Background

In a letter to Makan Delrahim, the head of the DOJ’s Antitrust Division, Senators Richard Blumenthal (D-CT) and Amy Klobuchar (D-MN) described the ticket industry as “broken” and they lamented the “exorbitant fees and inadequate disclosures” in the ticket buying process.

According to their letter, Live Nation’s acquisition of Ticketmaster in 2010 has resulted in the merged firm obtaining too much control over the concert business.  “The Ticketmaster-Live Nation merger has contributed to consumers’ difficulties in the ticketing market,” the two senators wrote in the letter.  In approving the Live Nation/Ticketmaster merger, the DOJ entered into a 10-year consent decree with Live Nation prohibiting the firm from certain behaviors like using its power over concerts to force venues to use Ticketmaster.  Over the years, a number of competitors have complained that Live Nation has been violating the terms of the consent decree or at the very least the spirit of the decree.

Senators Blumenthal and Klobuchar are asking the DOJ to conduct a “retrospective study on the effects of past consolidation” and to consider extending the decree past its expiration next year.  Though the DOJ has previously investigated claims that Live Nation had violated its consent decree, the DOJ has never taken action.  In an August 28 statement, Live Nation said the senators’ letter is “based on a fundamental misunderstanding of our consent decree and general ticketing industry dynamics.”  Further, “…Live Nation and Ticketmaster have always complied with their obligations under the consent decree.  We do not force anyone into ticketing agreements by leveraging content, and we do not retaliate against venues that choose other ticketing providers.”  Thus, according to the statement, “[t]here is no cause for further investigations or studies.”

The Antitrust Division has been investigating whether Live Nation has engaged in anti-competitive exclusionary behavior and is adhering to its 2010 consent decree.

Thoughts

The Obama administration was very lenient in its review of Live Nation’s acquisition of Ticketmaster.  The deal raised serious horizontal and vertical concerns and should have been blocked.  Yet, the DOJ opted to accept a weak settlement that included behavioral conditions prohibiting Live Nation from engaging in certain conduct.  The DOJ put itself in the position having to police Live Nation’s corporate behavior and third parties in the position of having to report bad behavior to the DOJ.  These types of behavioral conditions that cannot be effectively enforced are not useful.  In reality, there was probably no behavioral or structural remedies that could solve the anticompetitive concerns raised by the merger.  Behavioral remedies require ongoing monitoring of Live Nation’s and Ticketmaster’s conduct.  The settlement agreement was a quick win, but a settlement agreement that requires ongoing monitoring is not very effective unless it is enforced.  Clearly, Live Nation/Ticketmaster is a monopolist in the primary ticketing service market. The high market share is indicative of it having market power. However, there is nothing illegal about having a monopoly.  The question is whether Live Nation/Ticketmaster is engaging in any activity to maintain its monopoly such as exclusionary conduct or violating the express conditions in the 2010 decree.

The DOJ’s most recent investigation into Live Nation’s conduct without any enforcement action to date highlights the limitations of behavioral conditions in past consent decrees. DOJ Antitrust Division Assistant Attorney General Makan Delrahim is not in favor of behavioral decrees because they are regulatory and require monitoring and supervision.  The DOJ under his leadership has strengthened the terms of consent decrees making them easier to enforce.  For the DOJ to bring a case on an older consent decree violation or to force modifications of the Live Nation decree, it must meet a very high clear and convincing standard.  Unfortunately, there is so much wiggle room in past settlement agreements that contain behavioral restrictions that merging parties can devise strategies that may be within the letter of the settlement agreement but violate the spirit of the decree.  In short, the DOJ would need to uncover evidence that Live Nation has actually violated the decree before it can bring an enforcement action or force an extension of the decree.  Delrahim has expressed the view that Congress did not intend for the Antitrust Division or the courts to be overseers of corporate behavior.  He has argued that “antitrust is law enforcement, not regulation,” and that antitrust enforcers should seek to block anticompetitive transactions, rather than allow them to proceed subject to behavioral conditions.  The Live Nation/Tickemaster is a prime example of why the DOJ must sometimes decide to block a merger rather than negotiate a settlement with ambiguous behavioral conditions.

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