Case: 23-60167 Document: 118 Page: 1 Date Filed: 06/12/2023
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`
`
`No. 23-60167
`
`In The United States Court of Appeals for the Fifth Circuit
`
`ILLUMINA, INC.; AND GRAIL, INC.,
`Petitioners,
`
`
`v.
`
`FEDERAL TRADE COMMISSION,
`Respondent.
`
`Petition for Review from an Order of
`the Federal Trade Commission
`Agency No. 9401
`________________________
`
`BRIEF FOR THE CHAMBER OF COMMERCE
`OF THE UNITED STATES OF AMERICA AS
`AMICUS CURIAE IN SUPPORT OF PETITIONERS & REVERSAL
`________________________
`
`Tyler S. Badgley
`Jordan L. Von Bokern
`U.S. CHAMBER LITIGATION CENTER
`1615 H. Street, NW
`Washington, DC 20062
`(202) 463-5337
`
`
`
`Jeffrey M. Harris
`Frank H. Chang
`CONSOVOY MCCARTHY PLLC
`1600 Wilson Boulevard, Suite 700
`Arlington, VA 22201
`(703) 243-9423
`jeff@consovoymccarthy.com
`
`Counsel for Amicus Curiae
`The Chamber of Commerce
` of the United States of America
`
`
`
`
`
`
`
`
`
`

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`Case: 23-60167 Document: 118 Page: 2 Date Filed: 06/12/2023
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`CERTIFICATE OF INTERESTED PERSONS
`Per Fifth Circuit Rule 28.2.1, the Chamber of Commerce of the United States of
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`America certifies that—in addition to the persons listed on the certificate of interested
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`persons submitted by Petitioners Illumina, Inc. and Grail, Inc.—the following listed
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`persons have an interest in the outcome of this case. These representations are made in
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`order for the judges of this Court to evaluate possible disqualification or recusal.
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`1. The Chamber of Commerce of the United States, Amicus Curiae
`
`2. Tyler S. Badgley, Counsel for Amicus Curiae
`
`3. Jordan L. Von Bokern, Counsel for Amicus Curiae
`
`4. Jeffrey M. Harris, Counsel for Amicus Curiae
`
`5. Frank H. Chang, Counsel for Amicus Curiae
`
`Dated: June 12, 2023
`
`
`
`
`
`
`
`
`/s/ Jeffrey M. Harris
`
`i
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`

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`Case: 23-60167 Document: 118 Page: 3 Date Filed: 06/12/2023
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`TABLE OF CONTENTS
`Certificate of Interested Persons ............................................................................................. i
`Table of Contents ..................................................................................................................... ii
`Table of Authorities ................................................................................................................. iii
`Interest of Amicus Curiae ........................................................................................................ 1
`Summary of the Argument ...................................................................................................... 2
`Argument .................................................................................................................................... 4
`I.
`Vertical mergers are presumptively procompetitive and beneficial to
`consumers, and thus lawful. ................................................................................... 4
`II. The government must present real-world evidence of harm and cannot
`use shortcuts or mere possibilities to establish the prima facie case in
`vertical merger cases. .............................................................................................. 8
`A.
`The government cannot use “shortcuts” in vertical merger cases. .... 11
`B.
`The government cannot use mere possibilities of harm to block a
`vertical merger. ........................................................................................... 14
`The government must present real-world evidence of harm to
`establish its prima facie case. ....................................................................... 17
`III. The government will fail to carry its burden in most vertical merger
`cases. ........................................................................................................................ 19
`Conclusion ............................................................................................................................... 22
`Certificate of Compliance ...................................................................................................... 23
`Certificate of Service ............................................................................................................... 23
`
`
`C.
