Trade Secret & Unfair Competition Reporter

Author Archives: Eric Welsh

SOUTH CAROLINA SUPREME COURT REJECTS EFFORT TO NARROW GEOGRAPHIC RESTRICTION IN NON-COMPETE

Posted by Eric Welsh on June 18, 2010 – 7:30 am

Filed under SC Supreme Court, South Carolina Law, Uncategorized, Unfair Competition

In a decision filed in May, the South Carolina Supreme Court reversed the trial court’s “blue-penciling” of a territorial restriction in a non-compete to uphold its validity. Poynter Investments, Inc. v. Century Builders of Piedmont, Inc., No. 26821 (May 21, 2010). In that case, the defendant, Clyde Rector, sold his business to Poynter Investments and in connection with that sale, entered into a non-compete agreement. The non-compete agreement was for a duration of four years and contained a three tiered geographic restriction. By the terms of that agreement, Rector was prohibited from engaging in a competing business (i) within 75 miles of the premises, (ii) if found too broad, then in Greenville County, South Carolina and any bordering county, or (iii) if found too broad, then Greenville County, South Carolina. According to the opinion, Rector subsequently breached his employment and non-compete agreement, and Poynter Investments filed suit against him to enforce the non-compete.

The trial court upheld the non-compete agreement, granting a preliminary injunction. In doing so, the trial court limited the geographic restriction of the non-compete to “Greenville County, and within an area encompassing fifteen miles in any direction of [the Premises].” Rector appealed the decision, arguing, in part, that the trial court impermissibly “blue-penciled” an overbroad non-compete agreement.

On appeal, the South Carolina Supreme Court found such rewriting of the non-compete by the court to be improper. After citing to precedent discussing the limitations of the courts in deviating from the express terms of non-compete agreements, the Supreme Court found that the trial court’s crafted geographic limitation similarly flawed for straying from the express terms of the agreement:

“These cases stand for the proposition that, in South Carolina, the restrictions in a non-compete clause cannot be rewritten by a court or limited by the parties’ agreement, but must stand or fall on their own terms. We hold, therefore, that the trial judge erred in rewriting the territorial restriction in the parties’ contract.”

What is interesting about this case is not what questions have been answered but rather, what remains unanswered by the opinion. For example, had the trial court simply used the third definition of the non-compete’s geographic provision — Greenville County, South Carolina — and ignored the other two, which were probably overbroad, would the court’s decision have been upheld or viewed as improper “blue-penciling”? In such a situation, does the agreement stand by its own terms if two of the definitions are viewed as over broad and ignored?

Interestingly, in North Carolina, where courts are also prohibited from rewriting non-compete agreements, such agreements are not unenforceable simply because the territorial restriction employs multiple definitions of varying geographic reach. As long as the provisions are separate and distinct, a court can strike the overbroad provisions in a non-compete agreement without violating the prohibition on rewriting the covenant. See, e.g. Wachovia Ins. Svcs., Inc. v. McGuirt, No. 06 CVS 13593, 2006 WL 3720430, *9, fn.4 (NCBC Dec. 19, 2006) at *11 (excising single provision of covenant regarding solicitation of customers while preserving remainder); Philips Elecs. North America Corp. v. Hope, 09 cv 363, 2009 WL 1883921 (M.D.N.C. June 30, 2009) at fn.6 (stating blue penciling is especially appropriate to excise provisions separated by the term “or”). Accordingly, a geographic restriction that is tiered in structure is not by itself a bar to enforcement in North Carolina.

