Customer Testimony of Anticompetitive Effects in Merger Litigation

Abstract

Professor Milton Handler, who provides the name and the inspiration for this lecture series, wrote an article that touched on how to prove anticompetitive effects in merger litigation two decades ago in the Columbia Law Review. One of the topics to which Professor Handler paid special attention was the approach of antitrust law to merger litigation and merger review, and most of all, the government’s enforcement policies in this context. Professor Handler took the view that merger analysis at the time relied too heavily, as he put it, “on statistics, presumptions, and abstract theory.” He explained that this approach had led to the wholesale invalidation of a wide range of mergers in which a more searching analysis would have produced a very different result. He argued that the law should throw a wider analytical net, and conduct an inquiry into “other economic factors, including the stability of the market, the structure of the buying side of the market, the durability of the product, and the ease of entry.” Here we are, more than two decades later. The functional approach advocated by Professor Handler is well-entrenched in both enforcement policy and modern antitrust jurisprudence. However, a countervailing problem may have emerged in the government’s merger enforcement approach, illustrated by recent federal court cases. Within a few weeks of each other, two district court decisions last year denied requests by the government to enjoin mergers. I refer to Chief Judge Vaughn Walker’s notable decision in United States v. Oracle Corporation, which rejected the attempt by the Department of Justice to block the merger of two software companies, and my decision a month earlier in the Federal Trade Commission v. Arch Coal case, in which I denied the Federal Trade Commission’s attempt to enjoin the merger of two coal companies. There are many differences between the two decisions, but I would like to focus today on one striking similarity: both decisions underscored what, in the view of the two judges, was an over-reliance by the government on certain subjective evidence of anti-competitive effects, and emphasized the weakness of that evidence in determining the likely effects of a proposed merger in the respective relevant markets. The subjective evidence in both cases, interestingly enough, took largely the same form: the government introduced testimony from numerous customers of the merger partners expressing their view that the proposed merger would result in anticompetitive effects in the industry. We may be seeing evidence, then, that the pendulum has swung too far in the other direction. Twenty years ago, many were concerned about the overemphasis on statistical evidence of market conditions in the merger context, and they pushed for and achieved a shift in the law towards a more functional approach to merger review. Today, there is reason to consider whether merger enforcement has become too functional and too dependent on rhetorical evidence of anticompetitive effects that is unmoored from statistical or economic support. This article will provide an adjudicator’s perspective on one specific aspect of this question: the uses and limitations of customer testimony of anticompetitive effects, using the Oracle and Arch Coal cases as illustrations.