Under the Biden administration, U.S. antitrust agencies, particularly the Department of Justice Antitrust Division (DOJ) and the Federal Trade Commission (FTC), took a hardline stance against negotiated merger remedies. Instead of settling, they often challenged mergers outright or allowed deals to close without formal conditions, expressing doubts about the effectiveness of remedies like structural divestments.

The Trump administration, however, signals a return to a more business-friendly approach, favoring settlement agreements with divestiture remedies to resolve anticompetitive concerns without litigation. Recent weeks have seen the clearance of five major transactions, each with tailored remedies, highlighting this shift.

Recent Examples of Merger Remedies

1. HPE/Juniper: Rather than litigate, the DOJ entered into a settlement agreement with HPE that required it to divest its Instant On wireless networking business and license Juniper’s Mist AI software.
2. Synopsys/Ansys: The FTC required Synopsys and Ansys to divest assets to Keysight Technologies to address concerns in software tools markets critical for semiconductor design and light simulation devices. This “mix-and-match” remedy involves assets from both parties.
3. Keysight/Spirent: The DOJ mandated Keysight to divest Spirent’s high-speed ethernet testing, network security testing, and RF channel emulation businesses to Viavi, addressing competition concerns in specialized communications test equipment markets.
4. Safran/Collins: To resolve DOJ concerns, Safran must sell its North American actuation business to Woodward, preventing higher prices, reduced quality, and stifled innovation in actuation and flight control markets.
5. Alimentation Couche-Tard (ACT)/Giant Eagle: The FTC required ACT to divest 35 gas stations to Majors Management to mitigate higher fuel costs in certain U.S. states. ACT must also notify the FTC before acquiring “competitively significant” stations in affected areas for ten years.
6. Omnicom/IPG: Unlike the structural divestments above, this global advertising deal involved behavioral remedies. The FTC imposed provisions to prevent Omnicom from directing advertising away from media publishers based on political or ideological viewpoints, a rare but market-specific solution.

Common Themes in Recent Remedies

• Upfront Buyers: In most of the structural divestiture cases, the parties were required to produce an upfront buyer to ensure remedy effectiveness, a standard U.S. agency practice.
• Innovation Concerns: In Synopsys/Ansys, Keysight/Spirent, and Safran/Collins, agencies cited potential reductions in innovation alongside price increases, reflecting a growing focus on innovation as a competition parameter.
• Global Coordination: These cases involved cooperation with international authorities (e.g., EU, UK, Japan, South Korea), aligning remedies and timing. For instance, the UK’s Competition and Markets Authority approved remedies in Safran/Collins on the same day as the DOJ.

FTC Leadership on Remedies

FTC head Andrew Ferguson has championed negotiated settlements, arguing they preserve procompetitive merger benefits while addressing anticompetitive concerns. Settlements are cost-effective, leveraging agencies’ limited resources and avoiding complex litigation where parties might propose remedies in court (“litigating the fix”). However, Ferguson cautions against inadequate or unworkable settlements, particularly behavioral remedies, and emphasizes the need for rigorous standards. The FTC plans to release a detailed policy statement on merger remedies soon.

Lessons Learned

The Trump administration’s antitrust agencies are now open to negotiating settlement agreements that fully resolve anticompetitive concerns, a practice welcomed by businesses and enforcement agencies alike. Companies pursuing mergers should proactively propose robust remedies early, clearly articulating procompetitive benefits like innovation, growth, and investment to align with this more collaborative enforcement approach.

Andre Barlow

The past history of problems with divestitures in this area indicated to the FTC that divesting ongoing manufacturing assets rather than pipeline assets that have not come to market places greater risk of failure on the merging firms rather than consumers.  Accordingly, in situations in which the parties to the transaction own both an established inhalant or injectable that is currently being manufactured and an overlapping pipeline inhalant or injectable, the FTC will seek a divestiture of the manufactured product that is already on the market.  The FTC, for example, may require the divestiture of contract manufacturing capabilities rather than other assets, such as research and development assets.

