November 18, 2022

Antitrust: The DOJ Trots Out a New Merger Enforcement Theory

Today’s episode of “antitrust regulators slinging stuff against the wall to see if it sticks” features the DOJ’s Antitrust Division, which raised a novel argument in an effort to derail Booz Allen’s acquisition of EverWatch. Here’s the intro from this Freshfields blog:

On June 29, the Department of Justice’s Antitrust Division (DOJ) challenged Booz Allen Hamilton’s (Booz Allen’s) $440 million dollar acquisition of EverWatch, alleging that, as the only two viable suppliers of “signal intelligence” services to the National Security Agency (NSA), the transaction not only would result in harm to competition for the services post-close, but also that the mere entry into the transaction agreement caused the parties to reduce the intensity with which they were competing for an upcoming NSA contract for signal intelligence services, even before the transaction closed.  The District Court rejected DOJ’s challenge on October 11, and the parties closed the transaction on October 14.

The case stands out for DOJ’s attempt to use Section 1 of the Sherman Act to challenge the alleged pre-closing competitive harm.  Traditionally, the US antitrust agencies rely on Section 7 of the Clayton Act, which is specifically designed to address mergers – however in Booz Allen, DOJ also alleged a Section 1 claim.  In evaluating DOJ’s claims, the court addressed themes that have arisen from some of DOJ’s other recent merger challenges, namely, the government’s buyer power as a countervailing factor against merging parties’ incentive and ability to harm competition post-close, as well as what constitutes a proper market definition.

The two companies were the only bidders for an upcoming NSA contract, so the DOJ not only made the traditional Clayton Act argument that the deal would harm future competition, but also contended that by entering into the merger agreement, the parties already harmed competition in violation of Section 1 of the Sherman Act because they were no longer competing aggressively in the bidding process. The Court rejected that argument, noting that the DOJ produced “little evidence” supporting this allegation.

In fairness to the DOJ, this use of Section 1 of the Sherman Act doesn’t seem to be anywhere near as audacious as the FTC’s new policy statement, but it provides further evidence that judicial reluctance to countenance novel enforcement theories under Section 7 of the Clayton Act is prompting antitrust regulators to think outside the box in their efforts to stop mergers that they view as anticompetitive.

John Jenkins