guide continues the DoJ’s requirement that for merger relief to be acceptable, it must effectively eliminate any anticompetitive harm to competition (not particular competitors) from the merger, taking into account the specific facts of the transaction. The DoJ might either try to block a transaction or, where consumer welfare can be protected by other means, negotiate remedies and allow the transaction to proceed, in whole or in part.

In 2010, the DoJ and The Federal Trade Commission issued new Horizontal Merger Guidelines on how the agencies evaluate transactions under the Clayton Act and decide whether to challenge a deal. This Guide deals with the next step down the road in horizontal and other mergers, explaining what relief the DoJ might look for when it finds a competitive problem with a transaction.

The Guide, as well as its 2004 predecessor, provides important guidance to evaluate what relief might allow a transaction to proceed. There is too much information in the Guide, some of which is specific to particular circumstances, to discuss here, and creativity and sensitivity to business goals will remain paramount in proposing remedies. Below are some general highlights.

Office of General Counsel

The Antitrust Division of DoJ recently established an Office of the General Counsel. It is responsible for the evaluation and oversight of all Antitrust Division remedies, and will supervise compliance efforts, including the litigating sections’ enforcement of decrees and make recommendations to the Assistant Attorney General for Antitrust.

Regulated Industries

The Guide considers the special case of regulated industries, noting that it is a “best practice” for the DoJ to work together with the relevant regulatory agency when a decree is contemplated, to avoid inconsistencies and effectively protect competition and consumers. The existence of regulation is not likely to eliminate the need for antitrust relief, but it might have practical effects on the terms.

Greater Focus on "Conduct Remedies"

The Guide appears to signal a greater focus than before on possible use of “conduct remedies.” Conduct remedies are requirements that, post-consummation, the merged companies will undertake specific business practices as a condition of merger approval, or that they will not undertake others. The Guide states that conduct relief most commonly involves, “firewall, non-discrimination, mandatory licensing, transparency and anti-retaliation provisions.” Conduct remedies may be used alone or with structural remedies (for example, the divestiture of assets or businesses) to restore competition.

The Guide notes that conduct remedies may be beneficial when a divestiture might otherwise eliminate the efficiencies from the transaction, but without a “conduct remedy,” the transaction would harm competition. The Guide focuses at least as much as its predecessor on the need for careful drafting of clear provisions that can be easily understood and enforced, and cannot be evaded. It may focus slightly less than its predecessor on the importance of the practical supervisory limitations of the DoJ, in time, effort and expertise. (A significant reason for preferring structural remedies is that they may be comparatively simple and easy to administer, eliminate risks that the companies would not comply with their consent decrees, and, in many cases, also eliminate the need for ongoing government supervision of the remedy conditions.)

While both versions deal with the circumstances in which a monitor or trustee may be helpful, the Guide places added weight on arbitration provisions to resolve issues.

Observers have noted a somewhat expanded use of conduct remedies in recent merger consent arrangements by the DoJ. Some of this may be attributable, however, to the fact that several of the most recent high-profile mergers reviewed by the DoJ have involved not just horizontal competitive issues, which historically have been most likely to be resolved through structural relief, but also significant vertical aspects, which are more likely to be resolved with conduct relief, alone or in combination with structural relief. Examples include Comcast-NBCU (involving distribution and content) and Google-ITA (ITA software helped to power web sites that Google would compete with after the merger).

Structural Remedies

The Guide emphasizes that structural remedies generally involve the sale of physical assets, and sometimes, the creation of new competitors through the licensing of intellectual property rights.

The Guide continues the DoJ’s past practice that the Division often will require “divestiture of an existing business entity that already has demonstrated its ability to compete in the relevant market.” The Guide also recognizes that there may even be cases where divestiture of more than an existing business may be required to preserve competition. This might be the case, for example, where a company needs a full line of products to be a viable competitor.

The Guide notes that sometimes, if sufficient assets can be assembled from both of the merging firms, divestiture of less than an existing business may be acceptable, but that the DoJ might require an “upfront buyer” or a “crown jewel” provision (a clause requiring that other valuable assets be added later if necessary) to ensure that a buyer that preserves competition is found. As before, “fix-it-first” remedies (where the parties actually complete the structural change, such as a sale, before the merger actually takes place), are also acceptable in most cases.

Mergers with Horizontal, Vertical and Both Dimensions

The Guide somewhat provocatively removes specific language from the 2004 version stating that “structural remedies are preferred.” But it also notes that structural remedies are “typical” in horizontal transactions and will be pursued by the DoJ “in the vast majority of cases involving horizontal mergers.”

It is very possible that this removal reflects less a substantive change and more a focus on the larger goal of ensuring the effectiveness of the remedy under the specific circumstances of the deal. It may also reflect greater sensitivity to transactions that are not exclusively horizontal.

The Guide is more specific regarding vertical mergers than its predecessor. It makes clear that, while the number of firms competing to produce a product or service may not change in a vertical transaction, the incentives and ability of the merged firm to impair competition may be changed, and that relief that counters this incentive and ability may be appropriate. In such cases, “tailored conduct remedies” that prevent harm to consumers,“while allowing the efficiencies that may come from the merger,” may be effective, particularly “when the vertical integration is a small part of a larger deal.”

The Guide also notes that some mergers have both horizontal and vertical dimensions and effective remedies, if available, may involve both conduct and structural aspects.

Implementing Remedies

The Guide identifies a series of consent decree provisions and Antitrust Division practices that may be required to make the remedies effective. These include, for example, the right of the DoJ to approve or disapprove of a purchaser; various hold-separate requirements for management of the assets; the use of monitoring, operating, or selling trustees; and various other terms that could be required, including for easier monitoring of consent decree compliance, such as reporting and inspection requirements.

© 2012 - Institute of Competition Law Download our brochure