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FTC Dissents in Merger Enforcement: When and Why
Practical Law Legal Update 6-616-3889 (Approx. 4 pages)
FTC Dissents in Merger Enforcement: When and Why
by Practical Law Antitrust
| Published on 09 Jun 2015 • USA (National/Federal) |
When the Federal Trade Commission (FTC) votes to issue a consent decree, Commissioners who disagree with the majority occasionally write dissents. This update analyzes recent dissents in merger enforcement actions.
The FTC is governed by five Commissioners who, among other things, vote on whether to bring enforcement actions against merging companies. Commissioners who vote against bringing an enforcement action (or otherwise disagree with the majority of Commissioners) sometimes write dissents stating the reasons for their votes. Commissioner Wright is by far the most prolific dissenter, with more dissents than the four Commissioners he serves with combined. Practical Law has analyzed recent FTC dissents and grouped them into three categories:
- Not enough evidence of competitive harm.
- Additional action needed by the FTC.
- Other concerns, such as lack of FTC jurisdiction.
Evidentiary Concerns
Commissioner Wright frequently argues that the FTC does not have enough evidence to bring merger enforcement actions. For example, he has argued that:
- Establishing loss of competition in a future market has a higher burden of proof than loss of existing competition. It requires defining the relevant market, identifying likely buyers and sellers, estimating cross-elasticities of demand, and understanding potential product substitutability. In In the Matter of Nielsen Holdings N.V. and Arbitron Inc., Commissioner Wright found no evidence to meet that higher standard (see What's Market, In the Matter of Nielsen Holdings N.V. and Arbitron Inc. (consent decree)).
- When alleging that a merger will increase coordination among remaining competitors, there must be evidence of vulnerabilities to coordination or increased incentives to coordinate (see What's Market, In the Matter of Fidelity National Financial, Inc. and Lender Processing Services, Inc. (consent decree)).
- There must be evidence that a foreclosure theory of harm would actually be profitable for the foreclosing company, in particular through using economic analysis tools (see What's Market, In the Matter of Par Petroleum Corporation (consent decree)).
- The proposed transaction as a whole must prove anticompetitive. In In the Matter of Reynolds American Inc. and Lorillard, Inc., Reynolds American Inc., Lorillard, Inc. and Imperial Tobacco Group PLC came to the FTC with a three-way transaction under which Reynolds and Lorillard would merge and simultaneously divest a group of products to Imperial. The Commission issued a consent order governing the planned divestitures to Imperial. Commissioner Wright argued that there was no evidence to warrant a consent order because the transaction as presented to the FTC by the parties did not harm competition. Commissioner Wright further argued that the FTC should have let the three-way transaction close without FTC action (see What's Market, In the Matter of Reynolds American Inc. and Lorillard, Inc. (consent decree)).
Additional Actions Needed
The other common type of dissent occurs when a Commissioner argues that the FTC should take additional actions, including:
- Further investigation into the merger.
- Requiring a remedy instead of closing the investigation.
- Requiring additional divestitures.
For example, in its enforcement of ZF Friedrichshafen AG's acquisition of TRW Automotive Holdings Corp., the FTC accepted ZF's proposed divestiture without a full investigation. Commissioner Wright criticized the shortened investigation, stating that a full investigation may have shown that no anticompetitive harm would result from the transaction (see What's Market, In the Matter of ZF Friedrichshafen AG and TRW Automotive Holdings Corp. (consent decree)).
On the other side of the spectrum is the FTC's decision to close its investigation of Express Scripts, Inc.'s acquisition of Medco Health Solutions, Inc. While the majority of the Commissioners found that no anticompetitive harm would result from the merger, Commissioner Brill dissented, stating that the merger resulted in a duopoly in a market with high market concentration and entry barriers. Commissioner Brill argued that the post-merger market is vulnerable to coordination (and, to a lesser extent, unilateral conduct), and the FTC should have required a remedy (see What's Market, Express Scripts, Inc. and Medco Health Solutions, Inc. (decision to close)).
Similarly, Commissioner Brill argued that the FTC should have required additional divestitures from Reynolds after its acquisition of Lorillard. The FTC accepted the divestitures suggested by the merging parties. However, Commissioner Brill argued that the divested brands are declining and that she had serious doubts whether the acquiror of the divested brands would be able to make them competitive. As a result, she dissented because she believed that the divestiture would not be successful (see What's Market, In the Matter of Reynolds American Inc. and Lorillard, Inc. (consent decree)).
Other Dissents
Dissents are always specific to the facts of the particular transaction. Here is a sampling of recent dissents that are based on discrete factual issues:
- Commissioner Ohlhausen viewed issues relating to standard essential patents as falling under the jurisdiction of the federal courts and the International Trade Commission, rather than Section 5 of the FTC Act (see What's Market, In the Matter of Robert Bosch GmbH (consent decree)).
- Commissioner Brill believed that the FTC should not abandon its appeal in F.T.C. v. Laboratory Corporation of America after the Ninth Circuit denied a preliminary injunction pending appeal (see What's Market, F.T.C. v. Laboratory Corporation of America and Laboratory Corporation of America Holdings (litigated case)).
- Commissioner Wright found that efficiencies outweighed the anticompetitive harm from unilateral price increases (see What's Market, In the Matter of Ardagh Group S.A., Saint-Gobain Containers, Inc. and Compagnie de Saint-Gobain (litigated case)).