Jul 31, 2023
On July 26, The Capitol Forum’s Teddy Downey held a conference call with Shaoul Sussman, the FTC’s Bureau of Competition Associate Director for Litigation, to discuss the release of the new draft merger guidelines. The full transcript, which has been modified slightly for accuracy, can be found below. The conversation is available for listening here as a podcast episode.
TEDDY DOWNEY: Good afternoon and welcome to our conference call today. I’m Teddy Downey, Executive Editor here at The Capitol Forum. Joining us today is Shaoul Sussman, the FTC’s Bureau of Competition Associate Director for Litigation. Shaoul is an experienced professional in competition policy and served as attorney advisor to Chair Lina Khan before joining the Bureau’s front office. Before that, he practiced law and was a legal fellow at the Institute for Local Self-Reliance. Quick fun fact. We actually did a conference call with Shaoul back in 2019 on a paper he wrote called “How Amazon Controls its Marketplace”. And Shaoul, welcome back. And thank you so much for doing this today.
SHAOUL SUSSMAN: Thanks, Teddy. I’m glad to be back.
TEDDY DOWNEY: And so the draft merger guidelines are out. I’d like to start off by asking why are these guideline updates needed?
SHAOUL SUSSMAN: Yeah. So I think, first, it’s been a while since the agencies last updated the guidelines. The last horizontal guidelines were put out back in 2010. And a lot has happened since then in terms of market realities, market dynamics, kind of frameworks for thinking through competition, the rise of the platform economy. So there’s just like really big shifts in the economy that we wanted to take kind of account of and really make sure that the guidelines that the agency have reflect those market realities.
The second is really throughout this process, also looking at legal precedent and kind of how the cases and how the litigation that the agencies brought during the last 13 years played out in court, whether it’s in district court, in circuit court, and really take stock of that record, the wins, the losses, and see whether we need to adjust the guidelines to reflect that case law.
And I think that connects to a broader, overarching goal of updating the guidelines, which is really to bring them kind of in close connection or in tune with the binding precedent on the agencies and in close fidelity to how these merger cases actually play out during litigation.
And I think the last point was trying to provide clear and administrable guidance to the public, to the courts, to the business world. And really we thought that we have a mandate to make the guidelines more accessible and providing clear rules of the road, both for CEOs that contemplate a merger and also for the public to understand kind of what are the things that go into how we’re thinking about cases So those are, I would say, the three animating vectors when it came to why this project kind of happened in the first place.
TEDDY DOWNEY: I want to stay on this for one more second. When you talk about market changes and market realities and market dynamics, is that writ large kind of aggressive consolidation? You mentioned the platform economy. Anything else that you can talk about in terms of how much concentration we’re seeing and the problems that we’re seeing related to driving that?
SHAOUL SUSSMAN: So I think there’s a broad kind of realization that there is what some call a concentration crisis, but others could just observe as increased concentration in various industries. There are various cases that both agencies, both DOJ and FTC, brought in recent years surrounding mergers and acquisitions that the agencies allege have led to concentrated markets or led to monopolization and to anti-competitive outcomes.
So I think it’s very clear that one area that has been front and center for the agencies on the conduct side and the big kind of monopolization that were kind of surrounding what certain folks call big tech, but really kind of dominant Internet companies, whether it be DOJ through their Google lawsuits or us at the FTC with the Meta litigation. And we want it to reflect a lot of that kind of learning and what the agencies learned in building and bringing those cases around platform dynamics and competition in digital markets. And there is an entire section now in the guidelines that is devoted to platforms.
But another example might be workers and labor, which has been an area of growing interest for the agencies really for quite some time now. DOJ bringing many cases around Section 1 involving workers. DOJ bringing kind of the big book case that involved writers and writers’ compensation. Last year, the FTC, the Democratic commissioners, when the commission was two/two, wanted to bring a labor count in one of our hospital merger cases. So there is obviously a growing interest in workers and in labor generally when it comes to both merger and conduct cases. And the guidelines now reflect that growing interest by having kind of a specific guideline that is dedicated to kind of explaining how we think about mergers in the labor context or when it comes to workers.
