Epic Fail: Why It Is Better to Focus on a Competitive Effects Analysis Than the Failing Firm Defense

The failing firm defense is the fortune cookie of merger analysis: prevalent in merging parties’ advocacy, tantalizingly full of potential, but in the end, stale and unsatisfying. However, the failing firm defense is not the only way for merging parties to explain the context of their transaction to the Antitrust Division of the Department of Justice and the Federal Trade Commission (the “agencies”) or to courts. Merging parties typically can achieve more favorable outcomes by presenting facts about firms’ relative competitiveness and the competitive conditions facing the industry in the context of a competitive effects analysis rather than within the tight strictures of the failing firm defense. These compelling arguments are especially important as the failing firm defense has become top-of-mind as businesses grapple with the impact of COVID-19.

By James A. Fishkin, Brian Rafkin, & Blair W. Kuykendall¹

The failing firm defense is the fortune cookie of merger analysis: prevalent in merging parties’ advocacy, tantalizingly full of potential, but in the end, stale and unsatisfying. However, the failing firm defense is not the only way for merging parties to explain the context of their transaction to the Antitrust Division of the Department of Justice and the Federal Trade Commission (the “agencies”) or to courts. Merging parties typically can achieve more favorable outcomes by presenting facts about firms’ relative competitiveness and the com