Antitrust—New Commentary on Horizontal Mergers

The Federal Trade Commission and the Department of Justice’s Antitrust Division have issued new commentary on the guidelines governing horizontal mergers.^[1] The Horizontal Merger Guidelines were first issued in 1992, revised in part in 1997, and now, in an attempt to provide “a new level of transparency in [their] merger enforcement decisions,” the new commentary should allow the business community to “see how the agencies have applied the Horizontal Merger Guidelines to a wide range of specific factual circumstances.”^[2]

The 71-page commentary provides excellent guidance for both businesses and lawyers. As the commentary points out, the “core concern of the antitrust laws … is the creation or enhancement of market power,” which can be defined as “the ability profitably to maintain prices above competitive levels for a significant period of time,” or even “by reducing quality or slowing innovation.”^[3] Because most mergers do not have a negative impact on markets, the mergers that are challenged are the ones “that are likely to create or enhance the merged firm’s ability—either unilaterally or through coordination with rivals—to exercise market power.”^[4] And while most merger analysis is conducted before the merger is consummated, consummated mergers do get investigated, “especially when evidence suggests that anticompetitive effects may have resulted from them.”^[5]

There are five parts to the Guidelines’ organizational structure (market definition and concentration, potential adverse competitive effects, entry analysis, efficiencies, and failing and exiting assets) but the “ordering of these elements in the Guidelines … is not itself analytically significant”; the DOJ and the FTC [hereinafter the Agencies] do not apply the Guidelines “as a linear, step-by-step progression that invariably states with market definition and ends with efficiencies or failing assets.”^[6]

Though most of the individual analyses in the commentary are transactional in nature, and thus not particularly relevant from a criminal law standpoint, it is important to note where criminal problems do arise. Nearly every proposed merger comes with requirements that the companies enter into consent agreements, especially to divest themselves of certain assets. For example, Nestle and Dreyer’s proposed a merger for “superpremium ice cream,” which is differentiated from premium and economy ice cream by the presence of more butterfat, less air, and more costly ingredients; an analysis of the superpremium ice cream market “showed that a hypothetical monopolist … would increase prices significantly,” and the FTC required the companies to enter into a consent agreement that required the divestiture of two brands and of key distribution assets.^[7] Criminal enforcement problems arise for the companies if they violate the consent agreement, as we saw the other day when CMET, Inc. was charged with conspiracy to obstruct justice by violating its consent agreement.

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[1] US DOJ, Department of Justice, Federal Trade Commission Issue Joint Commentary on the Horizontal Merger Guidelines, Mar. 27, 2006.
[2] Id.
[3] US DOJ and US FTC, Commentary on the Horizontal Merger Guidelines 1, March 2006.
[4] Id.
[5] Id. at 2.
[6] Id.
[7] Id. at 6-7.