Presenting a live 90 minute webinar with interactive Q&A. Td Today s faculty features:

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1 Presenting a live 90 minute webinar with interactive Q&A New DOJ Merger Remedies: Expanded d Antitrust Enforcement Tools Navigating Revised Guidance to Mitigate Anti competitive Impact With Conduct and Structural Remedies TUESDAY, JULY 19, pm Eastern 12pm Central 11am Mountain 10am Pacific Td Today s faculty features: J. Robert Kramer, II, General Counsel, Office of the General Counsel, U.S. Department of Justice, Washington, D.C. Michael H. Knight, Partner, Jones Day, Washington, D.C. Joseph G. Krauss, Partner, Hogan Lovells, Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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5 ANTITRUST DIVISION POLICY GUIDE TO MERGER REMEDIES J. Robert Kramer II General Counsel, Antitrust Division

6 Introduction The Policy Guide provides guidance to the staff of the Antitrust Division and to the business community in analyzing proposed remedies for mergers Touchstone principle: a successful merger remedy must effectively preserve competition ii in the relevant market 6

7 The Need for an Updated Guide The merger landscape has evolved since 2004 The Division increasingly reviews complex international and vertical transactions Old guide did not reflect remedies filed in recent Division cases The Division s Office of the General Counsel has principal responsibility for enforcing Division decrees 7

8 Types of Remedies Structuralt Require merging firms to sell overlapping business or physical or IP assets to create a new competitor Conduct Prescribes aspects of merged firm s conduct Can preserve a merger s potential efficiencies while remedying likely competitive harm Hybrid Combination of structural and conduct provisions 8

9 FYs 2010 and Horizontal Decrees: 13 required divestiture. Some have additional relief; i.e., notification provisions, restrictions on resale, short-term supply agreements One had substantial vertical issues and also included conduct relief. 3 Vertical Cases: All have conduct restrictions. Structural relief was not a viable option. 9

10 Live Nation Allegation: Unilateral theory based on Live Nation incipient competition and intent to compete on price. Live Nation also had unique advantages in challenging Ticketmaster because of its promotion business 10

11 Live Nation Remedy: Divestiture: License Ticketmaster Host on a White Label basis for up to 5 years; acquirer has option to enter into perpetual license or choose third-party ticketer or enter itself, but then cannot use Ticketmaster Divestiture of Paciolan to Comcast within 60 days of closing Prohibits retaliation against venue for contracting with another ticketer Prohibits tying live entertainment to ticketing services Firewalls promotional employees from sensitive ticketing information Clients switching to another ticketing service can obtain ticketing data 11

12 Comcast Allegation: Merger would allow Comcast to lessen competition from traditional MVPDs and emerging OVDs by withholding or raising the cost of content, especially content of the NBC broadcast network 12

13 Comcast Remedy: Existing FCC regulation and FCC Order protects traditional MVPDs; supplemented by DOJ anti-retaliation prohibitions Comcast must license programming to OVDs on either terms economically equivalent to those given to MVPDs or terms comparable to those given to other qualified OVDs. Arbitration may be available to certain OVDs Comcast must relinquish management rights in Hulu and provide content to Hulu comparable to what is provided by other JV partners Nondiscrimination in transmission of OVD s network to a Comcast broadband customer 13

14 GrafTech Allegation: GrafTech, a producer of graphite electrodes, proposed to acquire Seadrift, a major upstream needle coke producer. GrafTech already purchased needle coke from Conoco through a contract with an MFN and audit rights. The contract rights combined with control over Seadrift would give the two needle coke producers substantial real- time customer specific pricing and volume information and create a danger of coordinated effects 14

15 GrafTech Remedy: Amend the supply agreement to remove audit rights, sharing of non-public sensitive information, and MFN pricing. Prohibit use of such terms in future contracts Firewall GrafTech employees who negotiate contract terms with Conoco from those who make pricing and production decisions at Seadrift. Prevent Seadrift employees negotiating with GrafTech electrode competitors from sharing competitively sensitive data with GrafTech 15

16 Google/ITA Allegation: ITA licenses QPX software, a search engine with unique capabilities used by online travel intermediaries (OTIs). Google intends to offer a travel search product that competes with OTIs. Given the importance of QPX, the acquisition of ITA would give Google the incentive to foreclose or raise the costs of rivals 16

