This episode is the "A Whole New World? Changes Big and Small" panel from the Revising the Antitrust Merger Guidelines event. It was recorded on September 29, 2023.
Welcome to Engelberg Center Live!, a collection of audio from events held by the engelberg center on innovation Law and Policy at NYU Law. This episode is the whole new world changes big and small panel from the revising the antitrust merger guidelines event. It was recorded on September 29 2023.
Scott Hemphill 0:24
So I'm going to kick off with just an introduction, I think I've already given a little bit of throat clearing about substance up so to my left, as everyone knows, Eleanor Fox, Walter J. Darren Berg, Professor of trade regulation, America. Among her many recent writings, which I will not endeavor to summarize are a set of comments about the guidelines, which I think are terrific and really worth everybody's attention. Those connect to a pair of blog posts, the pro market has done an extensive debate online about the guidelines. I know of at least two of those that you've done, and the material in the out in the comments is not coextensive with it, but it's overlapping with it. So that's something for everybody to take a look at. To Eleanor's left Phil Weiser, Attorney General of Colorado, graduate of this law school, former antitrust will still an antitrust scholar, but now so much more. So he's now a triple Hi finot. As Deputy Assistant Attorney General for appellate and international during the Obama years, he was part of the small team that wrote the 2010 guidelines. Since then he's been a dean. And in his current role Attorney General of Colorado, he's part of the small group I'd say of antitrust scholars who've argued at the Supreme Court that might be a group of one as far as I can remember right now, perhaps is another one or telecom element is argued Supreme Court. Right? Did you argue with the court? So we have both of both of them. Both of them in the room, which is terrific. To Phil's left Rohan py, Deputy Head of mergers for with the Federal Trade Commission, which does hospitals and supermarkets. Among thing, among other things, part of the team that drafted the current guidelines, if you're interested in or curious about as distinctions among cluster markets, bundles, and one stop shops and the overlap, if any among them. He's the person to see if you have a bone to pick about any of those definitions. I'm sure he's very excited. Very excited to hear about those two row Hans left Dan crane, Richard W. Pogue, Professor of Law at Michigan law, really a prolific and I trust dollar co author with Eleanor on several, three books. I think we're it's cold in here. But it's not read at least on three different books, including, to my mind the indispensable antitrust stories, which if you teach antitrust law, you should be reading that cover to cover because it's such a rich source of stuff to bring into the classroom. He has been engaged on this debate as well, including in the promarket blog symposium that I mentioned a moment ago. You know, we've sat and l&r, as far apart as possible, perhaps we think their views my my differ, although they're extremely genial, and as co authors, friends, so I think we'll have a great discussion. So to get started, and I should say, we started about five minutes late, I anticipate we'll finish five minutes late, something like that. And we're going to leave time for for questions. I anticipate. So a lot of the commentary, I'll start with you, Eleanor, a lot of the commentary on the draft guidelines, characterizes them, as, you know, a very sharp return radical break from 2010. Is that, is that a fair characterization? In what respects? Yes or no?
Eleanor Fox 4:08
So first of all, thank you very much for everything. This is really a terrific occasion for me. And I'm very honored, and I'm very honored to be with these very distinguished colleagues. Half and half is the answer. The draft guidelines of 2023 are a clean break from the 2010 guidelines, but they are not a radical break. And I think your question provokes a little history and a view of what is the background for the publication of the and the drafting of the 2023 draft guidelines and the background On is United States antitrust law has gotten so conservative, it is out of step with the whole world. In terms of the following. There has been a large element of neoliberalism, the Neo liberal premises that have crept into the law, I'm talking big Scalia decisions, big antitrust law, they're not merger decisions, but they are in the case law. Assuming that what firms do is almost always very good for consumers, assuming the market works, assuming antitrust intervention is not very good and usually harmful, and therefore a really big message for antitrust enforcers to stay away to stay out. So that's the big picture. And as we all know, the Biden I mean, you may or may not agree with my normative comment on it, but the Biden administration from the very start set about to try to turn around the boat. And you don't turn around a boat by incremental changes, it doesn't work. The Biden administration and the agencies seem to have started from the following point of view. And here, I want to go back to 1960s 1970s. And then, wow, the 1982 merger guidelines, which is an has been the basis for the guidelines ever since 1992. They've been reformed, they've been made a little more liberal. But that's the document the 1982 guidelines, the 1982 guidelines were a dramatic revolution, before 1980. And before Reagan, antitrust was based on an idea of diversity and dynamism in the economy as good for the people, for consumers, for producers, for entrepreneurs, getting into the market getting access to the market for people getting the best goods and services, it was preserving a market dynamic. It went too far, in some cases, which gave rise to a wedge in the door for overturning that point of view. And coming to the point of view, which is reflected in the 1992 guidelines, which is the neoliberal point of view, the 1982 guidelines could not have been more radical in the following sense. They were, they would represent almost nothing but mergers that led to collusion. That was a big shock for those of us that that might be the only one maybe there's one other in the room, I was practicing love. And I was getting a lot of advice on mergers and analyzing them for investment banking community, for example, which of course is the area where you really want to call it as close as possible to the way it is. We were accustomed to looking at a dynamic picture of the market and what would be lost by the merger. And then the 1982 guidelines came out inconsistent with Congress's mandate to try to stop mergers that were anti competitive in their incipient See, including trends toward concentration. So they're the 1982 guidelines, prohibiting almost nothing but mergers that might lead to collusion with a new jurisprudence developing in the law, that it's very hard to collude. And so we go from there. And 2010 guidelines were certainly the most liberal of the stream. But in order to turn the boat around, you don't make an incremental change to the 2010 guidelines. So I will make just one more specific observation and what I think is very good about the guidelines. There are things that need tightening, clearly constructive criticism, and it seems to me that the worst is have the ears open to constructive criticism. There's a lot of room for it. Here, it's one thing that I think is very helpful, that the guidelines go back to Congress's language, what may be substantially to lessen competition, they are looking specifically their first focus on is competition lesson rather than a first focus on is there an output limitation as the result? I think that is very constructive. If competition is less than you expect, market power to be created, and in many cases, maybe most economists will say, output limitation, though I don't think that's a necessary result, especially with big tech. I think the new focus on lessening competition is very, very helpful. Thank you.
Scott Hemphill 10:09
Great. Rohan. Let me turn to you and see how much of what Eleanor said resonates. You know, we have these clear signals of this continuity reorganizing the whole thing shifting to planar language citing cases, you're hearing about quotation of cases there'll be a step even further, there's some quotation of cases already, I think, to de emphasizing market power, at least in the language of the guidelines, moving the economics to an appendix, what is it that the agencies are trying to move away? Move away from like, what, you know, what's the nature of this kind of reset button? If that's if if Eleanor's image of that is right?
