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 Section 7 of the Clayton Act (Section 7),1 and 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,2 when 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.”3 In 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: “Thro ughout 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, Marke t Definition: An Analytical Overview,
74 ANTITRUST L.J. 129, 129 (2007). Examples of litigated merger cases
55
56 Mergers and Acquisitions
As the D.C. Circuit emphasized in United States v. Baker Hughes,
Inc.,8 the government must demonstrate that 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.”9 Courts 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.”10 Under 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, before the burden shifts to the defendant to show that the market-
share statistics do not accurately predict the transaction’s probable effects
on competition.11 Thus, 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); FTC v. Laboratory Corp. of Am.,
2011 U.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
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 t he number of firms, wit hout more, gives reaso n to
believe an acquisition violates the Clayton Act. Compare Dissenting
Statement of Commissioner Joshua D. Wright, Fidelity National
Financial, Inc. and Lender Processing Services, Inc., File No. 131-0159
2013/12/dissenting-statement-commissioner-joshua-d-wright-matter-
fidelity-national, with Statement of the Federal Trade Commissio n,
Fidelity National Financial, Inc. and Lender Processing Services, Inc.,
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