Aerospace & Defense Series: Implications Of The FTC / DOJ Statement On Preserving Competition In The Defense Industry

On April 12, 2016, the Federal Trade Commission (FTC) and the US Department of Justice (DOJ) issued a joint statement to explain their "standard of review under the antitrust statutes of proposed transactions within the defense industry." This joint statement regarding the antitrust review standards applicable to a specific industry is highly unusual, and reflects the critical nature of the industry to our national security as well as reinforcing the importance of the US Department of Defense (DoD) in the merger review process. In late 2015 and earlier this year, DoD had pushed for legislation to enable a DoD review of defense industry acquisitions independent of the antitrust review. In light of the statement from the FTC and DOJ, and the reinforcement of the importance of the Pentagon and national security interests in the antitrust review process, the Pentagon indicates it will no longer pursue that legislation.

Much of the statement reinforces what has been clear for several decades. Namely, DoD has a very important role in defense antitrust reviews, and the antitrust agencies place great weight on DoD's's views. In addition to those reminders, though, the overall tone of the statement indicates that the agencies may seek to expand the time horizon for antitrust concern and may seek to protect competition if there are ongoing R&D efforts in a particular area even if there is no current or near-term planned competition in which the merging companies would compete to supply a defense system.

The FTC/DOJ statement stresses several elements that, in combination, appear to signal antitrust sensitivities even when firms do not have competing products and are not bidding on current or near-term procurements. First, the statement focuses on the "incipiency" standard of Section 7 of the Clayton Act under which transactions can be challenged even when "certainty about the anticompetitive effect is seldom possible." Second, the statement notes that a central issue in the antitrust review on which "the Agencies are especially focused" is "ensuring that defense mergers will not adversely affect short- and long-term innovation crucial to our national security." Third, the statement notes that the agencies are focused on ensuring that "current, planned, and future procurement competition is robust." The agencies' review process seeks to protect innovation and R&D activities in the short term to preserve the potential for longer term competition.

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