Stopping a Train: Why it is So Difficult for a Private Plaintiff to Block a Deal

Published date01 June 2013
DOI10.1177/0003603X1305800204
Date01 June 2013
ATB 01 Nguyen THE ANTITRUST BULLETIN: Vol. 58, Nos. 2 & 3/Summer-Fall 2013 : 247
Stopping a train: Why it
is so difficult for a private
plaintiff to block a deal
BY SCOTT A. STEMPEL,* JONATHAN M. RICH**
AND DANIEL A. SCHIFFER***
Section 16 of the Clayton Act gives private plaintiffs the right to seek
an injunction blocking a merger or acquisition that violates section 7
of the Clayton Act, but today such a remedy exists more as a theoreti-
cal possibility. Section 7 began as a little-used statute with no clear
standard of illegality. It then evolved into a potent tool for private
parties seeking protection from economic harm, regardless of the
impact on competition, until the Supreme Court imposed a require-
ment that competitors must establish antitrust standing. The result
was an almost insurmountable hurdle because competitors are more
likely to be beneficiaries than victims of any anticompetitive effects.
Consumers are also poor plaintiffs because their injuries usually can
be redressed with monetary damages and, therefore, they do not
require injunctive relief.
KEY WORDS: Mergers and acquisitions, section 7, injunctive relief, antitrust
standing, antitrust injury, private plaintif s
* Partner, Morgan, Lewis & Bockius LLP, Washington, DC.
** Partner, Morgan, Lewis & Bockius LLP, Washington, DC.
*** Associate, Morgan, Lewis & Bockius LLP in Washington, DC.
AUTHORS’ NOTE: We thank Richard J. Carey for his research assistance.
© 2013 by Federal Legal Publications, Inc.

248 : THE ANTITRUST BULLETIN: Vol. 58, Nos. 2 & 3/Summer-Fall 2013
I.
INTRODUCTION
Section 16 of the Clayton Act gives a private plaintiff the right to seek
an injunction blocking a merger or acquisition that violates section 7
of the Clayton Act, but that tool may be less potent than it appears.
The Supreme Court has long recognized that private plaintiffs, such
as consumers and competitors (including takeover targets), may sue
to block or unwind a merger or acquisition that violates section 7.1
Private plaintiffs, however, face significant hurdles, and their
attempts to stop or break up a deal often fail. They must:
1. show that they have antitrust standing—that is, that they suffered
“injury of the type the antitrust laws were intended to prevent and
that flows from that which makes defendants’ acts unlawful”;2
2. demonstrate that they will suffer “irreparable harm” that renders
monetary damages insufficient3; and
3. prevail on the merits.4
1
See Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 110–11 (1986)
(“Section 16 authorizes private parties to obtain injunctive relief.”). The pri-
vate right to injunctive relief under section 7 stems from section 16 of the
Clayton Act. Section 16 provides that:
Any person, firm, corporation, or association shall be entitled to sue for
and have injunctive relief, in any court of the United States having juris-
diction over the parties, against threatened loss or damage by a violation
of the antitrust laws, including sections 13, 14, 18, and 19 of this title,
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, under the rules governing such proceedings, and upon
the execution of proper bond against damages for an injunction improvi-
dently granted and a showing that the danger of irreparable loss or dam-
age is immediate, a preliminary injunction may issue . . . .
15 U.S.C. § 26 (2012).
2
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977).
3
See, e.g., Taleff v. Sw. Airlines Co., 828 F. Supp. 2d 1118, 1123 (N.D. Cal.
2011) (“Upon review, the Court does not find that Plaintiffs have demon-
strated that they are entitled to the ‘extreme remedy of divestiture.’” (citing
Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 322 (3d Cir. 2007))).
4
See, e.g., United States v. Phila. Nat’l Bank, 374 U.S. 321, 363 (1963);
Boyertown Burial Casket Co. v. Amedco, Inc., 407 F. Supp. 811, 820 (E.D. Pa.
1976); FTC v. Weyerhaeuser Co., 648 F.2d 739, 741 (D.C. Cir. 1981).