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`ii
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`Case: 23-60167 Document: 118 Page: 4 Date Filed: 06/12/2023
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`
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`TABLE OF AUTHORITIES
`
`Cases
`Alberta Gas Chems. Ltd. v. E.I. Du Pont De Nemours & Co.,
`
`826 F.2d 1235 (3d Cir. 1987) ............................................................................................. 5
`Biestek v. Berryhill,
`
`139 S.Ct. 1148 (2019) .......................................................................................................... 3
`Brown Shoe Co. v. United States, 3
`
`70 U.S. 294 (1962) .................................................................................................... 4, 5, 12
`Chi. Bridge & Iron Co. N.V. v. FTC,
`
`534 F.3d 410 (5th Cir. 2008) ....................................................................................... 9, 10
`Comcast Cable Comm’cns, LLC v. FCC,
`
`717 F.3d 982 (D.C. Cir. 2013) ........................................................................................... 7
`Consol. Edison Co. of N.Y. v. NLRB,
`
`305 U.S. 197 (1938) ............................................................................................................. 3
`Freuhauf Corp. v. FTC,
`
`603 F.2d 345 (2d Cir. 1979) .............................................................................. 5, 7, 11, 14
`FTC v. Arch Coal, Inc.,
`
`329 F. Supp. 2d 109 (D.D.C. 2004) ........................................................................... 2, 15
`FTC v. Elders Grain, Inc.,
`
`868 F.2d 901 (7th Cir. 1989) ....................................................................................... 9, 15
`It’s My Party, Inc. v. Live Nation, Inc.,
`
`811 F.3d 676 (4th Cir. 2016) ....................................................................................... 7, 21
`Leegin Creative Leather Prods., Inc. v. PSKS, Inc.,
`
`551 U.S. 887 (2007) ........................................................................................................... 13
`Mercantile Tex. Corp. v. Bd. of Governors of Fed. Rsrv. Sys.,
`
`638 F.2d 1255 (5th Cir. 1981) ......................................................................................... 16
`Pulse Network, LLC v. Visa, Inc.,
`
`30 F.4th 480 (5th Cir. 2022) .............................................................................................. 5
`Schofield v. Saul,
`
`950 F.3d 315 (5th Cir. 2020) .............................................................................................. 3
`United States v. AT&T, Inc.,
`
`310 F. Supp. 3d 161 (D.D.C. 2018) ............................................. 2, 9, 11, 15, 17, 18, 21
`
`
`
`
`iii
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`Case: 23-60167 Document: 118 Page: 5 Date Filed: 06/12/2023
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`United States v. AT&T, Inc.,
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`916 F.3d 1032 (D.C. Cir. 2019) .............................................. 2, 9, 10, 11, 12, 14, 18, 20
`United States v. Baker Hughes, Inc.,
`
`908 F.2d 981 (D.C. Cir. 1990) ........................................................................ 9, 10, 11, 21
`United States v. Phila. Nat’l Bank,
`
`374 U.S. 321 (1963) ........................................................................................................... 21
`United States v. UnitedHealth Grp. Inc.,
`
`2022 WL 4365867 (D.D.C. Sept. 21) .................................. 9, 11, 12, 14, 15, 17, 18, 19
`Yamaha Motor Co., Ltd. v. FTC,
`
`657 F.2d 971 (8th Cir. 1981) ............................................................................................ 16
`
`Statutes
`15 U.S.C. § 18 ........................................................................................................................ 2, 8
`
`Other Authorities
`Areeda & Hovenkamp, Antitrust Law ¶1000a ..................................................................... 12
`Blair et al., Analyzing Vertical Mergers: Accounting for the
`Unilateral Effects Tradeoff and Thinking Holistically About Efficiencies,
`
`27 Geo. Mason L. Rev. 761(2020) ............................................. 6, 10, 13, 14, 18, 19, 20
`Bork, The Antitrust Paradox:
`A Policy at War With Itself (Bork Publishing 2021) .......................................... 4, 5, 6, 13, 16
`Carl Shapiro, Antitrust in a Time of Populism,
`
`61 Int’l J. Indus. Org. 714 (2018) .................................................................................... 20
`Chen & Hylton, Procompetitive Theories of Vertical Control,
`
`50 Hastings L.J. 573, 576 (1999) ....................................................................................... 6
`DOJ, 1984 Merger Guidelines 24, https://perma.cc/QUA9-MWZK ..................... 7, 11
`FTC & DOJ, 2020 Vertical Merger Guidelines 2, https://perma.cc/7RC9-EADZ . 4, 8
`Ginsburg et al., The Federal Trade Commission’s Hearings
`
`on Competition and Consumer Protection in the 21st Century, Vertical Mergers,
` Geo. Mason Univ. (Sept. 6, 2018) ........................................................................... 16, 20
`Ginsburg, Vertical Restraints: De Facto Legality Under the Rule of Reason,
`
`60 Antitrust L.J. 67 (1991) ................................................................................................. 7
`Heather, Inside the FTC’s Ploy to Quash a BioTech Merger, Chamber of Com. (Sept. 10,
