around the bar
February 1, 2012

Lessons From Recent Merger Challenges

aba_cle_antitrust_tc_bigRecent government success in merger cases brings many lessons to firms and general counsel alike, namely that those successes have emboldened the Department of Justice.  Trends in merger enforcement were the topic of a recent ABA CLE, “United States v. AT&T: Tips for Antitrust Lawyers and Litigators.”

In the AT&T case, AT&T sought to acquire T-Mobile, with the parties citing efficiencies in pursuing the merger.  The DOJ filed suit to block the merger; the companies also faced opposition from the FCC.  In United States v. H&R Block, the company looked to acquire 2SS Holdings, the maker of TaxAct software.  The DOJ tested its 2010 Merger Guidelines and challenged the merger.  Those two companies and Rival Intuit—producer of TurboTax—account for 90 percent of the market share.

The importance of market structure in merger challenges is critical, said panelist Chul Pak, of Wilson Sonsini Goodrich & Rosati P.C., who previously served as assistant director of the Mergers IV Division at the FTC.  Pak outlined the courts reviewing the market numbers: “First the government must show that the merger would produce ‘a firm controlling an undue percentage share of the relevant market, and [would] result [] in a significant increase in the concentration of firms in that market,’” citing Philadelphia Nat’l Bank.

Recently, successful challenges have occurred in instances where, were the merger to occur, it would bring the players in the market from three down to two competitors, as in FTC v. CCC HoldingsU.S. v. AT&T was more of a grey area in that regard, because it dealt with shifting the market from four players down to three.  By comparison, unsuccessful challenge examples are FTC v. Arch Coal—five firms to four; and U.S. v. Oracle, six to five players.

In reviewing whether mergers can go forward, market definition is pivotal, continued Pak.  Factors that the courts emphasize in analyzing market definition include business documents—both what is included in them and what is not; natural pricing experiments—for example, studying the possible differences between two firms and three players; expert economic analysis; as well as the judge’s personal experiences.  To the last point, Pak mentioned how a judge, when reviewing the Whole Foods merger case, went to the grocery store as part of the decision-making process and took a common-sense approach to the question at hand.

Panelist Matthew Hendrickson, of Skadden Arps and a partner in the firm’s antitrust practice, echoed the significance of company documents in these types of cases, as well as the scrutiny of economic experts.  Part of DOJ’s aggressiveness, he explained, can be seen through the department acting much faster than businesses are expecting.  Rather than trying to gather every piece of evidence having to do with everything, the department is more willing to rely on civil discovery.  In addition, the Department of Justice has been unmoved by lobbying efforts in support of the mergers, even though—as Hendrickson said—there was an extensive and vigorous campaign, for example, by members of Congress and state attorneys general in AT&T/T-Mobile.

Another facet of AT&T is the addition of private litigation in parallel to the action being taken by the DOJ.  The Sprint and Cellular South filing against AT&T/T-Mobile provided another layer to the process; AT&T soon filed a motion to dismiss.

Litigation is increasingly a tool being utilized by the government, continued Hendrickson.

Panelist Mark W. Nelson, of Cleary, Gottlieb, Steen & Hamilton LLP, represented Deutsche Telekom and T-Mobile in AT&T/T-Mobile.  Offering tips for antitrust lawyers and litigators, he said that the horizontal merger guidelines of August 2010 are allowing for broad discretion by the government, noting that they were extremely important in the H&R Block case.  He also observed the limitations of the efficiencies defense, as well as the dual-track DOJ and FCC merger review.

Jeffrey S. Jacobovitz, with McCarthy, Sweeney & Harkaway, moderated the CLE, sponsored by the ABA Section of Antitrust Law Communications & Digital Technology Industries Committee, State Enforcement Committee, Civil Practice and Procedure Committee, and the Center for CLE.