The $1.9 billion deal Alaska Airlines signed with Hawaiian Airlines on December 3 would enable the competitors to collaborate on the 12 routes they both fly between the Aloha State and cities on the U.S. West Coast–a small part of their overall networks. Does that mean the Antitrust Division will challenge the deal?

Probably.

I see a couple of ways to assess the odds of action by the Antitrust Division.

The first involves the 2023 Draft Merger Guidelines. Although they haven’t taken effect, they reflect the thinking of Antitrust Division (and FTC) leadership, and several of them seem on point.

Going Through the Guidelines

Guideline 1: Mergers Should Not Significantly Increase Concentration in Highly Concentrated Markets. 

Guideline 2: Mergers Should Not Eliminate Substantial Competition Between Firms.

Eliminating Hawaiian as a competitor in service to and from the U.S. mainland would significantly increase concentration in a market that already at least “moderate” concentration under the Herfindahl-Hirschman Index even if you include flights to and from inland cities. The fact that Hawaiian and Alaska now go head to head in at least 40.1 percent of the West Coast-Hawaii service (and probably significantly more) strongly implies the merger would “eliminate substantial competition between” them.

Guideline 3: Mergers Should Not Increase the Risk of Coordination. 

Guideline 4: Mergers Should Not Eliminate a Potential Entrant in a Concentrated Market.

Coordination on pricing, scheduling, and other aspects of competition becomes easier with fewer competitors, especially in a market that already has only a few large ones. With its West Coast headquarters (in Seattle), Alaska now poses a threat to fly to Hawaii from other coastal cities.

Guideline 8: Mergers Should Not Further a Trend Toward Concentration.

Guideline 9: When a Merger is Part of a Series of Multiple Acquisitions, the Agencies May Examine the Whole Series.  

The fact that Alaska bought Virgin America in 2016–a year after Virgin started service to and from Hawaii–implicates draft Guidelines 8 and 9. That fact that Aloha Air went out of business in 2008 won’t help. The Hawaiian debut of Southwest in 2019, on the other hand, will.

Guideline 11: When a Merger Involves Competing Buyers, the Agencies Examine Whether It May Substantially Lessen Competition for Workers or Other Sellers.

After Southwest started serving Hawaii in 2019, wages for airport workers increased from $13 or $14 an hour to $20. The Antitrust Division has made a point of scrutinizing mergers for signs they would lower wages for workers.

Recent Enforcement History

The second consideration pertains to the Antitrust Division’s recent record with airline combinations. Earlier this year, the Antitrust Division won a court fight over blocking an alliance between Jet Blue and American Airlines. Just today, it finished a trial in which it seeks to enjoin another pending merger–a $3.8 billion deal between Jet Blue and Spirit. And the Division under Jonathan Kanter has often pointed to the industry as one that the more permissive enforcement approaches of previous administrations regrettably allowed to consolidate, with an irretrievable loss to the industry’s competitive vigor. The Attorney General himself promised that the Justice Department “will continue to protect competition and enforce our antitrust laws in the heavily consolidated airline industry.”

Alaska and Hawaiian said they have not spoken to the government about any potentially problematic aspects of their Merger Agreement. Promising to sell some or all of the 12 most concerning routes to a competitor might save the deal, as similar moves have in other cases. The most likely buyer–still scrappy Southwest–might pose its own set of concerns for Alaska. But talk they must.

We round up the most significant appellate decisions relevant to commercial litigation each week.

Welcome to the November 15, 2023 edition of Commercial Roundup. It will catch you up on the latest appellate decisions by federal appellate courts and the highest courts in Delaware, New York, and Texas on antitrust, arbitration, class actions, intellectual property, securities, and other important issues in complex business and commercial disputes.

Last Friday, October 27, U.S. District Judge Amit Mehta overruled an objection by Google’s trial counsel to a question about how much the online search and ad giant pays Apple and other browser providers for making Google’s search engine the default. The lawyer claimed that making the dollar amount public would hurt Google’s negotiating position in future talks on how much it would pay browser providers to rig their browsers to use Google search by default.

The civil antitrust case began on October 20, 2020 when the U.S. Department of Justice’s Antitrust Division and 38 states brought it in the U.S. District Court for the District of Columbia District. The enforcers allege that Google has unlawfully maintained monopolies in markets for general search services, search advertising, and general search text advertising. They seek “structural relief” plus any other “relief necessary and appropriate necessary to restore competitive conditions in the markets affected by Google’s unlawful conduct”.

The trial to Judge Mehta, who will decide the outcome without the help of a jury, started on September 12. I have followed it off and on and mostly have looked for signs the Court favors one side or the other.

