U.S. Department of Justice and Federal Trade Commission issue revised Horizontal Merger Guidelines

On 19 August 2010 the U.S. Department of Justice and Federal Trade Commission (“agencies”) issued revised Horizontal Merger Guidelines which outline how the agencies evaluate the likely competitive impact of mergers and their compliance with U.S. antitrust laws (for background see Newsletter 5/2009 p. 4).

Among other more general changes, the Guidelines now address more extensively the unilateral effects of mergers on innovation. According to the Guidelines, the agencies may consider whether a merged firm would be encouraged to reduce its efforts in existing product development or to reduce incentives to initiate the development of new products. The former effect is most likely when new products in development would capture substantial revenue from the other merging firm, whereas the second effect is most likely if one of the merging firms has the capability to develop new products that would capture substantial revenues from the other merging firm. The agencies therefore consider whether innovation competition will be diminished by the combination of two of a very small number of firms with the strongest capabilities to successfully innovate in a specific direction.

The Guidelines also extend the discussion on innovation related efficiency benefits of mergers. In considering the effects of a merger, the agencies consider whether a merger allows the merged firm to conduct research and development more effectively, for instance, by bringing together complementary capabilities. The agencies also consider whether the merged firm is able to appropriate a greater fraction of the benefits from innovation, taking into account especially how the licensing and intellectual property conditions affect the appropriation conditions. The Guidelines note, though, that R&D efficiencies, while potentially substantial, are generally less susceptible to verification than some other types of efficiencies. Further, cost savings from research and development can result from anti-competitive reductions in innovative activities. [Juha Vesala]