PRIVATE MERGER CHALLENGES UNDER SECTION 16 OF THE CLAYTON ACT: CAUTION POST-JELD-WEN.

• Author: Fischer, Erin L.

INTRODUCTION 242 I. BACKGROUND ON MERGER LAW AND PRIVATE CHALLENGES 243 A. The Clayton Act and the DOJ-FTC Merger Guidelines 244 B. Private Right of Action Generally 248 II. PRIVATE MERGER CHALLENGES UNDER SECTION 16 248 A. Elements of Private Merger Challenges Under Section 16 249 B. The Foundation Laid by California v. American Stores Co 251 C. Divestiture as a Remedy in Steves and Sons, Inc. v. JELD-WEN, Inc 253 III. ANTITRUST POLICY AND THE INHERENT RISKS OF PRIVATE MERGER ENFORCEMENT 261 A. Comparing Government and Private Equity Suits 261 B. Recommendations for the Review of Private Merger Challenges 263 l. Consistent Use of the Antitrust Injury Doctrine 264 2. Preferring Consumer Plaintiffs Over Competitor Plaintiffs 267 3. The Earlier, the Better 269 C. Ideal Private Merger Enforcement 272 CONCLUSION 272 INTRODUCTION

Private merger enforcement is a thorny corner of antitrust law. Private merger challenges pose considerable potential financial downside for industry because in many cases, the motivations of private plaintiffs in initiating a challenge do not align with the purposes of antitrust law. These actions are risky for plaintiffs as well because they are difficult to win. Plaintiff successes have been so uncommon that in a Fourth Circuit case decided in February of 2021, the court stated, "private suits seeking divestiture are rare and, to our knowledge, no court had ever ordered divestiture in a private suit before this case." (1) While claims brought under section 16 of the Clayton Antitrust Act of 1914 (Clayton Act) (2) have been historically underdiscussed, the Fourth Circuit's grant of divestiture to a private plaintiff in early 2021 affords us an opportunity to evaluate this oft overlooked corner of antitrust law. Should private plaintiffs be able to mold the shape of industries to such a degree?

The remedies for private merger challenges lie in section 4 of the Clayton Act for monetary damages (3) and section 16 of the Clayton Act for injunctive relief. (4) These remedies are clearly authorized by statute. (5) Under section 16, a private plaintiff may seek relief in equity for a violation of the antitrust laws "when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity...." (6) There are two section 16 cases of note: one idiosyncratic Supreme Court case from 1990, in which the Court established that private plaintiffs may seek any kind of equitable relief granted by courts in equity without limitations, (7) and a recent Fourth Circuit case, quoted above, which granted divestiture to a private plaintiff. (8)

The Fourth Circuit case, Steves and Sons, Inc. v. JELD-WEN, Inc., decided in February of 2021, is the only known successful private post-merger enforcement case under section 16 of the Clayton Act. Because of this, one can understand the court's characterization that the "case [was] a poster child for divestiture." (9) But there is reason to doubt the propriety of this remedy under other factual circumstances. While it is clearly authorized by the statute, it is worth our time to question in what situations courts ought to grant equitable relief to private litigants. This Comment focuses on plaintiffs seeking relief under section 16 of the Clayton Act, as damages actions under section 4 of the Clayton Act have their own distinct set of concerns and considerations too numerous to explore under this one roof.

In Part I, I provide a brief overview of the relevant antitrust laws--in particular, the Clayton Act and the Celler-Kefauver Amendments.

In Part II, I explore the standing requirements for private litigants under section 16 of the Clayton Act in merger challenges. I then provide a summary of the Supreme Court's opinion in California v. American Stores Co., (10) in which the Court confirmed that states and other private plaintiffs can seek divestiture and the full range of equitable remedies under section 16 of the Clayton Act. Lastly, I undergo a substantive analysis of the 2021 Fourth Circuit JELD-WEN case.

In Part III, I explore the implications of granting equitable remedies under section 16 to private litigants in merger challenges. I acknowledge that private merger enforcement is part of the overall antitrust enforcement schema designed by Congress, and that the importance of private plaintiffs in the overall system has been echoed by the Supreme Court. I then detail counterbalancing concerns unique to private merger enforcement under section 16 of the Clayton Act. Ultimately, I argue that despite the JELD-WEN ruling, courts should continue to review these suits with a critical eye. When evaluating private merger challenges, courts ought to consistently apply the antitrust injury doctrine, give preference to consumer plaintiffs over competitor plaintiffs, and be wary of unrecoverable waste resulting from divestiture in post-merger consummation challenges.