South Carolina had previously recognized a similar rule, permitting courts to enforce a non-compete if the offensive provision is “severable.” See Somerset v. Reyner, 233 S.C. 324, 104 S.E.2d 344 (1958); Lampman v. Dewolff Boberg & Assoc. Inc., 2009 U.S. App. LEXIS 6046 (4th Cir. March 23, 2009); see also Rockford Mfg., Ltd. v. Bennet, 296 F. Supp. 2d 681 (D.S.C. 2003). At first blush, Poynter Investments seems at odds with this precedent. Does Poynter Investments mark a change in South Carolina’s treatment of non-compete provisions that are severable? Will South Carolina enforce a strict prohibition on all “blue-penciling” of restrictive covenants? Certainly, the Poynter Investments case can be limited to its facts to avoid any inconsistencies with precedent. The trial court judge did not simply enforce the non-compete based on one of three definitions of geography found in the parties’ agreement. Rather, he modified one of the geographic definitions, thereby broadening its reach. Even under Somerset and other precedent, such judicial intervention would be viewed as improper.

Time will tell whether South Carolina is ushering in a stricter approach to non-compete agreements. One thing is clear, as with North Carolina, non-compete agreements are viewed closely by the courts in South Carolina and will not be saved by judicial rewriting of existing contractual terms.

FOR THE FTC, THE “U” IN U-HAUL STANDS FOR UNILATERAL ATTEMPT TO COLLUDE: FTC Settles Complaint With U-Haul in Invitation to Collude Case

Posted by Eric Welsh on June 14, 2010 – 6:39 am

Filed under Antitrust Developments, FTC, Unfair Competition

On June 9, 2010, the FTC announced that the Commission had voted out a complaint (5-0) against U-Haul International, Inc. and its parent company, AMERCO. Complaint. In that complaint, the FTC alleged that U-Haul and its parent had engaged in conduct over several years which amounted to an invitation to U-Haul’s biggest competitor, Budget, to collude and artificially maintain a higher price for truck rentals in the United States. The FTC also announced on June 9 that it had entered into a consent order settling the matter. Order. The order has been published for public comment.

According to the complaint, U-Haul and AMERCO’s Chairman, Edward J. Shoen, developed two strategies designed to eliminate competition between U-Haul and Budget for one-way rentals, both of which were designed to secure higher rates. Shoen then allegedly communicated these strategies internally to the regional managers of U-Haul, instructing the regional managers to set their pricing and then “LET BUDGET KNOW.” Shoen allegedly sent other similar instructions in 2006. In one internal communication, Shoen is alleged to have instructed local U-Haul dealers to contact Budget and Penske dealers to get them to raise their prices:

“We are successfully meeting or beating our Budget and Penske competitors. However, their rates are WAY TOO LOW. When you and your MCP [regional manager] decide it is time to bring some One-Way rates back up above a money loosing [sic] 35 mile, have your Dealers let the Budget and Penske Dealers know. Try ‘Are you tired of renting 500 miles for $149 and a $28 commission? Then, tell your Budget/Penske rep that U-Haul is up and they should be too.’”

In addition to allegedly communicating these strategies internally at U-Haul, the complaint alleges that Shoen also communicated to U-Haul’s competitors his interest in their raising their prices to meet U-Haul’s. The complaint quotes generously from a transcript of an AMERCO earnings press conference in 2008 to bolster the claim that U-Haul and AMERCO invited competitors to collude on price. For example, Shoen is quoted in the complaint as saying in this conference:

“[F]or the last 90 days, I’ve encouraged everybody who has rate setting authority in the Company to give in more time and see if you can’t get it to stabilize. In other words, hold the line at a little higher.

And if they [Budget] perceive that we’ll let them come up a little bit, I remain optimistic they’ll come up, and it has a profound affect on us.”

There are a number of interesting observations about this matter, short-lived as it was. First, the complaint does not allege that U-Haul actually conspired with Budget or any other competitor to maintain or raise prices. The complaint does not allege a violation of Section 1 of the Sherman Act for conspiracy. Rather, the complaint is premised on a single claim brought under Section 5 of the Federal Trade Commission Act based on U-Haul’s alleged invitation to its competitors to collude. Three of the Commissioners (Chairman Leibowitz, Commissioner Kovacic and Commissioner Rosch) voting out the complaint, issued a separate statement highlighting this point, evidently trying to send a message to the business community that the FTC will not wait for collusion to occur before it acts:

“The parties have settled an invitation-to-collude case and not a Sherman Antitrust Act Section 1 conspiracy case. Put differently, the complaint in this case alleges an unfair method of competition in violation of Section 5 of the FTC Act that does not also constitute an antitrust violation. . . . Today’s Commission action is instead based on evidence that Respondents unilaterally attempted to enter into such an agreement. The Commission therefore has reason to believe that Respondents engaged in conduct that is within Section 5’s reach.” Statement.

