A SURVEY OF EVIDENCE LEADING TO SECOND REQUESTS AT THE FTC DARREN S. TUCKER* Antitrust practitioners and other observers follow closely the enforcement patterns and trends of the two agencies charged with antitrust merger enforce- ment in the United States, the Federal Trade Commission and the U.S. De- partment of Justice Antitrust Division (Agencies). To provide guidance to the antitrust bar and business community, and to increase transparency, the Agen- cies have issued a variety of materials describing their merger enforcement policies and practices, including the Merger Guidelines, the Merger Guide- lines Commentary,1 policy guides and best practice reports,2 closing state- ments, and speeches. In addition, over the last decade, the Agencies have published a number of studies describing the types of evidence—such as mar- ket concentration, entry barriers, and “hot” documents—that led the Agencies to pursue enforcement action against proposed mergers and acquisitions that were subject to a Request for Additional Information (Second Request).3 * Attorney Advisor to FTC Commissioner Joshua D. Wright; formerly Attorney Advisor to FTC Commissioner J. Thomas Rosch. The views expressed here are the author’s and are not purported to represent the views of the Commission or any Commissioner. The author thanks Malcolm Coate, Leemore Dafny, and Ken Heyer for helpful comments and Kelsey Buntjer and Monica Kumar for research assistance. 1 U.S. Dep’t of Justice & Fed. Trade Comm’n, Commentary on the 1992 Horizontal Merger Guidelines (2006) [hereinafter Commentary], available at http://www.ftc.gov/os/2006/03/Com- mentaryontheHorizontalMergerGuidelinesMarch2006.pdf. 2 Merger process initiatives, workshop materials, remedy guidelines, enforcement reports, and policy statements for the Antitrust Division are available at http://www.justice.gov/atr/ public/merger-enforcement.html, and for the FTC at http://www.ftc.gov/bc/mergers.shtm. 3 Generally, these studies indicated that the presence of hot documents or strong customer complaints was correlated with a decision to challenge a transaction (i.e., by seeking a remedy or an injunction), while low entry barriers were correlated with a decision not to challenge. The level of and change in concentration were less accurate predictors, except at very low or very high levels. See Fed. Trade Comm’n, Horizontal Merger Investigation Data, Fiscal Years 1996–2011 (Jan. 4, 2013) [hereinafter 2013 Merger Data Report], available at http://www.ftc. gov/os/2013/01/130104horizontalmergerreport.pdf; Fed. Trade Comm’n, Horizontal Merger In- vestigation Data, Fiscal Years 1996–2007 (Dec. 1, 2008), available at http://www.ftc.gov/os/ 2008/12/08120hsrmergerdata.pdf; Fed. Trade Comm’n, Horizontal Merger Investigation Data, Fiscal Years 1996–2005 (Jan. 25, 2007), available at http://www.ftc.gov/os/2007/01/P035603 591 78 Antitrust Law Journal No. 3 (2013). Copyright 2013 American Bar Association. Reproduced by permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 592 ANTITRUST LAW JOURNAL [Vol. 78 These studies provide valuable insights regarding the relative importance of various categories of evidence considered by the Agencies during the course of a formal Second Request investigation. However, as practitioners are aware, whether a transaction will be subject to an enforcement action is not the only question the parties must consider when weighing the antitrust risks associated with a potential transaction. The length and intensity of the review process is also an important factor. In particular, transacting parties and their counsel often consider the risk that a transaction will be subject to a Second Request. Although the Agencies and the parties work collaboratively to expe- dite the Second Request process, the issuance of a Second Request signifi- cantly lengthens the Hart-Scott-Rodino (HSR) waiting period—by an average of five months4—and dramatically increases the burden on the merging par- ties and the reviewing agency. Moreover, a high percentage of transactions subject to a Second Request result in some form of enforcement.5 As a result, merging parties often devote significant resources to examining whether a proposed transaction will trigger a Second Request and to convincing the in- vestigating agency not to issue a Second Request or to minimize its scope. This study examines the theories of harm and types of evidence associated with in-depth merger investigations at the FTC during a recent four-year pe- riod and, based on this examination, offers practical guidance regarding the factors that appear to be most relevant at the initial phase of an FTC merger investigation. The