Changed Antitrust Rules Could Curb Tech Mergers

May 18, 2009

A shift in U.S. Department of Justice antitrust policy announced last week could blunt the expansion or merger plans of IT vendors, according to legal experts.

In speeches last week before the Center for American Progress and the U.S. Chamber of Commerce, Christine Varney, assistant attorney general in charge of the DOJ’s antitrust division, said that the agency is repealing a policy established under George W. Bush that “raises many hurdles to government antitrust enforcement.” The move signals a more aggressive approach to antitrust enforcement under President Barack Obama.

The short-lived Bush administration policy, included in a report released by the DOJ last September, had called for the agency to proceed slowly when investigating potential abuses of antitrust laws, Varney said.

The change in policy could mean that the department will look more closely at technology vendors such as Google Inc., Oracle Corp. and IBM, which, according to critics, have taken actions that raise antitrust concerns in recent months.

For example, Google continues to face critics who contend that it has a near monopoly in online search advertising. In fact, the DOJ late last year would not approve a proposed advertising partnership between Google and rival Yahoo Inc.

Google officials note that the company has initiated meetings with lawmakers, journalists and others in an effort to explain its positions on business competition and perhaps ease critics’ fears.

“As Google has grown, the company has naturally faced more scrutiny about our business principles and practices,” acknowledged Adam Kovacevich, senior manager for global communications and public affairs at Google, in a blog post earlier this month. “We believe that Google promotes competition and openness online, but we haven’t always done a good job telling our story.”

Varney said her comments weren’t directed at any one company or industry, but she did note that the DOJ would take a close look at the ever-changing high-tech and Internet industries.

“We plan to devote attention to understanding the unique competition-related issues posed by [high-tech] markets,” she said in the speech. “In the past, the antitrust division was a leader in its enforcement efforts in technology industries, and I believe we will take this mantle again. In so doing, I am cognizant that we must find the right balance to ensure that when intellectual property is at issue, competition is not thwarted through its misuse or illegal extension.”

Steve Newborn, an antitrust lawyer at Weil, Gotshal & Manges LLP, said that the DOJ move could simply shift antitrust enforcement back to the standards long upheld before last year’s changes. However, he suggested that companies with dominant positions in their markets should closely watch how the new policies play out. “The rules have changed,” Newborn said.

Bruce McDonald, a partner at law firm Jones Day and a former deputy assistant attorney general in the DOJ’s antitrust division, agreed, adding that technology vendors should be cautious in plotting merger activity.

Varney’s signal that the DOJ might look at new ways to measure antitrust behavior in technology industries could make the agency’s actions a “little less predictable,” McDonald said. “You very likely will see new enforcement actions.”

He added that the lack of hard rules might make high-tech companies reluctant to follow through on mergers that would normally be acceptable to the DOJ.

The Computer & Communications Industry Association, a Washington-based trade group that supports strong antitrust enforcement, praised the DOJ’s policy shift. “It’s clear we have a new sheriff in town,” said Ed Black, the group’s president and CEO. “So much was ignored by the last administration, a main job will be catching up.”

In an e-mail, Black said that Varney’s announcement indicates that the U.S. intends to return to the “main track” of antitrust enforcement and operate in parallel with the European Union. The DOJ is “going to be aggressive, but careful,” he added. “And I think that’s going to be an appropriate balance.”


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