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How to stay onside

Sonia Pfaffenroth, a deputy assistant Attorney General at the US Department of Justice Antitrust Division, outlines the division’s priorities and offers tips for merging entities

Sonia Pfaffenroth, a deputy assistant Attorney General at the US Department of Justice Antitrust Division, outlines the division’s priorities and offers tips for merging entities


Here Sonia Pfaffenroth, a deputy assistant Attorney General US DOJ Antitrust Division, discusses the Division's year in merger control, what it looked for in transactions and how its priorities have developed. The DOJ Antitrust Division is one of two competition authorities in the US, the other being the Federal Trade Commission (FTC). Recently the Division has taken a more aggressive approach to merger control and in 2016, among other things, it sued to block Halliburton's merger with Baker Hughes and charged a Korean executive with obstructing an investigation. Pfaffenroth also discusses the Division's engagement with authorities around the world and at state level across the US.

Tell me about some of the Division's most important merger cases of 2016 and what aspects of its enforcement policy they implicated?

We have been hard at work protecting competition and that has generated a number of important cases this year. Among many positive results, I want to highlight two successful efforts on the civil side, our slots litigation against United Airlines and Delta Airlines and the suit to block the Halliburton/Baker-Hughes merger.

The slots case exemplifies the principle that we will have serious concerns with a transaction that increases – even incrementally – the market power of a firm that already has substantial market power. In that case, United already held a monopoly at Newark Airport, controlling 73% of available slots (regulatory take-off and landing authorisations). United proposed to acquire an additional two percent from Delta. But United lacked any plausible justification for the acquisition as it already allowed more slots to go unused on any day than any other airline held at the airport. When the Federal Aviation Administration (FAA) determined that the slot constraint was no longer needed at Newark, the parties abandoned their transaction, resulting in a win for competition.

The Halliburton case was important for several reasons. It not only would have increased concentration in the oilfield services industry in many existing product markets, but also would have harmed innovation competition because the companies were two of only three large globally integrated oilfield service providers that competed aggressively in research and development. We carefully consider the effects of any transaction on innovation and this case provides a good example of how we have approached that analysis. The case was also important because of the issue of remedy. The parties had proposed a divestiture package in the run-up to litigation that we believed would not adequately replicate the competition lost as a result of the transaction. Their proposal involved piecemeal asset divestitures and licensing provisions, which would have held back key employees and assets while divesting assets relating to less successful product lines. Simply put, the proposed fix would not have restored competition to the status quo level. We determined there was no option but to sue to block the transaction, and in the face of our opposition, the parties ultimately abandoned the transaction.

What are the biggest changes in the Antitrust Division's approach to merger enforcement that you have seen in recent years?

I think our enforcement policy has been remarkably consistent in recent years. In consumer-facing markets – such as health insurance and internet services – and in markets for critical inputs supplied to other producers operating in our economy – such as oilfield services or high-speed precision planting – we have taken a hard line on mergers that threaten substantial reductions in competition. Where we determine a substantial harm to competition is likely, we will not accept a negotiated remedy unless we have a high degree of confidence it will restore pre-merger competitive conditions.

As Renata Hesse, acting Assistant Attorney General responsible for the Antitrust Division, has clearly outlined in recent speeches, if you look back over a longer range of years – say, three decades or so – it is fair to say that the Division's approach has changed to become more sceptical of the promised benefits of horizontal mergers and more sceptical that remedies short of divestitures of full business units (or, in some cases, completely blocking a merger) will adequately restore competition. Numerous economic studies have shown that prices tend to rise after mergers take place. And other studies have uncovered that mergers tend to cause more waste, and lead to less efficiencies, than had previously been thought. Taken together, these insights lead us to worry less about creating false positives through over-enforcement. We have, therefore, developed a more aggressive approach to merger enforcement.

The Division recently charged an executive with obstructing justice during the course of the Division's tour buses litigation. Does this suggest a new emphasis on procedural integrity during the Antitrust Division's merger investigation process?

The Division has always taken efforts to obstruct our merger investigations very seriously. For example, a few years ago a South Korean executive agreed to plead guilty and serve five months in US jail for altering documents that needed to be included in his company's HSR filings.

In the tour buses case, after the Division and the New York Attorney General filed suit to unwind the Twin America joint venture and issued document requests, we discovered that the executive had directed his subordinates to destroy computer backup tapes. These tapes had potentially important evidence we could not get any other way. He then compounded his crime by lying about it to the company's outside counsel and to us, during a deposition. Simply put, the Division will not tolerate this sort of behavior. Efforts to obstruct any of our investigations – civil or criminal – will be investigated thoroughly and, when appropriate, the individuals involved will be held personally accountable for any crimes that occurred.

How does the Division work to interact with foreign competition commissions, for example the EC's Directorate-General for Competition?

The Division has a long history of cooperating with its international counterparts. Since November 1 2016, the Division has cooperated with 15 different international agencies in connection with 22 different investigations. And, over the past few years, at any one time we have cooperated with other jurisdictions on up to 25% of our merger challenges. It is important to us that that trend – to cooperate more deeply and more often with more jurisdictions – continues.


