The Role of Adverse Competitive Effects in Merger Analysis

• Pages: 55-77

CHAPTER III

THE ROLE OF ADVERSE COMPETITIVE EFFECTS

IN MERGER ANALYSIS

A.Historical Role of Competitive Effects

1. The Interplay Between Market Definition and Competitive Effects

For over eight decades, courts and the U.S. antitrust agencies have

viewed market definition as a necessary predicate to finding a violation

of Section7 of the Clayton Act (Section 7),1and there is substantial

precedent for linking market definition and competitive effects in merger

analysis. The Supreme Court implicitly recognized the market definition

element in 1930, in International Shoe Co. v. FTC,2when it rejected the

“acquiring-acquired” test, which focused solely on the competitive

effects from eliminating competition between the merging parties

(without considering broader market dynamics). The 1950 amendments

to Section 7 codified the requirement that the likely competitive effects

from a merger must be assessed within a “line of commerce.”3In two

successive merger cases—United States v. E.I. DuPont de Nemours &

Co.4 and Brown Shoe Co. v. United States5—the Supreme Court opined

that “determination of the relevant market is a necessary predicate to a

finding of a violation of the Clayton Act. . . .”6 Moreover, the focus on

market definition as a necessary first step in the analysis (before focusing

on competitive effects) is more than a mere formality; it can be outcome

determinative in a judicial challenge to a merger. As one commentator

reflects: “Throughout the history of U.S. antitrust litigation, the outcome

of more cases ha[s] surely turned on market definition than on any other

substantive issue.”7

1. 15 U.S.C. § 18.

2. 280 U.S. 291, 298 (1930).

3. Anti-Merger Act, 15 U.S.C. § 18 (Celler-Kefauver Act).

4. 353 U.S. 586 (1957).

5. 370 U.S. 294 (1962).

6. Id. at 324.

7. Jonathan B. Baker, Market Definition: An Analytical Overview,

74 ANTITRUSTL.J. 129,129 (2007). Examples of litigated merger cases

55

56Mergers and Acquisitions

As the D.C. Circuit emphasized in United States v. Baker Hughes,

Inc.,8the government must demonstratethat the transaction at issue is

likely to “substantially . . . lessen competition or tend to create a

monopoly in . . . a market for a particular product in a particular

geographic area.”9Courts recognize a rebuttable “presumption” that an

acquisition will substantially lessen competition only after the

government shows that the combination will result in “a firm controlling

an undue percentage share of the relevant market.”10Under this

traditional “burden-shifting” paradigm, the government must establish

cognizable relevant product and geographic markets and demonstrate

market shares in those markets that give rise to likely anticompetitive

effects, beforethe burden shifts to the defendant to show that the market-

share statistics do not accurately predict the transaction’s probable effects

on competition.11Thus, the case law generally requires proof of a

relevant market as a first element for establishing a Section 7 violation.

in which market definition was the determinative factor include United

States v. H&R Block, Inc., 833 F. Supp. 2d 36 (D.D.C. 2011); FTC v.

Lundbeck, Inc., 650 F.3d 1236 (8th Cir. 2011), aff’g, 2010-2 Trade Cas.

(CCH) ¶77,160 (D. Minn. 2010); FTCv.Laboratory Corp. of Am.,

2011U.S. Dist. LEXIS 20354 (C.D. Cal. 2011); FTC v. Whole Foods

Market, Inc., 548 F.3d 1028 (D.C. Cir. 2008); United States v. Oracle

Corp., 331 F. Supp. 2d 1098 (N.D. Cal. 2004); United States v. SunGard

Data Sys., Inc., 172 F. Supp. 2d 172 (D.D.C. 2001); FTC v. Swedish

Match, 131 F. Supp. 2d 151 (D.D.C. 2000); FTC v. Staples, Inc., 970F.

Supp. 1066 (D.D.C. 1997).

8. 908 F.2d 981 (D.C. Cir. 1990).

9. Id. at 982-83 n.1.

10. United States v.Philadelphia Nat’l Bank, 374 U.S. 321, 363 (1963); FTC

v. H.J. Heinz Co., 246 F.3d 708, 715 (D.C. Cir. 2001); Baker Hughes,

Inc., 908 F.2d at 982.

11. United States v. Citizens & S. Nat’l Bank, 422 U.S. 86, 120 (1975);

Heinz, 246 F.3d at 715; Olin Corp. v.FTC, 986 F.2d 1295, 1305 (9th Cir.

1993). An interesting debate arose among the Federal Trade Commission

commissioners in Fidelity National Financial, Inc. regarding whether and

when a reduction in the number of firms, without more, gives reason to

believe an acquisition violates the Clayton Act. CompareDissenting

Statement of Commissioner Joshua D. Wright, Fidelity National

Financial, Inc. and Lender Processing Services, Inc., File No.131-0159

( Dec.23, 2013), available athttp://www.ftc.gov/public-statements/

2013/12/dissenting-statement-commissioner-joshua-d-wright-matter-

fidelity-national, withStatement of the Federal Trade Commission,

Fidelity National Financial, Inc. and Lender Processing Services, Inc.,