TEDDY DOWNEY: And since the since the draft guidelines came out, there’s been a lot of commentary and focus on statutory references. And I was wondering if you could walk us through some of the process of reading through the statutes and court precedent in concluding with these guidelines in terms of all the references that you have in there.
SHAOUL SUSSMAN: Right. So it’s no secret both AAG Kanter and Chair Khan and the commissioners really wanted to emphasize here the paramount importance of adhering to the text of the Clayton Act and kind of the various antitrust statutes that we enforce in the context of merger litigation and merger investigations, including, for example, Section 8 of the Clayton Act, and also to kind of have the cases in the case law really guide the way that these guidelines are built.
So I think AAG Kanter kind of said — and I really like that framing, kind of the cases and the statutory reference is really kind of the scaffolding that is holding the entire guidelines and kind of guided the way the guidelines are designed. And we thought that that made a lot of sense because in many respects that reflects kind of agency practice, right? This really reflects the way our investigations are guided internally and ultimately how when we end up in litigation, if we do end up in litigation and bringing merger challenges, how we argue the cases.
So we think that there is more transparency and kind of more accessibility by previewing the way we’re thinking about going about analyzing a merger in light of the case law that really guides our ultimate decisions about whether to pursue a merger challenge, for example. So we think it also makes it a better, more transparent, process.
TEDDY DOWNEY: That makes sense. And I want to get into some of the specific guidelines now and ask you about a type of merger that is problematic for some of these specific guidelines. For guideline six, can you discuss the language “should not create market structures”? How does a merger create a market structure? And how are you thinking about that language?
SHAOUL SUSSMAN: Yeah. So this is guideline six and it really talks about a framework that was embedded in a Supreme Court precedent or case law during the sixties and seventies and then applied throughout the seventies and eighties by the agencies when challenging mergers. It is also part of the basis for the Commission’s decision in the Illumina Grail matter.
And it really reflects a type of thinking around vertical mergers that really focuses on the structure of the markets and whether a vertical merger can lead to harm to competition in the sense of higher barriers to entry, kind of foreclosing rivals from inputs that are kind of necessary for them to compete and really kind of stifling competition because they’re like, in the language of the Supreme Court, these mergers create a clog on competition that deprives the rival of a fair opportunity to compete. So this, again, reflects kind of not only historical Supreme Court cases like Brown Shoe or the Ford Supreme Court case, but also a recent agency practice or decisions made by the FTC in a case like Illumina.
TEDDY DOWNEY: And then for guideline seven, how do we know when a firm has a dominant position? And what’s the type of merger that would entrench or extend a dominant position?
SHAOUL SUSSMAN: Yeah. So this is an excellent question. And I think for many years there’s been this perception that a dominant firm or dominance or a dominant position is really a European term, and that is kind of foreign to U.S. precedent or for U.S. antitrust law.
But actually, if you look at, again, the historical cases that were brought decades ago, the idea of a dominant firm or a dominant position really developed in those cases. And when you look at the cases that were adjudicated at the circuit court and in the Supreme Court, the cases really talk about a firm that possesses somewhere around 30 percent of a relevant market.
And another context to think about dominance is also whether those firms kind or that firm kind of has characteristics that show that they’re kind of in that dominant position. And that is similar to the way we would think about it in a monopolization case where you could either think about monopoly power through an indirect evidence — so market share — or you can think about showing monopoly power through kind of unique characteristics of that company within a market.
And really thinking about those entrenchment cases, they were really focusing on whether kind of a merger of a firm outside the market with a firm inside the market will further entrench the firm that is currently in the market. And the analogy here might be kind of like a monopoly maintenance claim through an acquisition. But there could also be entrenchment when a dominant firm in a certain market acquires a company outside that market in order to cement its position.
And a case that kind of rhymes with this theory that folks might be familiar with is the Microsoft case where it was alleged that Microsoft kind of viewed Netscape as a potential threat that would harm its monopoly position and kind of acted to thwart that threat. And we could think about a scenario in the merger context where instead of acting to thwart Netscape, there would be an acquisition that would lead to that same kind of neutralization of a threat.
So I think this revival and bringing back the entrenchment kind of framework is especially important in the context of the digital sector and the types of acquisitions we’ve seen in the past decade or so where a lot of the acquisitions are either kind of alleged to have cemented monopoly position in one market or kind of help neutralize the threats to that monopoly.