The U-Haul complaint is instructive on several grounds. First, as is clearly stated by the Commissioners, the FTC is looking at business practices to determine if they are “unfair methods of competition” and not simply violations of Section 1 of the Sherman Act. Executives of companies should not find solace in the fact that their anticompetitive comments may not have reached their competitors and resulted in an actual agreement to collude on price. According to the FTC, no such agreement is necessary for action to be taken. Second, executives of companies must be mindful not only of what is contained in their internal documentation (including email) but also what is stated in public press releases and earnings reports. A sure-fire way to catch the attention of the government is to have an earnings release where there is discussion of the need for a competitor to raise its prices, as was allegedly the case here.

SUPREME COURT SACKS NFL IN REJECTING “SINGLE ENTITY” DEFENSE IN SHERMAN ACT SECTION 1 CASE

Posted by Eric Welsh on June 3, 2010 – 11:15 am

Filed under Antitrust Developments, Federal Court, United States Supreme Court

Ending a string of nearly twenty years of victories in front of the Supreme Court by defendants in Sherman Act cases, the Supreme Court last month in American Needle, Inc. v. National Football League, et al., No. 08-661, ruled against the NFL in a case brought under Section 1 of the Sherman Act. In a unanimous decision, the Supreme Court soundly rejected the ”single entity” defense advanced by the NFL, the 32 NFL teams and the entity they created to manage and market their intellectual property, National Football League Properties (”NFLP”) (collectively, the “NFL defendants”), to the Section 1 claim asserted against them, remanding the case to the district court for further proceedings to determine if they had conspired together in restraint of trade.

American Needle involved a narrow issue before the Supreme Court: whether the NFL defendants were capable of conspiring together or whether they acted as a single entity for purposes of Section 1 of the Sherman Act in connection with their conduct in licensing their intellectual property. As demonstrated in the record, the NFL defendants had acted jointly in the licensing of their intellectual property since 1963 when NFLP was created. From 1963 to 2000, the NFL defendants licensed their intellectual property through NFLP, granting licenses on a non-exclusive basis to vendors to manufacture and distribute apparel with team logos and trademarks. American Needle was one of those non-exclusive licensees. In December 2000, the 32 teams of the NFL changed their game plan, and agreed to permit NFLP to enter into an exclusive license for the manufacture of the team apparel, which NFLP subsequently granted to Rebok. American Needle thereafter brought suit against the NFL, the NFL teams and NFLP in the Northern District of Illinois, alleging that the agreements between the NFL, the 32 teams, NFLP and Reebok violated Sections 1 and 2 of the Sherman Act. In their answer to this complaint, the NFL defendants asserted that they could not conspire under Section 1 ”because they are a single economic enterprise, at least with respect to the conduct challenged.”

After permitting limited discovery, the District Court dismissed the Section 1 claim, agreeing with the NFL defendants’ “single entity” defense. The District Court found that the NFL defendants ”in the facet of their operations respecting exploitation of intellectual property rights,” were “so integrated” that “they should be deemed a single entity rather than joint ventures cooperating for a common purpose.” American Needle appealed that decision to the Seventh Circuit Court of Appeals.

The Seventh Circuit looked at the issue of the “single entity” from the perspective of the “economic power” at issue in the relationship. The Seventh Circuit concluded that since “football itself can only be carried out jointly,” then “only one source of economic power controls the promotion of NFL football.” In the area of licensing team’s intellectual property, the marketplace was not deprived of independent sources of economic control, which competition assumes, as a result of the challenged activity. The Seventh Circuit affirmed the District Court. American Needle and the NFL defendants sought review by the Supreme Court.

