WASHINGTON, D.C. — Yesterday, TechFreedom filed comments on the draft Vertical Merger Guidelines proposed by the Department of Justice’s Antitrust Division and the Federal Trade Commission. This document would replace the 1984 Non-Horizontal Merger Guidelines, and explain how the antitrust agencies will review “vertical” consolidation between companies that do not directly compete with each other. TechFreedom’s comments focus on transactions involving tech and media companies, the unintended effects of greater scrutiny on startup formation, and the potential for the antitrust laws to be weaponized by rival companies and politicians.
“The harder it is for startups to be acquired, the harder it will be for them to get off the ground,” said Berin Szóka, President of TechFreedom. “A startup’s ability to attract early-stage capital depends on investors’ expectations for how large the pay-off on an inherently risky bet might be. Half as many companies make it to an initial public offering of stock as 20 years ago — largely because of securities regulations enacted since 2001. Acquisition by an established company has become the primary ‘exit’ strategy. Yet the draft Guidelines would force investors to significantly discount the expected value of startup investments, given the increased risk that the companies willing to pay most to acquire a startup would be blocked from doing so, or that the process itself might drag out long enough to kill the deal. Increasing uncertainty about the legality of vertical acquisitions could, like Sarbanes-Oxley, reduce the dynamism of the tech sector. Slowing disruptive innovation will, ironically, protect the biggest companies from competition.”
“We can no longer assume that the antitrust laws will be applied in a neutral, apolitical manner,” warned Szóka. “President Nixon used antitrust to shake down one of America’s largest companies, and various regulatory tools to wage war against The Washington Post. Now, President Trump has openly declared war on The Post, its owner, Jeff Bezos, and his company, Amazon. He has similarly raged about the editorial practices of NBC and MSNBC, both owned by Comcast, as well as alleged bias at Facebook and Google — to name just a few examples. Trump reportedly directed the DOJ to sue to stop AT&T’s acquisition of Time Warner out of fury over critical coverage by CNN, owned by Time Warner. That lawsuit, the first against a vertical merger in over forty years, was laughed out of court. But we can’t count on the courts to check the application of the antitrust laws. Even threats to block a deal—or, say, unravel Facebook’s past acquisitions of Whatsapp and Instagram—can be enough to pressure media companies to bend to the White House’s will on unrelated issues—say, how Facebook treats political ads.”
“The draft guidelines introduce too much uncertainty in how vertical mergers will be reviewed,” concluded Szóka. “The guidelines just aren’t the right place for novel, untested theories of harm to consumers. Besides tightening the draft, we propose a series of reforms that would help to restore public trust that the antitrust laws won’t be weaponized for political purposes, including transferring authority over media-related deals, where the potential for political abuse is greatest, to the FTC, whose independence from the White House provides some degree of protection. Furthermore, the White House’s contacts with both the DOJ and the FTC should be logged and reported to Congress.”
###
Read our comments and related work, including:
- Szóka’s op-ed in The Seattle Times: Trump vs. Bezos: The president is on the wrong side of the Constitution
- Our 2018 coalition letter to Jeff Sessions warning against using the antitrust laws to influence online speech
- Our statement on the court decision blocking DOJ’s lawsuit to stop the AT&T/Time Warner merger
- Our 2015 coalition letter urging Congress to bar the FCC from imposing merger conditions not specific to harms caused by a merger, or that the FCC could not impose by regulation