The FTC is taking the stance because of an internal study that revealed that the rate of failure for divestitures of complex pipeline products was “startlingly high”.  Apparently, divestiture buyers have had difficulty in actually getting the complex pipeline assets to market. Not surprisingly, a divestiture buyer could struggle to reliably manufacture a complex pharmaceutical product, which harms its ability to ultimately bring the product to market.  Indeed, all kinds of things can go wrong when trying to launch a complex pharmaceutical product.  For instance, the divestiture buyer of pipeline assets could have difficulty obtaining final FDA approvals including the OK to actually manufacture the product.

Observations:

A new administration is entitled to change its merger enforcement priorities and how it remedies problematic mergers.  Here, the FTC is making a change to how it resolves anticompetitive pharmaceutical mergers.  In pharmaceutical mergers in which one party manufactures a pharmaceutical product that is difficult and complex to manufacture and the other party has a similar product in the research and development pipeline, there is a strong presumption that the FTC will require a divestiture of the product already being manufactured rather than the one in development.  The FTC believes that the risk of failure is dramatically less for a divestiture buyer if it is acquiring a product that is already on the market as opposed to acquiring a product under development, which is subject to risks that it might not obtain approval to manufacture the newly competitive product.  The new policy on complex pipeline pharmaceutical products makes sense as it should improve the success rate of divestiture remedies. The goal is to minimize the potential that a remedy fails. Given the high failure rate for pipeline divestitures, the FTC’s requirement of divesting the manufactured product shifts the risk of failure to the merging parties. Indeed, why should consumers take all the risk when crafting merger remedies?  While Hoffman’s speech focused on inhalants and injectables as products that are complex to manufacture, other products that are difficult and complex to manufacture could be added to the FTC’s list. Moreover, these same principles could be applied in other situations where merging parties may be forced to divest actual products instead of pipeline assets.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Delrahim explained that effective antitrust enforcement lessens the need for market regulations and that behavioral commitments imposing restrictions on the conduct of the merged firm represents a form of government regulation and oversight on what should preferably be a free market.

Criticizing the early Obama administration for entering into several behavioral consent decrees that allowed illegal vertical mergers such as Comcast/NBCU, Google/ITA, and LiveNation/TicketMaster to proceed, Delrahim said there is bipartisan agreement that behavioral conditions have been inadequate. He shares the same skepticism that John Kwoka, a law professor and economist who previously served in various capacities at the Federal Trade Commission, Antitrust Division, and Federal Communications Commission, and American Antitrust Institute (AAI) President Diana Moss have about using regulatory solutions to address antitrust violations.  Specifically, Delrahim agrees with them that “allowing the merger and then requiring the merged firm to ignore the incentives inherent in its integrated structure is both paradoxical and likely difficult to achieve.”

In Delrahim’s words, “behavioral remedies are the wolf of regulation dressed in the sheep’s clothing of a behavioral decree.”  He identified several practical problems with behavioral conditions, namely:

• They are difficult to structure and negotiate.
• The mere existence of agreed upon arbitrators interfere with the competitive process of negotiating contracts.
• It is difficult to determine their expiration periods. Short remedies may be mere “Band-Aids” and not a fix, while long remedies make the DOJ a full-time regulator.
• They are unduly burdensome for the merged firm and the DOJ because they require monitoring the merged firm’s day-to-day operations.
• And they are challenging to enforce – especially the granular commitments of discrimination and information firewalls – because the DOJ often lacks the resources to do so effectively.

Delrahim then praised the later Obama administration’s efforts to block Comcast’s acquisition of Time Warner Cable and Lam Research’s acquisition of KLA-Tencor rather than impose ineffective behavioral remedies.  Both those deals were abandoned in the face of pressure from the DOJ.

Because he is skeptical that behavioral remedies can be effective, Delrahim said that under his leadership, the Antitrust Division will cut back on the 1300 behavioral consent decrees that are currently in place and focus, instead, on structural remedies to resolve antitrust concerns presented by mergers. He referred to the DOJ’s 2004 Remedies Guidelines, a report that states “conduct remedies generally are not favored in merger cases”.