Rohan Pai 10:48
Well, first of all, thank you very much for the invitation to be here. It's a real privilege to speak at NYU. And I should also note that while I am an employee of the Federal Trade Commission, my comments here are given in my own personal capacity and do not necessarily reflect those of the FTC or any individual Commissioner. With that disclaimer aside, there's there's a lot of what Eleanor said that resonates. But I think it's important to think about big picture what the commission was trying to do and they ended the DOJ we're trying to do in the in the draft. First, I think the purpose of guidelines is is first and foremost to to be transparent with the public about how the enforcers are thinking about enforcing the law. And telling us point about sort of elevating the legal framework. I think that was sort of front and center in some of the drafting decisions that that the agencies made here. I think, you know, historically, when practitioners read the 2010 guidelines, they certainly engage with invaluable economic models, the core developments in 2010, particularly on targeted customers on diversions, all of that has, I think, been retained. And it's been moved to an appendix. And there's, there's reasons for that, and we can talk about that. But the goal certainly wasn't to de emphasize economics, it's an important tool, it's core of how I do my job as a frontline sort of, Enforcer. And it's not something that we intend to ignore. But in terms of, of providing guidance to the public, as to practitioners guidance to courts, we felt that there was some value in putting the legal framework front and center, the structure of the document sort of follows the Baker Hughes burden shifting framework, and we thought that was that was valuable, you start with a set of guidelines that, you know, colloquially sort of establish how we would meet our prima facia case. And then we turn to the rebuttal section. And we thought that was a helpful framework, because it's it helps amplify what we do when we actually get to court. I think sometimes 2010 Can obfuscate what happens when we get to when we get to court. And I think it was important for us to be able to put that back front and center. In terms of sort of the broad restructuring, we'll just take that kind of very quickly. There was a goal to also make the document more accessible to a broader array of audiences. So I think you know, all of us here, particular those who marinate in merger review merger law all the time probably found the 2010 guidelines accessible and user friendly, after you've read it a couple of times, but when you're thinking about people who interact with merger policy or merger review, through a broader lens, and you're thinking about workers, all sorts of trading partners, we think about just business people or think about doing a deal with other with some value and restructuring the document. And I think of the document sort of three, three tranches. So the first section of the the guidelines section one is a very plain language attempt to give you an overview of here's how we think about merger law merger policy. I think if that is the kind of thing that I could give to my mom and dad, if they want understand what I do for a living, they should be able to view that and have a general sense of what to do. Guideline two goes a little section that the second section, which has the operative guidelines, through the rebuttals that through section four and has the the shorter discussion on market definition is helpful for practitioners, I would say helpful for people like General Counsel firms, I think it's really hard to hand 2010 to, you know, a generalist in house counsel and say, here's what the government is going to think about when they're analyzing your proposed transaction. We hope that a more plain language sort of explanation of the legal theories that we'll be thinking about and the fact patterns that might elicit government scrutiny was going to be helpful, and advising clients and decision makers as they're thinking about how to engage with the government or pursue a transaction. And then the third tranche is everything in the appendix that's for frankly, the nerds in the room, right. So all of us who love and think about antitrust law in a really deep way and certainly economic experts who want to engage with the nuances and details of hypothetical novelists test and thinking about auction markets, things like that. We moved on to the appendix and not because we wanted to de emphasize the importance of that role, but one to improve readability across the document and to because the economics underpins all of the sections of the guidelines. One way you could draft A set of guidelines is to sprinkle the economics more explicitly throughout, that can make the document unwieldy. A lot has been said not necessarily in the formal comments, but on Twitter and in other spaces about the length of the document as a whole, the document to be 10 times longer if we sort of melded the economics more explicitly through. And so we've we've, I don't want to say relegated to an appendix A de emphasize it, but moved it to an appendix to make the document more usable. So one thing, the other more substantive point, I think that there's a lot about 2010. That's been retained. But one thing that I think that 2010 failed to do, and it was a totally, I think unintentional failure was to de emphasize market definition and put competitive effects front and center. I think that was certainly the goal of the document. And certainly, the elevation of unilateral effects and elevation of diversions was super helpful in that regard,
Scott Hemphill 15:56
and was a de emphasis of market data when it wasn't
Rohan Pai 15:59
absolutely, absolutely. But when we got to court, it almost felt like it was an additional element. Not only do you have to prove market definition, not only do you have to prove your structural presumption, but now you also have to prove unilateral effects. Were there not you think that's that's right or wrong? I'm happy to debate that. But one of the challenges is that courts somehow seem to think that absent a presumption, the government cannot win a plaintiff cannot win. As Scott mentioned, the merger sport division of the FTC does hospital cases, supermarket cases, distribution market cases, these are all unilateral. That what I think of as unilateral effects industries very rarely ever bring a case based on a coordinated effects theory. The best example of this I can think of is staples, Office Depot and 2016. case it was purely about head to head competition between two the two largest providers of office supplies on a contract basis to large businesses, business customers, this is done on a contract basis, there were auctions bidding for the contract, we should not have had to spend any time talking about market definition, it should not have mattered who were on the periphery of the of the market there, there was considerable evidence of head to head competition in the documents. And when lost data, all sorts of other sources of evidence. The entire case the entire time, we were in court, Judge Sullivan, who got who wrote a but I think it's a phenomenal opinion, was asking us whether or not ink and toner should have been in the market in the cluster market of b2b office supplies. So what we've tried to do here in the document is to say your independent basis by which we can show a lessening of competition that's separate apart from market definition. So we're trying to be explicit about that here.
Scott Hemphill 17:36
That's super helpful, I'm going to turn to fill in just a second. Rohan disclosure made me recognized I should make one as well, and maybe anybody who else wants to when they speak, should do so. I've been retained by the Federal Trade Commission, as an expert witness, in their case against Mehta involving a series of acquisitions. Obviously, I speak for myself, I'm Phil, as a veteran of the 2010 guidelines, from which these sort of depart. Can you tell us a little bit about the exist? You know, the 2010 guidelines? What did they accomplish? How does that document in practice, set the context for these new revisions?
Phil Weiser 18:20
Scott, thanks for the invitation. And for Eleanor, for Harry and for Dan, I hope you feel a lot of love today. This is a community that really deeply appreciates you Doug Melman made the observation that with you, and then with Scott and Dan, Francis, and others, and Chris Bregman. I don't use the Law School United States that has a deeper commitment to thinking about any trust and the real interesting challenges that our economy faces. And I loved your starting place. I want to start with it. But I want to use a different frame, which is the frame with a multiverse. We have an audience for whom, probably not many of you get that frame. But here's the idea. There are multiple universes, we are in all of them. And there are alternative timelines. So another way to think about is think about one's life is a simulation game. And there are 1000 simulations, and you can run different experiments and see what happens. And so I'm thinking about Eleanor's reckoning that I would start with as well. We got to move the ship. And so one way to think about this is, if we could run simultaneous experiments and watch them all, we could go back and say, Okay, this is the best way to move the ship. One way to move the ship obviously, would be if Congress were functioning. And people remember that movie with Jack Nicklaus was a Jack Nicholson, where he said, two of the three branches of government are perfectly functioning after Mars Attacks. I don't know if that was, but it was. It was a joke. Thank you for getting it's got. We don't have a functioning Congress. So unfortunately, that brushback pitch which I think the Supreme Court needs and just to give an example from something that Scott and I wrote, predatory pricing as at the merger area, the Supreme Court says, with basically no support in economics or empiricism, that predatory pricing schemes are rarely tried and never successful. And therefore, we don't need to worry about that doctrine gives you the back of the hand. That is a arrogance that the court is acting on. And the question that is haunting is, Can empirical evidence override prior ideological commitments? And that, that is what I think Eleanor got to which is an ideological commitment, which is, don't worry, the market will solve everything. And we don't have to worry about mergers. Because if you end up with market power, well, then that will attract entry. There's now loads and loads of evidence, just underscore that's wrong. And how do we get the Supreme Court to change doctrines? How do we get lower courts change doctrines? This is one effort to move the ship around. Will this be the right one? We'll see the 2010 approach which faced a similar problem getting to Scott's question took a different approach. And I do want to pick up the Office Depot because I think there's two sides to that story. One side is man, this was really a pain. It was hard. We had to do all this. The other side is that was a pretty impressive win. Because most people at the time would say, Wait a minute. Isn't Amazon a serious presence? Steve is off. Office Depot tried to merge once before another impressive opinion, a lot of evidence. The question is did the world changed in 20 years such that mattered? The judge said no. And the reason the judge said no is because I would say the 2010 guidelines lifted up this point about targeted customers. And this is a very important principle. Because if you look at not just staples Office Depot, but more recently, Simon and Schuster, or the health care, insurance, mergers, what has become a powerful enforcement tool is the ability to use what before 2010 Somebody called price discrimination markets or others before that called sub markets to stop a merger, because you could focus in the lens where it really mattered. And I do believe that contribution of 2010 was both intended and very successful. I also think it was intended to try to loosen a little bit of the grip of market definition and be a little bit more intellectually honest that the first question is, is there harm in the market? Is there evidence? And then once we know that, we will have to then figure out how to frame a market definition? It's a question whether or not we'll ever get free of Mark deficient, I think and back to Eleanor's point about the statute itself. The phrase in any line of commerce, to the Supreme Court pretty much means you have to define a market. And so from a standpoint of empirical reality, it would be nice if you didn't have to go through that exercise. But from the standpoint of what the statute says, I am skeptical, we'll ever get free of it. And so given that I like the way the 2010 guidelines obviously had work done, I'm somewhat biased here, was able to go at it. And so I do think a question that is worth thinking about now is if we were here, 10 years from now, looking back at these guidelines, what will they have accomplished, to further the project of effective merger enforcement? And obviously, you're taking all this feedback, and thank you for being here. I was here by the way. 13 years ago to similar conference after we were workshopping the 2010 guidelines. I think it's great. You're doing it. So
Scott Hemphill 23:38
thank you. Awesome. Dan. Break radical break, small break, what do you make of it?
