By: Alex Llanos
On December 18, 2023, the U.S. Department of Justice’s Antitrust Division (“DOJ”) and the Federal Trade Commission (“FTC”) released their new merger guidelines. These new guidelines signal the U.S.’s shift from a consumer welfare standard, which has historically shaped U.S. Antitrust law, to a standard that seeks to “reflect how modern competition plays out in our modern markets.” The U.S.’s shift from focusing on consumers to focusing on market participants resembles positions held by other antitrust regimes, such as the European Union (“EU”). In fact, the new merger guidelines adopt many principles, that are new to the U.S. but have been historically held by the EU.
Traditionally, the EU’s approach to antitrust enforcement has been seen as more of a political tool with most of the discretion regarding enforcement being held by the government. Before the new guidelines, the U.S.’s approach to antitrust enforcement used a “bottom up approach” which relied on broad statutory language, murky case law, and arguments made by litigants and defendants to create an analytical framework to analyze antitrust cases. However, the new guidelines highlight several different analytical frameworks, some of which still resemble prior antitrust principles and others that more closely resemble positions held by the EU.
Like the EU, the new merger guidelines provide antitrust enforcers wide latitude to challenge mergers held by dominant firms in a market. In the EU, dominant firms are defined as firms that have 40% or more market power in a defined market, and antitrust violations are analyzed through the dominant firm’s practices that may have an exclusionary effect on actual or potential competitors. Thus, mergers that may eliminate small market competitors or potential market competitors have a strong presumption of violating antitrust law. Of course, potential market competitors are a vague standard and could be difficult to define. Similarly, the new merger guidelines expand the liability for dominant firm practices that may “extend or entrench” its position, including if it seeks to enter into a new market. Like the EU, the new guidelines emphasize barriers to market entry and how the merger will affect market participants, with most harm to participants being deemed illegal, especially if it provides long-term gain to the dominant firm. One stark difference is that the new guidelines define a dominant firm as having 30% or more market power after the merger, which is a lower standard than that set by the EU.
The new guidelines also adopt a new theory of harm that has already been embraced by the EU. The EU has adopted the practice of analyzing competitive threats using the concept of “ecosystem competition” which is when a company operates in several linked markets and as a result of the merger the company will acquire a competitor and additional linked services. The EU used this theory of harm in Sep. 2023 to block the proposed merger between Booking.com and Etraveli, which was the EU’s first case prohibiting a merger based on ecosystem competition harm. Similarly, the new guidelines add the language of “nascent competitive threats” and define a nascent threat as “a firm that could grow into a significant rival, facilitate other rivals’ growth, or otherwise lead to a reduction in its power.” This new theory of harm grants governments broad authority and brings enforcement actions against not only acquisitions of direct competitors but also brings enforcement actions against acquisitions involving niche or partially overlapping services that are part of the company’s “ecosystem”.
The new guidelines are part of a global trend of increased scrutiny against merging firms and a push by antitrust agencies to provide more regulatory mandates and enforcement actions. Even the EU has begun to more aggressive antitrust policies such as expanding its authority to begin antitrust investigation upon the receipt of a complaint and by redefining market definitions for services on digital platforms. As antitrust scrutiny grows globally, the new merger guidelines demonstrate national concerns regarding the growth of large companies and their abilities to acquire competitors, especially in the digital and healthcare space. Like the EU, the DOJ and FTC have been aggressive in bringing enforcement actions against big tech companies, but unfortunately, they have not had a lot of success.
A good antitrust rule is clear, easy to understand, and predictable; however, the new merger guidelines and major reforms in antitrust regimes worldwide have led to a lot of uncertainty and unpredictability in merger enforcement and litigation. While the guidelines aim to provide guidance and a clear framework for courts to apply, the new theories underlining the guidelines completely turn U.S. antitrust jurisprudence on its head. Unfortunately, there will likely be a lot of unpredictability in the outcome of antitrust enforcement actions worldwide as courts learn how to apply the new principles sought by enforcers. Because antitrust investigations and cases can be extremely costly and take a long time, many companies will likely postpone merging or at least decrease their M&A activity until clarity is provided.
