Do You Have an Antitrust Remedy When Your Major Suppliers, Buyers or Competitors Merge?
, Taline Sahakian
A Primer on Private Merger Challenges
As more and more companies fear that mergers in their industries will leave them with fewer options, they should consider whether they have an antitrust option available.
Mergers are on the rise. The U.S. Department of Justice (“DOJ”) and Federal Trade Commission have reported a huge increase in mergers—with the antitrust agencies receiving more than 4,000 notifications of such transactions from March 2020 to September 2021. As antitrust enforcers struggle to keep up with merger reviews (and seek increased budgets to do so) those mergers will impact stakeholders across the U.S. economy.
When a company learns that its major suppliers are merging, it is likely to start worrying about what will happen to product supply or prices. Similarly, a company learning that two of its principal buyers/customers are merging may justifiably be concerned about the negotiating leverage the combined firm will have to drive down prices. This Primer provides some basic information to companies that are facing mergers in their industry or supply chain and want to consider challenging those mergers.
Will Antitrust Enforcers Necessarily Review Mergers or Challenge Them?
Whether antitrust enforcers will review a merger depends on various factors including: the size of the merger, the combined market power of the merging entities, concentration in the affected relevant market resulting from the merger, and a host of other factors affecting competition. Not every merger is reviewed by the government and even fewer are challenged. The bandwidth of the government antitrust enforcers is limited.
Can Private Companies Reach Out to Government Antitrust Enforcers If They Are Concerned About a Merger?
Antitrust enforcers at the Federal and State level are often interested in receiving feedback from stakeholders affected by a merger as the enforcers consider whether to review or challenge the merger. Third parties can reach out proactively and sometimes receive formal or informal requests for information from enforcers, which they need to respond to. For tips on responding to requests, see What to Expect During Antitrust Merger Reviews and Investigations Under the Biden Administration (Part 1).
Can Private Companies Challenge a Merger Themselves?
Private parties have a private right of action under Section 7 of the Clayton Act (15 U.S.C. § 18), to challenge mergers or acquisitions that may substantially lessen competition or tend to create a monopoly in a line of commerce or in any section of the country. The Clayton Act allows private parties to seek treble damages or other relief to remedy the effects of a merger. In Steves and Sons, Inc. v. JELD-WEN, Inc., 988 F.3d 690 (4th Cir. 2021) (“Steves”), a private plaintiff not only challenged a merger that had been consummated years ago but also obtained an order requiring the defendant to divest a manufacturing plant that was acquired as part of the merger. The court did so even though the DOJ was notified, investigated, and ultimately decided not to challenge the merger.
Which Private Companies Can Challenge a Merger?
Private parties have standing to challenge mergers only if they have suffered antitrust injury.
Typically, those who challenge mergers are suppliers, customers or competitors of the merging firms. In Steves, the plaintiff, a seller of molded doors, challenged a merger engaged in by JELD-WEN, which was both a supplier and competitor of the plaintiff. JELD-WEN also sold molded doors but supplied a part to Steves, which it used to make its own molded doors. Although a company can challenge the merger of its competitors, those suits are sometimes viewed skeptically and often dismissed. The motives of the competitor are questioned: are they complaining about a lessening of competition or are they just afraid of more competition?
Can Private Parties Challenge Any Merger?
The Clayton Act focuses on mergers that may likely result in a substantial lessening of competition or the creation of a monopoly. Mergers involving large competitors in highly concentrated markets are likely to attract more challenges by private parties and public enforcers alike. For instance, in Steves two of the three major parts manufacturers merged. The Fourth Circuit Court of Appeals held the merger was a “poster child” because the result was a duopoly of vertically integrated companies that were threatening the existence of independent molded door manufacturers like the plaintiff who relied on them to supply parts.
What Information Will Be Relevant to Analyze Whether to Bring a Private Merger Challenge?
Every merger is different. As a general matter, relevant information to analyze the effect of the merger will include data about the market (geographic and product) where the merging parties compete, the merging parties’ shares of that market, the existence of competitors, and the existence of barriers to entry for new competitors. Questions that will be asked include: (1) How does the merger increase concentration? (2) Does it threaten to decrease quality or hinder innovation? (3) Will the merger lead to higher prices? In Steves there was evidence that one of the merging parties stopped sales of the product entirely to a customer—the termination of a supply contract to a buyer who was also a competitor.
What Remedies Are Possible?
In addition to awarding damages under Section 4 of the Clayton Act, a court can also order injunctive relief under Section 16.
This was the case in Steves where the Court ordered the divestiture of a plant. Even though a divestiture is a possible remedy for private parties, it is an equitable remedy, reserved for cases where damages cannot cure the harm.
What’s the Right Time to Bring a Private Merger Challenge?
A merger can be challenged before it is finalized or afterward. Potential mergers can be evaluated in their incipiency since the language of Section 7 of the Clayton Act is prospective—addressing the effect of the merger in the future. Private parties can challenge a merger after-the-fact, as was done in the Steves case, but if the private party waits the merged entity may try to raise a laches defense. Steves filed its case four years after the transaction had closed. The laches argument was rejected by the Court of Appeals, which focused on when the private party discovered or could have discovered the facts giving rise to its cause of action and, with reasonable diligence, was able to pursue a claim. In Steves, that moment was when its supply agreement was terminated and after it had exhausted alternative remedies to resolve that issue.
Private parties affected by a merger need not sit by and wait – they may be able to take steps to protect themselves, and importantly competition, in the market. However, a company thinking of bringing a private merger challenge needs to consider numerous factors before doing so. Every merger is different and requires a careful analysis of its competitive effects and the private party’s standing to bring a claim.
Edited by Gary J. Malone
Tagged in: Antitrust Enforcement,