Speaker 6 23:44
Well, first of all, I have to say that unlike those the panel who speak just for themselves, I have been deputized to represent the views of the sovereign state of Michigan. Everything I say can be attributed to my home state. So my role here is to play the Grinch. And very much appreciate roll hands work and be a lot all the thought that's gone to these guidelines. But I do think there are a radical break. And not just with 2010. But with every prior version, the guidelines including 1968. And here, I mean, they're closest in spirit to 1968. But I think in many ways, they are radical insofar as if you take literally the text of the 13 principles, they sweep in many many more mergers as anti competitive. A whole lot of mergers are IP take the literal text of the 13 principles. A large number of more mergers are anti competitive, or prima facia or presumed anti competitive. So for example, Part Six, Part six on vertical mergers. If if you if you take the language literally if a firm has a 50% market share in any one of the related markets, it doesn't matter how small its market share is in the other market. That merger is presumed anti competitive. So for example, imagine a grocery chain that has a store in a small town. It's got a 50% market share, because there are only two grocery stores in that in that in that town. And so now this grocery chain wants to buy a small jam company, one out of 1000s of jam companies so that they can they can make a private label, right? Literally, that is a vertical merger in which one party has a 50% market share. And so it's presumed anti competitive part, part two on the elimination of substantial head to head competition right now again, the 2010 guidelines have ways econometric Lee of talking about that. Things like diversion ratios and critical loss analysis. But when you make this the principle of freestanding principle, like every horizontal merger, at some level eliminates competition between the rival firms, it was substantial not like that's to be seen, but it sweeps in a huge number of mergers or Part Part Seven, where a 30% market share makes you presumed dominant. So again, the initial net here is very, very wide is catching a huge number of mergers as prima facia anti competitive. Now, of course, you could say there are further tools that this is just the first sweep. This is just a presumption and the draft guidelines speak about the prosecutorial discretion of the agencies, which of course they have. But here's the problem I see when you start with a very, very broad net, a presumptive illegality, and then say, Yeah, but when you use prosecutorial, of course, they're not going to force all these, of course, they're not gonna go after that grocery store that acquires that one little jam producer. But that's the problem in terms of predictability and the rule of law, when you start with a very, very broad net, and then say, we'll decide which ones to bring in that broad world of ones that are presumptively legal. What's the staff supposed to do? Well, either the staff has to be to go rogue and make their own sort of ad hoc decisions, or the staff has to go the front office and get political direction. And that's my concern here, which is that the structure of these guidelines and what makes them I think, a radical departure from the past is that there is a huge amount of presumptive illegality, a whole lot of then prosecutorial discretion. And I just I'm very concerned what that means for predictability for the rule of law for the operation of the agencies going forward. I sense Eleanor
Scott Hemphill 27:29
might want to respond.
Eleanor Fox 27:32
So my first response is surprisingly, you're right, then, however, this is going to the structure is the guidelines, or does this go to criticisms that will be taken into account in the next iteration? I think there's a serious problem with over breadth of the guidelines, the way they're written, I think is a serious problem with the either explicit or implicit presumptions which come too early without sufficient linkage of the conduct to harm to competition, and then over to what is called a rebuttal. So I think that the guidelines are to have some presumptions and a lot of red flags. And then not the language of rebuttal. But the language of at that point, the agencies consider that they have put in sufficient evidence and would want to hear from the merging parties story that this is not anti competitive. That's not exactly rebuttal. It's more understanding the whole transaction. I think it's probably only guideline three and which is on collaborative behavior, and two, which is lessening the head to head competition. I think all of where the guidelines probably stay a pretty coherent principle. Other than that, they need to fill in the facts that would make the merger, anti competitive.
Scott Hemphill 29:10
Rohan, you're you're welcome to respond to this viewer also did not respond to this if you're not responding to someone asked a related question.
Rohan Pai 29:17
Well, I'll respond briefly, and I'm happy to take that the related question. So there's a lot to respond to that on the on the criticism of a lack of sufficient clarity. So one, we're obviously reviewing well over 3000 comments at this point and trying to onboard all of the certainly, I think, sincere criticisms and try to understand exactly where there might be gaps and and vagueness in the document trying to address that clearly. I do want to defend the the rebuttal point a little bit from both Dan and Eleanor, because I think from a practical perspective, the way the document would work is exactly sort of how Eleanor describes it right so parties can and to present a transaction to us, we transparently flagged concerns about, you know why we think an acquisition by a supermarket with 50% share of a small gem manufacturer raises concerns. And then they come and say, Well, have you considered all of these reasons why you might technically trigger the language of the of the relevant guideline. But there's actually not a substantial lessening of competition. I mean, that's the that's the conversation that's going to end up happening in our offices in DC. And so I think the rebuttal framework is doing a lot of the work here. And we probably should be clearer and more explicit in the guidelines about how much you know, we take the rebuttals very seriously, both in making a recommendation as at the staff level to our various front offices. And the Commission's or DOJ is exercise of their prosecutorial discretion. So that I mean, the remote section does a lot of work in kind of every phase of the investigation up to the decision.
Scott Hemphill 31:01
Let me let me ask you about audience. You know, this is coming in part off of Dan's comment about what's the staff to do they've got this document. The guidelines have always been a balancing act. There's always been multiple audiences. When you mentioned the General Counsel, you mentioned the antitrust nerd, and you mentioned family, you know, I look forward to sharing this with my family. The first, the first part, is what I do really. Court supports are pretty important audience. You know, I think the back padding that the 2010 guidelines would do with respect to this is, you know, yeah, sure, courts define the market and then let plaintiffs win on unilateral effect, the most elegant way of doing it, but it is a it is a when unilateral effects seems to have been injected into the bloodstream of antitrust and district court litigation. And I think that's is partly a strength of the 2010 guidelines that I think was was rightly emphasized. Is there a worry here about courts not listening? You know, if we, when we change things, so much Steve Caulkins has a comment among the 1000s. But when we're, we're thinking about worries about such a transformative document being treated, particularly the legal references, as you know, an amicus brief as opposed to whatever that weird object it's been that's had so much real influence over the last couple of decades.
Rohan Pai 32:42
So to be sure, the courts are absolutely a critical audience and the success of the 2023 guidelines, their final will depend entirely on whether or not the courts accept it. So I don't think there's any material debate about about that fact. I think that I wasn't I wasn't practicing when 2020 was 2010 came out. But my sense from talking to the practitioners and seeing sort of what happened in Cisco and at Staples and some of the other targeted customer cases and a lot of our hospital cases, there's a little bit of revisionist history about sort of how readily those are accepted. Right? I think there was a broad scale acceptance, and that this is an important, it's very important by economists. And it created an even playing field. Right, the there was a, I think, a kind of a fair fight between the governments expert and defendants expert. Everybody agree that use the hypothetical monopolist test, there was there was considerable the lexicon of an interest in how you think about all of these issues was agreed upon, I think that was important. But when we got into court, you know, defense counsel still got up and said, these are self serving guidelines, you shouldn't necessarily follow them. And, you know, I think it was incumbent upon the government to bring the right set of cases on the targeted customer cases, if we were really thoughtful on the set of cases that we brought to now make it an accepted part of, of antitrust scrutiny. So all guidelines are going to be super sensitive to the user. If we bring really bad cases under these 2023 guidelines. They're not gonna be accepted. There's no doubt about that. But if we're really thoughtful about cases that sort of highlight the kind of principles that we're trying to indicate, you know, I'm I think the agencies are reasonably optimistic that that they can take hold on the the point of the amicus brief point. You know, I think we are taking very seriously the sort of concerns about citations that case law. I'm actually not sure how I frankly, feel about the concerns about about those citations case law. I mean, the the cases or the cases and the to the extent, I don't know, how a judge would react to seeing a document that has case law cites to it. I think there's judges come to the guidelines, in the context of the case that they are dealing with, the vast majority of judges will probably never see a merger challenge and to the fact that they see one, they'll see that's a one they'll see in their careers. And so they'll see the guidelines, and then they'll see the section, the guidelines that are being cited. And it's, let's say, just statistically speaking, more likely to be a guideline, one, two or three case. And then they'll decide whether or not that makes sense in the context of the facts that are presented. So I'm not entirely sure I shared the broader concern about it being treated like an amicus brief, because I think it'll be depending on how a judge thinks about the application of that guideline to a set of facts.
