Substantial Lessening of Competition–The Section 7 Standard

Abstract

This article addresses anticompetitive effects in the context of the “substantial lessening of competition” standard found in Section 7 of the Clayton Act. Two recent judicial merger decisions–the decision in the Arch Coal case and the decision in the Oracle were brought by federal enforcers–the FTC in the Arch Coal case and the DOJ’s Antitrust Division in the Oracle case. Each was a high-profile battle, and in both cases the defendants won and the government lost. The Arch Coal and Oracle decisions have sparked musings by antitrust commentators regarding everything from the continuing viability of the government’s theories of anticompetitive effects (e.g., can unilateral effects arguments succeed?) to the government’s litigation strategy (e.g., does customer testimony matter, and if so, how?), to the evidence that plaintiffs may have to present in order to prevail (e.g., is econometric analysis essential?). This article addresses a larger policy question posed by a few commentators–specifically, whether the Arch Coal and Oracle decisions suggest that something might be wrong with the government’s Section 7 enforcement efforts, and, if so, whether a major shift in enforcement policy or practice may be needed. Although the government did lose two recent merger cases in district court– three if one includes 2001’s SunGard case –those losses should be kept in perspective. When one considers how very rarely merger cases are brought before judges, the government’s overall win/loss record including consent decrees and abandoned transactions is actually quite strong. Importantly, defendants tend to litigate only those merger cases that they think they are most likely to win. Given this “adverse selection bias,” and the uncertainty inherent in any court proceeding, it should not come as a surprise if on occasion the government loses a case. This article respectfully suggests that the Division’s case against Oracle’s acquisition of PeopleSoft falls squarely within this framework. The Division continues to believe that it presented evidence sufficient to prove that the transaction is anti-competitive and that another district court judge faced with the same record of the case could well have decided to enjoin the transaction.