As 2019 approaches, the antitrust outlook in the United States appears to be stabilizing. This article identifies some issues to watch.
Trump Administration Direction and Signals
Historically, U.S. antitrust enforcement has been marked more by continuity than abrupt change. During the past few decades, we saw an evolution away from blanket rules of per se legality or illegality under federal law (e.g., resale price maintenance and inflexible merger standards), a greater emphasis on economic analysis of likely competitive effects, and an attempt to strike a balance between overly aggressive enforcement (which inhibits potentially procompetitive conduct benefiting consumer welfare) and overly lenient enforcement (which risks adverse consumer welfare consequences).
Forecasts for the direction of antitrust enforcement priorities under the Trump administration have been clouded by, among other things, President Trump's frequently expressed populist themes, market interventions (including the imposition of trade tariffs and criticism of pharmaceutical pricing), and a comment in October 2016 that a major telecom deal (Time Warner/AT&T) would not be allowed in his administration. Despite these signals, the direction of antitrust enforcement appears to be stabilizing.
1. Vertical Merger Enforcement
Makan Delrahim, President Trump's selection for the Assistant Attorney General for Antitrust post at DOJ, was confirmed by the Senate in September 2017, and DOJ promptly sued to block Time Warner/AT&T in November 2017. This (surprising) vertical merger challenge by DOJ was assigned to Judge Richard Leon (D.D.C), and following a lengthy trial, Judge Leon denied DOJ's request for a merger injunction. DOJ has appealed that decision to the D.C. Circuit Court (although the Time Warner/AT&T transaction did close, subject to a hold-separate agreement).
Despite this rough start for the new administration's merger enforcement efforts, the U.S. antitrust agencies (FTC and DOJ, Antitrust Division) otherwise appear to be pursuing a predictable enforcement agenda. Two other major vertical mergers – Cigna/Express Scripts and Aetna/CVS – were recently blessed by DOJ (subject to a divestiture of Aetna's standalone Medicare Part D business, a horizontal overlap, in the Aetna/CVS transaction). And FTC, now chaired by President Trump's nominee Joe Simons, has avoided major enforcement surprises (so far). Whether possible vertical mergers in the automotive industry face any surprising agency opposition remains to be seen.
2. "Out-of-Market" Consumer Benefits
The proposed combination of T-Mobile/Sprint is currently under review by both DOJ and FCC. This transaction would combine two of the four major U.S. wireless providers, in a proposed combination previously rejected under the Obama administration. The parties have asserted a host of potential synergies and efficiencies, including the ability of the combined entity to more quickly and widely roll out 5G wireless service in competition with Verizon and AT&T. As an additional competitive benefit, the parties assert that 5G service will introduce a competitive, wireless alternative for residential broadband service, currently provided by cable and telco suppliers through wireline and fiber optic connections. How DOJ and FCC treat this "out-of-market" benefit in broadband, as a possible competitive "offset" to a reduction in competition in traditional wireless telephony, will be interesting to watch.
3. The Impact of Tariffs on Merger Reviews
The antitrust agencies evaluate proposed mergers and acquisitions within "relevant" product and geographic markets. To help define relevant markets, the agencies apply a "Hypothetical Monopolist Test," which asks whether a "small but significant" price increase on a product would draw competition from other products. Once the agencies define these relevant markets, the agencies evaluate market concentration (based on the number and market significance of competitors) and the anticipated competitive effects of the combination.
Foreign manufacturers that supply a particular automotive product may, however, as a result of trade barriers such as tariffs, not be counted (or weighed as heavily) in this competitive effects evaluation. For example, the Trump administration's most recently announced tariffs on products from China are expected to cover a wide range of auto parts. In a merger review involving manufacturers of a particular auto part, these tariffs could (negatively) affect the competitive significance the agencies ascribe to Chinese competitors, thus increasing agency scrutiny of the merger.
4. DOJ's Auto Parts Investigation and Antitrust Compliance
DOJ's long-running investigation of auto parts suppliers, the largest criminal investigation ever pursued by DOJ's Antitrust Division, resulted in charges against some 48 companies and yielded DOJ almost $3 billion in criminal fines.
DOJ's auto parts investigation could influence agency reviews of automotive industry mergers going forward, as the agencies regularly consider any "history of collusion" in merger evaluations.
Having an effective antitrust compliance program in place is not only a valuable business and legal practice, but also a possible means to respond to agency concerns over a "history of collusion" among auto parts suppliers. And while DOJ, in making sentencing recommendations, has historically not given credit to firms with antitrust compliance programs, that may be changing. DOJ is currently considering changes not only to the credit it gives firms with compliance programs, but also whether such programs should influence the decision to file criminal charges in the first place. If DOJ makes these changes, the business and legal benefits of implementing an effective antitrust compliance program may increase exponentially.
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