Remarks as Prepared for Delivery
Good morning and welcome to the Robert F. Kennedy Main Justice Building. I am pleased to open today’s workshop on the proposed Vertical Merger Guidelines released jointly by both the Department of Justice Antitrust Division and the Federal Trade Commission. This workshop is the first of two that we, together with the Commission, will hold on these proposed Guidelines.
I want to thank the Federal Trade Commission for working so cooperatively with us in this process. In particular, I appreciate the ongoing work of staff from the Office of Policy Planning, the Bureau of Economics, and the Bureau of Competition, led, of course, by Chairman Simons. I would also like to recognize and welcome, my friend, Commissioner Christine Wilson, who is here on behalf of the FTC and will offer some remarks. Although the Department of Justice issued its 1984 Non-Horizontal Merger Guidelines unilaterally, we are committed to working with the Federal Trade Commission in finalizing these new Vertical Merger Guidelines, and hope to issue the final version jointly soon.
I also want to thank our panelists for their participation in this workshop. We have a distinguished group, representing the broad engagement we have had and continue to have in this process. I am pleased to welcome back many Division alumni as well as former FTC colleagues. Our panels also include luminaries from the private bar, academia, and the public interest sector.
Finally, I want to thank everyone who submitted comments. We received 70 comments longer than a page from a diverse array of interested groups and individuals, including by some of our panelists here today. I want to single out comments from a group of twenty-six state attorneys general, which were thoughtful, productive, and collegial. I also want to thank the Federal Communications Commission’s Office of Economics and Analytics for its comment supporting our proposed guidelines and offering some helpful insights based on its experience with vertical mergers.
The comments span the range of views on this important topic. Some comments suggested specific line edits to the proposed guidelines, while others offered more theoretical thoughts on vertical merger enforcement. Some comments criticize the proposed guidelines for suggesting gross overenforcement against vertical mergers. They advocate for what amounts to changing the law to favor vertical mergers as per se legal. Other comments criticize the proposed guidelines for suggesting gross underenforcement against vertical mergers. They advocate what amounts to changing the law to disfavor such deals.
We, of course, value a broader debate about the antitrust laws, and hope that today’s workshop will facilitate this dialogue. It’s important that we understand the differences of opinion in the policy and business community as we seek to produce the best possible version of the final Vertical Merger Guidelines. That version, though, will reflect what the law actually is, as opposed to what some may think it should be. Should there be any need to change the laws, that power is appropriately delegated to another branch of the government.
Of course, merger guidelines stand in the shadow of the great Bill Baxter, my predecessor as Assistant Attorney General. His 1982 Horizontal Merger Guidelines brought economic rigor to the practice and revolutionized antitrust enforcement. In so doing, made a number of important observations about guidelines. “Writing guidelines is hard work,” he noted. Tough to disagree. He also said that “[t]here is a very real element of fact in the Guidelines. In that sense, it is a fairly careful description of a way of going about thinking about mergers—a thought process about mergers—and our own intuitive reactions to a series of mergers that we saw over a period of time.” Professor Baxter’s description applies equally to these proposed Vertical Merger Guidelines.
Guidelines should first and foremost provide transparency into what we actually do at the agencies. The final guidelines simply will aim to provide transparency into our investigative practices as they exist today and have in recent years based on the underlying law.
With transparency comes predictability. The great Robert H. Jackson captured this goal well in a speech he gave in 1937. In that speech, Jackson characterized the previous forty years of antitrust enforcement as alternating between “being aggressively vague and passively vague.” He recognized that “[e]very antitrust problem is economic as well as legal,” and sought to articulate a standard for antitrust law enforcement “intelligible both to those expected to comply with it and [to] those expected to enforce it.” I stand with the great Robert Jackson.
The guidelines are fundamentally descriptive, not prescriptive. We are trying to get it right, and these guidelines provide insight for the business community and the public into the kinds of evidence we look for on a case by case basis. They will give greater predictability and intelligibility to business, the bar, and enforcers.
When it comes to antitrust enforcement, careful analysis of particular cases matters tremendously. That is always true, but I think it is especially true for vertical mergers. Vertical mergers can be procompetitive, for example, by eliminating double marginalization. Overenforcement risks blocking deals that benefit consumers. In fact, many vertical mergers are procompetitive or competitively neutral.
