A New Antitrust “Safety Zone” for Vertical Mergers
The U.S. Department of Justice and the Federal Trade Commission (collectively, “Agencies”) recently released for public comment their much-anticipated draft Vertical Merger Guidelines (“Guidelines”) that purport to “outline the principal analytical techniques, practices and enforcement policy of the [Agencies] with respect to vertical mergers and acquisitions … under the federal antitrust laws.” According to the Guidelines, the Agencies prepared this tool to “assist the business community and antitrust practitioners by increasing the transparency of the analytical process underlying the Agencies’ enforcement decisions.”
Although these Guidelines break little new ground, one unique aspect is the announcement of a new antitrust “safety zone” for vertical mergers. According to the Guidelines, in analyzing any vertical merger, the Agencies will identify both a “relevant market” and a “related product or service” market, such as “an input, a means of distribution, or access to a set of customers.” The Guidelines go on to state that “[t]he Agencies are unlikely to challenge a vertical merger where the parties to the merger have a share in the relevant market of less than 20 percent, and the related product [or service] is used in less than 20 percent of the relevant market.” For example, the acquisition by a hospital with an inpatient market share of less than 20 percent, of a physician practice with less than a 20 percent market share in any specialty, would conceivably fall within this new safety zone. This, of course, would not dispense with the need to address any horizontal issues that might also be present.
It is important to remember that as with all of the antitrust safety zones, this safety zone threshold is purposely conservative. The Guidelines make clear that market shares above 20 percent do not, on their own, “support an inference that the vertical merger is likely to substantially lessen competition.”