Vertical Merger Guidelines and the Rule of Law

• DOI: http://doi.org/10.1177/0003603X221103113
• Published date: 01 September 2022
• Date: 01 September 2022

https://doi.org/10.1177/0003603X221103113

The Antitrust Bulletin

2022, Vol. 67(3) 406 –423

© The Author(s) 2022

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DOI: 10.1177/0003603X221103113

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Article

Vertical Merger Guidelines and

the Rule of Law

Gregory J. Werden*

Abstract

Mid-1960s Supreme Court decisions undermined the rule of law by giving the government unbridled

discretion in enforcing Section 7 of the Clayton Act. Since 1968, the government has promoted the

rule of law through guidelines limiting discretion. The Vertical Merger Guidelines, however, place no

meaningful limits on agency discretion. They articulate theories under which mergers can be harmful but

neither specific nor general standards. They set out no principles for determining when a merger harms

competition, rather than a competitor, and no criteria for determining when harm to competition is

likely, rather than merely possible. Nor do they convey the agencies’ general attitude toward vertical

mergers.

Keywords

vertical mergers, harm to competition, rule of law, foreclosure, raising rivals’ costs

I. Merger Enforcement and the Rule of Law: 1950–2010

The rule of law is a set of principles for an orderly and just society.1 The basic idea traces to Aristotle,2

and term dates to 1644.3 A key principle is that “The law must be known and predictable so that persons

*Former Senior Economic Counsel, Antitrust Division, U.S. Department of Justice, Washington, DC, USA

Corresponding Author:

Gregory J. Werden, Former Senior Economic Counsel, Antitrust Division, U.S. Department of Justice, Arlington, VA 22201,

USA.

Email: gregwerden@gmail.com

1103113ABXXXX10.1177/0003603X221103113The Antitrust BulletinWerden

research-article2022

1. See Tom Bingham, The Rule of law (2010); see also Landgraf v. USI Film Prods., 511 U.S. 244, 265–66 (1994) (“In a

free, dynamic society, creativity in both commercial and artistic endeavors is fostered by a rule of law that gives people

confidence about the legal consequences of their actions.”).

2. “Rightly constituted laws should be the final sovereign; and personal rule, whether it be exercised by a single person or a

body of persons, should be sovereign only in those matters on which law is unable, owing to the difficulty of framing gen-

eral rules for all contingencies, to make an exact pronouncement.” aRisToTle, PoliTics bk. III, ch. xi, § 19 (Ernest Barker,

trans., Oxford 1946).

3. samuel RuTheRfoRd, lex, Rex: The law and The PRince; a disPuTe foR The JusT PReRogaTive of King and PeoPle 237

(London 1644).

Werden 407

will know the consequences of their actions.”4 But the consequences of merging became unknowable

in 1950 when the Celler-Kefauver Act amended Section 7 of the Clayton Act to prohibit a merger if its

effect “may be substantially to lessen competition.”

Justice Antonin Scalia argued that the rule of law demands “a law of rules,”5 and the Supreme Court

made many rules of antitrust law. The 1963 Philadelphia National Bank decision brought some clarity

to Section 7 enforcement with a structural presumption of illegality for certain horizontal mergers.6

Within a few years, however, the Court reverted to the prior uncertainty by granting seemingly bound-

less discretion to the Department of Justice (DOJ) and Federal Trade Commission (FTC). Milton

Handler wrote that

the Court’s rules on horizontal mergers appear to provide the enforcement agencies with a vast armory of

weapons to attack horizontal mergers. Now that the Court has spoken, the remaining question relates to the

manner in which the enforcement officials wield this enormous power. Having regard for the number of

mergers occurring each year, selective enforcement becomes inevitable . . . . We can only hope that the Antitrust

Division and the Federal Trade Commission will exercise their awesome administrative discretion with

prudence and objectivity. Blank checks have a habit of bouncing back.7

The DOJ was obliged to address the rule-of-law deficit presented by Section 7. A.V. Dicey—the first

legal scholar to write extensively about the rule of law—stressed that the rule of law “excludes the

existence of arbitrariness, of prerogative, or even of wide discretionary authority on the part of govern-

ment.”8 And modern rule-of-law scholar Jeremy Waldron observed that

Most conceptions of [the rule of law] give central place to a requirement that people in positions of authority

should exercise their power within a constraining framework of public norms, rather than on the basis of their

own preferences, their own ideology, or their own individual sense of right and wrong.9

Attorney General (AG) Nicholas deB. Katzenbach acknowledged a problem in a May 8, 1965

speech.10 He observed that the DOJ challenged only about 1 percent of mergers and should “help

clarify” which mergers “run afoul of the antitrust laws.” AG Katzenbach revealed that the DOJ had

“begun seeking to shape policy guidelines” and added that “this effort can be continued and even

accelerated under” the leadership of Donald F. Turner—nominated on May 7 to be Assistant Attorney

General (AAG) in charge of the Antitrust Division.

AAG Turner was sworn in on June 21, 1965. In his first speech, August 10, he explained that “People

wishing to comply with what the Government thinks the law is can only do so if the Government’s views

4. Robert A. Stein, What Exactly Is the Rule of Law?, 57 hous. l. Rev. 185, 194 (2019); see f. a. hayeK, The Road To

seRfdom: TexT and documenTs: The definiTive ediTion 112 (Bruce Caldwell ed., Chicago 2007) (1944) (“Stripped of all

technicalities, [the rule of law] means that government in all its actions is bound by rules fixed and announced before-

hand—rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given

circumstances . . . .”).

5. Antonin Scalia, The Rule of Law as a Law of Rules, 56 u. chi. l. Rev. 1175 (1989).

6. United States v. Phila. Nat’l Bank, 374 U.S. 321, 363 (1963) (“[a] merger which produces a firm controlling an undue

percentage share of the relevant market, and results in a significant increase in the concentration of firms in that market, is

so inherently likely to lessen competition substantially that it must be enjoined in the absence of evidence clearly showing

that the merger is not likely to have such anticompetitive effects.”).

7. Milton Handler, Some Misadventures in Antitrust Policy Making—Nineteenth Annual Review, 76 yale l.J. 92, 108 (1966).

8. a.v. dicey, inTRoducTion To The sTudy of The law of The consTiTuTion 198 (8th ed. 1915); see id. at 184 (“[T]he rule

of law is contrasted with every system of government based on the exercise by persons in authority of wide, arbitrary, or

discretionary powers of constraint.”).

9. Jeremy Waldron, The Concept of the Rule of Law, Sibley Lecture Series, 43 ga. l. Rev. 1, 6 (2008).

10. Remarks of AG Nicholas deB. Katzenbach before the Business Council, https://www.justice.gov/sites/default/files/ag/

legacy/2011/08/23/05-08-1965.pdf.