While many vertical mergers may be competitively beneficial or neutral, the wrong vertical merger can create and entrench monopolists. This risk can be heightened in digital markets where a common refrain is that vertically integrated platforms have access to data that potential rivals need to compete. If the data plays an important role in designing products or services for the consumer, and it is available only to a platform service because the service acquired it through a merger, then it might create the ability to raise rivals’ costs downstream.
Importantly, as we think about the potential for a vertically integrated company to harm its rivals or gain a competitive advantage, we must keep in mind that there is a different standard for mergers than for nonmerger conduct. Section 7 of the Clayton Act governs anticompetitive acquisitions. Outside of a merger context, cases involving vertical agreements or attempts by a vertically integrated firm to harm upstream or downstream rivals would have to be challenged under Sections 1 or 2 of the Sherman Act.
The D.C. Circuit opinion in AT&T was very clear on this point, and I consider it a significant development of our jurisprudence. The court applied Section 7 to that vertical merger the same way it has for horizontal mergers. It said that Section 7 “applies a much more stringent test than does the rule-of-reason analysis under section 1 of the Sherman Act.”
There are important reasons for that approach. While Sections 1 and 2 are inherently backwards looking, Section 7 looks to the future. It asks whether “the effect of [an] acquisition may be substantially to lessen competition, or tend to create a monopoly”? If the answer is yes, then the merger is illegal. The Section 7 standard allows the Division to act before a problem arises as Congress intended. Its purpose is to keep the structure of the market competitive so that market forces can play out to the benefit of consumers, without the day-to-day policing of whether the players in the market are behaving anticompetitively.
For this reason, merger review requires the Division to address circumstances that would not be illegal under Sections 1 or 2. For example, under Section 7, a merger to monopoly would be illegal. Outside of the merger context, however, the Antitrust Division does not seek to break up a monopoly that has been lawfully acquired and maintained, and is not engaging in exclusionary or predatory conduct.
These proposed Vertical Merger Guidelines are an important part of helping us get the right answer on vertical mergers. They reflect current case law and economic thinking about vertical mergers, as well as current Department and FTC practice in investigating vertical mergers. Until this past January, the only formal statement of enforcement priorities on vertical merger were the 1984 Non-Horizonal Guidelines. Thirty-five years ago, the 1984 Non-Horizontal Guidelines represented the Department’s best effort to provide guidance on how it evaluated vertical mergers. As one scholar has recognized, however, they are “now woefully out of date” and “do not reflect current economic thinking about vertical mergers” nor “current agency practice.”
We are not, of course, writing on a blank slate. While the 1984 Non-Horizontal Guidelines may be out of date, and while AT&T may have been the first litigated vertical merger challenge since the 1970s, both the Department of Justice and the Federal Trade Commission have enforced the antitrust laws consistently against anticompetitive vertical mergers. In fact, Professor Steve Salop has counted fifty-eight vertical enforcement actions by the Department and the Federal Trade Commission between 1994 and 2018. I’m glad that Professor Salop is here today to share some of his insights on the proposed guidelines. We always learn when he speaks.
We are already well underway in synthesizing the comments we’ve received, and this public workshop today should help us further hone the final guidelines. I look forward to hearing further from the public, and to issuing soon together with our colleagues at the FTC, a final document that benefits from those views.
 William F. Baxter, A Justice Department Perspective, 51 Antitrust L.J. 287, 287 (1982).
 Robert H. Jackson, Should the Antitrust Laws Be Revised?, 71 U.S. L. Rev. 575, 576 (1937).
 Id. at 575.
 Id. at 576.
 The burden, of course, should be on the merging parties to prove EDM. See Makan Delrahim, Assistant Attorney General, Antitrust Div., Dep’t of Justice, “ ‘Harder Better Faster Strong’: Evaluating EDM as a Defense in Vertical Mergers” (Feb. 15, 2019), https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-george-mason-law-review-22nd.
 United States v. AT&T Inc., Case No. 18-5214, slip op. at 5 (D.C. Cir. Feb. 26, 2019).
 Steven C. Salop & Daniel P. Culley, Revising the U.S. Vertical Merger Guidelines: Policy Issues and an Interim Guide for Practitioners, 4 J. of Antitrust Enforcement 1, 2 (2016).
 Steven C. Salop & Daniel P. Culley, Vertical Merger Enforcement Actions: 1994–July 2018 (2018), https://scholarship.law.georgetown.edu/cgi/viewcontent.cgi?article=2541&context=facpub.