`2021), https://www.uschamber.com/international/inside-the-ftc-s-ploy-quash-
`biotech-merger ..................................................................................................................... 1
`
`
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`iv
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`Case: 23-60167 Document: 118 Page: 6 Date Filed: 06/12/2023
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`Hoffman, Vertical Merger Enforcement at the FTC 4 (Jan. 10, 2018),
`https://perma.cc/ET32-SFVK ................................................................................. 8, 15
`Hovenkamp, Competitive Harm from Vertical Mergers 4 (2020),
`https://perma.cc/9LA2-YNP3 ................................................................................. 5, 13
`Ossorio, Note, Drawing the Line: Refining the Baker Hughes
` Burden-Shifting Framework for Vertical Mergers,
`
`73 Fla. L. Rev. 199 (2021) ................................................................................................ 20
`Roundtable on Vertical Mergers, Note by the Delegation of the United States to the
`OECD (Feb. 15, 2007), https://perma.cc/2DAM-D43P .................................... 7, 21
`Sokol, Vertical Mergers and Entrepreneurial Exit,
`
`70 Fla. L. Rev. 1357 (2018) .............................................................................................. 19
`Wrobel, Spotlight on U.S. Vertical Merger Enforcement: Burden of Proof and Revised
`Enforcement Guidelines,
`33 Antitrust 3 (2019) ......................................................................................................... 20
`
`
`
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`v
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`Case: 23-60167 Document: 118 Page: 7 Date Filed: 06/12/2023
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`INTEREST OF AMICUS CURIAE1
`The Chamber of Commerce of the United States of America is the world’s largest
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`
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`business federation. It represents approximately 300,000 direct members and indirectly
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`represents the interests of more than three million companies and professional organi-
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`zations of every size, in every industry sector, and from every region of the country. An
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`important function of the Chamber is to represent the interests of its members in mat-
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`ters before Congress, the Executive Branch, and the courts. To that end, the Chamber
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`regularly files amicus curiae briefs in cases, like this one, that raise issues of concern to
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`the nation’s business community.
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`
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`The Chamber has a significant interest in preventing the government from
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`adopting a novel and overly aggressive approach to vertical mergers, which—if em-
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`braced by this Court—would greatly undermine countless transactions that benefit con-
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`sumers. The Chamber is very familiar with the issues in this case. For years, the Cham-
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`ber has tried to call attention to the Federal Trade Commission’s legally dubious ap-
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`proach to the Illumina-Grail merger. See, e.g., Heather, Inside the FTC’s Ploy to Quash a
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`BioTech Merger, Chamber of Com. (Sept. 10, 2021), https://www.uschamber.com/inter-
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`national/inside-the-ftc-s-ploy-quash-biotech-merger. This includes efforts through
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`Freedom of Information Act requests to uncover the FTC’s early collusion with the
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`
`1 In accordance with Federal Rule of Appellate Procedure 29(a)(4)(E), the Cham-
`ber certifies that this brief was authored by the Chamber’s counsel and that no party or
`counsel for any party funded the preparation or submission of this brief. All parties
`have consented to the filing of this amicus brief.
`
`
`
`1
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`

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`Case: 23-60167 Document: 118 Page: 8 Date Filed: 06/12/2023
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`European Commission to block the Illumina-Grail merger. See Chamber of Com. of the
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`U.S.A. v. FTC, No. 1:22-cv-2070 (D.D.C.). The Chamber is also deeply concerned by
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`the FTC’s unconstitutionally structured proceedings and filed an amicus brief in Axon
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`Enterprise, Inc. v. FTC, No. 21-86 (U.S.), to support the business community’s ability to
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`vindicate its rights. The Chamber thus has a significant interest in the proper resolution
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`of this case.