TEDDY DOWNEY: Yeah, I’m glad you mentioned that there’s a focus on European law when it comes to this talk of dominance. Because even the recent discussion about ecosystem analysis, it seems similar to this entrenchment of a dominant position guideline that you have.
SHAOUL SUSSMAN: Yeah. So, yes, we very much wanted to correct the record that the concept of a dominant firm is rooted in American jurisprudence.
TEDDY DOWNEY: Yeah. And so for guideline eight ‑‑ and I think we’ve got a lot of people interested in this ‑‑ how should we think about trends toward concentration? I think this comes up a lot in the guidelines, this idea of a trend toward concentration and specifically in guideline eight. And if you could talk about that, I think that would be really helpful.
SHAOUL SUSSMAN: Right. So this is, again, an area where I think the agencies are very kind of focused on right now. And I think this could come in a couple of flavors. But just to kind of explain the concept. So I think one way to think about it is whether you have, for example, serial acquisitions that are happening in the market. So where one firm is out there kind of acquiring a series of smaller firms within a market to consolidate it or to consolidate its position, and each of those acquisitions might not be kind of a massive acquisition, a really big acquisition, a game changer on its own. But when you look at those acquisitions as a series as a whole, you are then noticing a trend that’s pretty significant.
So if you think about it kind of in a way ‑‑ and I’m sorry if I’m going too much in the weeds ‑‑ but like from an HHI perspective, you can have a single merger that results in a big delta in concentration in a market. So like a real explosion in delta HHI. But you could also have a series of acquisitions. Each of those acquisitions on its own doesn’t have a significant delta, both in terms of HHI and kind of the overall concentration in the market. But if you look at that series as one or as kind of like a whole strategy of acquisitions, then you’d notice that there is a big jump in concentration in that market. And those might be the types of cases the agencies are going to be very concerned with where they see that type of pattern of acquisitions that took place in the past or where maybe some of the evidence might suggest that there is a concerted or kind of a very deliberate strategy of consolidation.
You know, a different way to think about a trend toward concentration is really to think about the merger as a triggering event for consolidation in that market. So the merger being a game changer that will require the other market participants to either merge themselves either vertically or horizontally or exit that market. So those are kind of things that we can think about as like a merger that like tips the market from a market that is concentrated or relatively kind of has quite a few significant and meaningful competitors to a moment where market participants basically have to merge or exit following the acquisition.
So those are kind of the two types, I would say, broadly speaking, of mergers that we would be concerned with kind of that reflect a growing trend towards concentration. And really this idea of a trend towards concentration or a triggering or a merger that triggers kind of concentration are very much kind of embedded in the case law and have ample support in precedent. So we really thought it would be important to bring it front and center because those might be some of the theories that the agencies will consider in evaluating mergers.
TEDDY DOWNEY: When you talk about HHI, that’s sort of obviously in one specific sort of horizontal industry. But could a trend toward concentration also be a kind of sort of conglomerate or vertical or not necessarily all in one horizontal area?
SHAOUL SUSSMAN: Yes.
TEDDY DOWNEY: And when that’s going on, is there any other way to think about that? Or anything we should be thinking about in terms of like, okay, this is a type of deal that ‑‑ I mean, your point about a deal that could trigger sort of a race to consolidate, to deal with whatever the new structure is, kind of addresses that. But I was wondering if you could elaborate maybe a little bit more on it not necessarily being horizontal trend.
SHAOUL SUSSMAN: Yes, right. So the example of HHI is really kind of like in the horizontal context might make sense and that’s why it might be more intuitive. And I wanted to bring it up as an example. But the triggering event is one where it’s not necessarily about whether you’re buying a pure vertical, a pure horizontal. It might be just an acquisition of an asset that then forces rivals to bulk up or exit or consolidate or exit.
And the same thing goes for a pattern of acquisitions. You might be acquiring kind of the identical, you know, let’s say outlet or kind of like within the same market and consolidate it. But it could also be a series of acquisitions that are not necessarily kind of sitting cleanly or neatly within a market, but they end up in the same place which is cementing the position of a firm within a market and either kind of entrenching it as a dominant firm or kind of as monopolist.