Justice Stevens, writing for a unanimous court, rejected the “single entity” argument, in overturning the Seventh Circuit’s decision. Noting the long-established precedent of considering “form over substance” when reviewing conduct as a possible violation of Section 1’s prohibition against engaging in a “contract, combination . . ., or conspiracy” in restraint of trade, the Court observed that the issue is whether the parties are “separate economic actors” following their own “separate economic interests.” If that is found to be the case, then the market is deprived of independent centers of decisionmaking by such combination and actual or potential competition is lost. Considering the facts in the American Needle case from this perspective, the Court found each team possessed the attributes of independent economic decisionmaking, advancing their own economic interests which could be at odds with other teams. For example, from the perspective of a vendor making a team hat, the Colts and the Saints are two potentially competing suppliers of valuable trademarks. When the Colts license their intellectual property, according to the Court, they promote their own economic interest, not the interest of the teams as a whole. Accordingly, each team is an independent center of decisionmaking and when those teams jointly license the right to their intellectual property to a single vendor, they deprive the market of other centers of decisionmaking and, accordingly, of actual or potential competition. It is this context that distinguishes the relationship between the parties in American Needle from the relationship of a parent and its wholly owned subsidiary, which has long been found not to be capable of conspiring under Section 1. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984). In the latter situation, the economic interests of the parent and subsidiary are one. The same cannot be said for the 32 NFL teams, each of which is an independently owned and managed business.

In reaching this conclusion, the Court rejected the analysis of the Seventh Circuit which found a single entity because “without [the cooperation of the teams], there would be no NFL football.” Finding the justification of cooperation to be irrelevant to whether the cooperation is concerted or independent, the Court noted that cooperation can be found in many different contexts which bear scrutiny under Section 1. As the Court observed:

“Any joint venture involves multiple sources of economic power cooperating to produce a product. And for many such ventures, the participation of others is necessary. But that does not mean that necessity of cooperation transforms concerted action into independent action; a nut and a bolt can only operate together, but an agreement between nut and bolt manufacturers is still subject to § 1 analysis.”

As with the NFL and the NFL teams, the Court also found the decisions of the NFLP itself to constitute “concerted activity” under Section 1. Although noting that this was a “closer call,” due to the fact that NFLP was a separate entity and the profits were distributed to the teams on an equal basis, the Court nevertheless found that for the same reasons the NFL teams’ conduct was subject to review under Section 1, so was NFLP’s conduct. For the Court here, the decision came down to a truism:

“Apart from their agreement to cooperate in exploiting those assets [the intellectual property], including their decisions as the NFLP, there would be nothing to prevent each of the teams from making its own market decisions relating to purchases of apparel and headwear, to the sale of such items, and to the granting of licenses to use its trademarks.”

NFLP simply was “an instrumentality” of the teams and the fact that the NFL teams shared in profits and losses of the NFLP did not save the case from Section 1 scrutiny, since if that were the case, then “any cartel ‘could evade the antitrust law simply by creating a “joint venture” to serve as the exclusive seller of their competing products.’” American Needle, quoting Major League Baseball Properties, Inc. v. Salvino, Inc., 542 F.3d 290, 335 (2nd Cir. 2008).

The Supreme Court’s opinion in American Needle does not mark the end of the NFL defendants’ contract with Rebok. The Court did not find the conduct to be a per se violation of the Sherman Act but rather conduct subject to further review under a “rule of reason” approach. Accordingly, the American Needle case has been sent into overtime and it is up to the NFL defendants to justify their conduct and save their agreement.

As American Needle continues its path in the District Court, attention will be turned to the ramifications of the decision. This decision is not limited to the grid iron but will apply to other venues where companies jointly market their intellectual property through a single licensing entity. Whether it is the NBA, NASCAR, other sports or other venues, closer scrutiny should be expected of those marketing relationships.