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`SUMMARY OF THE ARGUMENT
`This Court should closely scrutinize whether the FTC relied on real-world evi-
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`dence of harm to competition to justify its decision to block the Illumina-Grail merger,
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`a presumptively procompetitive vertical merger. The Clayton Act demands no less. Sec-
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`tion 7 of the Act prohibits mergers “where in any line of commerce … the effect of
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`such acquisition may be substantially to lessen competition.” 15 U.S.C. § 18.
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`Congress never authorized the government or courts to block mergers based on
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`a “‘mere possibility’” of harm to competition United States v. AT&T, Inc., 916 F.3d 1032,
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`1032 (D.C. Cir. 2019) (cleaned up). “‘[A]ntitrust theory and speculation cannot trump
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`facts,’” and real-world evidence of competitive harm is required. United States v. AT&T,
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`Inc., 310 F. Supp. 3d 161, 190 (D.D.C. 2018) (quoting FTC v. Arch Coal, Inc., 329 F.
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`Supp. 2d 109, 116 (D.D.C. 2004)). It is indisputable that the government “‘has the ulti-
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`mate burden of proving a Section 7 violation by a preponderance of the evidence.’”
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`AT&T, 310 F. Supp. 3d at 189. “[T]he Government’s ‘failure of proof in any respect
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`will mean the transaction should not be enjoined.’” Id.
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`2
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`

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`Case: 23-60167 Document: 118 Page: 9 Date Filed: 06/12/2023
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`An agency’s factual findings are ordinarily reviewed under the substantial evi-
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`dence standard, and Petitioners ably explain why that standard is not met in this case.
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`See Pet’rs-Br. 15. In addition, “[s]ubstantial evidence requires at least, in a word, evidence.”
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`Schofield v. Saul, 950 F.3d 315, 320 (5th Cir. 2020). Although courts generally consider
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`the substantial evidence standard to be deferential, they do not simply rubberstamp the
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`agency’s findings. Instead, “the agency’s decision must still be supported by ‘such rele-
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`vant evidence as a reasonable mind might accept as adequate to support a conclusion.’”
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`Id. (quoting Consol. Edison Co. of N.Y. v. NLRB, 305 U.S. 197, 229 (1938)). And as this
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`Court recently emphasized, it is not sufficient for agencies to rely on “‘clearly mistaken
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`evidence, fake evidence, speculative evidence, and conclusory evidence’”—these are
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`not “substantial evidence.” Id. (quoting Biestek v. Berryhill, 139 S.Ct. 1148, 1160 (2019)
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`(Gorsuch, J., dissenting)).
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`
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`Consistent with this standard, the government cannot block a vertical merger (or
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`even survive this Court’s review under the substantial evidence standard) by relying on
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`speculation or conjecture without real-world evidence. This Court must reverse to the
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`extent the FTC failed to present real-world evidence—and instead used shortcuts, mul-
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`tifactor balancing, or mere possibilities—to block the Illumina-Grail merger.
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`This approach is consistent with: (1) the overwhelming consensus among courts,
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`government officials, and scholars that vertical mergers are presumptively procompet-
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`itive and thus lawful; (2) the overwhelming caselaw rejecting the government’s attempts
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`3
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`Case: 23-60167 Document: 118 Page: 10 Date Filed: 06/12/2023
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`to use shortcuts and mere possibilities to block vertical mergers; and (3) the overwhelm-
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`ing consensus that vertical mergers should not be blocked in most cases.
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`ARGUMENT
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`I.
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`Vertical mergers are presumptively procompetitive and beneficial to
`consumers, and thus lawful.