17 Google/ITA Remedy: Google must honor existing QPX licenses, renew them on similar terms and offer to license to OTIs not under contract on fair, reasonable and non-discriminatory terms. The obligations also run to new InstaSearch technology. Google must continue ordinary course upgrades and not tlessen resources to upgrade the product Firewall Google from sensitive OTI information obtained through provision of QPX or InstaSearch services Google generally cannot enter into agreements to limit seat availability and booking class information to OTI competitors. Granting licenses cannot be conditioned on OTI purchases of other Google services 17

18 Recent Conduct Remedies Summary Tailor remedies to facts of case and theory of harm Four cases show a range of conduct remedies: Firewalls Mandatory licensing Tying prohibitions MFN prohibition Anti-retaliation i provision i Relinquishing management rights Limiting exclusive contracts 18

19 Guiding Principles All Division i i merger remedies should: 1. Effectively preserve competition 2. Focus on preserving competition, not protecting individual competitors 3. Tailor remedies by applying legal and economic principles to the facts of each case 19

20 Remedies by Type of Merger Horizontal Mergers: The Division pursues a structural remedy in the vast majority of cases Vertical lmergers: The Division i i considers tailored conduct remedies and, in some cases, structural remedies Mergers with both horizontal and vertical dimensions: May require a combination of structural and conduct provisions 20

21 Structural Remedies Any divestiture must include all the assets necessary for the buyer to compete effectively with the merged entity The Division prefers divestiture of an existing business entity that already has demonstrated its ability to compete in the relevant market 21

22 Implementation: Timing In some cases, parties pursue a fix-it-first it t remedy to resolve the Division s concerns without t the Division i i bringing i suit In other cases, the parties may propose an upfront buyer for a specific package of divestiture assets 22

23 Implementation: Timing In most merger cases, the parties (or a selling trustee) will shop a specific asset package in an effort to find a buyer Divestiture periods are short 60 to 90 days are the norm In some instances, the Division will require a crown jewel provision to increase the chances that an appropriate buyer will emerge 23

24 Implementation: Protecting Divestiture Remedies The Division s tool box includes measures to safeguard its divestiture remedies: - Hold separate/asset preservation provisions - Operating and monitoring trustees - Selling trustees - Division purchaser approval 24

25 Implementation: Protecting Divestiture i Remedies A proposed purchaser must meet three requirements: - Divestiture to proposed purchaser must not cause competitive harm - Purchaser must have ability and incentive to use divested assets to compete in the relevant market - Purchaser must have sufficient acumen, experience, and financial capability to compete effectively in the market over the long term 25

26 Conduct Remedies Can be an effective method for addressing competition concerns raised by vertical mergers Sometimes used to address concerns raised by horizontal mergers (usually in conjunction with a structural remedy) Clear and careful drafting is especially important for conduct remedies Can expect active Division monitoring 26

27 Conduct Remedies The most common forms of conduct remedies include: Firewall provisions Non-discrimination provisions Mandatory licensing provisions Anti-retaliation provisions Prohibitions on certain contracting practices 27

28 Regulatory Considerations When mergers involve firms in regulated industries, the Division considers the impact of applicable regulations The existence of regulation typically does not eliminate the need for an antitrust remedy Collaboration with the regulatory agency is a best practice. E.g., cooperation with FCC in Comcast/NBC 28

29 Jurisdictional Considerations The Division often works with international and state antitrust authorities in merger matters and considers it to be a best practice Our goal is to ensure that, to the extent possible, Division i i remedies do not conflict unnecessarily with other jurisdictions remedies Front Office works with our staff and non-us agencies to achieve coordinated merger remedies 29

30 New DOJ Merger Remedies Guide: Expanding the Medicine Chest Michael H. Knight July 19, 2011

31 Basic Highlights New Guide issued June 17, 2011 Updates 2004 policy and includes important changes: Use of conduct remedies Crown jewel provisions Arbitration ti Monitor trustees General Counsel position 31

32 Some Comparisons to 2004: Conduct Remedies 2004 A conduct remedy... typically is more difficult to craft, more cumbersome and costly to administer, and easier than a structural remedy to circumvent Conduct remedies can be an effective method for dealing with competition concerns raised by vertical mergers and also are sometimes used to address concerns raised by horizontal mergers. 32

