Competition policy in the early years of the Obama administration – a personal essay1
The enforcement of antitrust law does not, and should not, operate in a vacuum. In times of economic distress, the need for antitrust law to foster competitive markets is especially pronounced.2 The global financial crisis of 2007-2008 raised pressing concerns about the appropriate scope of modern antitrust regulation.3 Against this backdrop, antitrust enforcement in the Obama administration faced elevated expectations of regulatory action. During the 2008 presidential campaign, then Senator Obama pledged he would direct his administration “to reinvigorate antitrust enforcement”4 and promised “an Antitrust Division that is serious about pursuing cases.”5 One of the challenges for the incoming administration was to demonstrate a robust willingness to litigate antitrust cases, while at the same time ensuring that the law was consistently applied in a straightforward, even-handed and transparent manner.
To that end, in September 2009 Federal Trade Commission Chairman Jon Leibowitz and I announced that the FTC and the Department of Justice’s Antitrust Division would revise the Horizontal Merger Guidelines, which had not been significantly updated since 1992.6 Our intention was to update the guidelines to accurately and clearly describe current agency practice.7 Doing so provided much-needed guidance to the courts, practitioners and the business community about government enforcement standards and procedures. Prioritising such transparency represents fundamental good government that is consistent with – and ultimately enhances – enforcement and litigation efforts.8 In addition to transparency concerns, revising the guidelines to more closely match agency practice provided clarification and guidance to courts tasked with assessing the legality of mergers under the antitrust laws.9 While courts did commonly turn to the guidelines to inform their merger analysis,10 the growing disconnect between the content of the 1992 guidelines and actual agency practice made it difficult for division lawyers to reconcile their arguments and evidence with the guidelines in court.
Such difficulty was seen in US v Oracle Corp,11 the result of the division’s 2004 attempt to enjoin the acquisition of PeopleSoft by Oracle. There, the division relied on a unilateral effects theory to argue that eliminating head-to-head competition between Oracle and PeopleSoft would allow Oracle to raise prices.12 In evaluating this claim, Judge Vaughn Walker found the 1992 guidelines’ discussion of unilateral effects in differentiated products markets “a helpful start”, but ultimately “not sufficient to describe a unilateral effects claim”.13 Adopting a stricter market concentration requirement than suggested by the guidelines, Judge Walker concluded that to “prevail on a differentiated products unilateral effects claim, a plaintiff must prove a relevant market in which the merging parties would have essentially a monopoly or dominant position.”14 Because he found that the government failed to prove such a relevant product or geographic market, Judge Walker ultimately denied the government’s request for an injunction.15
The division’s disappointing loss in Oracle highlighted the need to update the guidelines to accurately reflect current agency practice. The 1992 version of the guidelines – the first iteration to expressly address potentially adverse unilateral effects from a merger – included only a brief discussion on the topic. Since 1992, the agencies had become increasingly likely to pursue unilateral effects theories and to focus their theories of harm on localised competition between the merging parties, regardless of how the agencies defined the relevant market.16 The growing emphasis on direct evidence of competitive effects created a mismatch with the guidelines’ historical reliance on market definition and market shares.17 This tension appears to have hurt the government’s arguments in court, as demonstrated in Oracle.18
Our goal with the 2010 revision was to articulate a flexible approach reflecting the reality of merger analysis as conducted by the agencies.19 We worked to make the revision process as collaborative and transparent as possible. The agencies received 44 public comments from lawyers, economists and other interested parties before sponsoring a series of five public workshops held at locations across the country with a wide range of panellists debating possible revisions. Running an open process improved the guidelines and reinforced their legitimacy.20 After releasing and responding to feedback on multiple public drafts, the final revised guidelines were issued in August 2010.
