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The Department of Justice and the Federal Trade Commission on Tuesday released proposed revisions to their horizontal merger guidelines, drawing a mixed reaction from the antitrust bar. The guidelines were last modified in 1997, and the agencies said the new version, which practitioners describe as a top to bottom rewrite, is intended to “more accurately reflect the way the FTC and DOJ currently conduct merger reviews.” Though the guidelines have no force of law, they are hugely influential. Federal Trade Commission Chairman Jon Leibowitz described the old guidelines as “one of the most cited documents in modern antitrust.” To some, like Davis Polk & Wardwell counsel Michael Sohn, the new guidelines are “overall a very thoughtful and helpful effort.” Sohn said the 34-page draft will better enable lawyers and companies to “predict if a merger can be done … the new guidelines conform to what the agencies are actually doing, and provide a much greater level of explanation of points that in some instances were in the old guidelines, but weren’t as fully developed.” But Dechert partner Paul Denis, who was the principle draftsman of the 1992 guidelines (revised in 1997), said he is troubled by the “enormous amount of flexibility the government has given itself … you don’t know what they’ll do.” Denis agreed his old guidelines were ripe for revision, but argued the new version is “not as helpful to the business community and the bar. With the old guidelines, you could read them and figure out where the government was likely to come out — you had a good idea where the line is. Now, the line has been re-drawn, but you don’t know where.” One likely point of controversy in the proposed guidelines is market definition, which has been a bit of a sore spot for the agencies. In recent years, the government’s biggest court losses — Arch Coal/Triton Coal, Oracle/People Soft, Whole Foods/Wild Oats (at the district court level), as well as several hospital mergers — have turned on market definition issues. The new guidelines state that “Market definition is not an end in itself: it is one of the tools that the agencies use to assess whether a merger is likely to lessen competition.” The new guidelines also say that “the agencies’ analysis need not start with market definition” and that the FTC and DOJ will “implement these principles of market definition flexibly when evaluating different possible candidate markets.” “It’s clearly a response to Whole Foods and Oracle,” said David Balto, senior fellow at the Center for American Progress and former FTC policy director. “The courts have applied a hyper-technical approach to market definition. This is a more balanced approach.” To Steven Sunshine, an antitrust partner at Skadden, Arps, Slate, Meagher & Flom, the move is “a bit of an attempt to try to shift the limelight away from market definition.” But if a case goes to trial, the problem for the agencies with side-stepping market definition, he said, “is that the Supreme Court has said you must define it.” (In a footnote, the guidelines state that they are “not intended to describe how the Agencies will conduct the litigation of the cases they decide to bring.”) Jones Day partner David Wales, who served as head of the FTC’s Bureau of Competition from 2008 to 2009, said the courts have “rigidly applied market definition analysis,” and that the proposed guidelines will give the agencies more flexibility “to bring different evidence of anti-competitive effects.” Under the guidelines, this could include a new upward price pressure test, described, as Wales put it, in a ” level of granularity.” (“ The value of sales diverted to a product is equal to the number of units diverted to that product multiplied by the margin between price and incremental cost…”) The test measures the value of diverted sales after a merger and can be used to find unilateral price effects — that is, adverse competitive effects that come from eliminating competition between merging parties. The guidelines note that “diagnosing unilateral effects need not rely on market definition or the calculation of market shares or concentration.” Sohn of Davis Polk, who served as general counsel of the FTC from 1977 to 1980, said the guidelines might have gone into too much detail about unilateral effects. “Some may say [the guidelines] go too far for specifying economic tests,” Sohn said, predicting the agencies may find the approach “harder to sustain” before a court. Still, Sunshine noted that the chief economists at both agencies, Joseph Farrell and Carl Shapiro, jointly wrote a paper as professors on evaluating unilateral effects using the upward price pressure test. “There was actually less about it in the guidelines than expected.” Public comments on the guidelines are being accepted until May 20.

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