Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Monday, August 15, 2011

The Failing Firm Defense: Alive and Well

Posted by D. Daniel Sokol

Thomas D. Fina and Vishal Mehta (Baker Botts) describes The Failing Firm Defense: Alive and Well.

ABSTRACT: The failing firm defense exempts an otherwise anticompetitive acquisition from liability under Section 7 of the Clayton Act where failure of one of the merging parties is imminent. Despite the defense’s longevity, the stringent standards underlying the doctrine have limited its use over time. The defense has seldom been raised by merging parties in courts or before the Agencies and, when invoked, has rarely succeeded.1 This article provides an overview of the failing firm defense and highlights two recent investigations by the Federal Trade Commission and the Department of Justice, in which the defense has succeeded. Together, these cases suggest that the failing firm defense, in its current, longstanding incarnation, is alive and well. Moreover, the cases illustrate the importance of a “shop” of the allegedly failing firm’s assets and the extent to which the Agencies, in the right case, may act quickly and creatively in validating the defense.

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