FTC CHALLENGES ANOTHER CONSUMMATED MERGER

Posted by Eric Welsh on May 25, 2010 – 1:05 pm

Filed under Antitrust Developments, FTC

Last month, a representative of the Federal Trade Commission spoke at the ABA Antitrust Law Spring Meeting regarding the FTC’s continuing interest in scrutinizing consummated mergers for potential violations under Section 7 of the Clayton Act. Within weeks of that presentation, the FTC has filed an administrative complaint challenging yet another consummated merger*, this time involving The Dun & Bradstreet Corporation’s February 2009 acquisition of Quality Education Data (”QED”).

In a complaint voted out by the Commission (4 to 1) on May 6, 2010, the FTC alleges that D&B acquisition of QED violated Section 7 of the Clayton Act and Section 5 of the FTC Act. The Commission alleges that D&B’s company, Market Data Retrieval (”MDR”), holds over 90% of the kindergarten through twelfth grade educational marketing databases in the United States as a result of the merger. The FTC’s complaint further alleges that MDR and QED “were the only two significant competitors in the K-12 data market” and that the acquisition substantially lessened competition by, among other things, “[r]educing the number of significant competitors from two to one, creating a virtual monopoly” and “allowing MDR, unconstrained by effective competition, to increase prices.” Commenting on the filing, Richard Feinstein, Director of the FTC’s Bureau of Competition, stated in the accompanying press release: “When Dun & Bradstreet acquired QED, it bought its closest competitor and created a monopoly. That’s going to get the FTC’s attention every time.” The complaint seeks divestiture of QED.

Despite its lack of detail, the complaint is notable as an indication that the FTC will challenge consummated mergers, even when the size of the transaction is relatively small. Of course, whether the FTC prevails is another matter. This merger was apparently consummated over fourteen months ago, and the complaint does not allege that despite the purported ”merger to monopoly,” that MDR had increased prices post acquisition or that pricing had in fact been adversely affected by any increase in market power. In addition, although claiming that the merger reduced the number of “significant competitors,” at least two other firms that compete in the alleged market are noted in the complaint, but dismissed as “insignificant players.” From the complaint, it appears that the FTC will contend that reputational issues pose significant barriers to entry and diminish the effectiveness of these two smaller firms as players in this alleged market.

Time will tell whether the FTC can make its case. One thing is certain: clearly this is not the last we will hear from the FTC when it comes to challenging consummated mergers.

_________

*Parker Poe Adams & Bernstein LLP is counsel to Polypore International, Inc. in a consummated merger challenge brought by the FTC. That matter was tried before Administrative Law Judge D. Michael Chappell last year. Eric Welsh was co-lead trial counsel.

UNFAIR AND DECEPTIVE TRADE PRACTICES CLAIM FAILS IN PARTNERSHIP DISPUTE EVEN THOUGH PARTNER BREACHED HIS FIDUCIARY DUTY

Posted by Eric Welsh on May 19, 2010 – 12:32 pm

Filed under NC Court of Appeals, NC State Supreme Court, North Carolina law, Unfair Competition

In a split decision last month, the North Carolina Supreme Court held that a claim under North Carolina’s unfair and deceptive trade practices act, N.C.G.S. 75-1.1 (the “Act”) could not stand, even where a partner had been found to have acted “unfairly and deceptively” in his dealings with his other partners, because the Act was not intended to reach the “internal operations of a single market participant.” White v. Thompson, No. 226A09, (NC April 15, 2010).

In White, the defendant, Andrew Thompson, was a partner with plaintiffs Charles White and Earl Ellis in an entity known as Ace Fabrication and Welding (”ACE”). Ace was formed primarily for the purpose of performing specialty construction and fabrication work at a plant owned by Smithfield Packing Company, Inc. At trial, the evidence suggested that ACE enjoyed initial success. Subsequently, infighting and disagreements overtook the partnership. Eventually, Defendant Thompson decided to leave the partnership and start his own business, PAL. While it is unclear from the opinions when he actually advised his partners of his intentions, defendant Thompson at some point advised White and Ellis of this decision but then a dispute arose between the partners regarding the distribution of partnership assets. While still a partner of ACE, defendant Thompson obtained work from the Smithfield Packing facility for PAL. Eventually, White and Ellis sued Thompson for, among other things, breach of fiduciary duty and unfair and deceptive trade practices.