Scott Hemphill 35:27
Dan, let me turn to you both as to the external audience how the court is going to take it. And I'm also interested the internal piece of this to the extent you're you have, you have reactions, thinking inside the building, you mentioned, you know, what's, what's the poor staffer to do? How, how does the guidelines sort of change the state of play, if it does with respect to the lawyers or the economists trying to figure out how to evaluate a transaction? So can I
Speaker 6 35:53
take a poll? I would love to see a show of hands for everyone who thinks, thinks Harry, that, that when the Supreme Court returns to substantive merger analysis, which they will have to after these guidelines for the first time since 1975, how many people think the Supreme Court will say, Philadelphia National Bank? Yes, that is what we're doing going forward? Show of hands. Harry, you, you really you think this? What do you mean by that? Because they will affirm that?
Phil Weiser 36:21
Because it could be there is a structural presumption is the highest level of generality. Do you mean this specific specific
Speaker 6 36:26
30% 30%? market share? Illegal? Yeah. Okay, so So, some data points here. Justice Cavanaugh has already said in his anthem dissent, that he thinks that General Dynamics and Sylvania overruled PNB and brown shoe, Justice Thomas has come close to saying that in his Baker, Hughes majority opinion, the Second Circuit said that this year, maybe we all just have a really different prediction. So you know, my view of what the law is, is kind of Holmesian. It's a prediction of what courts will do. If I'm predicting what courts can do. I can count to five. So again, I could be wrong. This is this prediction. Right. But I think it is extraordinary unlikely that the current Supreme Court, which will be deciding when these cases
Phil Weiser 37:12
within the next few years, are you still confident that by the way?
Speaker 6 37:16
Well, I mean, Kavanaugh and Thomas, their views have already been expressed. But
Phil Weiser 37:20
the challenge is under the HSR. Act, it's really hard to get one of these cases to the court. Oh, what
Speaker 6 37:25
Why think that? Why think that we can because well, this is the other thing, of course, because the DOJ and FTC have said we don't settle. And so for example, between 2010 and 2019, DOJ litigated to trial, six merger cases, they won five out of six in 2020 to 22. Alone, they litigated for cases they lost three out of four, these guidelines. I mean, maybe feels right, maybe, maybe, you know, in ordinary times, it's true, that the agencies didn't litigate, they settled. And so you didn't get you got an average one or two litigated murder cases a year. But when you add a set of guidelines that say we're going back to brown shoe and Philadelphia National Bank with a general disposition that says we don't want to settle, we want to develop the law with the we think the courts are the culprits here. What's that setting up? So again, we can all have our own predictions. My prediction is that a document that's premised on the view that Philadelphia National Bank and brown shoe survive unvarnished after 50 or 60 years, is dead on arrival in the courts. And that's not a normative claim. That's simply what I strongly think is going to happen. Now, again, I mean, some structural presumption, maybe, but this is not just some structural presumption. This is a very specific structural presumption based on the language from 1963 until the National Bank, I just think that the writing is on the wall, that that's very, very unlikely to survive a challenge. And then the question becomes what happens these guidelines, if that is the sort of a key element, and it starts with case law. I said, this is the law. You take that out, what happens the rest of it? So I'm concerned that the shelf life of these guidelines will be a week quite short.
Scott Hemphill 39:09
And just a brief just a brief follow up, as mentioned, understand the mechanism of concern. Philadelphians National Bank does get cited by lower courts currently, notwithstanding its absence from the 2010 guidelines. I understand the idea that the current Supreme Court's composition might be hostile to Philadelphia National Bank and or brown shoe. He just say a word or two about why you think the guidelines the fact of citation or emphasis would it's almost a model of like, it's a stick into a hornet's nest to, to say it so loud to say it so loudly in the guidelines, even though I mean, I mean, of course, maybe BC is going to cite Philadelphia National Bank, anybody's gonna cite that Philadelphia National Bank in a horizontal merger unless they're trying to make new law without the benefit of the presumption. So is it Is there something incremental about its appearance in the guidelines? That's that's doing work? And you're thinking well, so
Speaker 6 40:04
it's not just the citation to PNB. It's the it's the adoption of the particular numerical structural presumption of PNB. Right. Okay, so So that's one thing. 30 to 30%. That's a it's a, it's the 30%. Plus, now, imagine that Cavanaugh writes this opinion, not out of not out of the realm of possibility, right? We already know what he said in anthem, he says that P and V and brown shoe are no longer good law, because of General Dynamics and Sylvania, right. So if he gets four more justices, and again, I can count to five, I think that's very likely to say something like that, not only will you have to look back at these guidelines and say that particular structural presumption is gone, there will be now this massive hole in the middle east guidelines, which is the entire center or space around those opinions, has been pulled out of the guidelines. So I'm not saying that mean, other things can survive. But lower courts will then look at this and say, well, these guidelines were premised upon that view of the world. And we've now been told that's not the right view of the world. Let me bring an Eleanor and
Phil Weiser 41:04
then Phil. Oh, I was gonna ask another question that Dan first. video first.
Eleanor Fox 41:09
Okay, please tell it. I agree with, like 60% of what Dan said, I do not think that you can link to Philadelphia National Bank and brown shoe in one breath. And I think if you take and I'll tell you why in a minute. But if you only talked about brown shoe and not Philadelphia National Bank, I think everything you said flows from that. I think brown shoe has clearly been overruled in spirit is no question about it. And this is really your main point. There are certain cases and there are certain holdings in certain cases that have clearly been overruled in spirit. And I do not think that the delta National Bank has been Philadelphia National Bank, put in terms of the concept, not the numbers. But you have to have the very major firms in a very concentrated market with very high barriers, merging, is there, the presumption that will shift the burden of proof, this actually made the case on appeal in Heinz baby food. It was the Philadelphia National Bank presumption that appellate court accepted rejecting the district court that caused plaintiff to win. And I think the Supreme Court would actually hold that up, hold that today. And I actually doubt that this specific issue would even get to the Supreme Court, because I think, if you put it the way I put it, it's not going to be contested, and it's all gonna be on the grounds of whether the defendant made its case that the merger was not anti competitive. But I think a bigger point is the shoe Boy, that if you have a merger on a very fragmented market of two firms that have very small market shares with a trend towards the concentration, the Supreme Court will say that's not anti competitive. So then everything that you said follows I mean, it does put a question as to how seriously the guideline citations will be taken. I think that could be cured by adding more subtleties to the case citations that are in the draft merger guidelines, including some more recent cases, Phil.
Phil Weiser 43:28
So I, I loved your point, I think maybe you'll accept that as a friendly amendment. If you separate the two arguments, and let's just say, for the thought experiment, that the brown shoe point drops out, and now we're only talking with the National Bank. And let me frame the question this way. To the extent what they're trying to do is move the law a little bit, sharpen it. There's one argument, nothing ventured, nothing gained, the worst that can happen is we're back to 2010. And these guidelines end up irrelevant, and we still have the 2010 guidelines. There's another view and I think this is what you're saying, but I want to see, which is no, it's different than that. You actually lose the 2010 guidelines, and we're back to nowhere. And the incremental benefits you get from things like target customers in 2010 Get lost because the whole guideline project goes up in smoke. Are you saying the second?