33 Some Comparisons to 2004: Crown Jewel Provisions The Division disfavors the use of crown jewel provisions because generally they represent acceptance of either less than effective relief at the outset or more than is necessary to remedy the competitive problem A crown jewel provision may be necessary [in certain cases] to ensure that the remedy will effectively preserve competition. 33

34 Some Comparisons to 2004: Monitor Trustees 2004 [A]ppointment of a monitoring trustee should be reserved for relatively rare situations where a monitoring trustee with technical expertise unavailable to the Division could perform a valuable role A monitoring trustee with industry experience can reduce the burden on the Division and the parties while ensuring that the parties adhere to the decree. 34

35 New Guide reflects current realities at DOJ Greater willingness to intervene in vertical mergers? Greater willingness to impose non-structural remedies? Squares with several recent matters: Google/ITA Comcast/NBCU GrafTech/Seadrift Ticketmaster/Live Nation George s/tyson 35

36 New Guide reflects current realities at DOJ Greater willingness to take regulatory approach? Crown jewel provisions Arbitration Monitor trustees General Counsel oversight 36

37 Pros Pros/Cons for Clients Expanded medicine chest may allow more deals to gain clearance Greater flexibility in remedies Cons Could prove to be Pandora s Box Temptation to make the world a better place 37

38 How to Determine/Assess Possible Remedies Identify the nature of potential harm: Horizontal? Vertical? Both? Assess the strength of the merits case. Remedies are by nature case specific. Assess whether structural relief is a viable option. Assess whether a case can be made that non-structural relief will adequately address the concern. Look to other cases: Has this bridge been crossed before? 38

39 How to Determine/Assess Possible Remedies Test the agency s willingness to accept a remedy and flexibility in approach. Tailor the proposed remedy as narrowly as possible to address the competitive harm. Understand the practical logistics of the proposal -- i.e., what precisely must be done and how feasible is it? Assess likely timing, need for ongoing agency involvement, potential need for trustee, etc. 39

40 DOJ Merger Remedies Guide Effective Remedies Joseph G. Krauss, Partner /19/2011 Washington, D.C.

41 Advantages for clients Greater Flexibility The broad range of remedies considered by the Division may enable more deals to gain clearance. Tailoring remedies to the particular facts of a merger may avoid unnecessary entanglements with the competitive process. Will allow the Division to seek remedies that preserve a merger s efficiencies. With more tools available, the Division i i is better able to craft remedies that do not conflict with those of other competition agencies. 41

42 Possible disadvantages for clients Lack of bright-line rules The panoply of available remedies and fact-intensive inquiry may make it difficult to predict what remedies the Division will deem appropriate for a specific merger. Temptation to overdesign remedies With a wide variety of tools at hand and the goal of creating carefully tailored remedies, there may be an incentive to create overly complex remedies. 42

43 What makes a remedy appropriate? Remedies must be tailored to address the specific competitive concerns of the merger. Look at the specific facts of the proposed merger. Identify the competitive harm. Identify how the proposed remedy will solve the problem. Remedies should provide contingency plans. What happens if a purchaser backs out? What happens if a purchaser cannot be found? How will complainants resolve issues regarding a firm s post-merger compliance with a decree? 43

44 General best practices for creating a remedy Identify the competitive harm threatened by the merger. Replace the competition lost by the merger. Look to other cases with similar facts. But look for facts that distinguish the two situations. Merely copying a past proposal is unlikely to prove successful. Consider whether a conduct remedy will adequately address the Division s concerns. Consider ways to reduce the burden on the parties. A simple and swift remedy may be preferable to a remedy requiring ongoing monitoring. Notify the Division of relevant regulatory, state, or international matters. 44

45 Best practices for structural remedies Divest assets within days. Look for a fit purchaser. One with the ability to compete effectively over the long term. Look for a purchaser that needs less rather than more. Divesting less than an existing business entity may be sufficient. Create an attractive package of assets to avoid divesting crown jewels. When possible, fix-it-first. it t Fix-it first remedies cannot contain conduct provisions. Alternatively, find an upfront buyer. This avoids the need for hold-separate provisions and monitor or operating trustees Ensure that the assets to be divested will be managed well and kept in saleable condition. 45

46 Best practices for conduct remedies Conduct remedies should be drafted carefully. Precise Unambiguous No loopholes Enforceable Look for regulatory agencies or arbitration ti provisions to minimize the burden on the Division. Look for remedies that the Division can easily monitor. 46

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