Global Competition Law is primarly a practitioner's guide presenting the most salient aspects of the major competition laws country by country, giving an overview of their structure and most charasteristic elements.
Global Competition Law also provides insight into possible future developments in the field.

Global Competition Law

The Clayton Act applies to an acquisition of “the whole or any part of the stock or other share capital” or the acquisition of “the whole or any part of the assets of another person engaged also in commerce or in any activity affecting commerce” (15 U.S.C. §18). The Clayton Act uses the term “acquisition” throughout the text and does not explicitly refer to mergers. Nevertheless, Section 801.2(d)( …

Concept of mergers

The Clayton Act applies to an acquisition of “the whole or any part of the stock or other share capital” or the acquisition of “the whole or any part of the assets of another person engaged also in commerce or in any activity affecting commerce” (15 U.S.C. §18). The Clayton Act uses the term “acquisition” throughout the text and does not explicitly refer to mergers. Nevertheless, Section 801.2(d)(1)(i) of the Code of Federal Regulations provides that “[m]ergers and consolidations are transactions subject to the act and shall be treated as acquisitions of voting securities.”

As originally enacted in 1914, the merger control provisions of the Clayton Act specifically addressed only the acquisition by one corporation of the stock of another corporation when certain negative effects were likely to follow. The Act did not bar the acquisition of the assets of another corporation. The Clayton Act was amended in 1950, and as the Supreme Court stated, “there is no doubt that Congress did wish to “plug the loophole” and to include within the coverage of the Act the acquisition of assets no less than the acquisition of stock” (Brown Shoe Co. v. United States, 370 U.S. 294, 317 (1962)). In 2005, in order to remedy the difference in treatment between incorporated and unincorporated companies, the HSR Rules were revised to include within the filing obligation the acquisition of controlling interests in unincorporated companies.

As a jurisdictional matter, the statutory language is clear that the acquisition of “any part” of stock or assets is covered. No bright line rule exists regarding how large an acquisition must be in order to constitute an acquisition, though the Supreme Court has held that a company “need not acquire control of another company in order to violate the Clayton Act” (Denver & Rio Grande Western Railroad v. United States, 387 U.S. 485, 501 (1967)). This was true only until 2005, since the acquisition of non-corporate interests is only covered when it is such as to grant control to the acquirer. In November 2013, the FTC amended its pre-merger notification rules to address the issue of when an exclusive patent license to a pharmaceutical patent or part of a patent constitutes an asset transfer under the HSR Act. The new rules establish an “all commercially significant rights” test according to which the transfer of exclusive rights to a patent or a part of a patent in the pharmaceutical industry is a reportable asset transfer if it allows only the recipient to commercially use the patent as a whole, or a part of the patent in a particular therapeutic area or specific indication within a therapeutic area. It also specifies that the retention of co-rights does not render a license to the patent or part of the patent as non-exclusive. A reportable asset transfer may also occur even if the licensor retains the limited right to manufacture under the patent or part of a patent for the licensee. 

Secondary acquisitions, formerly referred to in the Clayton Act as indirect acquisitions, are separately subject to the requirements of the Act. Thus, if an undertaking to be acquired holds voting securities from other undertakings that it does not control, acquisition of these voting securities by the acquiring undertaking is deemed a secondary acquisition that must be evaluated separately (Section 801.1 (e)).

A fully integrated joint venture, i.e. that encompasses all aspects of a line of business including manufacturing, distribution, marketing and sales, resembles a merger and is subject to the same analysis under Section 7. With regard to joint ventures, the Supreme Court held in United States v. Penn-Olin Chemical Co. (378 U.S. 158 (1964)) that the formation of a joint venture constitutes an acquisition within the meaning of Section 7, even if it is not a fully integrated joint venture, where the parties acquire voting securities in that entity.

Acquisitions that are subject to challenge under the Clayton Act may be horizontal mergers, involving firms selling competing products or services in the same geographic area, vertical mergers, involving firms in a customer-supplier relationship, or conglomerate mergers, i.e. transactions that are neither horizontal nor vertical, such as product market extension mergers, geographic market extension mergers or pure conglomerate mergers.

“No person engaged in commerce or in any activity affecting commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another person engaged also in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly” (15 U.S.C. §18).

Thus, where the effect of an acquisition may be to substantially lessen competition, or to tend to create a monopoly in a particular geographic and product market, it may be prohibited under the Clayton Act. The standards articulated by the DoJ and the FTC (jointly "the agencies") in determining whether to challenge an acquisition in court, and the standards applied by the courts to determine whether an acquisition may substantially lessen competition under the Clayton Act, differ depending on whether the acquisition is a horizontal, vertical or conglomerate merger and therefore will be discussed separately below.