FTC’s assessment of defenses frequently asserted by merg- ing parties and the average length of time to conduct investigations are also presented. To accomplish this, this study uses enforcement data that are un- available to practitioners outside the FTC: memoranda written by agency staff recommending the issuance of Second Requests.6 As explained below, while any study based on these memoranda has limitations, these materials provide a unique window into the FTC’s process for making enforcement decisions. horizmergerinvestigationdata1996-2005.pdf; Fed. Trade Comm’n, Horizontal Merger Investiga- tion Data, Fiscal Years 1996–2003 (Feb. 2, 2004 rev. Aug. 31, 2004), available at http://www. ftc.gov/os/2004/08/040831horizmergersdata96-03.pdf; Fed. Trade Comm’n & U.S. Dep’t of Jus- tice, Merger Challenges Data, Fiscal Years 1999–2003 (Dec. 18, 2003), available at http://www. ftc.gov/os/2003/12/mdp.pdf. 4 See Tables 7a, 7b, infra. 5 In 75 percent of the surveyed transactions (58 of 77 transactions), the FTC obtained some form of relief, including a fix-it-first remedy or a termination of the transaction, after issuing a Second Request. See also LAW BUSINESS RESEARCH, THE MERGER CONTROL REVIEW 468 (Ilene Knable Gotts ed., 3d ed. 2012) (“A high percentage of the transactions in which an agency issues a second request will result in some type of enforcement action (i.e., court challenge, consent decree, restructuring).”). 6 As described in more detail in Part II, the data used in this study do not permit rigorous testing for changes in agency review of proposed transactions because of the lack of analogous data on FTC-reviewed mergers that did not receive Second Requests. Despite this limitation, the comparisons provided below may be useful to parties in gauging whether the new Guidelines signal a change in FTC merger practices. 2013] SURVEY OF EVIDENCE LEADING TO FTC SECOND REQUESTS 593 By providing data on the FTC’s initial-phase merger enforcement deci- sions, this study may help practitioners focus their arguments on topics likely to be of interest to career staff at the FTC and avoid emphasizing topics that, although cited in the Merger Guidelines, receive little attention in FTC memo- randa discussing whether to issue a Second Request. This study, when viewed in conjunction with prior studies, may also offer insight on how the impor- tance of certain forms of evidence may vary at different stages of an investigation.7 A related question is whether and to what extent the FTC’s approach to the Second Request decision has changed in recent years. In August 2010, the Agencies released an updated version of the Merger Guidelines,8 a milestone that was greeted with a mix of praise and criticism. Many practitioners and academics commended the greater analytical flexibility, higher concentration screens, and inclusion of additional topics such as partial acquisitions and power buyers. Nevertheless, a number of observers raised concerns that the 2010 Guidelines downplayed the role of market definition, emphasized unreli- able economic tools, permitted challenges based on exclusionary conduct con- cerns, and placed too little attention on non-price and dynamic effects.9 In addition, some questioned the Agencies’ claim10 that the revisions to the Guidelines were limited to codifying existing agency practice and wondered whether the 2010 Guidelines would result in a significant—and more aggres- sive—shift in merger enforcement at the Agencies. This study does not attempt to resolve the broader debate regarding whether the 2010 Guidelines have ushered in a new era of more intensive or less bounded merger enforcement. However, by comparing the theories of harm and sources of evidence cited by FTC staff when justifying the need for in- depth merger investigations before and after the new Guidelines became ef- 7 For example, the Agencies have stated that the structural presumption may be given more weight in early stages of investigations. See Commentary, supra note 1, at 2 (“Evidence that the merged firm would have a relatively high share of sales . or that the market is relatively highly concentrated may be particularly significant to a decision by either of the Agencies to extend a pre-merger investigation pursuant to HSR by issuing a [Second Request].”). 8 U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines (2010) [herein- after 2010 Guidelines or 2010 Merger Guidelines], available at http://ftc.gov/os/2010/08/ 100819hmg.pdf. The Guidelines “outline the principal analytical techniques, practices, and the enforcement policy” of the Agencies with respect to horizontal mergers. Id. § 1. In addition, the