We will have serious concerns with a transaction that increases – even incrementally – the market power of a firm that already has substantial market power


The Division engages with its international counterparts formally through multilateral organisations like the International Competition Network (ICN) and OECD and regular bilateral meetings. We host visiting enforcers and send our staff to learn from other jurisdictions. Indeed, right now we have a Division attorney visiting the European Commission and are hosting one of the EC's economists in Washington. All of this work helps us build relationships and greater convergence on antitrust principles and enforcement approaches.

We engage more informally on our day-to-day case work. How closely we cooperate with a counterpart is impacted by the nature of the markets involved. In matters where markets are more global in scale, it makes sense for us as enforcers to cooperate closely. When a new matter is notified to us, we find out where else the parties are notifying, where they believe competitive issues may arise, and where they expect to face a substantive investigation. Although a merger may be reportable in many jurisdictions, it isn't practicable or useful for us to cooperate with every jurisdiction in every matter.

Coordination among agencies can vary from keeping another agency informed about our timing to working hand-in-hand with that agency to jointly negotiate remedies with the parties. Waivers of confidentiality allow us to work more closely with our international counterparts, having regular discussions of timing, theories of harm, and the results of our economic analyses. In matters where markets differ by geography, we may consult with one another to ensure we do not impose conflicting remedies, but we do not typically coordinate as closely.

Is there any advice you would like to give merging parties' counsel about how to better approach government merger review?

As Renata has said, of course, it is up to private parties to decide how to approach government merger review and what level of risk tolerance they have. But there have been times when parties and their counsel seem surprised about the Division's concerns. I think it is helpful to focus on a few questions when parties are considering whether to pursue a transaction.

First, does the deal substantially increase concentration in a relevant market? Of course, there are often questions about how exactly a market should be delineated, but if the parties view the market a particular way, or the government has publicly taken views on how a market should be defined, that provides pretty good guidance even before the government has begun its investigation of a particular deal.

Second, what is the business justification for the transaction? The answer to this question, particularly where concentration will be dramatically increased, will be crucial. If the answer is to raise prices or reduce output by eliminating a competitor, for example, it foreshadows what will be a more extended process with the government.

Third, assuming the government may consider the deal to be problematic, is there a remedy to address those concerns? Is there a divestiture – whether from the acquired firm or the acquiring firm – that would preserve an independent and vigorous competitor in the relevant market, but still make the deal worthwhile from the parties' perspectives.

And, finally, consider whether there are other aspects of the deal that may raise competitive concerns. For example, will the deal give the merged firm substantially increased bargaining leverage that will shift the balance of power between the firm and one or more of its trading partners. Or, will the merger give the acquiring firm control of critical inputs that it and its rivals rely on such that the acquiring firm may be able to raise the costs of its rivals or otherwise harm them (and thereby harm competition). And, if so, is there a remedy that would address these issues.

What role does the Division play in influencing competition policy views outside of the department and what are your priorities?

There is a lot to talk about in this regard, as the Division engages in competition advocacy in a number of ways. For example, we provide guidance on various issues relating to antitrust law. Just last month we released important guidance directed to HR professionals and others involved in hiring and compensation decisions about antitrust laws. We file amicus briefs in important cases involving competition and antitrust law. We filed an amicus brief earlier this year in the Fifth Circuit arguing that a Texas medical board is not exempt from the antitrust laws where it is controlled by practicing doctors not actively supervised by the state. We are also active in providing competition advice and views to federal agencies, commissions and boards, both formally and informally. You may recall that in April, we filed a comment with the Surface Transportation Board opposing a voting trust proposed by Canadian Pacific in order to facilitate its acquisition of Norfolk Southern, a scheme that flew in the face of sound competition principles. We have weighed in at the Federal Communications Commission (FCC) with our views on the competition aspects of its proceedings about wireless spectrum auctions, joint sales agreements and broadband competition. As the President's Executive Order on competition said, federal agencies can play a significant role in helping to promote more competitive markets and these are just a few examples of how the Division can assist in these efforts.

I am also proud of the Division's efforts to promote sound competition policies at the state level for the benefit of consumers. We've issued several letters, often jointly with the Federal Trade Commission (FTC), weighing in on the procompetitive benefits of various legislative and regulatory initiatives. For example, we have supported state efforts to limit or repeal their certificate-of-need laws because of the barrier they pose to entry by new healthcare providers. We encouraged legislation in Massachusetts and Puerto Rico to expand competition for glaucoma care by permitting optometrists to provide certain types of treatment. We have also weighed in on the competition and consumer benefits of permitting court reporting firms to offer competitive multi-case contracts and allowing interactive websites to generate legal forms for consumers. State competition advocacy is an important part of the Division's mission, and we will continue to look for ways to help state legislators and officials promote a more competitive landscape in their state.

About the author

Sonia Pfaffenroth
Deputy assistant Attorney General for Civil and Criminal Operations, US Department of Justice Antitrust Division

Washington DC, US
T: +1 202 514 2007
E: Press@usdoj.gov

Sonia Pfaffenroth is the deputy assistant Attorney General for civil and criminal operations for the Antitrust Division of the Department of Justice. Prior to joining the Division in July 2013, Pfaffenroth was a partner in the antitrust practice group at Arnold & Porter, where she handled both criminal and civil antitrust investigations by the Department of Justice and the Federal Trade Commission and defended clients in private civil antitrust litigation. Pfaffenroth clerked for Judge Paul L Friedman on the United States District Court for the District of Columbia. She received her JD from Stanford Law School in 2002 and her BA in chemistry from Carleton College in 1997.


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