1. BACKGROUND ON MERGER LAW AND PRIVATE CHALLENGES

   "The dominant view of antitrust policy in the United States is that it should promote some version of economic welfare." (11) This generally means that antitrust policy seeks to make markets as competitive as they can reasonably be while ensuring that "firms do not face unreasonable roadblocks to attaining productive efficiency." (12) Antitrust in the United States is simultaneously imbued with the idea that the market can generally attain these results, and thus intervention is appropriate only where there is a strong reason to believe that antitrust enforcement will make the market more competitive and efficient. (13) In Section I.A, I discuss the relevant antitrust law, case law, and the DOJ-FTC Merger guidelines concurrently. This context is necessary for my later critique of some aspects of private merger enforcement.

   1. The Clayton Act and the DOJ-FTC Merger Guidelines

      Merger activity increased dramatically at the turn of the twentieth century in the United States. (14) This wave of mergers, in conjunction with the development of the rule of reason in 1911, (15) led many to fear that the weakened Sherman Act was no match for strengthening and consolidating American firms. In response to these concerns, Congress passed the Clayton Act in 1914, which "explicitly condemned anticompetitive price discrimination, tying and exclusive dealing, expanded private enforcement... and condemned mergers on a far more aggressive standard than the Sherman Act had done." (16)

      Congress amended the Clayton Act in 1950 through the Celler-Kefauver Amendments, (17) which extended the reach of the Clayton Act to condemn anticompetitive vertical as well as horizontal mergers, and asset acquisitions. The amendments reflected a general anxiety at the time about massive firms squeezing out small family businesses and poor Congressional regard for the efficiencies associated with many mergers. (18)

      Today, mergers are almost (19) always analyzed under section 7 of the Clayton Act. (20) Section 7 condemns any merger if its effect "may be substantially to lessen competition, or to tend to create a monopoly." (21) This type of merger produces two notable results: first, after the merger there will be one less competitor in the relevant market and a corresponding increase in market concentration; second, the post-merger firm will have a larger market share than either firm held before the merger. (22) Courts have focused on two primary dangers as a result of mergers: (23) increased incidence of express or tacit collusion, (24) and "unilateral effects," or the combination of two firms who hold a similar space in the relevant market, allowing for price increases by the post-merger firm due to enhanced control over their corner of the market. (25)

      The DOJ and FTC jointly administer merger guidelines to alert industries to the standards by which potential mergers will be judged. The guidelines are not legally binding--and the Supreme Court has never decided a case in reference to them--but the courts have generally deferred to the agencies. (26) The newest iteration of the horizontal merger guidelines came out in 2010, and "[t]he unifying theme of the[] Guidelines is that mergers should not be permitted to create, enhance, or entrench market power or to facilitate its exercise." (27) The Agencies focus on decreased output and increased prices as a result of a merger, and do not focus on other anticompetitive behaviors like refusals to deal or exclusionary practices. (28) The Agencies look to several types of evidence of adverse competitive effects: "actual effects observed in consummated mergers," direct comparisons based on past mergers, market share and market concentration in the relevant market, "substantial head-to-head competition," and the disruptiveness of the merging party. (29)

      In coordinated effects cases, the Agencies almost always look to the concentration of the market as an indicium of likely anticompetitive effects, (30) and they usually calculate the Herfindahl-Hirschman Index ("HHI") of market concentration. "The HHI is calculated by summing the squares of the individual firms' market shares, and thus gives proportionately greater weight to the larger market shares." (31) Generally, the Agencies consider HHI below 1500 to be an unconcentrated market, HHI between 1500 and 2500 to be a moderately concentrated market, and HHI above 2500 to be highly concentrated. (32) The Agencies then look to the hypothetical state of the market post-merger and the increase in the HHI as evidence of the anticompetitive impacts of the merger. (33)

      The courts have largely agreed with this framework (34) and the underlying rationale. (35) Scholars generally believe that there is a likely positive correlation between the concentration of a market and the likelihood of collusive activity or unilateral effects. (36) But there are certainly situations in which markets function effectively despite being...