Background

• Pages: 1-56

1

CHAPTER I

BACKGROUND

This chapter provides an overview of the merger review process at

the Federal Trade Commission (FTC or Commission) and the

Department of Justice (DOJ or Antitrust Division). This overview will

set the stage for the remainder of this Handbook, which addresses the

merger review process in chronological order, beginning with the

preparation required before the transaction parties file their notification

forms under the Hart-Scott-Rodino Antitrust Improvements Act (HSR

Act) and following the review process through filing, initial review,

issuance of, and compliance with a Request for Additional Information

and Documentary Materials (second request); investigation by the

agency’s attorneys and economists; decision making at each agency; and

potential resolution of agency challenges without litigation. The

Handbook also discusses non-Hart-Scott-Rodino (HSR) merger

investigations, the role of third parties in the merger review process, and

multijurisdictional review.

This chapter (1) describes the statutory basis for federal antitrust

review of mergers, (2) provides an overview of each agency and the

merger review process, and (3) discusses confidentiality considerations.

The chapter concludes with a brief overview of: (i) the implications for

mergers from the Sarbanes-Oxley Act of 2002, which, although not

specifically related to antitrust review, has had a significant impact on

the U.S. corporate regulatory environment; and (ii) the Exon-Florio

national security review process, which is relevant to acquisitions by

foreign persons of U.S. businesses with potential national security

implications.

A. Statutory Authority

1.

Substantive Statutes

a. Clayton Act Section 7

The principal federal substantive law governing mergers,

acquisitions, and joint ventures is Section 7 of the Clayton Act

2 The Merger Review Process

(Section 7).1 This provision generally prohibits the acquisition of stock or

assets by any “person” where “the effect of such acquisition may be

substantially to lessen competition, or to tend to create a monopoly.”

Section 7 can reach the acquisition of virtually any “asset” (using that

term in its broadest sense), including acquisitions of assets such as

intellectual property rights, real estate interests, and certain contractual

rights, as well as the formation of a joint venture or the transfer of a joint

venture interest. Section 7 may be enforced by the Antitrust Division, the

FTC, state attorneys general, and private plaintiffs.2

A full discussion of the substantive standards applicable under

Section 7 is beyond the scope of this Handbook. The reader is referred to

the extensive case law that has developed over the years.3 Also of

particular help in understanding the substantive merger standards and the

federal enforcement agencies’ positions regarding mergers are various

merger enforcement policy guidelines and statements that the DOJ and

the FTC have issued.4 The National Association of Attorneys General

1. 15 U.S.C. § 18.

2. Section 7, as originally enacted in 1914, applied only to the acquisition of

the stock of one corporation by another corporation. Several amendments

over the years expanded Section 7’s coverage to virtually all acquisitions

of stock or assets by any person.

3. For a more complete review of the substantive aspects of merger review,

see 1 ABA SECTION OF ANTITRUST LAW,ANTITRUST LAW

DEVELOPMENTS (6th ed. 2007) (Antitrust Law Developments (Sixth)) and

ABA SECTION OF ANTITRUST LAW,MERGERS AND ACQUISITIONS:

UNDERSTANDING THE ANTITRUST ISSUES (3d ed. 2008).

4. The principal statement of current enforcement policy is contained in the

2010 Horizontal Merger Guidelines, issued jointly by the DOJ and the

FTC. U.S. DEP’T OF JUSTICE &FED.TRADE COMM’N,HORIZONTAL

MERGER GUIDELINES (2010), reprinted in Trade Reg. Rep. (CCH)

¶ 13,100 (Aug. 19, 2010) (Horizontal Merger Guidelines). The

Horizontal Merger Guidelines are also available at the Web sites of the

FTC and the Antitrust Division, respectively. See http:/ /www.ftc.gov/os/

2010/08/100819hmg.pdf; http://www.justice.gov/atr/public/guidel ines/hm g-

2010.html. Also helpful to understand the substantive merger law

standards and federal enforcement attitudes are: U.S. DEP’T OF JUSTICE,

ANTITRUST ENFORCEMENT GUIDELINES FOR INTERNATIONAL

OPERATIONS,reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,109 (Nov. 10,

1988); U.S. DEP’T OF JUSTICE & FED.TRADE COMM’N, 1995 ANTITRUST

ENFORCEMENT GUIDELINES F OR INTERNATIONAL OPERATIONS,rep rinted

Background 3

(NAAG) also has issued merger enforcement guidelines,5 which differ in

significant respects from the federal guidelines.

In brief, applying Section 7 first requires a determination of the

product and geographic dimensions of the relevant market(s) within

which the competitive effects of the merger should be analyzed.6 In

analyzing the competitive effects within the defined relevant market(s),

the key concerns are whether the merger will create or enhance market

power or facilitate its exercise, either by coordinated or unilateral

conduct.

in 4 Trade Reg. Rep. (CCH) ¶ 13,107 (Apr. 15, 1995); U.S. DEP’T OF

JUSTICE & FED.TRADE COMM’N, 1996 STATEMENTS OF ANTITRUST

ENFORCEMENT POLICY IN HEALTH CARE, reprinted in 4 Trade Reg. Rep.

(CCH) ¶ 13,153 (1996); U.S. DEP’T OF JUSTICE & FED.TRADE COMM’N,

COMMENTARY ON THE HORIZONTAL MERGER GUIDEL INES,reprinted in 7

Trade Reg. Rep. (CCH) ¶ 50,208 (Mar. 27, 2006); and speeches by DOJ

and FTC officials, available on the Web sites of the Antitrust Division

(http://www.justice.gov/atr) and the FTC (http://www.ftc.gov). Both the

Antitrust Division and the FTC have also separately issued guidelines

regarding merger remedies. See U.S. DEP’T OF JUSTICE,ANTITRUST

DIVISION POLICY GUIDE TO MERGER REMEDIES (2011), available at

http://www.justice.gov/atr/public/guidelines/272350.pdf; FED.TRADE

COMM’N, STATEMENT OF THE FEDERAL TRADE COMMISSION’SBUREAU

OF COMPETITION ON NEGOTIATING MERGER REMEDIES, available at

http://www.ftc.gov/bc/bestpractices/bestpractices030401.pdf.

5. NAAG’s Horizontal Merger Guidelines were initially issued in

1987 and revised in 1993. NAT’LASSOC. OF ATT’YGEN.,

HORIZONTAL MERGER GUIDELINES (1993), reprinted in 4 Trade Reg.

Rep. (CCH) ¶¶ 13,405, 13,406 (Mar. 30, 1993) (NAAG Merger

Guidelines), available at http://www.naag.org/assets/files/pdf/at-

hmerger_guidelines.pdf. For additional information regarding state

merger enforcement, see NAT’LASSOC. OF ATT’YGEN., VOLUNTARY

PRE-MERGER DISCLOSURE COMPACT (Mar. 21, 1994), reprinted in 4

Trade Reg. Rep. (CCH) ¶ 13,410 (NAAG Compact), available at

http://www.naag.org/assets/files/pdf/200612-antitrust-voluntary-premerger-

disclosure-compact.pdf; ABA SECTION OF ANTITRUST LAW,STATE

ANTITRUST PRACTICE AND STATUTES (4th ed. 2009) (State Antitrust

Practice).

6. See generally Antitrust Law Developments (Sixth),supra note 3, at

327-38. The enforcement agencies’ guidelines, supra note 4, are very

useful to an understanding of the market definition issues under

Section 7.