Below are excerpts from another great Matt Stoller piece, this one about how $2,000/hour Big Law attorneys help their clients, corporations and private equity funds, get illegal mergers approved by a formerly toothless FTC. Now, with Lina Khan at the helm of the FTC, sleazy fat cat lawyers, used to getting their way because of their Zenga suits and Ivy League credentials, are facing a regulator who isn’t the least bit impressed by arrogant rich ivy league white guys who are experts at cheating. Go Lina, go!!
The Big Law Cartel: How Antitrust Lawyers Help Their Clients Break the Law
Big law is a corrupting influence on our policymakers. The new FTC is dusting off an old legal tool to fight back.
Today I’m going to write about how antitrust defense attorneys get paid $1000-2000 per hour to help firms engage in illegal mergers. I’ll also discuss the fun new tool FTC Chair Lina Khan is about to unleash to upset all these lawyers.
Last August, I noted that Warren Buffett, the seventh richest man in the world, is America’s folksiest predator, a charming, beloved, and ruthless investor who made much of his fortune from monopoly power. Last week, his conglomerate, Berkshire Hathaway, tried to acquire yet more market dominance. Berkshire’s energy subsidiary owns one of two pipelines that bring natural gas from the Rocky Mountains production areas to central Utah. The other is owned by Questar Corporation, and they compete vigorously over who can ship gas.
So what did Buffett do? You guessed it – he tried to buy Questar, which would have formed a regional pipeline monopoly and let the new firm raise prices on consumers. It’s hard to convey how over the line this merger attempt was. Going from two pipeline firms controlling an area to one, is not complex. It is a merger to monopolize a line of business – pipelines – that is well-understood and over 100 years old. To make this naked power grab even more ridiculous, the two pipeline firms had already attempted the same merger in 1995, and been stopped.
Once again, the FTC blocked it. Holly Vedova, the Bureau of Competition Acting Director, issued an angry statement, saying she found it “disappointing” that the FTC even had to spend money and time to stop this merger.
Antitrust enforcers are dealing with a lot of deals like this, ones that would radically consolidate industries. These deals are blatantly illegal, but the hope from dominant firms is that enforcers might let a few of them slip by, or not have the resources to litigate them all. In 2016, Bill Baer, the head of the antitrust division, noted that mergers which shouldn’t even “make it out of the board room” were constantly sucking up division resources. Office Depot and Staples, for instance, have tried to merge multiple times.
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Gibson Dunn, for instance, is one of the more powerful global law firms, and represents a large swath of corporate clientele (including big tech). I downloaded a marketing presentation from their website, and it offers standard advice for clients and prospective clients on how to get a merger through the regulatory gauntlet.
Gibson Dunn goes into “Best Practices: Document Creation.” The presentation veers into facilitating illegal mergers when it says executives shouldn’t mention a merger might make their firm dominant, or that they are engaging in a merger to reduce competition or change pricing in the industry. Gibson Dunn also recommends that executives not discuss in email how they would be eliminating a future competitor, and above all, says they should not model “higher prices or lower output.”
(You can view the full presentation here.)
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I don’t necessarily blame the specific lawyers who wrote this presentation, or the firms themselves. The legal services industry market is competitive in a toxic way, with big law antitrust defense lawyers competing with one another not on whether they can give the best advice on how to follow the law, but on whether they can help their clients break the law. It’s a dysfunctional market structure, an auction of injustice.
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Indeed, in 1983, the the American Bar Association – essentially a cartel body that sets the terms and services of the legal services market – changed its ethical guidelines. Prior to that period, their recommended model rule for lawyers was that it was unethical to counsel a client to engage or assist in conduct that the lawyer “knows is illegal or fraudulent,” except to explain the consequences of doing so. But that year, the ABA changed its rule to say that a lawyer couldn’t assist on anything “criminal or fraudulent.” Swapping out ‘criminal’ for ‘illegal’ doesn’t seem like a big deal. But there are a lot of actions that are illegal but not criminal, like assisting on a merger that the lawyer knows violates the Clayton Act.
Not every state has adopted the ABA model rule. The New York rules of professional conduct, for instance, still maintains that assisting with illegal activity is unethical. But in D.C., where a lot of antitrust law is conducted and where the four Gibson Dunn lawyers who made this presentation are based, uses the weaker standard.
Broadly speaking, these kinds of seemingly minor rule-changes, and recommendations from professional seeming lawyers, have over the course of decades warped our society into something most fair-minded people cannot recognize as a liberal democracy. The rule of law has become a weapon for the powerful to manipulate and control us, organized by the legal establishment at Harvard and Yale Law, and then intertwined with elitist judges and lawyers. It’s so bad that the ABA – which is supposed to be a neutral national association for lawyers – routinely engages in quasi-corrupt acts like fighting against the New York bill that would strengthen antitrust law, and lobbying on behalf of debt collectors.
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Pushing Back
Next week, the FTC is going to vote on what looks like a bureaucratic and anodyne policy statement, to rescind the 1995 “Policy Statement on Prior Approval and Prior Notice Provisions in Merger Cases.” This item sounds super boring, but as the Capitol Forum wrote last week, antitrust defense lawyers are freaking out, with one saying it would represent an “incredible deterrent” to mergers.
Here’s what this boring statement means. Today, if you try to violate merger law, the worst that happens is the merger doesn’t get through. And you can try again, as many firms do. Before 1995, however, corporations had to think twice before bringing a ridiculous merger attempt. If they did, the FTC could try and block them not just from the merger under dispute but from future mergers, saying that firms could no longer even try to engage in mergers without prior approval from the commission. Essentially, the FTC could tell a corporation, “You have gone too far, no more more mergers for you.” This dynamic created a disincentive to attempting obviously illegal mergers, because it meant trying to break the law actually brought a cost.
Big business groups obviously hated the prior approval tool. So in 1995, Clinton FTC Chair Robert Pitofsky, under pressure from the new big business-friendly Republican majority Congress, decided to end the use of prior approval in merger cases. Soon, aggressive hospital chains, pharma giants, and industrial firms got out from under what had been restrictions on their ability to buy rivals and suppliers.
Today however, the political situation is different. The 1000+ firms acquired by big tech over the last twenty years has embarrassed enforcers and policymakers. In 2019, 43 state attorneys general asked the FTC for prior approval to be applied to tech platforms, basically a merger ban for big tech. So the FTC is dusting off this old tool, and will now be able to use it more broadly in merger cases and in negotiations over consent decrees.
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Restoring anti-monopoly policy will be a slog, because corporate lawyers are intimidating, and policymakers and judges tend to believe what they say. They have been trained for decades to look credible, and they do. But ultimately, what they are doing is helping their clients violate the law, and in doing so, make a mockery of democracy itself. And that should not stand.