`Petitioners ably explain that antitrust law distinguishes between vertical and hor-
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`izontal mergers. Pet’rs-Br. 39-40. Indeed, courts and enforcement agencies—including
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`the FTC until its recent, abrupt about-face—have long taken a skeptical approach to-
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`ward arguments that vertical mergers harm competition based on an extensive body of
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`research and scholarship showing that vertical mergers generally increase efficiency and
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`benefit consumers. Vertical mergers “combine firms or assets at different stages of the
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`same supply chain”—for instance, an upstream supplier and a downstream customer.
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`FTC & DOJ, 2020 Vertical Merger Guidelines 2, https://perma.cc/7RC9-EADZ. Hor-
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`izontal mergers, on the other hand, combine firms generally at the same stages of the
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`supply chain that may directly compete against each other.
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`
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`Courts initially adopted what many have described as a “draconian” approach
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`toward vertical mergers. Bork, The Antitrust Paradox: A Policy at War With Itself 231 (Bork
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`Publishing 2021) (discussing Brown Shoe Co. v. United States, 370 U.S. 294 (1962)). “With
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`Brown Shoe[,] the Supreme Court embarked on a substantial expansion of merger law,
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`often on rationales that did more harm than good to competition,” including “exagger-
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`ated theories of harm as well as the perverse idea that mergers should be condemned
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`4
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`Case: 23-60167 Document: 118 Page: 11 Date Filed: 06/12/2023
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`because of efficiencies that served to harm rivals.” Hovenkamp, Competitive Harm from
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`Vertical Mergers 4 (2020), https://perma.cc/9LA2-YNP3; but see Pulse Network, LLC v.
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`Visa, Inc., 30 F.4th 480, 488 (5th Cir. 2022) (“‘[T]he antitrust laws were enacted for the
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`protection of competition, not competitors.’”).
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`The Supreme Court reasoned in Brown Shoe that “[t]he primary vice of a vertical
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`merger” was “foreclosing the competitors of either party from a segment of the mar-
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`ket.” 370 U.S. at 323-24. The theory goes that, for example, if a car manufacturer com-
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`bines with a tire manufacturer, the tire manufacturer could disadvantage the car manu-
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`facturer’s rivals by refusing to sell to them or raising the prices charged to them. See
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`Freuhauf Corp. v. FTC, 603 F.2d 345, 349 (2d Cir. 1979). Or the car manufacturer could
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`disadvantage the tire manufacturer’s rivals by refusing to purchase tires from them. See
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`id. Brown Shoe—based on a now-repudiated approach to economic realities—was con-
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`sidered an aggressive decision even at the time, as it “condemned a vertical merger that
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`involved a potential foreclosure of less than 1 percent of a fragmented market.” Bork,
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`The Antitrust Paradox, at 232-32; see also Hovenkamp, Vertical Mergers, at 4.
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`Brown Shoe’s “aggressive attitudes” toward vertical mergers have since been me-
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`thodically critiqued and almost uniformly repudiated by courts and scholars alike.
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`Hovenkamp, Vertical Mergers, at 5; see also Alberta Gas Chems. Ltd. v. E.I. Du Pont De
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`Nemours & Co., 826 F.2d 1235, 1244 (3d Cir. 1987) (“respected scholars question the
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`anticompetitive effects of vertical mergers in general”); Bork, The Antitrust Paradox, at
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`232 (explaining why “[a]ntitrust’s concern with vertical mergers is mistaken”); see also id.
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`5
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`Case: 23-60167 Document: 118 Page: 12 Date Filed: 06/12/2023
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`at 245 (“[I]n the absence of a most unlikely proved predatory power and purpose, anti-
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`trust should never object to the verticality of any merger.”); Chen & Hylton, Procompet-
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`itive Theories of Vertical Control, 50 Hastings L.J. 573, 576 (1999) (discussing “changed
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`conventional judicial thinking” about vertical mergers).
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`At the outset, Brown Shoe rested on dubious economic theory. “Profit-maximizing
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`firms, regardless of whether they are vertically integrated, will sell to unintegrated rivals
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`if the price paid by those rivals exceeds marginal cost and will purchase inputs from
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`unintegrated rivals if the cost is lower than that of alternatives, including self-supply.”
