FTC Competition Director Speaks on Merger Matters

Stresses Continued Aggressive Enforcement

The Federal Trade Commission's current antitrust enforcement efforts were placed in historical perspective in a major speech delivered yesterday by Joe Simons, the FTC's head antitrust lawyer. Saying that "our philosophy is to continue the merger enforcement program pursued by the previous administration and aggressively enforce Section 7 of the Clayton Act," Simons first presented an overview of the FTC's domestic merger enforcement policies and relevant statistics, and then provided a detailed analysis of the Commission's recent investigation of the proposed cruise line mergers. His remarks also included a discussion of two vertical mergers recently reviewed by the FTC, Cytyc/Digene and Synopsys/Avant!, as well as an update on the status of the FTC's international merger coordination efforts.

Domestic Merger Policy

Simons' remarks, given as the keynote address to the Tenth Annual Golden State Antitrust and Unfair Competition Law Institute in Santa Monica, California, began with an overview of the Commission's domestic merger policy since June 2001. "As a result of the consistent application of the [1982] Merger Guidelines through both Republican and Democratic administrations," he said, "merger policy has remained unaltered in its fundamentals" for the past two decades.

"Today, we continue to rely on the same principles, use the same Merger Guidelines, applied in the same way, and reach conclusions which, in aggregate, would be unlikely to differ from conclusions the Commission would likely have reached two or three years ago, or even 10 or 15 years ago," he continued. This statement was accompanied by statistics illustrating the consistency of the FTC's current merger enforcement efforts, compared to periods with similar levels of merger activity during the past decade.

"With that perspective," Simons said, "it becomes clear that the Commission's enforcement statistics are commensurate with the merger activity in the economy as a whole; they do not, in themselves, indicate any shift in enforcement philosophy . . . no matter how you slice the numbers, the statistics show constancy in merger enforcement."

Recent Key Merger Decisions

Beyond the "raw numbers" of litigated cases, second requests, and enforcement actions, Simons continued, "it is also clear that the substance of the Commission's review demonstrates continuity with the analytical paradigms employed in the past."

Cruise lines. The Commission's recent review of the proposed mergers of Carnival/P&O Princess and Royal Caribbean/P&O Princess "provides a compelling illustration of the fundamental stability of merger analysis at the FTC," Simons said. While the FTC closed the investigation into each transaction without taking action, "the mere fact that the Commission voted not to challenge such a merger in itself represents no shift in enforcement policy." Not including health care cases, he said, the Pitofsky Commission "closed without challenge its investigations of at least seven mergers with concentration indices and market shares of the merging parties equal to or higher than those of the merging parties in the cruise matters."

Simons elaborated on the market definition issues and described the complex, fact-intensive competitive analysis that the Merger Guidelines require in analyzing transactions such as the cruise mergers. The speech outlined the FTC's analysis in considerable detail, focusing on the facts that led to the Commission's decision not to challenge the transactions.

"The ultimate lesson of the cruise investigation is that the Guidelines mean what they say," Simons said. "High concentration creates a presumption of problems - but that presumption can be rebutted by the facts in a specific matter. Here, the facts - particularly quantitative and financial analyses - rebutted the presumption."

Cytyc/Digene and Avant!/Synopsys. In his remarks, Simons also reviewed the proposed vertical merger of Cytyc and Digene, two leading producers of cervical cancer screening tests. He pointed out that in that investigation, the Commission once again considered all the relevant facts before taking action. By purchasing Digene, the FTC concluded, Cytyc would be in a position to limit access to Digene's HPV test, which could eliminate Cytyc's only existing competitor and thwart other future entrants by making it more difficult for them to secure the needed FDA approvals. "The potential for consumer harm was very real," Simons said, "and the Commission voted to block the merger."

Comparing the review of Cytyc/Digene to the proposed merger of Avant! and Synopsys, which concerned software used in the design of computer chips, Simons noted in his remarks that while "there were plenty of theories of competitive harm, at bottom, there just was not enough evidence that Synopsys would have either the incentive or the ability to foreclose competitive products sufficiently to harm consumers