Speaker 6 44:23
I am saying the second, I think there's a loss of the potential for the agencies to have the the influence they've had over mergers? Again, since hard Scott, most of this has been done by the agencies behind closed doors. And, and, and the courts have largely respected the agencies. I mean, the agencies have had a very good track record in winning cases in court. And again, we're seeing now both FTC and the DOJ in the last couple of years, that's again, small numbers, but it is starting to slip. And my concern is that if you take out what I think are the pillar the doctrinal pillars upon which these guidelines are based To the view will be that the agency's own prestige in court is lost. And so there you either back to Okay, let's go back to the bureaucratic behind the closed door system of Hart Scott and try to negotiate with parties now in the shadow of different expectations about what happens if we go to court or when to keep litigating. And and you'll keep losing it one more
Phil Weiser 45:19
point, backing up Eleanor's point, I would think about filling up the bank more in the following terms. And honestly, you see differently, which is there is a structural presumption, and I'm just going to call it four to three mergers are presumptively illegal. And here in New York, and we're gonna get to it New York Attorney General, the sprint T Mobile merger was a four to three merger, it was three and four merging. The District Court did say it was presumptively illegal under the 2010 guidelines, and then found a melange of reasons to say that the presumption was overcome. And so on one level, that is Philadelphia National Bank, when you say it's overruled, are you meaning just okay, maybe four to three mergers are simply illegal, but 30% as a threshold share is not the right number.
Speaker 6 46:09
So I don't mean I know what Kavanaugh said in the anthem. I know the Second Circuit said this year, which is p and b and brown shoe represent a different mindset than then has happened since the 1970s sensitive dynamics. And Kavanaugh goes so far to say that they are no longer good law. So if you I mean, that could mean all kinds of things. I mean, it could mean, we don't think that the particular idea of the strength of the presumption is that we think that the government always bears the burden of proving a prima facia case of anti competitive effects based on economics as opposed to simply structure, there could be a number of things coming. I don't I can't predict exactly what the court will say. I think it is very unlikely that the Supreme Court will simply reaffirm P and V or brown shoe as as those doctrines stand. And that will at least put a very big question mark over a set of guidelines that are premised upon those cases as the pillars of what Virgil was about,
Scott Hemphill 47:02
okay, I want to change the channel, not because that was not interesting, because it's very interesting. But I want to make sure I get to at least one of the other mini classes that we prepped to talk about beforehand. I want to come back to sprint T Mobile a little bit because that's a state challenge. And your state enforcers This is to fill in the in the first instance, I'm gonna move for a second off of substance and sort of think about procedure or institutions that know exactly how to how to think about this. One thing that comes up in a bunch of these merger challenges, a big development and development not as important as the draft guidelines, but also very important over the last few years is this trend of litigating the fix, it's an idea that been used a lot in lots of cases over time, lately with, I think, strong success on the part of, of merging parties. To my knowledge, the guidelines have never gotten into this kind of thing, the grubby work of actually litigating the case. Let me just presumptions that's not particularly grubby, though. How do we think about these situations where I kind of half measure is being presented, and then that becomes the baseline against which the government is trying to win its case? Right? So he thought a bit about this. Can you talk a little bit about this, and whether you think it's a spot that you can imagine a guidelines with a decision or some future iteration might make some headway.
Phil Weiser 48:23
And let me take a page from l&r and go back to history and ask some of the Wiser merger hands in the room to help, I believe it was in the 1980s. In the DC Circuit, there was a waste management case that dealt with entry, which basically became a almost get out of jail, free card it was, it was of the Chicago School ideological entry always happens, don't worry. And it became a very powerful tool for defendants, the 99. Two guidelines, remember this correctly specified a standard for entry. It said entry is an affirmative defense, and you have to show that it's likely timely, timely, likely insufficient, which basically means if you're not going to see it in two years, it's irrelevant. That was an extraordinary successful response by the guidelines to a bad court decision. In the I wish category for these guidelines. We need a response to litigate the fix, because litigate the fix can mean, in the worst cases, literally a moving target, which is during the litigation itself, the parties could say what if I do this? What if I do that? And the judge just couldn't be like, Oh, that sounds good. And the lack of discipline and rigor to me from that sort of situation is appalling. One can imagine different forms of discipline and rigor that litigating the fix could be stopped by, obviously at one extreme. If you want to propose something other than the initial merger, you do a new heart, Scott Filing, or else I'm not going to consider that is an option. You could imagine another option that would say, you can talk about your fix when we get to the remedy stage. We're now at the liability stage, we're reviewing and merging your proposed. So it's not irrelevant, but it's only relevant at the remedy stage. You can go down the list and come up with your options. But right now, there is, to my mind a lack of structure on this issue, given how important it is. Yes, I would love to see the guidelines grapple with it because like entry was in Waste Management. Today, I think, litigate the fix is becoming a favorite tactic. And we can use some reinforcements.
Scott Hemphill 50:44
Rohan, you want to react on this? Not necessarily in terms of like, yes, thank you well, except that you forget, I had to deal with this. Look, I
Rohan Pai 50:54
I echo all Phil's concerns about litigating to fix. And I think the practical challenges he identified are very real. Right. So you know, the enforcers spend months investigating a particular transaction and thinking about how a specific transaction affects trading partners and think about how they interact. And then you get to court and then midway through the litigation, they're they're revising the deal and saying, well, the the ground has shifted under everybody's feet and understand the judge is going to be confused as to what what should they be evaluating? You know, why are they why are we talking about a hypothetical deal that may not come to fruition? Is there is the English language and kind of United Chang nddc earlier last year. So I agree with film that is, you know, one of the pressing issues for merger enforcers, probably the most pressing issue for merger enforcers today. I'd say you know, some of them were thinking hard about it's hard to craft guidelines on remedies. Broadly, I think talking about living in the fix, without talking about an approach to remedies and guidelines context is just really hard to do to provide meaningful guidance, because it's, it's can be so fact intensive, so fact dependent. And it can shift based really on it even within an industry over time. And so it is something that I think we've thought about, and we'll continue to think about as we work through the document, but it is, it is a challenge. Certainly. Could you worth grapple with?
Scott Hemphill 52:21
Dan or Eleanor? Do you have a comment on litigating the pics otherwise, I have another question for you. Okay, sure.
Eleanor Fox 52:28
I wonder if you would reconsider putting remedy into the merger guidelines. Although I think it's a very late stage. And I'm not really expecting it, litigating the fix has become really, really important. The game changes, it almost seems like the whole presumptions change. So this is what I see as a problem until you mentioned T Mobile sprint. And you mentioned T Mobile sprint, T Mobile sprint was an anti competitive merger. It lost the competition between T Mobile and sprint and sprint and the rest of the other two players in the market. That was really important. That it I mean, to me that that competition would be lost. So of course, this becomes very complicated, because the Justice Department wants the deal of the spin off of assets to dish to fill the space that is the last competition. And so the whole case when New York against Deutsche Telekom, which is the the state's cause of action to try to stop this anti competitive merger, the court looks at the fix as being background and ask the question as to whether dish is really going to come in and be an effective competitor in the market sufficiently soon enough. That's really bad emphasis. And it turns out that the merger and the fix were not successful, and we're uncompetitive and prices went up. And then the last competition between sprint and the rest of the market was very, very serious. So it puts the premise it puts all the presumptions the wrong way, and makes it almost impossible for a plaintiff to win. So I think that the guidelines could say, going back to very basic Supreme Court law, if it merger is anti competitive, the best remedy is to enjoy it. And there has to be a real showing why not if you're not going to enjoy it, and litigating the fix should be decided in terms of the so called fix is not a background fact that becomes the basis for thinking about what's anti competitive, but is dealt with only in terms of remedy.
Speaker 6 54:58
Danny won in on this Yeah, so I think we're all in agreement here that litigating the fix is a real issue. And I think this is exactly the kind of thing in which the guidelines could be very successful in getting respect from the courts, because it's based on the agency's experience and their comparative advantage. We've seen these litigate the fix issues come up, as Phil said, sometimes it is this moving target and litigation. And here's how we think this should be managed. Here's our experience it here's, here's like, here's how we're going to look, think about this going forward. I think that a kind of an approach based on expertise and experience of the agencies has a lot more chance of getting the respect of the courts, then then going back to the 1960s case, law.