U . S . P R I VAT E P L A I N T I F F S : 249
In recent years, those hurdles have proven to be virtually insur-
mountable.
Poor prospects for success are not the only reasons private plain-
tiffs might be dissuaded from trying to block or break up a deal. The
cost of litigation and a well-developed government merger review
process, which often stops or modifies transactions, discourage pri-
vate enforcement. Despite all of the above reasons not to try, perhaps
because they were once much more successful than they are today,
private plaintiffs, particularly consumers of mass market products or
services, still try to stop mergers.
II.
A ROCKY START: SECTION 7 LITIGATION BEFORE 1950
Congress enacted the Clayton Act in 1914 to stop anticompetitive
conduct beyond the scope of the Sherman Act of 1890. Section 7 of the
Clayton Act addressed mergers and acquisitions.5 As drafted in 1914,
section 7 applied only to stock acquisitions of competitors,6 and it did
not establish a clear standard of illegality.7 As a consequence, section 7
remained largely “ineffective” until Congress passed the Celler-
Kefauver Act in 1950.8 Few private plaintiffs tried to stop or break up
a deal for violations of section 7, and few of them succeeded.
Prior to 1950, courts were unwilling to order divestitures under
section 16 of the Clayton Act, which limited the utility of private
5
Clayton Act, ch. 323, § 7, 38 Stat. 730, 731–32 (1914) (current version at
15 U.S.C. § 18 (2012)).
6
See, e.g., Phila. Nat’l Bank, 374 U.S. at 337–38; FTC v. W. Meat Co., 272
U.S. 554, 556 (1926); United States v. Celanese Corp. of Am., 91 F. Supp. 14, 17
(S.D.N.Y. 1950) (explaining that Section 7 was drafted “to deal with the evil of
the secret acquisition by one corporation of the stock of another corporation,
principally those acquisitions by ‘holding companies’ ”).
7
See Brown Shoe Co. v. United States, 370 U.S. 294, 314 (1962).
8
See, e.g., id. at 311 (“The amendments adopted in 1950 culminated
extensive efforts over a number of years, on the parts of both the Federal
Trade Commission and some members of Congress, to secure revision of a
section of the antitrust laws considered by many observers to be ineffective in
its then existing form.”); see also W. Meat Co., 272 U.S. at 554; Int’l Shoe Co. v.
FTC, 280 U.S. 291 (1930).

250 : THE ANTITRUST BULLETIN: Vol. 58, Nos. 2 & 3/Summer-Fall 2013
enforcement. For example, in rejecting a 1926 lawsuit brought by a
minority shareholder seeking to enjoin a railroad merger, the Second
Circuit implied that a private plaintiff could not obtain relief compa-
rable to that available to the government.9 Other courts followed
suit.10 As a consequence, before 1950, private section 7 lawsuits seek-
ing injunctive relief under section 16 were limited largely to targets of
a hostile takeover attempt seeking to fight off the predator.11
III. THE NEW SECTION 7: A MORE POTENT TOOL
FOR ALL PLAINTIFFS
The Celler-Kefauver Act of 1950 transformed section 7 into a more
effective tool for private litigants:
No corporation engaged in commerce shall acquire, directly or indirectly,
the whole or any part of the stock or other share capital and no corpora-
tion subject to the jurisdiction of the Federal Trade Commission shall
acquire the whole or any part of the assets of another corporation
engaged also in commerce, where in any line of commerce in any section
of the country, the effect of such acquisition may be substantially to lessen
competition, or to tend to create a monopoly.12
Congress intended Section 7 to apply “to all types of mergers and
acquisitions, vertical and conglomerate as well as horizontal, which
9
Cont’l Sec. Co. v. Mich. Cent. R.R., 16 F.2d 378, 379 (6th Cir. 1926) (“The
main remedy sought is dissolution of the combination. Section 16 [of the Clay-
ton Act] never has been held to reach such a case. The result sought is practi-
cal y the same as would be asked for in a suit by the Attorney General.”).
10
See F.A.D. Andrea, Inc. v. Radio Corp. of Am., 14 F. Supp. 226 (D. Del.
1936), af ’d, 88 F.2d 474 (3d Cir. 1937) (court granted motion to dismiss for fail-
ing to state a ground of equitable relief); see also Conn. Tel. & Elec. Co. v. Auto.
Equip. Co., 14 F.2d 957 (D.N.J. 1926) (explaining that rather than filing a law-
suit, “[a private plaintiff] may bring them to the attention of the Federal Trade
Commission, which, for the purpose of protecting the general public, is
authorized to investigate alleged ‘unfair methods of competition in com-
merce’ and make appropriate orders that the offender ‘cease and desist from
using such methods of competition’ ”).
11
Cont’l Sec. Co., 16 F.2d at 379; see also Ozdoba v. Verney Brunswick
Mills, Inc., 152 F. Supp. 136 (S.D.N.Y. 1946).
12
Celler-Kefauver Antimerger Act of 1950, Pub. L. No. 81-899, § 7, 64
Stat. 1125 (codified as amended at 15 U.S.C. § 18 (2012)).

U . S . P R I VAT E P L A I N T I F F S : 251
have the specified effects of substantially lessening competition . . . or
tending to create a monopoly.”13
The Celler-Kefauver Act spurred a new era of section 7 enforce-
ment by the federal government14 and paved the way for private
plaintiffs—especially competitors and targets—to sue as well.15
Courts began to acknowledge that section 16 of the Clayton Act
empowered them to enjoin mergers in private litigation. Targets
then seized on section 16 to fend off unwanted takeover proposals,16
and competitors found it a...

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