Antitrust Law Daily Wrap Up, ANTITRUST NEWS: American Antitrust Institute questions theory underlying SMARTER Act, (Nov 9, 2015)

By Linda O’Brien, J.D., LL.M.

The American Antitrust Institute (AAI) has issued a brief analysis and commentary, entitled “Antitrust Enforcement Data Shows SMARTER Act Is Not So Smart,” that tested the theory underlying the Standard Merger and Acquisition Reviews Through Equal Rules Act (“SMARTER Act”). As the bill’s sponsors explained at an October 7 hearing by the Senate Antitrust Subcommittee, the proposed legislation seeks to eliminate disparate treatment of mergers handled by the Department of Justice (DOJ) and FTC by (1) preventing the FTC from ever using its administrative process to adjudicate a proposed merger and (2) requiring the FTC to meet the DOJ’s theoretically more stringent standard for obtaining a preliminary injunction to block a merger in federal court.

According to the commentary, the AAI opposes the SMARTER Act on several grounds. First, the FTC’s use of administrative powers should be carefully safeguarded because it has contributed to the effective shaping of U.S. merger policy without detracting from the speed or effectiveness of merger review. Second, any difference in the preliminary injunction standard is more theoretical than real, and if a uniform standard is to be adopted, it should be the FTC’s standard. Additionally, any change in the law may have harmful unintended consequences, including unnecessarily burdening the federal judiciary with new litigation over the meaning and value of the body of legal precedent involving merger cases brought by the FTC in federal court under the existing standard.

The AAI’s analysis argues that the SMARTER Act’s premise—unfairness caused by the FTC’s differently worded procedures and standards—is not supported by the data. On the contrary, the workload data demonstrate that firms that have their merger reviewed by the DOJ are more likely to have their deal closely scrutinized or challenged than firms whose mergers are reviewed by the FTC, the AAI claims.

The workload statistics reveal that the SMARTER Act is a proverbial “solution in search of a problem,” according to the AAI commentary. The chance that any deal will be affected by a supposed divergence between the procedures and standards used by the two agencies is trivial, the organization stated. On average, for the period from 2001-2014, businesses that submitted Hart-Scott-Rodino filings had a 97.5 percent chance that their deals would be approved without being challenged and a 96.7 percent chance that their deals would be approved without even a Second Request.

Moreover, the workload data do not support the central argument of the bill’s sponsors, namely that firms are unfairly prejudiced when their mergers are reviewed by the FTC rather than DOJ, the organization maintained. On the contrary, the workload data demonstrate that firms that have their merger reviewed by the DOJ are more likely to have their merger closely scrutinized or challenged than firms whose mergers are reviewed by the FTC. The data for the Fiscal Year 2014 provides an example. The DOJ and FTC reported a combined 1,663 Hart-Scott-Rodino filings. Among them, 93 mergers were cleared for investigation to the DOJ and 181 mergers were cleared to the FTC. The DOJ issued Second Requests in 23 percent of the merger transactions cleared to it, and challenged 17 percent, while the FTC issued Second Requests in 17 percent of the merger transactions cleared to it, and challenged 9 percent.

The AAI commentary noted that workload statistics for the period from 2001-2014 show the same results. On average, the DOJ issued Second Requests in 28 percent of merger transactions cleared to it and challenged 18 percent, while the FTC issued Second Requests in 15 percent of merger transactions cleared to it and challenged 13 percent. The data showed that if a merger was cleared for investigation to the agency with the supposedly unfair advantages last year, the deal stood a 35 percent better chance of avoiding a Second Request investigation and an 89 percent better chance of avoiding a challenge. For the period from 2001-2014, the deal had an 87 percent better chance of avoiding a Second Request investigation and a 38 percent better chance of avoiding a challenge.

In the AAI’s view, the enforcement data suggest many things, but one of them is definitely not what the SMARTER Act purports to cure—an unfairness caused by differences in standards and procedures at the FTC and DOJ. Instead, the SMARTER Act would create uncertainty and new litigation to solve a problem that, empirically, does not exist, the AAI concluded.

The American Antitrust Institute is an independent and nonprofit education, research, and advocacy organization devoted to advancing the role of competition in the economy, protecting consumers, and sustaining the vitality of the antitrust laws.

News: Antitrust