So that is a good question and really kind of ties to a broader kind of theme that I think AAG Kanter kind of emphasized multiple times, which is sometimes the case, fits neatly into the horizontal framework. Sometimes the case fits neatly into the vertical framework where we’re really talking about inputs into kind of production or et cetera. But sometimes the vertical and horizontal relationships are kind of counterintuitive to the market realities. And what we really want to see is kind of how those market realities manifest themselves and really tell the story of that market.
So just as a hypothetical, if we have a document during a merger investigation where a company says we’re going to go buy A, B, C, and D and then become dominant, I think saying like, oh, A, B and C are all kind of in the same market is kind of a question that is interesting, but it’s not the most relevant question when you have kind of a strategy that’s laid out to kind of monopolize or dominate an industry.
TEDDY DOWNEY: And that kind of make sense that they’re not horizontal and vertical merger guidelines. They’re just the merger guidelines now. I mean, is that intentional in terms of this idea that you’re looking at the market realities and you’re not trying to fit things neatly into a box necessarily?
SHAOUL SUSSMAN: So I would say like these guidelines are not saying like we’re not going to do any more horizontal work or kind of cases that are called vertical mergers. Some of the guidelines are kind of specific about addressing horizontal or vertical concerns. And we’re not saying kind of like that frame is not useful. I mean, it’s also very clearly kind of within our case law and in the framework.
But we also don’t want to be too rigid in our approach and say if we can’t draw a neat kind of horizontal line or a neat vertical line, then this is not a case that the agencies will bring. And I think the Supreme Court made that clear. They said we’re interested in any merger that may substantially lessen competition, whether it’s horizontal, vertical, conglomerate, and then they added or other. Because they wanted to keep it open and reflective of market realities.
So we really think that the guidelines are designed for this flexible approach. We could have a case that covers multiple guidelines. It could have a labor aspect. It could be horizontal. It could have a vertical aspect, but then also a conglomerate aspect or a potential competition aspect. And we’re not saying that one kind of guideline is superior to the other. So we really want it to be like a checklist for when we investigate mergers of kind of the various vectors of potential lessening of competition that we will look at in a given merger.
TEDDY DOWNEY: I know we’re running out of time. So I wanted to quickly talk about the role of economics because a lot of people are arguing that there’s not enough economics in the guidelines. There’s not enough importance to it. And I want to ask you about that. But I also want to flip it around the other way and say, in the courts, a lot of the times, the economic analysis is getting canceled out. Some of the judges are saying it’s too complicated. Some of the judges are saying the economists are just hired guns. They’re not going to pay attention to the evidence. And then both federal and state agencies are complaining about the costs of economists. And I’m actually wondering why, if you want to bring more cases and you want to simplify the process, why not just ditch the economic evidence as part of a merger challenge? It seems like it would save money, simplify the process, make it easier for judges. And so I want to present both sides to you and ask you about the role of economics in the guidelines.
SHAOUL SUSSMAN: Yeah. So I’ll start and say kind of off the bat, economists, in both agencies, play a tremendous role in investigating and bringing cases and also play an instrumental, I think pivotal, role in framing these guidelines. And I think that if you look at the appendices, you could just see the enormous amount of detail and kind of work that has been done in order to really hone in and kind of refine how we’re going to look at evidence from an economic perspective.
And to a certain extent, I think that we really, really focused on how to synthesize the economics into the framework in a way that kind of harmonizes the economics with the legal framework and with the latest kind of economic understanding and research that’s out there.
And I will also say that to a certain extent, to your question about the reaction of courts to the economics, this is something that was front and center for us. So a good example of that would be the hypothetical monopolist test, what people call in the profession the HMT test. And the 2010 guidelines kind of really did a lot of work around kind of explaining the HMT and kind of going into the economics of the test and how to apply it. But what we’ve seen in recent cases is that courts really struggle to understand the relevance of the HMT test to the kind of inquiry that was in front of them for market definition.
And a good example of that, a very good example, of a recent case would be the sugar case that DOJ lost in the Third Circuit in which the courts kind of struggled to understand how the HMT and the work that the economists did kind of tied into the inquiry under Brown Shoe that asked kind of what are the practical indicia for a market and what are the market realities here? And that is the test that the government needs to satisfy.