After a trial, the jury found that Thompson had in fact breached his fiduciary duty to his partners and the damages were trebled under the Act. Defendant Thompson appealed the judgment. On appeal, the North Carolina Court of Appeals, in a split decision, reversed the unfair and deceptive trade practices trebling of damages, finding the Act inapplicable to the dispute because it did not meet the “in or affecting commerce” requirement of the Act. White v. Thompson, 676 S.E.2d 104 (N.C. App. 2009). According to the Court of Appeals, “it must be shown that the alleged unfair or deceptive acts had an impact in the marketplace” but “[t]he allegations against Defendant Andrew Thompson do not amount to practices impacting the marketplace.” And while Thompson had been found to have breached his fiduciary duty in usurping partnership opportunities for himself, that did not impact the marketplace. Plaintiffs appealed the decision to the North Carolina Supreme Court.

In another split decision, the North Carolina Supreme Court affirmed the Court of Appeals decision. As with the Court of Appeals, the Supreme Court correctly noted that the Act requires that the unfair or deceptive act or practice be “in or affecting commerce.” The Supreme Court also correctly noted that the Act defines “commerce” as “business activities” which the Court had previously defined as connoting “the manner in which businesses conduct their regular, day-to-day activities, or affairs, such as the purchase and sale of goods, or whatever other activities the business regularly engages in and for which it is organized.” As the Court noted, the General Assembly intended the Act to “achieve fairness in dealings between individual market participants” in two type of business settings: (1) interactions between businesses and (2) interactions between businesses and consumers.”

Viewing the case from this perspective, the Supreme Court found the claim against Thompson to have involved purely the “internal operations of a single market participant.” The parties were partners in “a single market participant” and Thompson breached his fiduciary duty as a partner in “a single market participant.” The Act, according to the Supreme Court, was not intended to “intrude into the internal operations of a single market participant.”

The Supreme Court’s opinion in White, while perhaps adding some more definition to the Act’s reach, raises at least one important question which the majority opinion fails to answer. In discussing Thompson’s conduct as being purely “internal” to ACE, the Court cites to and discusses briefly its prior decision in Sara Lee Corp. v. Carter, 351 N.C. 27, 519 S.E.2d 308 (1999). In that case, the defendant there, while employed by Sara Lee, had engaged in self-dealing by creating companies which then supplied to Sara Lee at inflated prices. Sara Lee sued this employee under 75-1.1 and the Court found that the “in or affecting commerce” requirement was met there by the buyer-seller relationship forming the basis of the employee’s self-dealing. 591 S.E.2d at 312. But the Supreme Court, in the White opinion, fails to explain how the usurping of the partnership’s opportunities to himself and PAL is appreciably different from the self-dealing in Sara Lee.

This noticeable absence of explanation was not lost on the dissent in the White case. Justice Hudson, in her lengthy dissenting opinion, argued that Thompson’s conduct, like that of the defendant in Sara Lee, involved other businesses and was covered by the Act. According to the dissent, Thompson’s conduct was not constrained to the internal operations of ACE but involved his competing company, PAL “through which he obtained specialty fabrication work at Smithfield Packing and funneled jobs that had been originally awarded to ACE” and began these activities before he advised Plaintiffs of his intention to withdraw from ACE. Justice Hudson found these facts to put the White case within the parameters of Sara Lee (“This conduct affected commerce in much the same way as the conduct at issue in Sara Lee”). Later, she again noted:

“Rather than supporting the majority’s view, this Court’s decision in Sara Lee strongly indicates that the type of self-dealing found by the jury here is exactly the type of conduct that is covered by the Act.” . . . Indeed, in its discussion of the very definition of “‘commerce,’” this court noted that the Act is subject to a “reasonably broad interpretation” and that “‘we have not limited [the Act's] applicability . . . to cases involving consumers only. After all, unfair trade practices involving only businesses affect the consumer as well.’” White, p. 21 (citations omitted).