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`Blair et al., Analyzing Vertical Mergers: Accounting for the Unilateral Effects Tradeoff and Think-
`
`ing Holistically About Efficiencies, 27 Geo. Mason L. Rev. 761, 788 (2020); Bork, The Anti-
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`trust Paradox, at 248 (“To the extent that the ingot monopolist integrates vertically for
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`the purpose of blocking entry, he will incur diseconomies.”). In other words, the car
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`manufacturer is generally incentivized to purchase tires from the tire manufacturer’s
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`rivals if it is cheaper to do so. And the tire manufacturer is incentivized to sell to the
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`car manufacturer’s rivals if it is profitable to do so. And the economic theory underlying
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`Brown Shoe failed to account for the creation of other procompetitive effects, such as
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`the reduction of transaction and inventory costs, and knowledge transfers. See Blair, et
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`al., Analyzing Vertical Mergers, at 768-78.
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`
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`Consistent with those developments
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`in economic theory, courts now
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`acknowledge the procompetitive nature of vertical mergers. “[V]ertical integration and
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`vertical contracts are procompetitive” because they “encourage product innovation, lower
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`6
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`Case: 23-60167 Document: 118 Page: 13 Date Filed: 06/12/2023
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`costs for businesses, and create efficiencies—and thus reduce prices and lead to better
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`goods and services for consumers.” Comcast Cable Comm’cns, LLC v. FCC, 717 F.3d 982,
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`991 (D.C. Cir. 2013) (Kavanaugh, J, concurring) (citing Ginsburg, Vertical Restraints: De
`
`Facto Legality Under the Rule of Reason, 60 Antitrust L.J. 67, 76 (1991)). Vertical mergers
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`are less likely than horizontal mergers to cause competitive harm because “[a] vertical
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`merger, unlike a horizontal one, does not eliminate a competing buyer or seller from
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`the market.” Fruehauf, 603 F.2d at 351. Instead, vertical mergers involve mergers of
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`companies in a supplier-customer relationship, and by definition, “involve ‘firms that
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`do not operate in the same market.’” AT&T, 310 F. Supp. 3d at 192 (quoting DOJ,
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`1984 Merger Guidelines 24, https://perma.cc/QUA9-MWZK). “A single firm incor-
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`porating separate but closely related production processes can often be far more effi-
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`cient than various independent entities transacting to produce the same good or bundle
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`of goods.” It’s My Party, Inc. v. Live Nation, Inc., 811 F.3d 676, 689 (4th Cir. 2016). Given
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`this increase in efficiency, “it is no surprise that vertical integration has generally been
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`permitted[.]” Id. at 689.
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`The enforcement agencies, too, have consistently taken the view that “non-hor-
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`izontal mergers” are “less likely than horizontal mergers to create competitive prob-
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`lems.” DOJ, 1984 Merger Guidelines 24. Indeed, the FTC’s own staff have observed
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`that “the overwhelming majority of vertical mergers increase efficiency.” Roundtable
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`on Vertical Mergers, Note by the Delegation of the United States to the OECD 7, ¶26 (Feb. 15,
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`2007), https://perma.cc/2DAM-D43P. The FTC even embraced the “broad consensus
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`7
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`Case: 23-60167 Document: 118 Page: 14 Date Filed: 06/12/2023
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`in competition policy and economic theory that the majority of vertical mergers …
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`reduce costs and increase the intensity of Interbrand competition.” Hoffman, Vertical
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`Merger Enforcement at the FTC 4 (Jan. 10, 2018), https://perma.cc/ET32-SFVK. In 2020,
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`the FTC and the DOJ jointly issued the Vertical Merger Guidelines, in which they
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`acknowledged that “vertical mergers often benefit consumers through elimination of
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`double marginalization, which tends to lessen the risks of competitive harm.” FTC &
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`DOJ, 2020 Vertical Merger Guidelines 2, https://perma.cc/7RC9-EADZ.2
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`II. The government must present real-world evidence of harm and cannot
`use shortcuts or mere possibilities to establish the prima facie case in
`vertical merger cases.
`Due in no small part to the exhaustive research and scholarship showing that
`
`vertical mergers are typically procompetitive, the government rightly bears a heavy bur-
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`den in any case challenging such a merger.
