On January 10, 2020, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) announced proposed draft Vertical Merger Guidelines (“Draft Guidelines”) for public comment. The Draft Guidelines outline the agencies “analytical techniques, practices and enforcement policy” for vertical mergers under the federal antitrust laws. Vertical mergers combine two or more companies that provide different supply chain functions for a common good or service.
The Draft Guidelines would replace and supersede the DOJ’s 1984 guidelines on vertical mergers. The draft guidelines state that they should be read in conjunction with the 2010 Horizontal Merger Guidelines and are intended to provide guidance to businesses and to assist courts in interpreting and applying antitrust laws as it relates to vertical mergers.
In large part, the Draft Guidelines reflect the framework that has been used by federal agencies in recent vertical mergers such as CVS & Aetna, Cigna & Express-Scripts and AT&T-DirecTV & Time Warner. As such, the Draft Guidelines incorporate the ongoing focus by the enforcement agencies on issues including: foreclosure and raising rivals’ costs, access to competitively sensitive information, and facilitation of collusion.
The most significant development to the vertical merger framework proposed in the Draft Guidelines is the creation of a safe harbor from enforcement based on market shares. The Draft Guidelines note that enforcement agencies “are unlikely to challenge a vertical merger” where the merging parties’ “have a share in the relevant market of less than 20 percent and the related product is used in less than 20 percent of the relevant market.” While this is not a ‘bright-line’ rule and would not guarantee that a transaction involving market shares below 20 percent would be immune from scrutiny, it is likely that the enforcement agencies will not challenge deals that do not exceed this market share. Even so, even without approval of the Draft Guidelines, it is unlikely that a merger that does not involve higher market shares would be challenged.
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