Friday, March 16, 2018
Herb Hovenkamp (Penn) discusses Prophylactic Merger Policy.
ABSTRACT: One important purpose of the antitrust merger law is to arrest certain anticompetitive practices or outcomes in their “incipiency.” Many Clayton Act decisions involving both mergers and other practices had recognized the idea as early as the 1920s. In Brown Shoe the Supreme Court doubled down on the idea, attributing to Congress a concern about a “rising tide of economic concentration” that must be halted “at its outset and before it gathered momentum.” The Supreme Court did not explain why an incipiency test was needed to address this particular problem. Once structural thresholds for identifying problematic mergers are identified there is no need to condemn mergers that fall below that threshold. In the future merger law could always be brought to bear if the relevant numbers became larger.
But this does not mean that incipiency tests are unimportant. They properly have a different use than the one that the Supreme Court identified. A better use of incipiency tests is to prevent certain bad outcomes early when antitrust rules make it difficult or impossible to prevent them later. Today most mergers are challenged before they occur. As a result, the feared post-merger conduct has not occurred either and the evidence pertains to predicted rather than actual effects. This makes it important to place some limits on merger law’s prophylactic reach. First, the language of §7 requires causation -- a showing that the merger is what is likely to facilitate that feared anticompetitive conduct. Second, we need to be satisfied that this conduct, if it should occur, will be both anticompetitive and difficult to reach through direct application of the antitrust laws. Third, the merger must raise a significant risk that the conduct will occur. Finally, as with all merger cases, there must not be offsetting gains that serve to justify the merger notwithstanding these threats to competition.
This paper then applies these considerations in several areas: mergers threatening coordinated interaction; merges to monopoly and those facilitating anticompetitive unilateral effects; vertical mergers threatening input foreclosure or some instances of price discrimination; exclusionary IP acquisitions from outside inventors; and mergers of very small but highly innovative firm. The paper particularly focuses on some high profile transactions, including the AT&T/Time Warner acquisition, which the Justice Department has challenged, and the contemplated partial asset acquisition involving Disney and 21st Century Fox. We also examine the impact of the FCC’s decision rolling back net neutrality, which increases competitive concerns in this area, whether or not the acquisition falls under the jurisdiction of the FCC’s power to evaluate mergers. We also examine the recent Intellectual Ventures decision, now subject to appeal, which involves an allegedly anticompetitive acquisition of patents.