August 3, 2011

US Department of Justice Updates Merger Remedies Guidance

Here’s news culled from this Wachtell Lipton memo:

The Antitrust Division of the U.S. Department of Justice has issued an updated version of its internal Policy Guide to Merger Remedies. The new guidance supersedes a version issued in 2004. As with its predecessor, the new guidance is intended to be used by Division attorneys when considering settlements in merger investigations while providing the private sector with insight into the logic behind the Division’s policies. The new guidance has not been jointly issued with the Federal Trade Commission.

While at a high level the updated Policy Guide is substantially similar to the guidance it supersedes, the new document removes considerable detail from the prior version. For example, in the discussion of the need for including intangible assets in divestitures, the new guidance reaffirms that allowing the merged firm to retain intellectual property rights is appropriate in some circumstances, but omits the previously explicit statement that sharing production process patents (via a non-exclusive license) is typically pro-competitive in reducing marginal costs of both the merged firm and divestiture buyer.

There are other examples of previous specificity being eliminated from the new guidance. It remains to be seen whether this reduction is streamlining or represents a move to eliminate language favorable to merging parties in negotiations with the Division and in court if negotiations are unsuccessful.

Recent press reports on the updated guidance highlight the expanded discussion of conduct remedies, i.e., remedies comprised of injunctive proscriptions on behavior as opposed to structural remedies such as divestiture. In our view, any new emphasis on such behavioral remedies likely will continue to be largely limited to vertical cases where the Division has traditionally accepted such remedies–including in transactions in recent years such as Comcast’s acquisition of NBC Universal and the Ticketmaster-Live Nation merger. In fact, the new guidance reiterates the prior version’s acknowledgement–and many years of agency experience–that structural solutions will continue to be pursued in the “vast majority” of horizontal merger remediations.

Following issuance of the guidance, the Division entered into a settlement of its challenge to the $3 million purchase of a Virginia chicken processing plant from Tyson Foods by a local competitor, George’s Inc. In resolving allegations that this horizontal transaction would result in a harmful duopoly in the purchase of broiler chickens in Virginia’s Shenandoah Valley, the Division required only that George’s Inc. commit to make some previously announced improvements to the plant. In our view, the Division’s acceptance of this conduct remedy may derive more from perception of the relative strength of its case and its prospects in court than from any shift in policy, and serves to emphasize the Division’s point in the guidance that mergers are treated uniquely on their own facts.