Phil Weiser 55:38
One more point I'd like to make something the FTC has done that I think is highly successful. And I'd love to see more of it is retrospectives in the hospital merger case, it was a powerful retrospective effort. I think it was the Evans case that really turned around that area of merger enforcement. And in the remedies area that did a really valuable study on what makes a divestiture successful or not. We're now reviewing a case involving a grocery merger, I believe the FTC is also seriously reviewing it. And a prior fix involved the sell off of certain assets that basically right Peters laughing, it was laughable, they either went bankrupt after or they went back to the merge firm. And so the question is, what do we learn from that sort of failed fix? And I think, when you talk about T Mobile sprint, it's an obvious case for a retrospective, because if you want to show to the courts, and you think it's going to be fine, here's what happened when you thought it would be fine. Another example would be I believe, a merger approved. Someone will help me, Tim, because he's written a lot about airlines, which two airlines merged, like in 2013. Was it American and you US air in America? You can
Scott Hemphill 56:51
vote later than 2013. Right? Which one was that? Are you talking about Continental United? It was 10 years ago.
Phil Weiser 56:59
So we've had 10 years, we can look back at that merger. And you might say, Well, look, how airfares have gone up. What are we learning about mergers. And so I do think to add to Dan's point about what the comparative advantages, the agencies can do these retrospectives build an empirical basis that can, in the best of cases, move the course.
Rohan Pai 57:24
Just one quick thing. And I need to emphasize, this is definitely only my view, not the view of anybody else in the Federal Trade Commission. So I want to come back to a point that you were making about competitive advantage. I like to think that the FTC has an absolute advantage and probably competitive advantage, and most things, but others are, rightfully disagree. I questioned whether or not courts are going to be deferential to perceived expertise when it comes to litigating the fix, as opposed to remedies more broadly, because I want to distinguish those two things. I think, one thing I think agencies broadly, not just not just entrust enforcers, but all kind of federal agencies when they try to express expertise in kind of a legal framework, courts are increasingly hostile to agencies. And in that regard, it's another thing to say, to Phil's point that we can look at the history of failed remedies in an industry or remedies broadly. And we can tell you something about how remedies should be structured. But that's a different question than litigating the facts. Right. So do you think of those two things as as different in terms of courts willingness to accept it?
Speaker 6 58:25
I do think that the agency's expertise on what happens when you try to litigate the fix in the middle of in litigation? I think courts would receive that. Well, in terms of Well, here's a reason we shouldn't be focusing on litigating the fix, or we should think about this other way. So I, I think that both on the question of What remedies work, and I totally agree, you merge retrospectives, on both remedies and on substance, but also just on institutional expertise in in how these arguments cash out in contested merger cases? You know, I think the courts are quite willing to say we don't have expertise on how these things operate. You tell us this is what's happened historically, that's gonna inform how we think about the litigation question of litigating the picks or not.
Scott Hemphill 59:05
I've got lots of other questions. Or there's some other questions, plenty of other questions. I'm interested in reactions from the floor. Questions, reactions. Tim? Sure.
Unknown Speaker 59:15
You You didn't mention.
Scott Hemphill 59:19
I called on Tim. I'll call you next, Tim.
Unknown Speaker 59:26
Thanks. So is this working? It's kind of
Scott Hemphill 59:31
a bit of an echo.
Rohan Pai 59:32
That Mike's picking up.
Scott Hemphill 59:35
We can hear you Yeah, in.
Speaker 7 59:39
retrospect, I kind of want to comment on my specialism. I'm curious. I'm going to do more than I was sort of seeing the merger fee. Money should have been like partially targeted, like you have to be more retrospective. So if there's one thing I have a question for a damn. Answer this so one way you evaluate agency action is God mines regulations is how closely do they hear what Congress intended? And, you know, that's actually what we would do almost any other agency, you say, Well, you know, what was Congress wanting? And then 1950 And merger Act, which you're pretty familiar with, it seemed to Congress had a pretty strong view about a merger. So I guess, in terms of the, here's the guidelines to what Congress intended, I wonder what you or anyone else thinks?
Speaker 6 1:00:28
Well, my view is that we have disregarded what Congress said and what it meant, since 1890. Largely, it started with the rule of reason, starting with Section six of the Clayton act, starting with section four the claim. Yeah, I mean, so I've got a paper that makes this argument. So I think that, you know, the the refusal of courts consistently to actually read the statutes, or to look at what Congress meant in the legislative history is a democratic problem and anti anti trust, we have the story that there's this common law. And that's what we do. And we forget that they actually are statutes. And there's congressional volition that's not limited to mergers. And that's a much wider phenomenon here. I'll just say, I think in terms of the effectiveness of these guidelines, and being the place that that's gonna be challenged, I don't think that's going to happen. I don't think that that's the place that the agency should put their money on this. They want to litigate and make arguments and amicus briefs in court, in terms of getting back to, you know, the Robinson Patman Act, which we have just totally read out of the trust statutes, which by the way, I think it's a terrible statute, but it's on the books, and it's a problem for courts, not to enforce it. So again, I think that's a conversation that should happen. I do not think that the merger guidelines is the place that conversation should be targeted.
Scott Hemphill 1:01:38
Dan, could I agree with you about ignoring the statute as to the Sherman Act, and yet I think that the point is not as strong as to the as to Section seven because I feel like we do read. We the language of sections have been pretty hard. The may be stuff the line of we did
Speaker 6 1:01:54
I mean, I think in the 50s and the 60s we did and then we I think we've largely stopped incipient see. I mean, look at bonds grocery may have gotten the legislative history. Right. Which is, I mean, I think he did. And I find that problematic,
Phil Weiser 1:02:10
but as to actually it was Vons grocery substantial Essay Competition.
Speaker 6 1:02:14
It was a it was a I mean, it was a, if you interpret section seven through the lens of brown shoe, and this idea of a rising tide of concentration steps towards every look, every horizontal merger is a step towards increasing concentration.
Phil Weiser 1:02:31
Well, I think, okay, so what you're saying to respond to Scott is the difficulty in the Sherman Act, where you read in a rule of reason, so that not every contract was a restraint of trade, you would say that same difficulty in here is in the Clayton act, because every merger could be seen as part of a tidal wave. But I guess, let me put the question, which is, this is a tough one that you get the question is does if you have a series of mergers, at what point do you call foul and back to airlines because some of the said that's sort of what was happening. You kept having mergers. Looking back, it took until right now, I guess we're litigating, JetBlue, and spirit spirit. You might say, objectively speaking, united, continental and USAA are American were more significant than the airline industry. But now's the time we were the lines being held against a tidal wave. And politically, it's going to always be a challenge how you draw that line? And to push back on your earlier point, one answer would be well, it's okay for the NHS authorities to have to exercise some judgment on when to draw it. And then later, we can say they were too quick, or they were not quick enough. How do you answer that conundrum?
Speaker 6 1:03:51
So first of all, I represent spirits. I'm not going to talk about that case. Secondly, I think that to Tim's point, though, there's there's a separate question of judicial method in antitrust law, which is bigger than mergers, which is this idea. And the narrative that we've accepted is that it's anti trust is kind of its common law, like the statutes don't really say very much. Congress has intentions can't really be, you know, defined very well, Robert Bork said this, but that's not right. We kind of just don't know, I think that's actually not true. I think we actually could know a lot from the text and from the legislative history context of what Congress meant. I wouldn't say oftentimes, what Congress meant is not what I would want. But I do think that antitrust is not quite souI generous, but a distinctive place in which over time, the courts have tended to simply disregard what Congress said and what it meant Robinson Patman act. You know, you read, reader SIMCO. You read Brooke group? Is that what Congress meant in 1936? No, it's not. I mean, I can't defend it. I like it. I like the outcomes, but I cannot defend that. Methodologically my only point on the merger guidelines is this is not the place to have that battle, you will lose the effect Because of the agencies in doing merger review, if you decide to have those battles in the merger guidelines,
Speaker 7 1:05:06
why do you say that in the sense that you're going to a court that doesn't see the stuff that often and we say, or the government says, we are obeying what Congress told to do, and that works in most cases? And why is the government stand on?