While the majority in White does not clearly, or at least convincingly, distinguish these facts from Sara Lee, the majority has made it clear that in the context of a dispute involving the internal operations of a partnership, Chapter 75’s trebling provision will not be available. While not stated, perhaps the Court distinguished Sara Lee on the basis that, in that case, the employee engaged in his self dealing over a considerable period of time and did not disclose this conduct during his employment tenure. Here, although there was some dispute as to exactly when Thompson advised of his intention to withdraw, he clearly had notified his partners of his intention during the time that he had engaged in this conduct. Perhaps the majority was focused on a lack of impact on Smithfield’s business posed by Thompson’s conduct. Finally, the majority may simply have believed that Thompson’s conduct was simply too far removed from “buyer-seller relations” to give rise to a claim under the Act. Whatever the reason, the tug-of-war continues on the reach of Section 75-1.1.

PROPOSED REVISIONS TO THE HORIZONTAL MERGER GUIDELINES RELEASED

Posted by Eric Welsh on May 3, 2010 – 6:47 am

Filed under Antitrust Developments, DOJ, FTC, Federal Court, Unfair Competition

Recently, the FTC released for comment the proposed revisions to the 1992 Horizontal Merger Guidelines (the “Proposed Revisions“). Coming just a day before the beginning of the ABA Antitrust Law Spring Meeting, the release of the Proposed Revisions was sure to spark a great deal of discussion at the Spring Meeting as lawyers and economists began to digest the document. Fortunately for those who attended the Spring Meeting, they were not disappointed, as there was much discussion both in and out of the conferences about this topic.

Certainly, the Proposed Revisions offer to make important changes to the Merger Guidelines. For example, product market definition would not necessarily be a determinative consideration. “Market definition is not an end in itself: it is one of the tools the Agencies use to assess whether a merger is likely to lessen competition.” Proposed Revisions, p. 7. The Proposed Revisions though would apply a more expansive description of the definition of the “hypothetical monopolist” test used in determining product markets. In addition, the threshold numbers for the Herfindahl-Hirschman Index (”HHI”) would be increased (see Part 5.3) but would not be considered as necessarily providing a safe harbor. Also, a section would be added addressing “powerful buyers” (see Part 8). Here again, according to the revisions, the presence of so-called “power buyers” would not be determinative: “[T]he Agencies do not presume that the presence of powerful buyers alone forestalls adverse competitive effects flowing from the merger.” Proposed Revisions, p. 27. Finally, the two year guidance for market entry – formerly a central touchstone in merger cases — has been eliminated (see Part 9).

Interestingly, though, the Proposed Revisions are not viewed by some as a dramatic change from the existing Merger Guidelines. Commenting on the Proposed Revisions at the Spring Meeting, Deputy Assistant Attorney General for Civil Enforcement, Molly S. Boast, stated that the revisions were intended to bring the Merger Guidelines in line with current practice at the Agencies when reviewing mergers. Others might disagree. In any event, what is apparent, is that the Proposed Revisions suggest a shift away from “guidelines” to “indicators.” This appears to have been a conscious move to provide the agencies more flexibility in how they consider a merger.

“These Guidelines should be read with the awareness that merger analysis does not consist of uniform application of a single methodology. Rather, it is a fact-specific process through which the Agencies, guided by their extensive experience, apply a range of analytical tools to the reasonably available and reliable evidence to evaluate competitive concerns in a limited period of time.” Proposed Revisions, pp. 1-2.

In the next several weeks, antitrust practitioners will be chiming in on the Proposed Revisions. While formal comments may result in some changes around the edges, it should be expected that the Proposed Revisions will largely remain intact. Attention will then be focused on what role the Merger Guidelines, as revised, will play in discussions with the Agencies and in court battles over contested mergers.