Split over merger guidelines not shocking, part of long FTC history

02 April 2020 00:00 by Claude Marx

Federal Trade Commission chairmen try for unanimity on big cases and policy statements. But the agency’s partisan divide on new vertical merger guidelines is symptomatic of the broader ideological division on antitrust issues.

All three Republicans on the commission supported the draft guidelines, which the agency and the Justice Department sent out for public comment Jan. 10. The commission’s two Democrats abstained. The public has until Feb. 11 to submit feedback.

Democratic FTC Commissioner Rebecca Kelly Slaughter told FTCWatch she abstained because she wanted the guidelines to be released for comment, but contends they must be more comprehensive to get her support.

“Bipartisan support has to be earned,” she said. “I could imagine a process that leads to bipartisan consensus and hope that will happen.”

Slaughter declined to discuss the agency’s deliberations but said the commissioners constantly communicate their views to each other. When asked whether her views were considered sufficiently, Slaughter replied that she is “not in charge of the process.”

As to the substance of the proposal, Slaughter strongly supports repealing the last set of non-horizontal merger guidelines, which were issued in 1984, because they don’t reflect economic changes, recent academic research or some enforcement actions since then. But she added, as drafted, the proposed guidelines are inadequate.

Under the proposal, the DOJ and FTC would use the methodologies of the horizontal guidelines to define what constitutes a relevant market for a vertical merger and for measuring market shares and market concentration. They also will evaluate claims of pro-competitive efficiencies in the same way as the horizontal guidelines.

The guidelines also state the agencies are “unlikely to challenge a vertical merger where the parties to the merger have a share in the relevant market of less than 20 percent, and the related product is used in less than 20 percent of the relevant market.”

Slaughter told FTCWatch the 20 percent safe harbor doesn’t make sense without the guidelines also having a corresponding presumption of harm or a requirement for close scrutiny for mergers in highly concentrated markets.

Democratic Commissioner Rohit Chopra wrote that the 1984 guidelines “represent an antiquated, narrow, and overly permissive mode of thinking” and should be repealed. But he said the draft guidelines are weak because they don’t assess market power strongly enough or evaluate whether the merged entity could evade regulatory rules to “gain an upper hand in using government-granted benefits such as intellectual property rights.”

He also wrote that the proposed guidelines “perpetuate an overdependence on theoretical models.” And relying too heavily on quantitative analysis “gives the veneer of an objective, scientific approach,” but it can “obscure the larger anticompetitive impact of a deal.”

Among the three Republicans, only FTC Commissioner Christine Wilson issued a concurring statement. She wrote that the guidelines “will promote transparent and predictable enforcement.”

Wilson noted there was widespread support for issuing guidelines during the agency's hearings on competition and consumer protection held in 2018 and 2019.

The agency has been divided when issuing merger guidelines before.

In 1992, the DOJ and FTC released horizontal merger guidelines. The FTC vote was 4-1 with Commissioner Mary Azcuenaga, an Independent, opposing them.

James Fishkin, a partner at Dechert and former FTC lawyer, said given the divide on how to approach antitrust enforcement generally, the strong interest in the topic on Capitol Hill and the campaign trail, it’s not surprising the agency is having trouble reaching consensus.

“It’s difficult within the agency to come to agreement on these issues in addition to reaching agreement with the Department of Justice,” he told FTCWatch. “The added attention to the subject adds pressure on the agency.”

But he said the lack of unanimity doesn’t mean the guidelines won’t be effective for a long time. He noted that despite Azcuenaga’s opposition, the 1992 horizontal guidelines were kept in place until 2010 under both Democratic and Republican administrations, with only a revision to a section on efficiencies.

The current commission has been sharply divided in its approach to vertical deals. Last year, when the commission approved — along party lines — the merger of office supply retailer Staples and Essendant, an office products wholesale distributor, both sides used strong language in criticizing the views of their adversaries.