Speaker 6 1:05:26
Course. So I mean, there's there's a hint at Apple versus pepper Kavanaugh, again, like say, a slight turn towards textualism with respect to section four, the Clayton act. But I mean, overall, like the here's the practical problem is, if you if you peg the guidelines to a 1960s case law that several Supreme Court justices have already signaled they are, they are not sympathetic to retaining. And they, in fact, don't retain them, then what the guidelines always were, which is a real method of doing kind of technocratic merger review, that will be lost. And you won't have gained your actual opportunity to make those Amicus type arguments to the courts.
Scott Hemphill 1:06:09
So Eleanor a quick response, and I'll take something else.
Eleanor Fox 1:06:13
So I think that it's very important for the law and and appropriate for the guidelines to say that Congress in 1950 was concerned about increasing industrial concentration, and didn't have an agenda where it wanted to be aggressive in condemning condemning mergers that may be substantially less than competition. And that's that's a framework. And that means that that's both on the face of the statute and legislative history. It can be very simply said, but it means that when you come to say, is this merger, anti competitive, it's not an even balanced to say, neoliberal point of view or a more aggressive point of view. The balance has already been tipped. Larry,
Scott Hemphill 1:07:03
did you still have something wanted to jump in on this
Speaker 8 1:07:05
issue of retrospectives, etc. I first wanted to just mention that not only the supermarket of literature falling apart of the remedy, Mark, but also hertz dollar thrifty at about the same time, at a similar kind of not very satisfactory outcome. The other on American US Airways, there have been at least a half a dozen economics, published in journals published in books that have case studies written by economists. Do you have books
Scott Hemphill 1:07:46
like this, Larry, that you want to mention?
Unknown Speaker 1:07:50
The seventh edition of corporate and white,
Scott Hemphill 1:07:54
which is terrific, for I mean, everybody, most people in the audience know this, but maybe not some of the students. It's just a terrific set of retrospectives on various big matters, fairways
Speaker 8 1:08:03
on US Airways, American and also on the dollar on the dollar. thrifty. So, there there are these things out there, they surely ought to be taken into consideration.
Scott Hemphill 1:08:19
You Yeah, Peter. First,
Speaker 9 1:08:22
I'm so old that I've worked back and you trust them. Right after the 68 guidelines were issued, where we used to regularly describe section seven as Congress's anti merger statute. I bet no brief has said that the government in years because we were textureless, back then. But my question here with a lot of discussion of Philadelphia bank, and something about a presumption of illegality, and I frankly don't understand from the guidelines, what that presumption might mean, today. I know Philadelphia bank, and really it's the continental Panhandle Atlas, subsequent decisions are interpreted that to be if the structure is what it is, then the merger is illegal. We don't go into any rebuttal based on some sort of claim other thing of the market context. And he's Laplace. We're alternate alternative packaging materials, good substitutes, in which case the market definition was wrong. Marine bank case, the question was whether given the Washington State law of the time could they put a put their D entry of a sword that would really result in conflict the increased competition in that market, given that law prohibited branch banking by a non resident bank, no, the court said that was wrong. Both of those the same day, the same time, Connecticut that the court says, Yeah, this is a illegal merger. My point here is, there used to be a very clear structured, what that presumption meant that very much limited rebuttals. And I'm curious what you as experts today think the scope of the rebuttal might be if if there's some kind of presumption?
Scott Hemphill 1:10:39
Who wants to take this? I mean, an initial reaction is the scope as district courts understand it is pretty broad. Right? You can you can, you can bring in lots of stuff to basically negative the plaintiffs case whether it's you got the shares wrong, you have the market wrong. Entry is really easy.
Speaker 9 1:10:55
Thanks for the guidelines tried better to read identified the strength of the presumption. I think
Scott Hemphill 1:11:03
you want to start with Rohan, and then turn to Phil.
Rohan Pai 1:11:04
Sure, sure. So So I think the challenge of this is really comes from General Dynamics, right. So there are, I think, at least two
Speaker 9 1:11:14
is all about cold. The nature of the acquired firms capacity to compete in the market going forward, the market struck, the market share was not reflective of any capacity to compete in the future.
Rohan Pai 1:11:28
Absolutely. So I read General Dynamics pretty narrowly, in that in that regard. But there's been considerable scholarship and commentary on the case. And certainly litigants have argued that it stands for a broader principle, right, that you can bring in any other sort of evidence to suggest that the competitive story is not reflected in the market share analysis. And so frankly, we have to be prepared to litigate that question. To me, the i We tried in the in the, in the draft to kind of maintain the rebuttal framework that was there even in 2010. Right, so we identify entry efficiencies, and in the failing firm context, I think one thing that you know, we grapple with is, are there other ways that somebody can come in and say, Look, whatever concerns you have about anti competitive effects will not arise, it's hard to predict the full full universe of that. And I think Luke just spent, you know, putting on my litigator, hat, I think it's really hard to go and tell a judge, you can ignore a bunch of evidence without some really strong hook to do that. So like, I interpret gentle dynamics as narrowly as you seem to serve. But I think it's a hard thing to maybe sell in a document filled.
Phil Weiser 1:12:46
I do think it's important for the guidelines to help elevate analytical rigor. And a challenge to roe Hunt's point is, courts will want to consider what they want to consider. But perhaps there can be bolstering of analytical rigor. And one of the things about the sprint T Mobile decision that is so unique is the judge basically mixed and matches a series of defenses without the rigor that each of them would have acquired independently. So it's like, Well, I think there'll be some kind of entry ish. And then the judge goes on and says, and I think there's some kind of efficiencies, ish. And then the judge says, and by the way, it's a failing firm ish, and never actually meets the standard of any of them independently, cotton and Laura, for the defendant. And so, I do think the presumption that case worked, that was not the issue, the issue was the judges lack of than a little rigor and willingness to kind of mix and match or most things together, a same kind of concern that we are seeing on litigate the fix would be yet another dynamic of the one good thing I really want to say about the case, because I'm the State Enforcer is it rejected, the Department of Justice is another good New York chutzpah argument, that states have no authority to press merger cases, if the Fed say it's okay, which I don't believe is remotely grounded in the laws that give states full authority to enforce the merger laws. And I was glad that argument was turned back. And I was surprised that the judge mixed and matched. And it would be good to kind of not have that lack of rigor going forward.
Rohan Pai 1:14:32
One additional point on this. So one of the things that I find most fascinating every year, the ABA Spring Meetings, there's views from the bench panel, and one thing that we routinely hear from from judges, either on the panel or in sort of the meet and greet afterwards is, frankly, a lot of the times what judges are trying to figure out is, is this a bad merger? Why should I care about this and then try to figure out which doctrinal box in which tools to use. And so you know, This was a challenge for us. The FTC had been on a long historic winning streak of hospital merger challenges until we challenged the Jefferson Einstein merger in Philadelphia. And in that case, the governance expert and the defendants expert agreed that the government's candidate market satisfied HMT. And yet there was a dispute about whether or not that was that was a market. There was no real, in my view, dispute over the diversions that were calculated and the significant evidence of head to head competition between the parties. And yet we still lost that case. And Judge judge Papert in the Spring Meetings afterward and in conversation afterward, said, Look, I don't know why this was a bad merger, the pen wasn't in your market. And even though pen was was accounted for, and diversions and other analytical tools, he didn't buy our story. And we can revisit with that was a failure in our storytelling or in the analytical framework that he was applying. It's really hard, I think, to go until the judge, start from the legal framework and then come to a to a resolution. That's how I would like things to work, you know, but I think they're really sitting there listening to the arguments, reading the findings of fact conclusions a launch thing, is this a is this a bad merger? And then I'll figure out how to write my opinion afterward. Doug.
