On December 18, 2023, the Department of Justice and the Federal Trade Commission issued the final version of their revised merger guidelines, which include modest changes from the agencies’ July 2023 draft guidelines. The changes include a softening of the language on structural presumptions with respect to vertical mergers and dominant firms and a more prominent acknowledgement of the role of rebuttal arguments and evidence of efficiencies in the agencies’ analyses of competitive harm.

On December 18, 2023, the United States Department of Justice (DOJ) and the Federal Trade Commission (FTC) (collectively, the Agencies) issued the final version of their revised merger guidelines (the Guidelines).[1]  The final Guidelines are substantially the same in substance as the draft Guidelines the Agencies released in July 2023.[2]  The Agencies did, however, make certain modest changes to both form and substance.  In particular, the final Guidelines (1) soften some of the prior language on structural presumptions with respect to vertical mergers and dominant firms and (2) acknowledge more prominently the role of rebuttal arguments and evidence of efficiencies in the Agencies’ analyses of competitive harm.

Overall, the finalized Guidelines, consistent with the July draft, appear designed to enhance the Agencies’ flexibility in the selection of theories of harm and evaluation of competitive effects.  As we previously noted with respect to the drafts: “In some respects, the Draft Guidelines are consistent with the preceding guidelines and agency practice from prior administrations.  But in other respects, the Draft Guidelines push merger review in novel directions or adopt key elements from a prior era of antitrust enforcement (i.e., the 1970s and earlier).”[3]  That remains true of the final Guidelines.

Below we provide a high-level summary of the most notable changes between the draft guidelines published in July 2023 and the final Guidelines.

Summary of key changes

Guideline 3:  Mergers can violate the law when they increase the risk of coordination.

In Guideline 3, the Agencies explain that a merger may substantially lessen competition if it increases the risk of coordination among the remaining firms in the relevant market.  Although Guideline 3 did not change significantly from the draft version, the Agencies added language to clarify that merger reviews seek to prevent market structures conducive to tacit coordination among firms.  In particular, the Agencies explain that more concentrated markets are more susceptible to tacit collusion, as firms can better anticipate how their rivals will respond with pricing and other market moves.  The Agencies further elaborated that mergers may increase the risk of coordination when they align the incentives of firms that have “multi-market contact,” meaning they compete with one another in multiple markets.  In such cases, the Agencies state that firms may decide to compete less aggressively in some markets in anticipation of reciprocity by rivals in other markets.

Guideline 5:  Mergers can violate the law when they create a firm that may limit access to products or services that its rivals use to compete.

Guideline 5 relates to transactions in which a merged firm can limit its rivals’ access to a related product, service, or route to market that they need to compete.  While the takeaway of Guideline 5 remains the same as in the draft merger guidelines, the final version substantially expands on the ways in which the Agencies will assess a merged firm’s ability and incentive to foreclose rivals.  For example, the Agencies will look at the availability of alternatives to the related product, the importance of the related product, the importance of the rival firms to competition in the relevant market, the strength of competition between the merged firm and the rival firms, as well as market structures to assess the risk of foreclosure.  In addition, the final version incorporates an additional theory of harm suggesting that the threat of limited access may have the effect of deterring potential rivals from investing in a market via entry or expansion.

Draft Guideline 6 was deleted, however key substance was moved elsewhere.

Draft Guideline 6 posited a structural presumption against vertical mergers involving a “foreclosure share” (i.e., a merged party’s share of a related upstream or downstream market) over 50 percent.  The agencies omitted that draft guideline in the final release.  Nevertheless, the agencies retained many of the concepts from Draft Guideline 6 by incorporating them into final Guideline 5.  In particular, the Agencies retained the 50 percent foreclosure share concept in a footnote (fn. 30), so it appears the agencies may still presume that a merged firm with a greater than 50 percent share in the related product market may have the “ability to weaken or exclude” rivals by limiting their access to the related product.

Final Guideline 6: Mergers can violate the law when they entrench or extend a dominant position.

In final Guideline 6, the Agencies explain that a merger may substantially lessen competition or tend to create a monopoly if it entrenches or extends the position of an already dominant firm.  Notably, in corresponding draft merger guideline 7, the Agencies stated that a firm is necessarily dominant if it “possesses at least 30 percent market share.”  By contrast, final Guideline 6 does not contain that language, instead explaining that the “Agencies first assess whether one of the merging firms has a dominant position based on direct evidence or market shares showing durable market power.”  The elimination of the structural presumption in Guideline 6 may, however, only have a practical impact in the case of vertical or conglomerate mergers.  This is because horizontal mergers that create a firm with over 30 percent market share are still presumed to substantially lessen competition under Guideline 1, if accompanied by an increase in HHI of more than 100 points.  Further, despite this change, final Guideline 6 leaves the agencies with substantial discretion to deem a firm to be “dominant” and therefore subject any transaction in which it is involved to heightened scrutiny.

Draft Guideline 13 was deleted, however its substance remains elsewhere.

The Agencies removed draft Guideline 13, which stated that the draft merger guidelines were “not exhaustive,” from the finalized Guidelines.  The Overview still states, however, that the Guidelines “do not limit the [Agencies’] discretion” or “dictate or exhaust the range of theories or evidence” they may use in merger reviews and litigation.

Section 3:  Rebuttal evidence showing that no substantial lessening of competition is threatened by the merger.

While the discussion of rebuttal evidence has remained consistent between the final and draft merger guidelines, the Agencies acknowledge the availability of rebuttal and efficiency arguments more visibly in the final Guidelines, by including them in the guideline-specific descriptions. For example, the Agencies acknowledge that the structural “presumption of illegality” outlined in Guideline 1 “can be rebutted or disproved,” and that the market structure evidence of coordination in Guideline 3 can be rebutted through evidence of “structural market barriers” to coordination.

Further, Draft Section 3 sought to curtail sharply what the agencies would regard as a “cognizable” efficiency.  For example, the draft language excluded as cognizable efficiencies those that result from “worsening of terms for the merged firm’s trading partners,” the “trend toward concentration,” or “vertical integration.” The final version excludes only efficiencies that “result from the anticompetitive worsening of terms for the merged firm’s trading partners.”

Conclusion and practical implications

Overall, the final Guidelines differ more in tone rather than substance from the draft earlier this year.  For the most part, the Agencies simply expanded upon their earlier draft, adding further examples and explanation regarding their intended merger analysis under the Guidelines, particularly around topics such as nascent competition and serial acquisitions, which have been of interest to the Agencies in recent years.  The Agencies continued to note that the theories advanced in the Guidelines are illustrative, not exhaustive, and the Agencies may introduce new theories in litigation.

As we previously explained, it remains to be seen how the new guidelines will be received by the judiciary.  As with the draft guidelines, the final Guidelines in some respects advance novel theories and/or rely on dated jurisprudence from the 1960s and 1970s rather than more recent case law.  For now, however, the new guidelines establish how merger review will be conducted at the agency level – where the vast majority of cases are resolved.

[1] Merger Guidelines, DOJ and FTC (Dec. 18, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/2023_merger_guidelines_final_12.18.2023.pdf.

[2] For an in-depth analysis of the Guidelines, see DOJ and FTC Release Draft Merger Guidelines, Davis Polk & Wardwell LLP (July 21, 2023), https://www.davispolk.com/insights/client-update/doj-and-ftc-release-draft-merger-guidelines.

[3] Id.

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