I believe the 2010 guidelines succeeded in more accurately reflecting actual merger enforcement practice inside the agencies, which has better enabled vigorous and successful antitrust enforcement.21 Specifically, the 2010 guidelines contain a number of important clarifications and refinements concerning market definition. For example, while recognising that it is necessary to define the relevant market as part of any merger challenge, the guidelines expressly acknowledge that merger analysis “need not start with market definition”.22 This flexibility is often important when direct evidence of likely market effects may trigger or alleviate agency concern before the contours of a relevant market are clear.23 The 2010 guidelines added an expanded discussion of unilateral effects.24 Addressing the tension between an approach rooted in market definition and high market shares, and an approach focusing on direct competitive information, the guidelines explicitly note that identifying the unilateral effects of a merger “need not rely on market definition or the calculation of market shares and concentration”, and that the agencies “rely much more on the value of diverted sales than on the level of the Herfindahl-Hirschman Index (HHI) for diagnosing unilateral price effects in markets with differentiated products.”25
The revised Horizontal Merger Guidelines played an important role in our litigation efforts – particularly in reinvigorating the division’s unilateral effects analysis that had been undermined in the Oracle case. In May 2011, the division filed a lawsuit to prevent H&R Block from acquiring its rival, TaxAct. The division alleged that the transaction would reduce competition in the digital do-it-yourself tax-preparation software market, resulting in higher prices for consumers.26 The revised guidelines set out the framework for the division to establish the likelihood of a unilateral price increase, as well as laying the framework for the parties to defeat claims that the merger would affect prices.27
When the court issued its H&R Block opinion enjoining the proposed acquisition, its analysis closely adhered to the principles contained in the 2010 guidelines.28 Whereas in Oracle, the court had concluded that a unilateral effects claim would require a market share of “essentially a monopoly or dominant position”,29 the H&R Block court indicated that “far lower market shares” could suffice, “declin[ing] the defendants’ invitation, in reliance on Oracle, to impose a market share threshold for proving a unilateral effects claim”.30 Furthermore, the 2010 guidelines’ specific reference to the use of diversion ratios and merger simulations to predict the likelihood of unilateral price effects apparently resonated with the H&R Block court.31 In Oracle, the court had rejected the government’s merger simulation results as unreliable.32 In contrast, the H&R Block court noted the “probative value” of the merger simulation used by the division’s expert, and relied on its results to confirm that post-merger prices were likely “to increase to the detriment of the American taxpayer”.33 The result in H&R Block, and in subsequently litigated merger cases,34 substantiated our belief that a transparent and collaborative revision of the guidelines would both provide clarity to businesses as to how the agencies approach merger review, and also allow all parties to more clearly and convincingly present their arguments to courts.
Another area of enforcement I believed to be in need of updated policy guidance was the division’s stated approach to merger remedies. Devising effective remedies for anticompetitive mergers and conduct is a critical element of successful antitrust enforcement.35 With increasingly common complex vertical and transnational mergers, ensuring competition and protecting consumers requires a nimble approach to crafting remedies.36 Whereas structural remedies can often effectively preserve competition for horizontal mergers, vertical mergers are more likely to require conduct remedies to address anticompetitive concerns, while preserving the efficiencies often achieved in a vertical transaction. During my time as assistant attorney general, the division reviewed a number of important vertical transactions, including Live Nation/Ticketmaster, NBC/Comcast, Google/ITA and GraftTech/Seadrift Coke.37 After closely evaluating the competitive harms, in each case we were able to obtain consent decrees with the parties that addressed our concerns.38 These decrees included a range of conduct requirements – including, for example, licensing and firewall provisions, reporting obligations and the creation of complaint mechanisms. In light of such increasingly innovative conduct provisions, and in order to ensure transparency regarding current merger remedy practices, the division released an updated Policy Guide to Merger Remedies in June 2011.39 The revised policy guide makes it clear that in many vertical transactions, tailored conduct relief can prevent competitive harm while also allowing the merger’s efficiencies to be realised.40 By outlining the division’s actual approach to evaluating merger remedies, the policy guide sends the message that enforcers are prepared to pursue conduct remedies even in cases where the alternative may be no relief at all.41
The 2011 policy guide also discussed the role and responsibilities of the division’s then recently created Office of the General Counsel. To ensure continued compliance for both structural and conduct remedies, the general counsel’s office “directly oversees the litigating sections’ ongoing review of decree compliance and evaluation of potential decree violations and makes recommendations to the assistant attorney general.”42 The creation of the general counsel’s office was critical in bolstering decree compliance and developing specialised remedy expertise.
* * *
At my confirmation hearing in March 2009, I pledged to “rebalance legal and economic theories in antitrust analysis and vigorously enforce the law.”43 As assistant attorney general, I worked to fulfil this promise while remaining committed to ensuring transparency, certainty and fairness in the enforcement of the antitrust laws.44 To this end, the measures outlined above – the revision of the Horizontal Merger Guidelines to better support agency practice and the release of an updated policy guide regarding merger remedies – were vital developments.
In addition to these efforts, the division made a concerted effort during my time to hire experienced litigators and provide structural support for trial capabilities – a process that included establishing the positions of deputy assistant attorney general for litigation and director of litigation. It is my hope that the work we undertook during my tenure as assistant attorney general contributed to the division’s successes that are the subject of this book. More importantly, all who served in the Obama antitrust division should be proud of the work we did to ensure a competitive marketplace, including going to court when necessary.
- I note at the outset that, as a general rule, I think it inappropriate to quote oneself. However, as this is explicitly a personal view, I have included references to my own previous work for accuracy.