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`Section 7 of the Clayton Act prohibits mergers “where in any line of commerce
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`or in any activity affecting commerce …, the effect of such acquisition may be substan-
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`tially to lessen competition.” 15 U.S.C. § 18. Section 7 “applies a more stringent test
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`than does the rule-of-reason analysis under … the Sherman Act” and thus sweeps more
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`broadly to cover “‘incipient monopolies and trade restraints outside the scope of the
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`
`2 In 2021, with the addition of newly appointed Commissioners, the FTC (by a
`3-2 vote) pulled the rug out from under from businesses by withdrawing the 2020 Ver-
`tical Merger Guidelines without any sound explanations. Because the 2020 Vertical
`Merger Guidelines still remain in place for the DOJ, see DOJ, Justice Department Issues
`Statement on Vertical Mergers Guidelines (Sept. 15, 2021), the FTC’s unilateral withdrawal
`has created a schism—and great confusion—in antitrust law.
`
`
`
`8
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`Case: 23-60167 Document: 118 Page: 15 Date Filed: 06/12/2023
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`
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`Sherman Act.’” AT&T, 916 F.3d at 1032. But despite the broad language, “the word
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`‘may’ [in § 7 of the Clayton Act] should not be taken literally, for if it were, every acqui-
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`sition would be unlawful.” FTC v. Elders Grain, Inc., 868 F.2d 901, 906 (7th Cir. 1989).
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`And courts have recognized that § 7 of the Clayton Act does not authorize courts and
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`enforcement agencies to block a merger based solely on theories and speculation. See,
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`e.g., United States v. UnitedHealth Grp. Inc., 2022 WL 4365867, at *6 (D.D.C. Sept. 21).
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`Courts further recognize that “[o]nly examination of the particular market—its struc-
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`ture, history[,] and probable future—can provide the appropriate setting for judging the
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`probable anticompetitive effect of the merger.” AT&T, 310 F. Supp. 3d at 190. Thus,
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`a § 7 violation can be found only if there is “real-world evidence that the specific merger
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`under review is likely to substantially lessen competition.” UnitedHealth, 2022 WL
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`436587, at *6.
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`It is undisputed that the government bears the “ultimate burden of proving a
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`Section 7 violation.” AT&T, 310 F. Supp. 3d at 189. This Court has used a “burden-
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`shifting framework for deciding Clayton Act section 7 actions.” Chi. Bridge & Iron Co.
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`N.V. v. FTC, 534 F.3d 410, 423 (5th Cir. 2008); see also United States v. Baker Hughes, Inc.,
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`908 F.2d 981, 982-83 (D.C. Cir. 1990)). Although this framework was developed in the
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`horizontal merger context, it has been also used by courts in vertical merger cases. See,
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`e.g., AT&T, 916 F.3d at 1032; UnitedHealth, 2022 WL 4365867, at *6.3
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`3 This Court has not yet held whether the burden-shifting framework applies to
`vertical mergers.
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`Under this framework, the government bears the initial burden to “establish a
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`prima facie case that the merger is likely to substantially lessen competition in the relevant
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`market.” AT&T, 916 F.3d at 1032; see also Chi. Bridge, 534 F.3d at 423. In AT&T, the
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`D.C. Circuit applied this burden-shifting framework, but “stopped at the first step after
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`finding the [government] had failed to prove that the transaction would allow the merg-
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`ing parties to raise rivals’ costs,” thus resulting in anticompetitive harms. Blair et al.,
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`Analyzing Vertical Mergers, at 821.
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`Once the prima facie case is established, “the burden shifts to the defendant to
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`present evidence that the prima facie case ‘inaccurately predicts the relevant transaction’s
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`probable effect on future competition.’” AT&T, 916 F.3d at 1032; see also Chi. Bridge,
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`534 F.3d at 423. Upon such rebuttal, “‘the burden of producing additional evidence of
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`anticompetitive effects shifts to the government, and merges with the ultimate burden
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`of persuasion, which remains with the government at all times.’” AT&T, 916 F.3d 1029
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`(quoting Baker Hughes, 908 F.2d at 983); see also Chi. Bridge, 534 F.3d at 423.
