DOJ Releases Policy Guide to Remedies for Anticompetitive Mergers

October 21, 2004. The Department of Justice's (DOJ) Antitrust Division released a document titled "Antitrust Division Policy Guide to Merger Remedies".

Section 15 of the Clayton Act, which is codified at 15 U.S.C. § 25, and Section 4 of the Sherman Act, which is codified at 15 U.S.C. § 4, authorize the DOJ to challenge mergers and acquisitions. This Guide states that its purpose "is to provide Antitrust Division attorneys and economists with a framework for fashioning and implementing appropriate relief short of a full-stop injunction in merger cases."

The Guide states that it "sets forth the policy considerations that should guide Division attorneys and economists when fashioning remedies for anticompetitive mergers", but that it is not a "practice handbook" or "a compendium of decree provisions".

Hewitt Pate, the Assistant Attorney General in charge of the Antitrust Division, stated in a release that "The Remedies Guide provides the tools needed to more quickly identify critical legal and economic issues regarding merger remedies and devise a remedy specifically tailored to the competitive harm".

The Guide begins by listing and then discussing six principles. These are:

• "The Antitrust Division Will Not Accept a Remedy Unless There Is a Sound Basis for Believing a Violation Will Occur"
• "Remedies Must Be Based upon a Careful Application of Sound Legal and Economic Principles to the Particular Facts of the Case at Hand"
• "Restoring Competition Is the Key to an Antitrust Remedy"
• "The Remedy Should Promote Competition, Not Competitors"
• "The Remedy Must Be Enforceable"
• "The Antitrust Division Will Commit the Time and Effort Necessary to Ensure Full Compliance with the Remedy"

The Guide then addresses the form of remedies. "Merger remedies take two basic forms: one addresses the structure of the market, the other the conduct of the merged firm. Structural remedies generally will involve the sale of physical assets by the merging firms. In some instances, market structure can also be changed by requiring, for example, that the merged firm create new competitors through the sale or licensing of intellectual property".

Conversely, "A conduct remedy usually entails injunctive provisions that would, in effect, manage or regulate the merged firm's postmerger business conduct."

The Guide concludes that structural remedies are preferred. It states that "Structural remedies are preferred to conduct remedies in merger cases because they are relatively clean and certain, and generally avoid costly government entanglement in the market."

The Guide also concludes that a divestiture must include all assets necessary for the purchaser to be an effective, long term competitor. "The assets consolidated in a merger may be tangible (factories capable of producing automobiles or raw materials used in the production of some other final good) or intangible (patents, copyrights, trademarks, or rights to facilities such as airport gates or landing slots). The goal of a divestiture is to ensure that the purchaser possesses both the means and the incentive to maintain the level of premerger competition in the market(s) of concern." (Parentheses in original. Footnotes omitted.)

It continues that "there are certain intangible assets that likely should be conveyed whenever tangible assets are divested. Many of these simply provide valuable information to the purchaser -- for example, documents and computer records providing the purchaser with customer information or production information, research results, computer software, and market evaluations. Others pertain to patents, copyrights, trademarks, other IP rights, licenses, or access to key intangible inputs (for example, access to a particular range of broadcast spectrum) that are necessary to allow for the most productive use of any tangible assets being divested, or of any tangible assets already in the hands of the purchaser." (Parentheses in original.)

The Guide next concludes that the DOJ "favors the divestiture of an existing business entity that has already demonstrated its ability to compete in the relevant market. An existing business entity should possess not only all the physical assets, but also the personnel, customer lists, information systems, intangible assets, and management infrastructure necessary for the efficient production and distribution of the relevant product." (Footnote omitted.) Although, the Guide also lists several caveats to this principle.

Fourth, the Guide concludes that "Where the critical asset is an intangible one -- e.g., where firms with alternative patent rights for producing the same final product are merging -- structural relief must provide one or more purchasers with rights to that asset. Such rights can be provided either by sale to a different owner or through licensing." (Footnotes omitted.)

With respect to conduct remedies the Guide states that they are "generally are not favored in merger cases because they tend to entangle the Division and the courts in the operation of a market on an ongoing basis and impose direct, frequently substantial, costs upon the government and public that structural remedies can avoid. However, there are limited circumstances when conduct remedies will be appropriate: (a) when conduct relief is needed to facilitate transition to or support a competitive structural solution, i.e., when the merged firm needs to modify its conduct for structural relief to be effective or (b) when a full-stop prohibition of the merger would sacrifice significant efficiencies and a structural remedy would also sacrifice such efficiencies or is infeasible."