Featured Expert Contributor — Antitrust & Competition, U.S. Department of Justice
Anthony W. Swisher, a Partner in the Washington, DC office of Squire Patton Boggs (US) LLP.
*Ed. Note: With this post, Mr. Swisher is assuming the role of Featured Expert Contributor on Antitrust & Competition—DOJ. The WLF Legal Pulse welcomes him on board, and we thank his predecessor, Mark J. Botti, for his contributions on DOJ-Antitrust matters during the past two years.
Observers looking for clues as to how federal antitrust enforcement could develop in the next administration took note of a June speech by Senator Elizabeth Warren. Senator Warren laid out some aggressive policy views that would result in a marked shift in antitrust enforcement doctrine if put into place. She decried a so-called “concentration problem” and lamented that “competition is dying.” Senator Warren called for the antitrust enforcement agencies to “hold the line” on horizontal mergers, and was sharply critical of the established agency practice of obtaining divestiture relief, claiming that “too often, [divestitures] don’t work.”
Last week at the Georgetown University Global Antitrust Enforcement Symposium, leadership at the Department of Justice’s Antitrust Division displayed their willingness to take up Senator Warren’s themes, while reopening questions around some long-settled antitrust principles. In her remarks, Acting Assistant Attorney General Renata Hesse reflected Senator Warren’s deep skepticism of mergers among competitors, diminished the importance of consumer welfare as the driver of antitrust enforcement, questioned the benefits to the economy that flow from mergers, and directly echoed the Senator’s claim that divestiture relief doesn’t work.
Notably, Edith Ramirez, Chairwoman of the Federal Trade Commission, declined to follow Ms. Hesse’s approach. Chairwoman Ramirez used her speech to reiterate FTC’s adherence to established antitrust enforcement doctrine, including respect for consumer welfare, concern for preserving a transaction’s efficiencies, and confidence in the agencies’ ability to craft effective divestiture relief.
Taken together, the two enforcers’ comments present remarkably divergent views on what the future of antitrust enforcement might look like.
“Fairness” vs. Consumer Welfare
The overarching theme of Ms. Hesse’s remarks was the populist notion of economic “fairness.” She alleged a “consensus vision of antitrust focused on protecting competition and the fairness inherent in it,” and lamented that “the language of economic theory does not sound like the language of economic fairness.” Expanding this populist theme, Ms. Hesse asserted that “[a]ntitrust is too important to be left solely in the hands of antitrust experts.” While Ms. Hesse emphasized fairness, she pointedly minimized—if not outright dismissed—the importance of consumer welfare, noting that “the ultimate standard by which we judge practices is their effect on competition, not on consumer welfare.” Notably absent from Ms. Hesse’s remarks was any reference to the 2010 Horizontal Merger Guidelines. Adopted by DOJ and FTC during President Obama’s first term, the 2010 Merger Guidelines state that “the Agencies normally evaluate mergers based on their impact on customers,” including “direct customers” and “final consumers.” There appears to be a tension between Ms. Hesse’s views and the standards enumerated in the 2010 Merger Guidelines.
Hostility Toward Horizontal Mergers
[W]e should be skeptical of the claim that mergers among substantial competitors are beneficial. The law—which builds this skepticism into it—provides an excellent tool for protecting competition from large, horizontal mergers.
-Renata Hesse
These two sentences neatly sum up Ms. Hesse’s strikingly hostile tone toward horizontal mergers. Citing the Supreme Court’s decision in US v. The Philadelphia National Bank, issued during the height of the period of activist antitrust enforcement in 1963, she appeared to adopt a view that a merger between firms that happen to compete, regardless of whether it results in harm to consumer welfare, can justify government intervention. In a statement lacking qualification, Ms. Hesse said that “we are learning more and more that mergers among substantial competitors tend to lead to higher prices.” Her view appears to be that the loss of rivalry itself—and a resulting undefined increase in concentration—can create an irrebuttable presumption of illegality.
Going hand in glove with her near per se view of the illegality of horizontal mergers is a dismissal of the potential of such mergers to benefit competition and the economy. As has been noted in this space previously, historically, antitrust enforcement has started with the proposition that, absent anticompetitive effects, mergers benefit the economy and the free flow of capital should not be impeded. Mergers have the potential to create more effective competitors and unlock efficiencies. Ms. Hesse’s remarks reflect some of the clearest public skepticism yet from an enforcement official of this fundamental assumption. Calling the view that mergers may benefit competition “unfounded,” Ms. Hesse stated that “mergers often fail to deliver” on their efficiency gains, and that “[a]ntitrust enforcers at the Antitrust Division and the FTC have become justifiably more skeptical about the promise of procompetitive benefits of mergers.”
Compounding her assault on horizontal mergers, Ms. Hesse cast doubt on the agencies’ ability to effectively exercise their most commonly used enforcement tool: divestiture relief. She expressed skepticism of “the likelihood that remedies solve the competitive concerns.” Here again, Ms. Hesse directly picked up the argument put forth by Senator Warren that merger benefits are elusive, and echoed the Senator’s call to reject divestiture relief in favor of blocking transactions outright.
The FTC Disagrees
In all of these areas, Chairwoman Ramirez’s remarks lacked Ms. Hesse’s provocative language, and hewed more closely to traditional antitrust doctrine. Chairwoman Ramirez described competition as operating “to the benefit of consumers,” and called FTC’s role “by necessity a limited one” focused on enhancing consumer welfare.
Chairwoman Ramirez did not echo Ms. Hesse’s hostility toward horizontal mergers. While recognizing the need to seek enforcement for mergers that substantially lessen competition to the detriment of consumer welfare, she acknowledged that FTC prefers “to leave markets alone” and intervene only in those relatively few instances where a transaction threatens to “distort the competitive process and harm consumer welfare.”
As to some of the particulars of Ms. Hesse’s views on mergers, Chairwoman Ramirez pointedly took the opposite view. She refuted Ms. Hesse’s attacks on the benefits of mergers and the efficacy of divestiture relief. Consistent with decades of antitrust enforcement practice, Chairwoman Ramirez recognized that “[s]ettlements offer the advantage of addressing the competitive harm of a transaction while still allowing realization of the merger’s efficiencies.” She also cast doubt on the argument that divestiture relief is not effective, arguing that “[i]n the end, there is little relevant data from which to conclude that the hundreds of remedies imposed by the antitrust agencies in the last 40 years have been ineffective.”
Conclusion
Ms. Hesse’s comments were remarkable for the manner in which they picked up the themes begun by Senator Warren—skepticism of mergers, disbelief in the ability of the agencies to craft effective remedies, and the paramount importance of “fairness.” These views diverge sharply not only from established antitrust doctrine as reflected in decades of agency practice, but with contemporaneous views of others within the enforcement community, as seen in Chairwoman Ramirez’s remarks. It bears watching whether Ms. Hesse’s remarks signal an intent at DOJ to take a sharply more aggressive position on merger enforcement going forward, perhaps into the next administration.