What happens when the goals of antitrust enforcers clash with regulators focused on issues of national security and public interest? A forthcoming book by Ioannis Kokkoris, Public Interest Considerations in US Merger Control, explores these tensions in the United States regulatory framework.

The approach to competition enforcement and merger control in the United States is to achieve efficiency. Public interest considerations of the impact of mergers and acquisitions (M&A) transactions on U.S. national security and regulated sectors have also been embedded in merger control and corresponding legal frameworks. 

In principle, U.S. competition agencies do not consider public interest factors in the enforcement of the antitrust laws, including those laws that focus on assessing the anticompetitive harm of mergers. After the end of the Civil War in 1865, U.S. society shifted from agrarian to urban; this was a transformation period in which a few companies and persons accumulated economic power and capital. This led to the creation of “trusts.” 

In 1879, the first trust was formed—the Standard Oil Trust—which enjoyed control over the whole oil industry, from the production process to the sale of the final products. A salient feature of the dominance acquired by this trust was that just three years after its creation, founder John D. Rockefeller owned twenty-one refineries. In an attempt to counteract such consolidation, Ohio Senator John Sherman presented the first competition law or “antitrust law,” named the Sherman Act, which the U.S. Congress passed in 1890. However, the control of business concentrations was outside the remit and scope of the Sherman Act. In the late 19th century, there were an unprecedented 4,227 firms in the economy. After a significant degree of consolidation, these firms merged into 257 between 1897 and 1904. By 1904, an estimated 318 trusts controlled a significant portion of U.S. manufacturing assets.

My forthcoming book, Public Interest Considerations in US Merger Control, describes the extensive U.S. regulatory framework relevant to merger control and the possibility of parallel reviews of the same transaction depending on the sectors to which it relates. The book argues that the U.S. regime is at times convoluted when it comes to merger control and presents a detailed account of the relevant U.S. regulatory framework, assessing the different approaches that regulatory authorities in the U.S. take. Evaluation of transactions based on these considerations is at times at odds with the assessment of the same transactions based on competition law considerations. 

The book discusses the approaches of several U.S. agencies focused on competition and regulation, including the Committee on Foreign Investment in the United States (CFIUS), the Federal Communications Commission, the Surface Transportation Board, and the Board of Governors of the Federal Reserve System. The analysis focuses on the composition, legislation, and relevant public interest considerations that each regulatory authority takes into account and their respective decision-making process. It also presents some seminal cases that illustrate not only the enforcement approach of each regulatory authority but also the possibility for discrepancy between competition law based-assessment and national security and public interest based-assessment.

National security considerations

The book starts by introducing the institutional context of merger control review in the U.S. and focuses on the Federal Trade Commission’s and Department of Justice’s assessment of M&A deals. It discusses the concept of national security and will present the relevant regulatory framework, analyzing in detail the role of the CFIUS, as well as its enforcement record and the considerations that national security concerns imply for the assessment of concentrations. 

Although the concept of national security has not been well defined, it has been used with more frequency to shape regulations aimed at addressing concerns that arose from foreign investment. As the scope of this national security assessment continuously expands, more factors are taken into account in the appraisal. Hence, some of the factors that were initially considered to be relevant to national defense referred to human resources, products, technology, materials, energy supplies, and other critical resources. Then, the potential disclosure of substantial pools of personal information, the potential loss of one of only a few U.S. suppliers in certain sectors, and the potential loss of U.S. technological advantages were added to the list. More recently, the standard accommodates concerns stemming from certain foreign non-controlling investments involving critical technology, critical infrastructure, or sensitive personal data and real estate transactions that previously fell outside the confines of CFIUS scrutiny.

This book shows how, by expanding the scope of the national security test, the number of transactions filed with CFIUS has significantly increased and this can impede foreign investment activity targeted not just by types of sectors but also by the country of origin of the investor. The analysis goes further and argues that a further expansion of CFIUS’ jurisdiction and intense scrutiny facilitates the control of foreign investment rules and represents an effective tool to respond to economic and geopolitical tensions. Nonetheless, this approach entails the risk of being detrimental to the principles of transparency, predictability, and certainty that should govern these types of interventions. What is of paramount importance is for the U.S. national security regime to provide certainty to the investment and legal communities on the transparency and clarity of their approach to transactions that can raise national security concerns. Otherwise, the regime runs the risk of providing excuses for the adoption and furtherance of industrial strategies, which will be an unwelcome outcome.

The public interest standard

Turning to some of the regulated sectors such as energy, telecommunications, banking and financial services, and rail and airport transport, different authorities share the assessment of merger control and apply distinctive policies. In this light, the book seeks to deliberate on the overlap in the jurisdictions of antitrust and sector-specific regulators. Specifically, regulators have the authority to review such mergers that purportedly intend to translate the consolidation of business into outcomes that extend beyond competition law considerations. Hence, under a public interest standard, regulators, after looking at a wide range of factors, have the ultimate merger authority, whereas the federal antitrust agencies, who might have objected to the mergers for competitive reasons, had to defer to the regulator for the final decision. 

I also discuss the theoretical contentions about including far-fetched considerations as a merger control concern. One initial observation is that this public interest standard is ill-defined, which allows the accommodation of numerous aims usually absent under a competition-based analysis. Another observation is that although sectoral regulators have limited expertise in competition analysis, their authority surpasses that of the antitrust enforcers. This unbalanced approach between the competition and the public interest standard has resulted in a complex, expensive, and inefficient merger review that is difficult to justify.

The book continues with the assessment of concentrations by the various sectoral regulators based on the public interest standard. In these regulated sectors, a transaction is likely to be assessed under a public interest test by the relevant sectoral regulatory authority and at the same time under the substantial lessening of competition test by the FTC and DOJ. Furthermore, depending on the sector in question, the outcome of the public interest assessment may supersede that of the competition law assessment, an outcome that in itself can lead to ineffective competitive dynamics in the sectoral market. Finally, the book discusses cases where the FTC and DOJ sought to overturn decisions by the sectoral regulators on certain M&A transactions in the courts. 

Reforming regulatory overlap

As also seen with the national security concerns, the book establishes that when deciding a merger under public interest considerations, the relevant regulator seems to enjoy unlimited discretion. Whether a transaction induces national security or public interest concerns, it is crucial that the parties can predict the outcomes of the authorities’ assessments based on the analysis of objective factors that will be cognizant of the impact of transactions on the competitive dynamics in the markets. 

If some measures are not introduced to mitigate the overlap between authorities, it is very likely that we will continue witnessing these markets becoming more concentrated. Most importantly, such a divergence will impede the attainment of a sector-wide coherent enforcement policy. Such measures might include a clear and explicit regulation on concurrency of powers between FTC, DOJ, and sectoral regulators that will provide clear competence and boundaries for each agency. Clarity and transparency between the agencies can help in case allocation, so as the relevant authority is appropriately resourced and has the suitable expertise to assess the transactions. In addition, such a system can help in constructive cooperation between agencies and increases the accountability of the deciding agency. The U.K. uses such a concurrency regime ,which has been established for the last 10 years and has contributed to a more aligned regulatory framework for the assessment of transactions that fall within multiple agencies’ competencies.

In short, more transparency, accountability, and efficiency in the merger review process across the U.S. economy would be advisable and encouraged in ensuring legal certainty and a welcoming investment environment.

Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.