Nevertheless, Delrahim left open the possibility that the DOJ may accept behavioral commitments in certain circumstances.  He noted that it would be a high standard to meet but that such commitments may be accepted when the DOJ has a “high degree of confidence that the remedy does not usurp regulatory functions for law enforcement.”  Delrahim said that behavioral remedies should avoid taking pricing decisions away from markets and should be simple enough so that the DOJ can oversee them. He further explained that behavioral remedies must completely cure the anticompetitive harms.  This line of thinking is consistent with his friend, former Antitrust Division chief Bill Baer who said that “consumers should not have to bear the risks that a complex settlement may not succeed.”

Finally, Delrahim underlined that if a merger is illegal and a proposed remedy does not resolve the competitive problem, the deal should be blocked and, conversely, if a merger does not raise competitive concerns, the DOJ will no longer accept a behavioral remedy just because it is offered.

Lessons Learned: According to Makan Delrahim, the Antitrust Division will cut back on behavioral commitments in consent orders that regulate conduct.  Instead, the Division will rely more on structural remedies such as divestitures to resolve anticompetitive concerns with mergers.  He made some good points with respect to the adequacy and effectiveness of behavioral remedies, which are difficult to structure and police.  On the surface, this policy announcement is not much different from current and past antitrust thinking.  Delrahim is simply making clear where he stands on the issue.  Divestitures of a business or a product line have always been the preferred remedy for any merger, be it horizontal or vertical.  However, the antitrust agencies have typically used behavioral remedies to resolve antitrust concerns presented by vertical mergers that result in efficiencies in order to retain the procompetitive benefits of the transaction.  But, it has never been the Division’s policy that conduct remedies will always be available and sufficient to resolve vertical antitrust concerns.  And while he acknowledges that behavioral remedies may be adequate where the Division has a high degree of confidence that the remedies can be effective, Delrahim is clearly signaling a far more restrained application of such commitments.  In fact, even under Obama the DOJ forced parties to vertical mergers to abandon their deals when the Division could not negotiate structural and/or behavioral remedies to resolve the anticompetitive concerns.  For instance, in 2016, the DOJ forced Lam Research and KLA-Tencor to abandon their vertical merger when it became clear that behavioral commitments were not sufficient.  In sum, Delrahim’s policy stance signals that he will continue to take an aggressive approach on how the DOJ resolves anticompetitive concerns presented by vertical mergers.  In particular, he seems especially unenthusiastic about behavioral remedies.  The DOJ’s recent lawsuit to challenge AT&T Inc.’s acquisition of Time Warner Inc. suggests Delrahim has the courage of his convictions.  How that deal plays out in court – or out of it – may well set the stage for the enforcement of vertical mergers in the foreseeable future.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

DOJ’s Vertical Concerns Related to the Creation of New Charter

New Charter became the second largest cable company and third largest Multichannel Video Programming Distributor (“MVPD”).  MVPDs include cable companies such as Comcast, TWC and Charter, but also direct broadcast satellite providers (i.e., DirectTV and Dish Network) and telephone companies like AT&T and Verizon.

According to the DOJ, prior to the merger, TWC, the second largest cable company and fourth largest MVPD, already had substantial power over programmers’ content.  The DOJ alleged that TWC used this power to influence programmers’ behavior towards its smaller online video distributors (“OVD”) rivals such as Hulu, Netflix and Amazon.  The DOJ further alleged that TWC was the most aggressive cable company or MVPD in terms of obtaining Alternative Distribution Means (“ADM”) clauses in its contracts with programmers that prohibited or greatly restricted programmers from distributing their content to OVDs or through online distribution.  Indeed, the DOJ specifically alleged in its Complaint that “[n]o [cable company] has sought and obtained these restrictive ADMs as frequently, or as successfully, as TWC.”

