By: Will Jackson
On September 15, 2021, the Commissioners of the Federal Trade Commission (“FTC”) voted to rescind the Vertical Merger Guidelines (“VMG”).[1] This decision represents a willingness by the agency to expand the scope of their enforcement actions and to disrupt the previous order of antitrust enforcement, while also creating ambiguity for businesses attempting to remain in compliance.
The FTC and DOJ enacted the VMG in 2020 to guide their enforcement strategies regarding “vertical” mergers, which involve companies along the same supply chain, as well as “diagonal” mergers, which involve companies at different levels along competing supply chains, pursuant to Section 7 of the Clayton Act.[2] Not only serving as an analytical tool for the agencies, the VMG were also designed “to assist the business community and antitrust practitioners by increasing the transparency of the analytical process underlying the [a]gencies’ enforcement decisions.”[3] While still relatively young compared to the Horizontal Merger Guidelines (“HMG”), first enacted in 1997 and revised in 2010, businesses still relied on the VMG to project how the agencies would evaluate potential vertical mergers and to stay compliant with the Clayton Act.[4] Given the longevity of the current version of the HMG, businesses likely relied on the VMG to become a similar staple of merger enforcement, rather than a political plaything.[5]
Back in July, President Biden issued an executive order directed at the FTC and the Antitrust Division of the Department of Justice (“DOJ”).[6] Among other considerations, the order urged the FTC and the DOJ to reconsider both the VMG and the counterpart Horizontal Merger Guidelines “to address the consolidation of industry in many markets across the economy.”[7] In light of that order, the FTC and the DOJ began a joint review of the VMG, analyzing whether they are overly permissive and in need of revision.[8] Spearheaded by the new FTC Chair Lina Khan, the Commissioners held a vote to rescind the VMG on September 15, which was decided on 3-2 margins along party lines (with the three Democrat commissioners in favor of withdrawal and the two Republicans against).[9] This decision precedes any determination by the DOJ on the matter, where the VMG remain in full effect.[10] Furthermore, the FTC rescinded the VMG without having ready a replacement standard; the agency has not yet publicly announced how it will go forward evaluating vertical mergers.[11]
Regardless of whether the VMG were too permissive, the FTC’s decision to rescind the VMG without having an immediate replacement creates ambiguity for both antitrust enforcers and businesses attempting to remain compliant through the merger and acquisition process. Businesses relied on these clear, public guidelines, encouraging them to take care not to stray from the guidelines or else risk an encounter with the FTC. The fact that the DOJ has kept the VMG in place further complicates the issue, since this implies that the agencies may be applying different standards in evaluating the legality of vertical mergers. Given the new leadership at the FTC and President Biden’s desire to expand the scope of antitrust enforcement, it is likely that the FTC will be stricter on vertical mergers than their counterparts at the DOJ, at least until the agencies can agree on a new cohesive set of guidelines. However, in the meantime, it is difficult to pinpoint in what form specifically those deviations will take. Businesses will have to guess at the new standards being imposed by the FTC until they are stated explicitly, and hope for the best that they comply while finalizing their mergers.
[1] Federal Trade Commission Withdraws Vertical Merger Guidelines and Commentary, Fed. Trade Comm’n (Sept. 15, 2021), https://www.ftc.gov/news-events/press-releases/2021/09/federal-trade-commission-withdraws-vertical-merger-guidelines.
[2] U.S. Dep’t of Just. & Fed. Trade Comm’n, Vertical Merger Guidelines, at 1-2 (2020).
[3] Id.
[4] See Joel Mitnick & Ngoc Pham Hulbig, FTC Rescinds Vertical Merger Guidelines, NAT’L L. REV. (Sept. 21, 2021), https://www.natlawreview.com/article/ftc-rescinds-vertical-merger-guidelines.
[5] See id. (describing how the dissenting FTC commissioners warned of the risks of “pulling the rug out from under honest businesses” that expect relative consistency in merger enforcement).
[6] Exec. Order No. 14,036, 86 Fed. Reg. 36,987 (2021).
[7] Id.
[8] See Mitnick & Hulbig, supra note 4.
[9] Id.
[10] Justice Department Issues Statement on the Vertical Merger Guidelines, U.S. DEP’T of JUST. (Sept. 15, 2021), https://www.justice.gov/opa/pr/justice-department-issues-statement-vertical-merger-guidelines.
[11] See Mitnick & Hulbig, supra note 4.
