Last month, the Antitrust Division of the Department of Justice issued its Policy Guide to Merger Remedies. The Policy Guide provides some helpful insight into the thinking of the Antitrust Division and its approach to merger remedies.
Of course the fundamental precept of the Policy Guide is that a “successful merger remedy must effectively preserve competition in the relevant market.” Preserving competition is the goal, not favoring individual competitors. The Antitrust Division is not to take sides but rather is to focus on what is “effective relief for the particular merger presented.”
Merger remedies for horizontal mergers of competitors traditionally involve an order requiring the divestiture of the business or assets — a so-called “structural remedy.” In fact, the Policy Guide notes that the Division “will often insist on the divestiture of an existing business entity that already has demonstrated an ability to compete in the relevant market.” Policy Guide p. 8. Yet, the Policy Guide also notes that the Division will consider a remedy involving a divestiture of less than all of the business but it will have to be persuaded that the assets “will create a viable entity that will effectively preserve competition.” Policy Guide p. 9.
Moreover, divestiture of a business or assets may not be sufficient to address the Antitrust Division’s concern over competition. In some cases, the Antitrust Division might seek divestiture of additional assets, such as requiring a divested business to include additional lines necessary for effective competition, to increase the level of competition. The Antitrust Division, as noted in the Guide, might even seek divestiture of a global business even when the competitive problem is limited to the United States market if doing so would effectively preserve competition.
In other cases, typically involving vertical restraints, other remedies, directed at the behavior of the companies engaged in competition, might be viewed as necessary. In situations such as this, the Antitrust Division may seek so-called “conduct remedies” — remedies that are intended to curb certain conduct that has actual competitive effects. Conduct remedies can take a variety of forms including requiring that the alleged monopolist agree to license its technology or assets to others, to agree not to retaliate against customers that purchase from its competitors or to not enter into certain long term exclusive contracts that could, under the circumstances, be anticompetitive. “[O]ther conduct remedies are also possible” and in some situations, a resolution requires ingenuity and a combination of structural and conduct remedies. What is interesting here, is that the Policy Guide indicates a willingness by the Antitrust Division to apply conduct remedies to horizontal competition issues.
The difficulty, of course, is determine what remedy is truly necessary to preserve competition. As the Antitrust Division correctly notes “[a] remedy carefully tailored to the competitive harm is the best way to ensure effective relief.” Policy Guide p. 3. Broad, sweeping remedies can do more damage than good to the competitive landscape and can even, at times, be perceived as punitive. There must be limits to the remedies, a point again conceded by the Antitrust Division:
“There should be a close, logical nexus between the proposed remedy and the alleged violation — and the remedy should fit the violation and flow from the theory or theories of competitive harm.”
Not every type of remedy has a “logical nexus” to the alleged violation. Dispassionate reason must be applied. The goal should be restoring or maintaining competition in a relevant market through an effective remedy and not defaulting to formalistic approaches to merger analysis. The Policy Guide would seem to reflect agreement on this point.
While much of what is contained in the Policy Guide is not new, the Guide does raise some interesting policy questions. For example, the Antitrust Division states clearly that in considering a divestiture, it does not generally consider whether the divesting company is getting fair value for the sale. Policy Guide p. 30. Indeed, according to the Policy Guide, the Division will only consider the price of the sale if it “raises concerns about the effectiveness or viability of the purchaser.” Id. But this statement raises the important question of why should the Division ignore the consequences of a forced “fire sale” on the divesting company. Does not a forced sale at a greatly reduced price have significant economic consequences on the divesting company? And if so, does this not also potentially impact the competitive landscape by weakening a competitor? Should not the effect of the sales price on the seller be at least considered, especially if it impacts research and development, innovation and growth of that seller, as this certainly impacts competition and potentially the consumer? On this point, the Division’s view would appear too simplistic and indeed potentially violate the very “touchstone principle” of preserving competition that it sets out for its merger remedies. A review of the whole picture is necessary, not only half.
The Policy Guide suggests a certain openness by the Division to considering a variety of options as remedies. The actual application of the Guide in the future will reveal whether this flexibility produces better outcomes for companies that are the subject of action by the Division.
