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Will Federal Courts Adopt the 2010 HMGs?

Leah Brannon and co-author Kathleen Bradish, both of Cleary Gottlieb Steen & Hamilton, offer a skeptical view:

In the half-century since du Pont, lower courts have continued to view market definition as a predicate to Section 7 claims. For example, the D.C. Circuit in FTC v. Cardinal Health, Inc. stated that ?[d]efining the relevant market is the starting point for any merger analysis.?19 Similarly, the Eighth Circuit in FTC v. Tenet Health Care Corp. held that it is ?essential that the FTC identify a credible relevant market before a preliminary injunction may properly issue? because ?[w]ithout a well defined relevant market, a merger?s effect on competition cannot be evaluated.?20 And, just weeks before the final version of the 2010 Guidelines was published, the district court in United States v. Dean Foods Co. reaffirmed that ?[i]n determining the likely anti-competitive effects of an acquisition, courts look to the relevant product market, as well as the relevant geographic market.?21

Given the weight of this precedent, courts may be reluctant to embrace the 2010 Guidelines as readily as they have accepted past versions. Courts have, in other contexts, resisted adopting significant changes in agency guidance documents when the changes appeared to conflict with existing case law. In United States v. Kinder, for example, a prisoner defendant requested reconsideration of his sentencing for drug charges based on an amendment to the Sentencing Guidelines that changed the definition of how carrier weight would be calculated.22 The Second Circuit rejected the request, finding that the Sentencing Guidelines amendment could not trump binding precedent that adopted the older method of carrier weight calculation. The dissent, in contrast, specifically pointed to the Merger Guidelines, and argued that with the Merger Guidelines courts had in fact altered prior precedent ?by voluntarily accepting uncompelled guidance from a constructive administrative interpretation.?23

The article concludes:

[T]he 2010 Guidelines ask more of the courts than previous versions have, and if recent court decisions are any indication, courts may not be willing to forgo market definitions in Section 7 cases.

I share some of these concerns and agree with Brannon & Bradish that one certainly should not take for granted the notion that the courts will embrace these HMGs.  However, I suspect that the Agencies will not put federal courts in the position Brannon & Bradish are most concerned with — that is, Agencies will not ask judges to rule on a Section 7 case in which they have not defined a market.  As I’ve written:

With respect to the whether or not market definition is a necessary condition under Section 7, if one adopts the view of Professor Crane and myself that in their current form the 2010 HMG are at best equivocal as to whether the agencies must define a market, then the opinion may preview impending hostility to such an approach in federal courts.  But while I?ve blogged that I do not think the 2010 HMGs are clear enough of the necessity of market definition, I do not think that those with genuine concerns about the new HMG approach are really concerned that the Agencies will bring cases in which they do not define a relevant market.Indeed, the real problem with the 2010 HMGs is not that the Agencies will avoid defining markets is at all.  The Agencies want to win cases.  And to the extent that federal courts expect markets to be defined, you can bet the Agencies will do so as part of their case in chief.  It is true that diagnostics for unilateral effects are based on the value of diverted sales and can be done without defining a market, but so long as this is part of an analysis that also defines a market at some stage, the Agencies can comply with the requirement that markets be defined under Section 7 of the Clayton Act.

If Brannon & Bradish are correct that the HMGs will be used in support of Section 7 analyses that omit market definition, there is no doubt that there will be a great risk of their rejection.  But while I agree that the Guidelines are not as clear as they should or could with regard to the Agencies’ commitment to market definition, they are certainly flexible enough to allow the Agencies to define markets at some point.  And because the Agencies don’t want to lose cases, I suspect they will do so.  That does not mean that federal courts will automatically embrace the new HMGs as they have in the past, but it does mean that any such rejection will have to be on more nuanced analytical grounds, e.g. the Agencies bring a case in which market definition is conducted as an afterthought to a competitive effects analysis the court finds unpersuasive.  Brannon & Bradish highlight a very interesting issue which be interesting to watch unfold over the next several years.

Filed under: antitrust, economics, merger guidelines, mergers & acquisitions

Full post as published by Truth on the Market on October 27, 2010 (boomark / email).