- Christine A. Varney, Assistant Attorney Gen., Antitrust Div., U.S. Dep’t of Justice, Vigorous Antitrust Enforcement in this Challenging Era (May 12, 2009) [hereinafter Vigorous Antitrust Enforcement], https://www.justice.gov/atr/file/519881/download (“[T]here is no adequate substitute for a competitive market, particularly in times of economic distress . . . . [V]igorous antitrust enforcement must play a significant role in the Government’s response to economic crises to ensure that markets remain competitive.”).
- Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Withdraws Report on Antitrust Monopoly Law (May 11, 2009), https://www.justice.gov/opa/pr/justice-department-withdraws-report-antitrust-monopoly-law (“The recent developments in the marketplace should make it clear that we can no longer rely upon the marketplace alone to ensure that competition and consumers will be protected.”).
- Senator Barack Obama, Statement of Senator Barack Obama for the American Antitrust Institute 1 (Sept. 27, 2007), http://www.antitrustinstitute.org/files/aai-%20Presidential%20campaign%20-%20Obama%209-07_092720071759.pdf.
- Jeff Mason, Obama Eyes Media with Promise of Antitrust Push, Reuters (May 19, 2008, 8:03 AM), http://www.reuters.com/article/idUSN18498319.
- See Christine A. Varney, Assistant Attorney Gen., Antitrust Div., U.S. Dep’t of Justice, Merger Guidelines Workshops 2-4 (Sept. 22, 2009) [hereinafter Merger Guidelines Workshops], https://www.justice.gov/atr/file/519871/download.
- Id. at 4.
- See Christine A. Varney, Assistant Attorney Gen., Antitrust Div., U.S. Dep’t of Justice, Procedural Fairness 3 (Sept. 12, 2009), https://www.justice.gov/atr/file/519876/download (“The idea that transparency during an investigation helps enforcers as well as parties may be counterintuitive to those who worry that openness creates strategic disadvantages for enforcers. That has not been our experience at the Antitrust Division. Frank exchange during all phases of an investigation allows us to conduct investigations more efficiently by focusing all parties on the real issues in dispute. Simply put, transparency and cooperation enhance enforcement efforts and are fully consistent with litigation tactics.”).
- See Merger Guidelines Workshops, supra note 6, at 4-5.
- See, e.g., Chi. Bridge & Iron Co. v. FTC, 534 F.3d 410, 431 n.11 (5th Cir. 2008) (noting that the Guidelines “are often used as persuasive authority when deciding if a particular acquisition violates anti-trust laws”); FTC v. Swedish Match, 131 F. Supp. 2d 151, 167 n.12 (D.D.C. 2000).
- 331 F. Supp. 2d 1098 (N.D. Cal. 2004).
- See Complaint at 4, United States v. Oracle Corp., 331 F. Supp. 2d 1098 (N.D. Cal. 2004) (No. C. 04-00807), https://www.justice.gov/atr/case-document/file/507056/download.
- Oracle, 331 F. Supp. 2d at 1117.
- Id. at 1123.
- Id. at 1175-76.
- See U.S. Dep’t of Justice & Fed. Trade Comm’n, Commentary on the Horizontal Merger Guidelines 27-31 (2006), https://www.justice.gov/atr/file/801216/download (describing various agency actions from 1995-2005 where the theory of unilateral effects and direct evidence of price competition played key roles leading to enforcement actions); id. at 28 (noting that this shift in enforcement was aided by improved access to price and quantity data generated at the point of scale, which allowed for a more direct assessment of the likely effect of a merger on prices); see also Carl Shapiro, The 2010 Horizontal Merger Guidelines: From Hedgehog to Fox in Forty Years, 77 Antitrust L.J. 49, 66 (2010) (“[W]hile market shares are often a useful starting point for assessing diversion ratios, and can indeed be used as proxies for diversion ratios, the DOJ will normally look as well for more direct evidence of diversion ratios.”).
- See Christine A. Varney, Assistant Attorney Gen., Antitrust Div., U.S. Dep’t of Justice, Welcome to the Workshops: Welcome Remarks as Prepared for the Horizontal Merger Guidelines Review Project’s First Workshop 2 (Dec. 3, 2009) [hereinafter Welcome to the Workshops], https://www.justice.gov/atr/file/519851/download (“[T]he  Guidelines only sparsely address the use of direct evidence that is not based on inferences from increases in market concentration. Nevertheless, that direct evidence is something that the Antitrust Division and the FTC routinely rely on in our analyses in both unilateral- and coordinated-effects cases.”); Shapiro, supra note 16, at 63 (“[T]he 1992 Guidelines were like a centaur: the head of differentiated products pricing was grafted onto the body of market definition and market concentration.”).
- Welcome to the Workshops, supra note 17, at 4.
