Antitrust Lawyer Blog
On March 15, 2018, the Department of Justice’s Antitrust Division filed a modified proposed final judgment (“MPFJ”) and responded to amici briefs filed in the Antitrust Procedures and Penalties Act (“Tunney Act”) proceedings regarding the DOJ’s settlement agreement that allowed Anheuser Busch InBev SA/NV’s (“ABI”) to acquire SABMiller. In other words, the consent decree that was signed on July 20, 2016 between the Obama DOJ and the merging parties has yet to be approved by a federal court. One would think that the DOJ would move quicker on finalizing a consent decree that allowed the largest beer merger in history proceed. But, here we are just about at the two-year mark without a finalized decree.
The DOJ permitted the merger of the two largest global brewers, which without a remedy threatened to reduce head-to-head competition between Anheuser Busch InBev SA/NV’s (“ABI”) and MillerCoors in local markets throughout the country. The DOJ alleged that the elimination of competition between ABI and MillerCoors would increase ABI’s incentive and ability to disadvantage its remaining rivals – in particular, brewers of high-end beers that serve as an important constraint on ABI’s ability to raise its beer prices – by limiting or “impeding the distribution” of their beers, likely resulting in increased prices and fewer choices for consumers. This allegation is significant because “effective distribution is important for a brewer to be competitive.”
To resolve these competitive concerns, the DOJ’s Proposed Final Judgment required the divestiture, which permanently cemented a duopoly where two suppliers exert control over approximately 85-90% of the distributors in the United States. The DOJ further acknowledged in its Competitive Impact Statement (“CIS”) that ABI and Molson Coors have business arrangements and contacts throughout the world and that the divestiture may actually facilitate coordination. Because of the increased likelihood of coordinated anticompetitive effects, the DOJ alleged that the merger “would increase ABI’s incentive and ability to disadvantage its beer rivals by impeding the distribution of its beers.” Accordingly, the DOJ sought behavioral remedies, which are designed to keep beer distribution independent and open as well as to level the playing field for ABI’s high end rivals.
The Court now must determine whether the MPFJ is in the public interest, as mandated by the “Tunney Act”. Specifically, the district court must determine whether the remedy secured in the MPFJ adequately restores competition. For the MPFJ to be meaningful, the DOJ and the federal court need to have the tools to effectively enforce the decree. So careful scrutiny by the court is important.
The court’s job is very difficult because the consent decree/settlement contains numerous behavioral remedies that require the DOJ and a monitoring trustee to police ABI’s conduct going forward. Third parties including the Brewers Association, National Beer Wholesalers Association, Yuengling, the Teamsters, and consumer groups, however, raised concerns that careful scrutiny of the details of the settlement agreement are important because as drafted ABI may be capable of creating new strategies designed to harm rival brewers while also following the letter of the decree. These third parties identified ambiguities in the decree and provided numerous recommendations. Both changes in the language of the decree and strong oversight is needed to ensure that ABI does not devise new strategies and engage in conduct that could slip through the cracks and harm competition and consumer choice.
The DOJ summarily rejected all third-party arguments and defended its settlement agreement. At the same time, the Trump DOJ modified and strengthened the decree by adding three new provisions that improve the enforceability of the Division’s consent decree. First, the DOJ included language that lowers its burden of proof should ABI violate the decree and the DOJ move for contempt. The DOJ included a “preponderance of the evidence” standard in the decree, which is a lower standard than the “clear and convincing evidence” standard the U.S. antitrust agencies have been held to in the past. Second, the DOJ included a provision on fee shifting that requires ABI to reimburse the DOJ if the DOJ starts an investigation into a consent decree violation. Third, the DOJ included a provision that allows for a one-time extension of the term of the decree, if ABI is found to violate the decree. All three provisions allow for meaningful and effective enforcement of the behavioral decree and should encourage ABI to comply with it. The good news for consumers is that the DOJ did not walk away from the behavioral remedies even though the head of the DOJ, Makan Delrahim is adamantly opposed to them. He believes that antitrust is about law enforcement and behavioral remedies are are fundamentally regulatory, which requires the monitoring of what otherwise should be free markets.
As part of the negotiations to include the provisions that strengthened the decree, the DOJ agreed to reduce the time period for the decree, which was originally ten years down to approximately 8 years. While the DOJ’s efforts in obtaining additional provisions that should meaningfully improve the enforceability of the decree should be applauded, the DOJ should not be short-changing consumers with a shorter time period because of the DOJ’s 20-month delay in this Tunney Act proceeding especially when the DOJ itself has concerns that the divestiture to Molson Coors could result in coordinated conduct in the future. The reason the DOJ entered into a settlement agreement is because the transaction was anticompetitive under the antitrust laws. The DOJ should not be rewarding ABI when it designed incentive programs that impeded the growth of rival craft brewers in the not too distant past. At the ABA Fall Forum, the DOJ’s own Makan Delrahim said that “a short-term remedy is a band-aid, not a fix”. In other words, “the relief at best only delays the merged firm’s exercise of market power.” Accordingly, the district court should could consider whether a longer-term band-aid is a better outcome for consumers.
The Honorable Judge Emmet Sullivan is the one who is tasked to make this decision. He has an enormous responsibility. Because the MPFJ includes numerous behavioral conditions, the Final Judgment must be absolutely clear to avoid any confusion or ambiguities. The DOJ defends its MPFJ without recognizing the need for any substantive modifications proposed by the various amicus briefs. But, Judge Sullivan is statutorily empowered to take into account the competitive landscape to determine whether the MPFJ is in the public interest and is adequate to, at the very least, resolve the anticompetitive concerns identified by the DOJ in its Complaint and CIS. Given the complexities involved in drafting a behavioral decree as well as the third-party concerns about the numerous ambiguities within the decree that directly impact them, Judge Sullivan should hold a hearing before making his final decision.
Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com