In the Complaint, the DOJ expressed the following concern:

In order for an OVD [Netflix] to successfully compete with the traditional [cable companies], it needs both the ability to reach consumers over the Internet and the ability to obtain programming from content providers that consumers will want to watch. Importantly, incumbent cable companies often can exert significant influence over one or both of these essential ingredients to an OVD’s success, because they provide broadband connectivity that OVDs need to reach consumers and are also a critical distribution channel for the same video programmers that supply OVDs with video content.  To the extent a transaction, such as the one at issue here, enhances an MVPD’s ability or incentive to restrain OVDs’ access to either of these critical inputs, and thus to prevent OVDs from becoming a meaningful new competitive option, consumers lose.

Acknowledging that no horizontal overlap existed between the merging parties in any local market, the DOJ noted in its Competitive Impact Statement that “the Clayton Act is concerned with mergers that threaten to reduce the number of quality choices available to consumers by increasing the merging parties’ incentive or ability to engage in conduct that would foreclose competition.”  Accordingly, the DOJ sought comprehensive behavioral relief to ensure that New Charter will not have the ability to foreclose OVD competition and deny customers the benefit of innovation and new services through ADM clauses and other restrictive contracting provisions.

Indeed, the DOJ required conditions to resolve its vertical foreclosure concern that New Charter would have a greater incentive and ability to impose contractual restrictions on video programmers (producers of TV shows and video content), thereby limiting their ability to distribute their content through OVDs.

The New Charter Remedies

The conditions that the DOJ negotiated with New Charter are entirely behavioral in nature.  The remedies restrict New Charter’s post-merger conduct in the following ways:

1. New Charter is prohibited from entering into or enforcing agreements with programmers that limit, or forbid, OVDs’ access to video content.
2. New Charter is prohibited from entering into agreements that create incentives for video programmers to limit access of programming to OVDs.
3. New Charter is prohibited from discriminating against, retaliating against, or punishing any video programmer for providing its content to any video distributor.
4. New Charter is prohibited from entering into or enforcing agreements with programmers that make it financially unattractive for programmers to license their content to OVDs.  In other words, New Charter is not permitted to enter or enforce an agreement whereby the programmer is obligated to provide New Charter with a massive discount if the programmer provides content to an OVD.
5. New Charter is prohibited from entering into or enforcing unconditional most favored nation provisions (“MFNs”) against a programmer for licensing their content to OVDs.

In sum, the conditions contain broad prohibitions on restrictive contracting practices to ensure that New Charter will not replace ADMs with other contracting practices that would increase barriers for OVDs or otherwise make OVDs less competitive.  Indeed, the prohibitions were put in place because the DOJ was concerned that New Charter could enter into certain contracts that are designed to circumvent the Order, create incentives to limit distribution to OVDs, or create economic disadvantages for a programmer to license content to an OVD.

Lessons Learned

While the DOJ normally prefers structural remedies when approving a merger that raises only horizontal concerns, the DOJ’s negotiated consent decree with Charter illustrates the DOJ’s willingness to impose behavioral conditions on mergers that raise vertical foreclosure concerns.  Despite no geographic overlap in any local market, the DOJ required comprehensive behavioral conditions to prevent New Charter from engaging in future anticompetitive conduct against its smaller rivals.  The behavioral remedies used to resolve the vertical foreclosure concerns raised by the creation of New Charter are applicable to any industry with a multi-tier supply chain and dominant firms that already exert power over other tiers of the supply chain.  The DOJ’s goal in New Charter is to prevent the merged firm from raising barriers to entry for smaller horizontal rivals or otherwise make smaller horizontal rivals less competitive.  The DOJ is concerned when a merger enhances the merged firm’s incentive and ability to protect its market power by denying or raising the costs of an input to its rivals.  In other words, the DOJ is concerned about transactions that substantially enhance the merged firm’s ability and incentive to foreclose competition through restrictive contracting provisions or incentive programs that make it economically unattractive to work with the merged firm’s rivals.  The DOJ’s behavioral conditions are aimed at protecting competition and consumer choice.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com