- Christine A. Varney & Jonathan J. Clarke, Tribute, Chicago and Georgetown: An Essay in Honor of Robert Pitofsky, 101 Geo. L.J. 1565, 1576 (2013).
- Varney & Clarke, supra note 19, at 1573.
- See Christine A. Varney, The 2010 Horizontal Merger Guidelines: Evolution, Not Revolution, 77 Antitrust L.J. 651, 659 (2011).
- U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines § 4 (2010) [hereinafter 2010 Merger Guidelines].
- See Varney, supra note 21, at 655.
- See 2010 Merger Guidelines, supra note 22, § 6.
- Id. § 6.1.
- See Complaint at 2-3, United States v. H & R Block, Inc., 833 F. Supp. 2d 36 (D.D.C. 2011) (No. 11-00948), https://www.justice.gov/atr/case-document/file/498231/download.
- For example, the Division relied explicitly on the 2010 Guidelines’ revised section on unilateral effects to argue that there is no market-share threshold for unilateral effects. See Plaintiff’s Reply Memorandum of Points and Authorities in Further Support of its Motion for a Preliminary Injunction at 12 n.50, United States v. H & R Block, Inc,. 833 F. Supp. 2d 36 (D.D.C. 2011) (No. 11-00948), https://www.justice.gov/atr/case-document/file/498156/download.
- See generally United States v. H & R Block, Inc., 833 F. Supp. 2d 36, 52-89 (D.D.C. 2011) (citing to or directly quoting from the 2010 Guidelines on more than 15 separate occasions).
- United States v. Oracle Corp, 331 F. Supp. 2d 1098, 1123 (N.D. Cal. 2004).
- H & R Block, Inc., 833 F. Supp. 2d at 84-85.
- 2010 Merger Guidelines, supra note 22, § 6.1 (“In some cases, the Agencies may seek to quantify the extent of direct competition between a product sold by one merging firm and a second product sold by the other merging firm by estimating the diversion ratio from the first product to the second product . . . . When sufficient data are available, the Agencies may construct economic models designed to quantify the unilateral price effects resulting from the merger.”).
- Oracle, 331 F. Supp. 2d at 1170.
- H & R Block, Inc., 833 F. Supp. 2d at 88.
- See, e.g., United States v. Bazaarvoice, Inc., No. 13-cv-00133, 2014 WL 203966, at *36-37 (N.D. Cal. Jan. 8, 2014).
- Christine A. Varney, Assistant Attorney Gen., Antitrust Div., U.S. Dep’t of Justice, Coordinated Remedies: Convergence, Cooperation, and the Role of Transparency 2 (Feb. 15, 2010), https://www.justice.gov/atr/file/518231/download.
- Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Antitrust Division Issues Updated Merger Remedies Guide (June 17, 2011), https://www.justice.gov/opa/pr/antitrust-division-issues-updated-merger-remedies-guide.
- Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Assistant Attorney General Christine Varney Speaks at the U.S. Chamber of Commerce (June 24, 2011), https://www.justice.gov/opa/speech/assistant-attorney-general-christine-varney-speaks-us-chamber-commerce.
- See Final Judgment, United States v. Ticketmaster Entm’t, Inc., No. 1:10-cv-00139 (D.D.C. July 30, 2010), https://www.justice.gov/atr/case-document/file/513321/download; Final Judgment, United States v. Comcast Corp., No. 1:11-cv-00106 (D.D.C. Sept. 1, 2011), https://www.justice.gov/atr/case-document/file/492196/download; Final Judgment, United States v. Google Inc., No. 1:11-cv-00688 (D.D.C. Oct. 5, 2011), https://www.justice.gov/atr/case-document/file/497636/download; Final Judgment, United States v. Graftech Int’l Ltd., No. 1:10-cv-02039 (D.D.C. Mar. 24, 2011), https://www.justice.gov/atr/case-document/file/497771/download.
- Press Release, supra note 59. The original Policy Guide to Merger Remedies was issued in 2004. Id.
- See U.S. Dep’t of Justice, Antitrust Division Policy Guide to Merger Remedies 1-2 (2011), https://www.justice.gov/sites/default/files/atr/legacy/2011/06/17/272350.pdf.
- See id. at 2 n.3 (“Some have interpreted the Division’s [prior] 2004 guidance on remedies to mean that if a structural remedy is not available in a particular merger matter, or would be ineffective, the Division must let the transaction proceed. This interpretation does not accurately reflect the policy or practice of the Antitrust Division.”).
- Id. at 33.
- Confirmation Hearings on Federal Appointments: Hearings Before the S. Comm. on the Judiciary, 111th Cong. 618 (2009) (statement of Christine Varney).
- Press Release, supra note 60.