Speaker 10 1:16:26
Ford would not make comments later course. I'm going to ask what are the sectors and another way to strengthen sales. And that is to have a rocket ship of what they're doing wider terms, which I assume would be a combination of economic analysis. At some point, we're drifting up to something. decision theory analysis, that may be kind of burden of proof, but evidence of a party should have the burden of coming forward with a full explanation. Why do
Unknown Speaker 1:17:20
Speaker 6 1:17:22
So I mean, I think on there's two kinds of structural issues, there's horizontal versus vertical. I think the 2010 guidelines, of course, have a structural presumption that it's the HHI method, which is known to the courts. And I mean, you can explain why the HHI is a good analytical tool and why the particular threshold and maybe you know, 1800 is better than 2500, don't you think? Those are the technocratic things going to Phil's earlier point about retrospectives and ongoing economic learning. So I don't think that we actually need a lot of explanation of the courts for why we use an HHI type tool. I don't think that structural presumptions make sense in the vertical context. I'm not. I'm not sure what that even means. Because if you start with a 50% market share, and then anything is presumed illegal. I don't think that's actually what brown shoe says. I don't think it's sustainable economically. And I'm not sure I know what a different structural presumption would look like in the political context.
Scott Hemphill 1:18:13
Daniel, partner in crime on this project.
Speaker 11 1:18:17
And a really basic question for anyone. Is 2023. Wasn't in 2010 will be accepted by courts, and will change enforcement outcomes.
Phil Weiser 1:18:32
You said that was a basic question.
Scott Hemphill 1:18:36
I did say who? Who would like to take this? Who would like to take that
Eleanor Fox 1:18:40
l&r? Okay. So I think that removing the first focus from does this increase market power to is competition likely to be substantially less than is one such point? So LOOK AT T Mobile sprint? You look first at the last competition, I think. I think it's gonna be hard for courts to accept change. But if they accept change in that direction, I think it's warranted. It's supported by the language of the statute and the case law up up to a point and would be wise and would change results.
Scott Hemphill 1:19:23
I love this question. How's that? What about maybe a unilateral effects case? That doesn't rely on market definition? Right, the agency brings such a case, there's not as much incrustation, understandable encrustations in 2010 about market definition, I want to be clear 2010 guidelines leave space for such a case to be brought such a case was not brought so far as I know. I think maybe a little easier this time because there's a little bit more language that's swinging free of market definition. There's not the usual embeddedness like is that real? He knew and really absent before, I don't know. Right, but like rewriting is in part, I imagine that we've said a bit to help courts think about something a little bit a little bit differently. So bringing the case without a presumption, maybe still have a market definition, I don't know. But the savvy district judge, maybe district of DC, I don't know exactly sure whether it makes sense to do test cases in the district of DC, where they've seen a bunch of cases or do a test case where this is the only case they'll see. I don't know whether it's a feature or a bug, the experience from the standpoint of openness to a new set of guidelines, that feels like a place where maybe
Rohan Pai 1:20:38
so I wholeheartedly wholeheartedly agree with that point. So I'm certainly not advocating for triggering a case where we say we don't have to do the business or market definition because I think you'll just lose what I think and I think one thing that we're trying to be a little bit clearer about in 2023. And I think you're right, that 2010 left, the door open that we're being explicit about here is that you can establish the prima facia case and show that a merger may substantially lessen competition without a presumption. So you can define a broad market and say the line of copper, you've identified the line of Commerce and the the geographic area of the country with the merger is gonna have an effect. But we're not telling you rely on presumption we're saying that you can trust your eyes when the the documents call each other closest competitors, when you have win loss records, and you have ordinary course evidence suggesting that they that you're reacting to each other and innovation or whatever, that's enough. I am cautiously optimistic that that's, that could be a lasting legacy of this document. Cuz I think judges do struggle with the idea that they can do that. I think they're, they often will ask, well, you know, but that's a presumption. Is there any other hook I have here? The best example of this is the Hackensack Englewood merger challenge in New Jersey, the district court opinion, pay some homage to this. So if you're if you read the back half of that opinion, there is there's a whole there's a whole dispute about geographic market and whether or not we met the presumption, there is language in that opinion that says but even setting that aside, the government put in evidence of direct anti competitive effects. And so you could I would cite that for the proposition that you don't need the presumption to win on appeal to the Third Circuit, Third Circuit recast that as the market is bolstered by the effect of by the evidence of anti competitive effects, not as an independent basis of liability. I'm not saying the Circuit Court was rejecting that premise, but it certainly confused the language that was in the district court opinion.
Speaker 6 1:22:24
Shockingly, we haven't said labor markets yet, which I thought was like the headline here, given the expectations going in. But I actually I think that section has a real chance of moving the needle. So first of all, I mean, Carl Shapiro would say that in the 2010 guidelines, and Phil probably says this as well, that the buyer merger section was meant to cover labor markets, but we didn't call out labor markets. Right. Austin has made it clear unanimously that labor markets as a side effect we did this was not new. But like there's no question that antitrust law includes effects on on labor. And now we have a section that sort of explains that explicitly and sort of says, like, here are some of the things we think about in evaluating labor market effects. Actually, I think that has a chance to be influential.
Phil Weiser 1:23:03
Last question, Dan, I, I do think this is interesting, because my 10 Guys anticipated that one is that the question is going to be the labor. So not the labor stuff. Yes. But you know, even more, so the unilateral effect. So both of them, I think you're right to say they're taking something that was a germ and it's really blossoming. Now, will there be a time that a court or an enforcer are gutsy enough not to find a market? It depends on how seriously people take dance suggesting that the statute language doesn't matter? Because the in any line of commerce is a tough pill to just say, Oh, forget it, we're not going to follow it and define a market. And and we've, I think, to Scott's point, we have gotten there in the Sherman Act, I think that the rule of reason and the structure is all built on the language where the language has now become effectively not relevant. It's common law. But I don't know that I can say the same about the Clayton act. And so I don't know that that's going to happen. But I, I guess I am intrigued by the idea. And, Dan, I take it your view is that language does have pretty little constraint. And if it does have lived constraint, then yes, it makes a ton of sense not to go through the exercise. Just believe your rights. I like your
Speaker 6 1:24:12
qualification defendants are allowed to use the language of claimants. Chris
Speaker 12 1:24:20
is interested in what everyone thinks about. So you mentioned 30%. I want to know what you think the right, you know, balances between judges making decisions about things like structural assumptions and what level is appropriate and enforcers making decisions. You know, earlier about diversion ratios and hospital mergers. And I imagine the courts are perfectly well placed to make those decisions. They have facts in front of them. But you know, when I think of a structural presumption, I think, well, there's so many things to think about. So the risk of false positives risk of I'll take that as the cost of enforcement with a higher presumption, right? So those things are all matters on which reasonable people, even very expert people differ, you know, reasonably. And so what's the waterline if you ever have kind of tried to make sense between what courts should be overturning? Because they seem very competent? Right. I agree with you that that is just not good law. But why did they seem so competent? And is there something that enforcers could do to kind of shake their confidence?
Speaker 6 1:25:33
I mean, overall, I don't want courts deciding merger cases. I'm very happy with the hard Scott regime where it's not done that way. This is what heart Scott was designed to prevent from happening, I think litigated cases, are all hard cases, they all make bad law, basically. So I think, again, we haven't talked about the overall settlement ever. I mean, I've mentioned this, but the overall settlement version, I think that's a terrible turn. I think that if you wanted to move the needle here, what you did is you use Hart Scott to put more pressure emerging parties to to abandon mergers that are anti competitive, or to or to fix it in ways that the agencies could control in negotiations, as opposed to saying, we're gonna go to court and because we want to develop the law, you're developing the law, but it's not gonna be the direction that you like.
Scott Hemphill 1:26:16
Final words, folks want to each take a minute just to react to anything that's been said, or I didn't tell them that this might happen. So I
Phil Weiser 1:26:25
just want to start again, honoring our guests. It is tremendous to have this level of institutional knowledge and historical perspective. That is something that is pretty special because I think Peter said he was there when the 68 guidelines, and you were practicing as well. That's a pretty special thing to be able to have to look from 1960 to the present and have people who've seen it and can think about it really critically and this community is a pretty special committee that all three of you have been a part of. So it's an honor to be able to join. I'm gonna I'm gonna get filled the
Scott Hemphill 1:27:01
last word there that's okay with others. Please join me in thanking
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