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New Guidelines Clarify When Antitrust Division Will Consider Using ArbitrationDecember 1, 2020
On November 12, 2020, the US Department of Justice Antitrust Division (“the Division”) issued updated guidance (“Guidance”) regarding its use of alternative dispute resolution (“ADR”) techniques, including arbitration. Although the Division has been authorized to use alternatives to traditional civil antitrust lawsuits for nearly three decades, it did not act on that authority until 2019, when it agreed to arbitrate a key issue in a merger challenge, United States v. Novelis Inc. and Aleris Corporation. The new Guidance builds on the Division’s experience in the Novelis case and signals that the Division may be more interested in pursuing arbitration in the future for certain cases. Corporations and antitrust practitioners should be aware of the Division’s new Guidance and consider whether arbitration might be an appropriate vehicle to resolve disputes with the government. While arbitration may provide an efficient means of dispute resolution, careful consideration must be given to the quality of the federal district and appellate courts and what rights or opportunities may be sacrificed by agreeing to arbitrate.
DOJ’s Arbitration Authority and the Novelis Case
The Administrative Dispute Resolution Act of 1990 (“ADR Act”) granted federal agencies the authority to use ADR techniques, including arbitration by consent of all parties, pursuant to guidance promulgated by the agencies. See 5 USC § 575(c). The Antitrust Division issued guidance in 1996 stating that it was the Division’s policy “to encourage the use of ADR techniques in those civil cases where time permits and there is a reasonable likelihood that ADR would shorten the time necessary to resolve a dispute or otherwise improve the outcome for the United States.” The guidance noted that “[b]ecause of the time constraints … and the exigencies of the merger review process in general, ADR techniques will likely be difficult to apply during the course of merger investigations,” while “nonmerger investigations often have more timing flexibility” and would therefore be better candidates for ADR.
Perhaps because of the difficulties of using ADR in a merger case, the first time the Division invoked its authority to arbitrate under the ADR Act was in its 2019 challenge to Novelis Inc.’s acquisition of Aleris Corporation. There, the Division contended that the acquisition would substantially reduce competition in the market for aluminum automotive sheets, and the companies contended that the relevant market was broader than the Division believed because the companies also competed with manufacturers of steel sheets. The Division conceded that if the companies were right and the relevant market included both aluminum and steel sheets, the Division could not prove the requisite harm to competition. Before filing the complaint, the Division reached an agreement with the companies to conduct fact discovery under the supervision of a federal district court and submit the limited issue of the product market definition to binding arbitration. In March 2020, the arbitrator ruled in favor of the Division, finding that aluminum sheets constitute a distinct product market, and Novelis agreed to divest Aleris’s aluminum sheet operations to assuage the Division’s competition concerns.
Speaking after the arbitrator’s decision, the Division’s Assistant Attorney General, Makan Delrahim, noted that “arbitration proved to be an effective procedure for the streamlined adjudication of a dispositive issue in [the] merger challenge” and “has the potential to be a powerful dispute resolution tool in the right circumstances.” According to Delrahim, a staff member at the Division “found” the ADR Act while considering the possibility of arbitrating the product market dispute: "I don't think, frankly, any practitioner in America knew about it…I didn't know about it, and I don't think anybody in the front office knew about it."
Following the Novelis case, Delrahim signaled in a series of speeches that the Division would seriously consider using arbitration going forward, culminating in the rollout of the Division’s new guidance earlier this month.
The New Guidance
The Guidance explains that the principal rationale for choosing arbitration is efficiency: “ADR techniques have the potential to eliminate unnecessary civil litigation, shorten the time that it takes to resolve civil disputes, and achieve better case resolutions with the expenditure of fewer taxpayer resources.”
To help identify cases that are good candidates for arbitration, the Guidance outlines a set of “case selection criteria,” including the following factors that weigh in favor of arbitration:
- Conservation of Enforcement Resources: If “preparing the case for trial in federal court would require a burdensome commitment of significant resources without achieving a proportionate impact.”
