| Randy Stutz
FTC, Mergers, Public Enforcement, Section 7 of the Clayton Act
AAI has joined with the Hon. William J. Baer, a Visiting Fellow in Governance Studies at the Brookings Institution and the former Assistant Attorney General of the Antitrust Division and Director of the Bureau of Competition of the Federal Trade Commission, to file an amicus brief in an FTC Part III administrative proceeding urging the Commission to reverse an Administrative Law Judge’s dismissal of the FTC’s challenge to the Illumina/Grail merger. The ALJ ruled for the merging parties after giving the government the burden to prove both that the merger threatened to substantially lessen competition and that the merging parties’ public promises not to engage in exclusionary conduct would be ineffective.
Illumina provides DNA sequencing used for early cancer detection, and Grail is a leading developer of liquid biopsy tests, which analyze a sample of a patient’s blood or other fluid through DNA sequencing. In challenging the companies’ vertical merger, the FTC alleged that the deal would likely eliminate competition and reduce innovation in the market for multi-cancer early detection (MCED) testing by creating incentives for the merged firm to deny Grail’s rivals access to a critical input. The parties responded by creating an “Open Offer” to provide a standardized, long-term supply agreement to all U.S. oncology testing customers who purchase the affected products for developing and/or commercializing oncology tests. The ALJ ruled that the Open Offer constrains Illumina from harming Grail’s alleged rivals, and the FTC staff’s argument to the contrary was unconvincing.
The brief on behalf of AAI and Baer argues that the ALJ applied the wrong analytical framework for adjudicating the merging parties’ preferred remedy for an anticompetitive merger. The ALJ should have applied the governing Baker Hughes burden shifting framework, under which the government must first show the merger as proposed threatens substantial competitive harm and the burden then shifts to the merging parties to rebut that showing, including by proving that their self-crafted “fix” is enforceable, administrable, and will fully restore the competition lost from the anticompetitive merger. The ALJ should not have given the government the prima facieburden to prove both that the merger is anticompetitive and that the parties’ preferred fix will not work.
The brief emphasizes that applying a burden-shifting framework is especially important where, as here, the merging parties claim that a behavioral remedy will fully ameliorate the merger harms. Behavioral remedies like the Open Offer are inconsistent with the merging parties’ profit-maximizing incentives, and empirical evidence from consummated mergers shows that these remedies are difficult to monitor and enforce and consistently fail to prevent harm to competition and consumers. Particularly where proposed fixes are behavioral, the text and incipiency goal of Section 7 of the Clayton Act demand heightened skepticism. Deference needs to be shown to the Commission in assessing whether the proffered relief restores the competition lost from the merger.
AAI is grateful to the law firm of Brownstein Hyatt Farber Schreck, LLP (BHFS), which served as pro bono counsel. The brief was written by Rosa Baum and David Meschke of BHFS, whose drafting was overseen by BHFS Shareholder and AAI Advisory Board Member Allen Grunes. AAI Vice President of Legal Advocacy Randy Stutz and Brookings Visiting Fellow Bill Baer also assisted.
