Regulators Re-Affirm Use Of Customer Testimony: Despite losses in two key cases, antitrust bodies remain resolute in presenting customer evidence in deal challenges

Federal antitrust regulators have served notice that they remain committed to using customer reactions as evidentiary mainstays in bringing court challenges against mergers and acquisitions. However, private antitrust lawyers with extensive experience in representing merging companies say that the two principal competition regulators will have to offer more laser-like and fact-oriented customer testimony to convince judges that deals being attacked are indeed anti-competitive. The Federal Trade Commission (FTC) and Antitrust Division of the U.S. Department of Justice (DOJ) recently offered significant insights on their policies and the current state of merger enforcement in an unusual document called Commentary on the Horizontal Merger Guidelines. Antitrust commentators say that they have never seen anything like it but welcomed the jointly issued Commentary as a beacon of the agencies’ position at a time when the markets and industries they cover are undergoing extensive restructuring and competition policy is under pressure to adjust. Private experts found it especially significant that the Commentary was launched not long after both the FTC and DOJ had their ears pinned back by courts in two high-profile transactions that featured customer testimony opposing the deals in the government complaints. One court decision blocked the DOJ’s attempt to stop Oracle Corp.’s acquisition of enterprise software rival PeopleSoft Inc. The other spiked the FTC’s opposition to Arch Coal Inc.’s purchase of Wyoming-based bituminous miner Triton Coal Co. The antitrust agencies lost, lawyers say, because their customer testimony was bloated by opinion and presumption rather than hard evidence on the marketplace impact of the deals. Paul Denis, a former DOJ official who helped frame the jointly applied horizontal merger guidelines that have prevailed since 1992, notes that the Commentary’s extensive attention to customer testimony suggests that the agencies are trying to “rehabilitate the role of customer testimony in merger analysis.” The Oracle and Arch courts, he says, “perceived the testimony as more about customers’ opinions about the deals and not so much about how customers actually behaved in the marketplace.” “They should have talked about what they saw the alternatives in the market to be, how they ran their procurement processes, and how they protected themselves against prices they didn’t like,” he continues. “That’s what courts want to see. Courts want to see facts about how the market operates, what people do day to day, and how they exercise choices. They don’t care so much about customers’ opinions.” “Judges are now saying I want to hear the story,” says Billy Vigdor of Vinson & Elkins, a former FTC official who notes that simple market share or concentration statistics are no longer convincing on their own. That means that customer witnesses had better have a better handle on the practicalities of the marketplace, and that fewer merger challenges might wind up in court because of pressures for harder evidence. “We’re moving on to more fact-specific cases,” he says. “That doesn’t mean there will be a lack of enforcement but it does mean that the facts will drive the analysis. We have moved away from market shares and moved away from presumptions.” (c) 2006 Mergers and Acquisitions Journal and SourceMedia, Inc. All Rights Reserved. http://www.majournal.com http://www.sourcemedia.com