Look for more DOJ ‘fixes’ to deals under Delrahim

By Kirk Victor Originally published on FTC:Watch on October 13, 2017

The day before Makan Delrahim was confirmed to head the Justice Department's antitrust division, the government made news by challenging Parker-Hannifin's acquisition of Clarcor, a $4.3 billion deal.

On the surface, that lawsuit showed that the new team at the division wouldn't hesitate to pull the trigger to oppose a merger that it sees as problematic. You can bet that Delrahim will back the lawsuit signed off on by then-acting division chief Andrew Finch, who is now the principal deputy assistant attorney general. No acting chief would make such a move without feeling quite certain that the new boss, once confirmed, would support it.

The challenge to the deal came as speculation intensified about what to expect from Delrahim after his confirmation on Sept. 27. One message of the case is that the hope in some boardrooms for a shift to a far more permissive stance from the division in judging mergers is probably misplaced.

"We are not in a cartoonish laissez-faire era, as some political observers might try to ascribe to the division," Adam Biegel of Alston & Bird said in an interview. "It's not like division staff is giving everyone a free pass or the front office is giving everyone a free pass. There may be some beliefs, tendencies and areas of interest that a Republican front office might emphasize more than a Democratic front office. But there is still a cop on the beat."

The lawsuit charged that the tie-up of Parker-Hannifin and Clarcor would substantially lessen competition in markets for aviation fuel filtration and threaten to result in higher prices and less innovation.

But the challenge is noteworthy — and has prompted chatter in the antitrust bar — for another reason, too. The department green-lighted the same deal on Jan. 17 without even seeking a second request for more information about the deal's impact on competition.

The division was prompted to take a second look after receiving complaints from a customer of fuel filtration products about being squeezed by a merger of the only two US suppliers.

"This is obviously not the first consummated merger case but one of the rare recent examples of one that had gone through the HSR [Hart-Scott-Rodino] process recently and [subsequently] been challenged," Biegel said. "Even a Republican front office is not going to shy from [challenging a transaction] they think is anticompetitive, even if it puts a little bit of egg on their face as one that came through their doors already."

Confirming that take, Patricia Brink, director of civil enforcement in the division, said at the Global Competition Review conference in New York on Sept. 28: "We really can't ignore what's an anticompetitive merger because it already has gotten HSR clearance."

That clearance, she added will not shield an anticompetitive and illegal merger from a government challenge.

As the first lawsuit challenging a merger by the division since President Donald Trump was sworn in, the Parker-Hannifin case sends a message. "The takeaway should be that if there's really some clear and obvious overlap, it may behoove counsel to raise that," Brink said.

The deal would have allowed Parker-Hannifin to acquire its only US rival for certain aviation filtration products. The lawsuit seeks an order requiring Parker-Hannifin to make divestitures to replace the competition lost as a result of the deal.

Even with the challenge, most practitioners don't anticipate major shifts from Delrahim.

"Makan is not going to change things that dramatically," Ken Field of Jones Day said in an interview. One difference will be that the new antitrust team "will be more amenable to fixes, remedies that look like they're in the public interest. I'd expect them to be more humble in [accepting] a fix, a solution, that the market seems to think is good enough to protect consumers as opposed to [needing] to draw the hard line."

Using a term often invoked by FTC acting Chairman Maureen Ohlhausen, Field added: "Regulatory humility is in vogue right now, in part to justify, 'Let's take a chance. We don't know better than the marketplace.'"

"Merger enforcement will continue," Stephen Calkins, a law professor at Wayne State University and former general counsel of the FTC, said in an e-mail. "Not a big change but it takes great courage to seek a PI [preliminary injunction]. The Obama Division acquired that courage and the experience to go with it. It is unlikely that the Trump Division will be quite as willing to litigate. Also, they might be more receptive to arguments about efficiencies and look harder for ways to settle cases."

As to speculation about the role of the White House, Carl Hittinger of BakerHostetler predicts it will direct antitrust policy with a stronger hand than was true in the Obama administration. Noting that the Justice Department is part of the executive branch, he added, "The president will have a point of view…[and] will hopefully dictate policy going forward. Those are the elected officials, not the head of the antitrust division."

"For good or bad, I think it will be different than the Obama administration [during which] the division was really more of an independent branch…and there was very little, it seemed, input from the executive branch in terms of how aggressively they were approaching mergers or enforcement," Hittinger added. "Obviously the attorney general had input on that, but I don't think it went much above that."

Policy direction is one thing, but Delrahim stressed in written answers to questions of Senate Judiciary Committee members as they considered his nomination earlier this year that "it is important that…political considerations do not influence the handling of particular cases."

Another area where there is likely to be a shift is in rebalancing enforcement to give more protection to intellectual property holders. "Antitrust enforcers should also strive to eliminate as much as possible the unnecessary uncertainties for innovators and creators in their ability to exploit their intellectual property rights as those uncertainties can also reduce incentives for innovation," Delrahim wrote in responding to Senate Judiciary Committee questions.

"Only when the holders of intellectual property rights go beyond the legitimate exercise of these rights should antitrust laws be used to constrain their activities, and only then in a manner that is based on sound economic policies," he added.

Of the growing political push and populist rhetoric for more aggressive antitrust enforcement — a theme stressed by Democrats in a recent economic proposal called "A Better Deal" — Field said such calls are "a vast departure from the empirically based, economics-driven enforcement that is focused on consumer welfare in a definable way. Makan, who has long respected that developed body of antitrust law and enforcement, isn't going to jettison those principles in response to some change in the political winds."

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