Early indication didn’t look good for the enforcers. In ruling on motions to prevent public airing of certain pieces of evidence, Judge Mehta seemed to defer to claims by big tech companies–Google, Apple, and Microsoft, to name three–that disclosing information to the public would cause them “competitive harm”. He also often closed the courtroom for long stretches so he could hear apparently crucial testimony. At times he appeared testy about media pressure for a public feed, and he lavished many hours on making fine distinctions about the sensitivity of particular facts and evidence. All that struck me as erring on the side of giving the big tech companies’ interests in secrecy more weight and attention than they deserved.

The outcome of the case will have immense effects on the public, I thought. Can’t the Court see that people want and need to know the facts?! Keeping evidence secret will erode trust and reduce confidence in the outcome, especially if it favors Google!

So I welcomed Judge Mehta’s ruling last Friday.

In rejecting secrecy, Judge Mehta allowed the public to know that Google paid $26.3 billion for one year of building bias into Safari and other browsers. How do you explain that to the public? Sure, people can still switch search engines, but we now have evidence that the ease of keeping the Google search engine plus the hassle of changing to one of the many alternatives (e.g., Bing, Yahoo!, or DuckDuckGo) had a value of at least $26.3 billion to Google in 2021.

Did paying $26.3 billion to bias browsers in favor of Google’s search engine amount to unlawful maintenance of Google’s monopoly (90 percent) position? It did if it “foreclose[d] competition in a substantial share of the line of commerce affected.” Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961).*

Google contends that biasing browsers didn’t prevent “effective competition” by other search engines. Its success in proving its competitive benignity theory will depend on whether it can convince Judge Mehta that it would have legitimately held onto its monopoly even if it hadn’t paid the $26.3 billion.

Judge Mehta comes from a defense-side background. He favors the status quo. He will therefore need unusually strong reasons to kick Google out of its monopoly position.

But the public now knows he has $26.3 billion worth of them. Will that be enough?

______________________

*Believe it or not, the U.S. Supreme Court has not rendered a decision on the merits of a Section 2 monopolization case in the 62 years since it handed down Tampa Electric.

We round up the most significant appellate decisions relevant to commercial litigation each week.

Welcome back to Commercial Roundup. This installment will catch you up for the last several weeks.

We round up the most significant appellate decisions relevant to commercial litigation each week.

Here you go–Commercial Roundup for the couple of weeks ending September 14, 2023

We round up the most significant appellate decisions relevant to commercial litigation each week.

This late-summer edition of Commercial Roundup features a notable ruling on personal jurisdiction, a pair of False Claims Act decisions, a couple of opinions tossing class certification orders, a 2-1 split in a securities fraud case (the dissent has the better end of it), a rare victory for plaintiffs in an action for unlawful maintenance of a monopoly, a broadening of RICO to cover loss of wages as injury to “business”, an en banc extension of Title VII to discriminatory time off rules, approval of a way to defeat removal post-removal, and some patent and insurance matters. Enjoy!

The near-term prospects for significantly boosting antitrust enforcement appropriations look doubtful.

As I mentioned last month in Antitrust Enforcers Must Have More Funding, the Antitrust Division in the Department of Justice and the Federal Trade Commission need a boost of $340 million from current funding just to return them (in constant dollars) to 1979 levels–about $100 million for the Antitrust Division and $240 million for the FTC. 

Yet these big numbers understate enforcers’ resource needs for multiple reasons, including:

  • the tougher doctrinal standards in the wake of Robert Bork’s 1978 The Antitrust Paradox,
  • greater concentration of markets,
  • rising litigation costs,
  • the need for new digital and AI competencies, and
  • bigger disparities between corporate and public resources. 

A serious effort to restore the U.S economy to the competitive vigor of the 1970s would therefore require a funding rise that almost doubles the $53 million that the Senate Appropriations Committee proposed (in S. 2321) for the Antitrust Division and 12 times the $20 million it earmarked for the Federal Trade Commission (in S. 2309).

When you consider that S. 2309 would give the FTC only 12.5 percent of the $160 million boost it requested, S. 2321’s promise of more than half the $99,821,000 increase the Antitrust Division sought might look generous. But S. 2321 also transfers $50 million of the Antitrust Division’s money to another part of the Department of Justice, the Justice Operations, Management, and Accountability (JOM) segment, which houses DOJ’s top leadership, including the Attorney General.

Does that mean the Antitrust Division will fare even worse under the Senate appropriations bills than the FTC, with the Division getting only 3 percent of its request for a $99.8 million funding increase?

I suspect it does. For fiscal 2024, JOM requested a $67.5 million funding boost–to $212.5 million from $145 million–but S. 2321 actually cuts JOM’s appropriation by $5 million to $140 million. The $50 million transfer from the Antitrust Division would bring JOM’s appropriations to $190 million, still $22.5 million short of JOM’s ask. While Attorney General Merrill Garland might send some of the funds to the AD, doing so would shortchange JOM. That seems unlikely.

