Authors: Steven Cernak and Luis Blanquez
FTC Chairwoman Lina Khan keeps up her frenetic crusade to change the practice of antitrust enforcement. The new––and surely not last––change: the vertical merger guidelines.
On Wednesday, September 15, 2021, the FTC held an open virtual meeting to discuss the following:
- Proposed Withdrawal of 2020 Vertical Merger Guidelines: The Commission voted on whether to rescind the Vertical Merger Guidelines adopted in June 2020 and the Commentary on Vertical Merger Enforcement issued in December 2020.
- Non-HSR Reported Acquisitions by Select Technology Platforms, 2010-2019: Staff presented findings from the Commission’s inquiry into large technology platforms’ unreported acquisitions, including an analysis of the structure of deals that need not be reported to enforcers.
- Proposed Revisions to FTC Procedural Rules Concerning Petitions for Rulemaking: The Commission voted on putting in place a process to receive public input on rulemaking petitions by external stakeholders.
- Proposed Policy Statement on Privacy Breaches by Health Apps and Connected Devices: The Commission voted to issue a policy statement on the importance of protecting the public from privacy breaches by health apps and other connected devices.
Here, we will only discuss the first two items. For more background on these and other recent changes at the FTC, see our previous articles:
The FTC Continues the HSR Antitrust Process’s “Death of a Thousand Cuts”
FTC Guts Major Benefit of Antitrust HSR Process for Merging Parties
FTC Withdraws Vertical Merger Guidelines and Commentary
As expected, the FTC on a 3-2 vote decided to withdraw its approval of the Vertical Merger Guidelines, issued jointly just last year with the Department of Justice Antitrust Division (DOJ), and the FTC’s Vertical Merger Commentary.
According to the FTC’s press release, the guidance documents include unsound economic theories that are unsupported by the law or market realities. The FTC is withdrawing its approval to prevent industry or judicial reliance on this allegedly flawed approach. The FTC reaffirmed its commitment to working closely with the DOJ to review and update the agencies’ merger guidance.
The statements by the various Commissioners show the deep divisions within the FTC since Khan joined the Commission, not just about these Guidelines but more generally about how to enforce the antitrust laws and how to run the FTC. The statement by the FTC majority asserts that the 2020 Vertical Merger Guidelines had improperly contravened the Clayton Act’s language with its approach to efficiencies. The statement explains the majority’s concerns with the Guidelines’ treatment of the purported pro-competitive benefits of vertical mergers, especially its treatment of the elimination of double marginalization.
The dissenting Statement of Commissioners Phillips and Wilson starts with a bang: “Today the FTC leadership continues the disturbing trend of pulling the rug out under from honest businesses and the lawyers who advise them, with no explanation and no sound basis of which we are aware.” The statement goes on to not only lament the confusion the withdrawal will generate but contrast the process used when the Guidelines were issued — months of public input and debate — with the process used for their withdrawal — no public input and, seemingly, no discussion even at the FTC outside the offices of three Commissioners.
The FTC pledged to work with DOJ to update vertical merger guidance to better reflect how the agencies will review such transactions in the future. Just an hour later, DOJ issued a statement explaining that they are reviewing both the Horizontal Merger Guidelines and the Vertical Merger Guidelines and, as to the latter, have already identified several aspects of the guidelines, such as the treatment of and burdens for the elimination of double marginalization, that deserve close scrutiny. (We raised those issues when the Guidelines went through public debate last year.) DOJ expects to work closely with the FTC to update the Guidelines so, perhaps, we will have new Guidance at some point in the future.
FTC Staff Presents Report on Nearly a Decade of Unreported Acquisitions by the Biggest Technology Companies
During the same meeting, FTC presented findings from its inquiry into the hundreds of past acquisitions by the largest technology companies that did not require reporting to antitrust authorities at the FTC and DOJ, generally because they were below HSR thresholds. Launched in February 2020, the inquiry analyzed the terms, scope, structure, and purpose of these transactions by Alphabet Inc., Amazon.com, Inc., Apple Inc., Facebook, Inc., and Microsoft Corp. between Jan. 1, 2010 and Dec. 31, 2019.
“While the Commission’s enforcement actions have already focused on how digital platforms can buy their way out of competing, this study highlights the systemic nature of their acquisition strategies,” said Chair Khan. “It captures the extent to which these firms have devoted tremendous resources to acquiring start-ups, patent portfolios, and entire teams of technologists—and how they were able to do so largely outside of our purview.”
The Commission voted 5-0 to make the report public. Chair Khan and Commissioners Chopra and Slaughter each issued separate statements. While the report did not recommend any changes to the merger review process, we expect that the FTC may utilize the report’s findings to recommend changes in the HSR process.
Final Comments: Now What?
The U.S. antitrust laws are notoriously not self-explanatory. For Sherman Act Section 1 and 2 matters, decades of case law provide guidance on their meaning. For mergers, however, the number of court opinions is much smaller, especially since HSR was instituted in the mid 1970’s. Claiming that merger enforcement simply will follow the statutes and the cases is disingenuous at best.
Since the late 1960’s, both the Horizontal and Vertical Mergers Guidelines have provided some direction to merging parties and their counselors about how the federal antitrust enforcers will act. Because they have been developed in public with input from experts with varying views, courts have found them persuasive even if they do not have the force of law.
The 2020 Vertical Merger Guidelines updated a 1984 version that all commentators agreed was woefully out of date. Their abrupt withdrawal by one, but not both, federal antitrust agencies with absolutely no input from anyone outside a few offices raises plenty of questions for merging parties, their counselors, and the consumers and citizens the laws are meant to protect. If the FTC and DOJ really do work together to develop new Vertical Merger Guidelines, or change the Horizontal ones, perhaps they will let us know. In the meantime, the FTC continues to dismantle the U.S. merger review process one step at a time.
Image by Gerhard G. from Pixabay