- Issues that Lend Themselves to Resolution by Arbitration: If the issues are “clear and easily agreed upon for presentation to an arbitrator, and/or the issues to be resolved are dispositive,” as in the Novelis case.
- Factual or Technical Complexity: If the parties “would benefit from reliance on the subject matter expertise of an expert arbitrator.” Notably, in the Novelis case, the parties chose a leading antitrust lawyer and former Director of the FTC’s Bureau of Competition who, unlike a “generalist judge, … did not need to be educated on antitrust law and how product markets are defined.”
- Particular Need to Control the Timing of the Resolution: If “[l]itigating in federal court could result in unacceptable delay.”
- Particular Need to Control the Scope of Relief: If the “parties prefer to decide the range of possible remedies in advance,” as in the Novelis case.
The Guidance also explains that not every case is a good candidate for arbitration. In particular, the Division will not be interested in pursuing arbitration where it might “result in a lost opportunity to create valuable legal precedent” or the “public’s interest in the matter” is significant, such that “resolution by a federal judge in an open forum is necessary.”
In addition to case selection criteria, the Guidance describes the practices and preferences the Division plans to follow going forward. Although arbitration offers the parties greater flexibility in terms of the procedures employed and confidentiality of the evidence, it is the “policy and strong preference of the Division that the arbitrator’s decision be made public.” See Novelis-Aleris Decision. And the oversight role played by the federal court in the Novelis case is likely to be a common feature of the Division’s cases that go to arbitration: the Guidance notes that court oversight can help facilitate discovery and may be necessary to enforce remedies, especially if they are complex or require monitoring. Finally, the Guidance explains that, as noted above, one benefit of arbitration is the ability to select an expert arbitrator, so an important factor in choosing an arbitrator is their experience with complex antitrust issues and/or training in economics.
Although the Antitrust Division’s authority to use ADR has lain dormant for decades, the Division’s new Guidance is an indication that it may be more interested in taking cases to arbitration going forward, at least under certain circumstances. Where, as in the Novelis case, the parties agree that a discrete, fact-specific issue is potentially dispositive, it may be more efficient for all involved to agree to arbitration.
Of course, the incoming Biden-Harris Administration may have a different view of the merits of arbitration and different enforcement priorities more generally. But if, as some suspect, the new Administration engages in more merger enforcement actions, arbitration could take on an even more important role as a means of conserving resources while prosecuting a higher volume of cases efficiently. In any event, corporations and antitrust practitioners should be aware of the Division’s new Guidance and consider whether arbitration might be an appropriate vehicle to resolve disputes with the government going forward.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Ben Bradshaw, an O’Melveny partner licensed to practice law in California and the District of Columbia, Ian Simmons, an O’Melveny partner licensed to practice law in the District of Columbia and Pennsylvania, Riccardo Celli, an O’Melveny partner licensed to practice law in the Capital Region of Brussels, the Law Society England & Wales, and Roma, Courtney Dyer, an O’Melveny partner licensed to practice law in the District of Columbia and New York, Andrew Frackman, an O’Melveny partner licensed to practice law in New Jersey and New York, Philip Monaghan, an O’Melveny partner licensed to practice law in the Capital Region of Brussels, Hong Kong, the Law Society England & Wales, and the Law Society Ireland, Anna T. Pletcher, an O’Melveny partner licensed to practice law in California, Katrina Robson, an O’Melveny partner licensed to practice law in California and the District of Columbia, Michael Tubach, an O’Melveny partner licensed to practice law in California and the District of Columbia, Courtney C. Byrd, an O’Melveny counsel licensed to practice law in the District of Columbia and Maryland, Stephen McIntyre, an O'Melveny counsel licensed to practice law in California, Scott Schaeffer, and O'Melveny counsel licensed to practice law in California and the District of Columbia, Sergei Zaslavsky, an O’Melveny counsel licensed to practice law in the District of Columbia and Maryland, and Patrick Jones, an O’Melveny associate licensed to practice law in the District of Columbia and New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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