S. 2321 offers some hope of a further boost for the Antitrust Division, which appears to have received less harsh criticism for its pro-enforcement stance than the FTC has. Under the Senate bill, if Hart-Scott-Rodino (HSR) pre-merger notification fees exceed $278 million in fiscal 2024, the excess would go to the Antitrust Division. But the Attorney General—not the Antitrust Division—would have to “submit a spending plan” to the House and Senate appropriations committees before making the funds available to the AD. 

Although S. 2321 grants authority for using any fees above $278 million without further approval of the appropriations committees or of Congress itself—under the Chadra case from 1983, Congress may not reserve a right to veto post-appropriation uses of funds—the availability of any extra funds will depend on the number and size of merger deals requiring HSR scrutiny during fiscal 2024 and on the Attorney General’s priorities for the Antitrust Division.

Now for the bad news.

The House Appropriations Committee’s spending bills propose spending cuts for antitrust enforcers. They would fund the Antitrust Division at $192.8 million and the FTC at $376.5 million—$32.2 million and $53.4 million, respectively, below their appropriations for fiscal 2023.

While the Senate funding bills do not suggest hostility to a more assertive enforcement posture, the House’s proposals do. With the Senate bills giving antitrust appropriations a low priority, the enforcement agencies will need to make do in fiscal 2024 with fewer resources than they had almost half a century ago.

Any significant rise must await the outcome of the 2024 election.

We round up the most significant appellate decisions relevant to commercial litigation each week.

Welcome to the Commercial Roundup for July 26, 2023. With the U.S Supreme Court and the highest courts of New York and Texas on hiatus, the Supreme Court of Delaware and nine of the 13 U.S. Courts of Appeals supplied the commercial decisions that Roundup has cut into little pieces for you to sample.

Bonus content:

Two writers who cover antitrust issues asked me to comment on a Northern District of California judge’s July 11th ruling that the Federal Trade Commission hadn’t met its burden of proving grounds for a preliminary injunction against Microsoft’s $69 billion deal to buy Activision Blizzard. The deal promised to catapult Microsoft into second place in the U.S. video game market behind Sony.

To prepare for the interviews, I wrote down my main thoughts about the ruling. Below I share them with you.

  1. The court’s approach to the case—the legal standard it applied and the merger-friendly way it framed the underlying factual story—determined the outcome.
  2. Its approach to the law rejected the FTC’s positions and adopted Microsoft’s. The court interpreted the Clayton Act’s key language–“may be substantially to lessen competition”–to mean “will probably substantially lessen competition”. It also ruled that, to meet the “will probably” test, the FTC had to prove both that Microsoft would have the “ability” to foreclose competition in a relevant market and that it would have the “incentive” to foreclose it. 
  3. The court also accepted Microsoft’s framing of the dispute and version of the facts. The court started by allowing Microsoft to continue changing deal terms after the FTC developed painstaking economic evidence focusing on the original deal terms. That enabled Microsoft to control the narrative of the case. It also put the FTC in the position of constantly adjusting its economic analysis to take account of the changes.
  4. Controlling the narrative mattered enormously. Without the shifting of deal terms, the government would have told a story about preventing a merger that aimed to further enlarge an already huge company for the purpose of entrenching it in consolidating markets. But because of the court’s indulgence, Microsoft could change the story into one of an aspiring competitor selflessly willing to pay even more out of a desire to go toe to toe with archenemy Sony, the biggest player.
  5. Microsoft could thus spring a case different from the one the FTC had prepared to try. The resulting need for the FTC to make late-breaking updates to its proof–especially its economic modeling–likely explains the court’s surprising testiness about the FTC’s arguments (the court’s opinion said “the FTC insists” 10 times but “Defendants insist” only once).
  6. The dynamic may also have put the court in the position of viewing its job not as deciding whether to block a potentially anticompetitive combination but as helping Microsoft find a way to make the same deal meet legal standards.
  7. The court’s analysis appears to reflect a background assumption, common since Robert Bork’s The Antitrust Paradox came out in 1978, that increasing aggregations of economic power, without more, has no bad consequences that antitrust law has any proper concern with. 
  8. A court’s preexisting belief that big companies’ acquisitions have only benign effects on competition may explain its inclination to hold enforcers to higher standards of proof.

The FTC has filed a notice of appeal of the decision to the Ninth Circuit, which has docketed the case under no. 23-15992.

We round up the most significant appellate decisions relevant to commercial litigation each week.

Welcome to The Commercial Roundup for July 13, 2023. While the pace of new opinions has slowed, it has not stopped. And this issue includes the end of the Supreme Court’s 2022-23 Term.