It is clear, based on both the language of the statute and well-established case law, that Section 7 applies where there is an “appreciable danger” that an acquisition may substantially lessen competition; no present anticompetitive effect is required.

Control criteria

Evaluating whether a merger may substantially lessen competition necessarily requires a definition of the relevant market. The mechanics of defining the relevant market, taking into account both the product and geographic market, are developed in the 2010 joint Horizontal Merger Guidelines. However, contrary to the 1992 Guidelines, the 2010 Guidelines state that although “market definition helps specify the line of commerce and section of the country in which the competitive concern arises [... and] allows the agencies to identify market participants and measure market shares and market concentration [... it] is not an end in itself, but is useful to the extent it illuminates the merger's likely competitive effects”. The relevant market is defined solely in terms of demand substitution factors, that is, consumer response. Supply substitution factors are not taken into account in defining the relevant market. These factors are considered after the relevant market is defined, when the agencies evaluate access to the market or identify the participants in the market.

The agencies attempt to define the product or group of products and geographic area over which a hypothetical monopolist would be able to impose a “small but significant and non-transitory” increase in price (SSNIP test). A five percent increase over one year is ordinarily considered significant, but the Guidelines are clear that higher or lower price increases may be appropriate depending upon the context and industry involved. This test requires an evaluation of the likely consumer response, including whether consumers would switch to other products or the same product produced by firms at other locations. Thus, the relevant product market looks at both the extent to which the defendant's product is interchangeable in use with other products and the cross-elasticity of demand, that is, the extent to which a change in the price of one product will alter demand for another product.

In practice, the agencies begin with each product produced or sold by each merging firm and ask what consumer response would be if a hypothetical monopolist imposed a small but significant and non-transitory increase in price. If the reduction in sales would be such that the price increase would not be profitable, then the agencies will add to the product market the product that is the next best substitute. This process continues until a group of products is identified over which a hypothetical monopolist could profitably impose a small but significant and non-transitory increase in price. In evaluating the likely reaction of buyers, the agencies consider evidence that buyers have shifted or considered shifting purchases between product in response to price changes or other competitive variables, evidence that sellers base decisions on the prospect of buyer substitution, the influence of downstream competition faced by buyers, and the timing and costs of switching products.

Definitions of the relevant geographic market focus on the geographic area within which customers affected by the challenged practice can practicably turn to other sellers for supplies. In this regard, the agencies begin with the location of each merging firm and ask what the consumer response would be if a hypothetical monopolist of the relevant product imposed a small but significant and non-transitory increase in price. If the price increase would not prove profitable, the tentatively identified geographic area is too narrow and the agencies will add the location that would be the next best substitute. Once the agencies have determined the relevant market, they can evaluate whether a merger threatens to substantially lessen competition in that market.

Relevant market

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) requires Pre-Merger Notification forms to be filed with the Federal Trade Commission and the Department of Justice where certain thresholds are met. It is theoretically possible that a merger that does not reach these thresholds and is not required to be notified to the FTC and DoJ could nevertheless be challenged on grounds that it substantially lessens competition, either by the enforcement agencies if it became known to them or, indeed, by private parties (see, e.g., United States v. Flow Int'l Corp., No 94-71320 (E.D. Mich. 1994)), challenging a merger with gross sales less than US$10 million).

As a general rule, both acquiring and acquired persons (as defined in the HSR Act) are required to file notifications if one of the following thresholds is met : 

1/ Standalone size of transaction test: If the size of transaction exceeds US$ 504 million, a filing obligation will be triggered. 

2/ Combined size of transaction and size of person test: 

- the size of transaction exceeds US$ 126.4 million (but is less than US$ 504 million); and

- at least one person achieved annual worldwide net sales, or has total worldwide assets which exceed US$ 253.7 million; and

- at least one other person achieved annual worldwide net sales, or has total worldwide assets which exceed US$ 25.4 million.

3/ Newly-formed joint ventures test No 1:

- one acquiring person achieved annual worldwide net sales, or has total worldwide assets which exceed US$ 253.7 million; and

- at least one other acquiring person achieved annual worldwide net sales, or has total worldwide assets which exceed US$ 25.4 million; and

- the joint venture will have total worldwide assets which exceed US$ 25.4 million.

4/ Newly-formed joint ventures test No 2:

- one acquiring person achieved annual worldwide net sales, or has total worldwide assets which exceed US$ 25.4 million; and

- the joint venture will have total worldwide assets which exceed US$ 253.7 million.

Global Competition Law

1469. Concept of mergers

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Les notions juridiques connexes

1469. Concept of mergers

Demandez un accès gratuit au contenu exclusif Livv – juristes d’entreprise

Les notions juridiques connexes

Demandez un accès gratuit
au contenu exclusif Livv – juristes d’entreprise