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`Petitioners cogently explain why the FTC failed to make its prima facie showing
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`here (Pet’rs-Br. 39-58) and why the FTC erroneously tossed out compelling evidence
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`of efficiencies created by the proposed merger (id. at 58-71). Those explanations need
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`not be repeated here; instead, amicus urges this Court to apply the following overarch-
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`ing principles as it reviews the FTC’s decision.
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`A.
`The government cannot use “shortcuts” in vertical merger cases.
`The government cannot use horizontal merger–specific shortcuts to make a
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`prima facie case in vertical merger cases. In horizontal merger cases, the government
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`often uses a “short cut,” AT&T, 916 F.3d at 1032, by “putting forward statistics to
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`show that the proposed ‘merger would produce a firm controlling an undue percentage
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`share of the relevant market, and would result in a significant increase in the concen-
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`tration of firms in that market.’” AT&T, 310 F. Supp. 3d at 192. Once it does so, this
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`“triggers a ‘presumption that the merger will substantially lessen competition.’” Id.; see
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`also Baker Hughes, 908 F.2d at 982.
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`In vertical merger cases, however, it is well established that this “‘familiar’ hori-
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`zontal merger playbook is of little use.” AT&T, 310 Supp. 3d at 192. The government
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`cannot use “statistics about the change in market concentration” as a “short cut” to
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`trigger a presumption of harm because “vertical mergers produce no immediate change
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`in the relevant market share.” AT&T, 916 F.3d at 1032 (citing DOJ, 1984 Merger
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`Guidelines 24); see also Fruehauf, 603 F.2d at 351. Courts have held that “the government
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`must make a ‘fact-specific’ showing that the proposed merger is ‘likely to be anticom-
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`petitive.’” AT&T, 916 F.3d at 1032; UnitedHealth, 2022 WL 4365867, at *7 (“the gov-
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`ernment meets its prima facie burden in vertical merger cases by making a ‘fact-specific
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`showing that the proposed merger is likely to be anticompetitive’”). This principle is so
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`well established that the DOJ in AT&T conceded the point without much controversy.
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`See AT&T, 310 F. Supp. 3d at 192 (“The parties … agree that in this case ‘there is no
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`Case: 23-60167 Document: 118 Page: 18 Date Filed: 06/12/2023
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`short-cut way to establish anticompetitive effects, as there is with horizontal mergers.’”).
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`Scholars also agree. See, e.g., Areeda & Hovenkamp, Antitrust Law ¶1000a (“[T]he basic
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`economic reason for limiting horizontal mergers is … generally accepted: horizontal
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`mergers increase market concentration…. Unfortunately, there is no comparable theo-
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`retical basis for dealing with vertical mergers.”).
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`Here, the FTC seeks to circumvent the “no-shortcuts” principle by invoking
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`Brown Shoe’s multifactor test. We urge the Court to reject this effort. The FTC asserted
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`that Brown Shoe “examine[s] the ‘share of the market foreclosed’ and identif[ies] ‘various
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`economic and historical factors’ that a court should review in determining whether a
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`vertical merger may substantially lessen competition.” FTC-Op. 40 (quoting Fruehauf,
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`603 F.2d at 352-53). According to the FTC, these additional factors are: “the nature and
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`purpose of the transaction”; “barriers to entry”; “whether the merger will eliminate po-
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`tential competition by one of the merging parties”; and “the degree of market power
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`that would be possessed by the merged enterprise as shown by the number and strength
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`of competing suppliers and purchasers.” Id. at 40-41; see also Brown Shoe, 370 U.S. at 328-
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`29.
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`The FTC’s reliance on Brown Shoe cannot be reconciled with modern judicial de-
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`cisions that analyze vertical mergers without it. See, e.g., AT&T, 916 F.3d at 1032; Unit-
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`edHealth, 2022 WL 4365867, at *7. Moreover, the FTC’s invocation of Brown Shoe is
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`riddled with problems and is in