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In October 2004, the Antitrust Division of the Department of Justice issued its Policy Guide to Merger Remedies. The policy guide set forth significant principles for the development of remedies in all DOJ merger cases. The policy guide explains:

· remedies are necessary only where the Department believes an antitrust violation will occur;

· remedies must be based upon a careful application of sound legal and economic principles;

· the goal of remedies is to restore competition;

· remedies should benefit competition, not competitors;

· remedies must be enforceable; and

· the Department will enforce remedies it imposes.

The policy guide also set forth how remedies will ordinarily be administered, setting forth basic tenets as to the favored administration of remedies:

· the Department favors structural remedies to conduct remedies;

· divestitures must include all assets necessary for the purchaser of the assets to compete effectively in the market, and can include the divestiture of a business unit, or additional assets, if necessary; and

· fix-it-first remedies can resolve competitive concerns, without the necessity of a formal consent decree process.

What does this policy guide mean and how does it change current thinking on remedies? The policy guide reinforces two important points: (1) non-structural remedies generally will not solve competitive concerns associated with mergers, and (2) important differences between the DOJ and FTC still exist when it comes to implementing remedies to solve antitrust concerns with mergers.

First, where it is possible to structure an asset divestiture or business-line spin-off to solve a competitive problem arising from a merger, the DOJ will not be disposed to allow the merging parties to agree to a behavioral (i.e., non-structural) solution to solve that competitive problem.

Why? The DOJ does not want to engage in the perpetual policing of such remedies because they are difficult to administer and monitor. Studies—including a significant report issued by the FTC in 1999—show that where the antitrust agencies are forced to police companies’ behavior as part of a consent decree, such remedies too often do not work to benefit the market.

One does not need to look any further than a recent action brought by the FTC against Boston Scientific for skirting its obligations to assist a competitor in a medical device market to cure a competitive problem raised by the company’s acquisition of two of its catheter competitors. In connection with its investigation into those acquisitions, the FTC decided that the market for certain catheters had become too concentrated. Thus, as a condition to allowing the merger to proceed, the FTC required Boston Scientific to license its catheter technology and improvements in that technology to a third-party (Hewlett-Packard).

Boston Scientific’s compliance with that consent decree was spotty, at best, and HP was never able to develop the catheter technology to become a viable competitor to Boston Scientific, primarily because of Boston Scientific’s behavior (for example, Boston Scientific did not provide improvements to the technology to HP in a timely fashion). Other examples of such failures are described in detail in the FTC’s 1999 study.

Because of the shortcomings associated with such non-structural relief, the DOJ’s new remedy guidelines state that the DOJ will not approve non-structural remedies that require ongoing monitoring a company’s behavior, where structural alternatives are available. It is far easier to simply require an asset sale that does not require an ongoing relationship between the seller and buyer, than to structure a remedy that requires ongoing interaction between competitors.

The remedy guide also reinforces a difference between DOJ and FTC thinking regarding remedies. The DOJ still allows, and in fact encourages, “fix-it-first” remedies to restore competitive problems in a market. Fix-it-first remedies are those remedies that are privately negotiated by the merging parties—for example, where the merging parties arrange a sale of their overlapping assets to a third party before engaging the DOJ regarding the merger.

Normally, such remedies would be ordered by the government and memorialized as part of a consent decree. The DOJ encourages parties to privately resolve potential competitive concerns arising from their mergers, where possible, and will not require the issuance of a consent decree where the parties come up with a viable fix-it-first remedy. On the other hand, the FTC does not encourage—and in fact discourages—such private fixes to cure competitive concerns.

Even where the parties do privately resolve competitive concerns with a merger, the FTC will still require a consent decree to memorialize that fix, in order to maintain the authority to police such mergers (see, for example, the Autodesk/Softdesk consent, where Autodesk privately licensed Softdesk’s technology to a third-party prior to consummation of the merger. The FTC required that already negotiated agreement to be memorialized as part of a consent decree).