So, one approach we could have kind of ventured on was to say the HMT doesn’t seem to land. We have Jefferson Einstein, which is a case the FTC brought. Sugar is another. You know, we can look even at cases where we were successful in market definition, for example, Meta/ Within or DOJ in the book case. And in both cases, the judges relied on the Brown Shoe indicia and not the HMT. So maybe it’s time to scrap the test.
But we realized that the HMT has tremendous value to certain cases we bring. There’s no inherent intention between Brown Shoe and the indicia and the HMT. In certain cases, Brown Shoe and the indicia provide a more straightforward, clearer way to explain kind of this is the relevant market. In others the HMT might kind of flesh out a market that is not as intuitive if you think about it just in terms of the indicia.
So the whole effort here was to kind of harmonize kind of the mandate by the Supreme Court and Brown Shoe with the latest economics around HMT and not reject it. So I think I understand kind of there is a question about the skepticism of courts with that kind of economic evidence and the work of economists. But I think it ultimately falls to lawyering and making sure that kind of the way we present the economic evidence is not intention and complements the legal precedent. And I think that throughout the appendix that really focuses on the tools that we’re going to bring to cases, we really did that.
So I think that also kind of answers kind of the second prong, which is I think that the issue that we were facing is trying to kind of like explain the economics in a way that is intuitive or is kind of harmonious with the case law. And in certain cases, Brown’s Shoe indicia will work well and will allow you to define a case using documents and other types of evidence. In other cases, the HMT analysis done by an economist will be a more intuitive way. And we want to preserve all of those options.
So I think like for us, it’s not a rejection of the economics. It’s basically expanding and having more routes to kind of build our case and kind of establish that a merger lessens competition. And that’s kind of similar to the expansion that we have in the theories of harm where we’re not saying, okay, we’re not going to bring horizontal and vertical cases anymore, and that’s wrong. We’re just saying in addition to the horizontal and vertical cases, there are these additional kind of vectors in which we can examine a merger. So I think it’s kind of like that meme, why not both?
TEDDY DOWNEY: Yeah. No, it makes sense to me. Last question before I let you go. It’s kind of in the same theme, why not both? When you’re looking at a deal, are violations of these guidelines additive? You know, not in an absolute sense, but just sort of a rule of thumb sense. So, for example, if a deal triggers three or four of the guidelines, that deal is probably more problematic. It’s probably more, okay, we should probably sue this deal versus a deal that only triggers one. I know it’s probably not a hard and fast rule, but do you view them as additive at all, I guess is the question.
SHAOUL SUSSMAN: So that’s a question that the court answered for us kind of on the circuit level. But at least at the circuit level, you see certain opinions. And certainly at the district court level, where you see kind of the court saying you have some evidence of potential competition, some evidence of vertical, some evidence of entrenchment. And taking all of those together, we think the government put a very strong case for why this merger is anti-competitive.
So there is an additive value that, of course, buttresses and makes the case even stronger for why a merger might lessen competition. But that doesn’t mean that kind of a single guideline could not satisfy kind of the test of whether a merger lessens competition.
So you could have a guideline one and a guideline two case where you allege both kind of the elimination of head‑to‑head competition and kind of bring the structural presumption case. And those two could bolster the prima facie case. They can basically make the case even stronger. But they are also independent in the sense that if you are able to show that the elimination of head‑to‑head competition is going to result in significant lessening of competition in a market, that is a standalone theory of harm under Section 7. And the same goes for the structural presumption.
So they are additive, but that doesn’t mean that we can’t bring a case with a single guideline. And I would say, even the failure to establish, for example, that a case raises vertical concerns, doesn’t mean that if we’re able to show that there’s a potential competition aspect that’s problematic, that is not a reason not to enjoin the deal, if that makes any sense.
TEDDY DOWNEY: It does. It does. Well, I know we’re out of time. Thank you so much for doing this, Shaoul. It was great to have you back on the call. And good luck with all your work at the FTC. And really, thank you so much for doing this.
SHAOUL SUSSMAN: Thank you, Teddy. It was a pleasure.
TEDDY DOWNEY: And thanks to everyone for joining the call today. And this concludes the call. Bye‑bye.
