Harrison (Buzz) Frahn
In October 2016, two of brewing’s biggest names headlined a $107 billion merger, attracting the attention of the DOJ and zythophiles, aka beer lovers, alike. By the time the merger cleared DOJ review, Anheuser-Busch InBev SA/NV (“ABI”) had combined with SABMiller, plc (“SAB”), divesting SAB’s U.S.-based interest in the process. See DeHoog v. Anheuser-Busch InBev SA/NV, 899 F.3d 758, 761–62 (9th Cir. 2018).
A “bevy of beer aficionados” challenged the acquisition under Section 7 of the Clayton Act, arguing, inter alia, that the merger would reduce competition, raise prices, diminish product diversity, and suppress smaller companies. Id. at 760, 762. In an August 8th decision, the Ninth Circuit affirmed the trial court’s dismissal of these claims, finding that the consumers failed to successfully allege a change in market concentration.
ABI and SAB both produce well-known and well-distributed brands. ABI manufactures brands such as Budweiser, Bud Light, and Stella Artois, while SAB was involved in the production of Coors Light and Miller Lite. ABI’s roughly 46% share of the market makes it “the largest producer and seller of beer in the United States.” Id. at 761. SAB held a similarly significant share of the market: SAB operated with Molson Coors Brewing Company (“Molson”) to form MillerCoors, LLC (“MillerCoors”), a company whose 25% market share made it “the second-largest producer and seller of beer in the United States.” Id.
The companies announced their merger in November 2015, and, after review, the DOJ settled with ABI in July 2016, allowing the acquisition to proceed. Id. The agreement required SAB to divest its U.S. business, resulting in an SAB owned by ABI and a MillerCoors fully owned by Molson. Id. The same day, the DOJ’s Antitrust Division filed a civil suit to block the transaction for violating the Clayton Act but subsequently approved it in October 2016. Id.
At the same time as the actions of the DOJ, twenty-three consumers filed an action in the District of Oregon, alleging that the merger posed a risk of decreased competition and monopoly so as to violate Section 7 of the Clayton Act. Id. at 762 & n.4. In Dehoog v. Anheuser-Busch InBev, SA/NV, 1:15-cv-02250-CL, 2016 WL 5858663 (D. Or. Oct. 3, 2016), the district court adopted Magistrate Judge Mark Clarke’s recommendation of dismissal with prejudice, finding that the “[c]onsumers failed to allege that the acquisition would increase ABI’s market power in the U.S. beer market; allegations regarding Molson’s future conduct in the ownership of MillerCoors were too speculative to state a claim for relief against ABI; and allegations concerning ABI’s buying power were too vague to state a plausible claim.” DeHoog, 899 F.3d at 762.
Ninth Circuit’s Analysis: Divestiture Stabilized ABI’s Market Share
In assessing the consumers’ claim, the Ninth Circuit first noted that Section 7 of the Clayton Act provides individuals with an injunctive remedy against “business acquisitions whose effect ‘may be substantially to lessen competition, or tend to create a monopoly’ in a relevant market.” Id. (quoting 15 U.S.C. § 18). Next, the court set forth the pleading standard, observing that Section 7 claims must adequately allege that the “acquisition creates ‘an appreciable danger’ or ‘a reasonable probability’ of anticompetitive effects in the relevant market.” Id. at 763 (quoting Saint Alphonsus Med. Ctr-Nampa Inc. v. St. Luke’s Health Sys., Ltd., 778 F.3d 775, 783 (9th Cir. 2015); FTC v. Warner Commc’ns Inc., 742 F.2d 1156, 1160 (9th Cir. 1984)). Under this standard, the court found that the consumers’ “allegations do not belly up to this bar.” Id.
SAB Was Not An Actual Competitor
Refuting the consumers’ claim that ABI’s acquisition of SAB “eliminated SAB as an ‘actual . . . competitor in the United States,’” id., the Ninth Circuit noted that the acquisition did not further concentrate competition in the U.S. beer market because SAB had been made to divest its only U.S.-based interests. Id. Further, SAB had only acted within the U.S. market as MillerCoors, and MillerCoors remained as a participant in the market. Id. at 764.
The Ninth Circuit also turned to an unpublished Ninth Circuit opinion to support its analysis. In Edstrom v. Anheuser-Busch InBev SA/NV, 647 F. App’x 733 (9th Cir. 2016), the Ninth Circuit found that ABI and Constellation’s acquisition of Modelo did not increase ABI’s market share because Constellation would hold exclusive rights to distribute Modelo in the United States. See DeHoog, 899 F.3d at 763–64. Thus, as in the case at hand, ABI’s actual share of the U.S. market remained the same, even as ABI made acquisitions.
SAB Was Not a Potential Competitor
Next, the court rejected the consumers’ argument that the acquisition would eliminate a potential competitor of ABI. The consumers argued that SAB was “on the edge” and “continually threatening to enter” the market, such that SAB had a beneficial effect on the market. Id. at 764 (internal quotation marks omitted). The Ninth Circuit, however, countered that SAB could not be both an actual and a potential competitor of ABI—by arguing that the acquisition violated Section 7 because it allowed a market participant to acquire a competitor, the consumers had alleged that SAB was an actual competitor. See id. The Ninth Circuit also emphasized that SAB had already entered the market via its joint venture in MillerCoors, and that any allegation that SAB could have ended the joint venture and re-entered the market was speculative. Id. at 764–65.
Arguments About MillerCoor’s Distribution Were Speculative
Similarly, the Ninth Circuit pegged as speculative the consumers’ argument that the acquisition and divestiture would affect MillerCoors’s distribution. Id. at 765. The consumers argued that “it is likely that a 100 percent Molson Coors-owned MillerCoors will follow ABI’s lead in its dealings with distributors,” id., prompting the Ninth Circuit to dismiss the allegation as “a classic speculative conclusion.” Id.
The Ninth Circuit ultimately affirmed the district court’s dismissal with prejudice, finding that “the district court did not abuse its discretion in concluding that Consumers could not plead around the elephant in the room.” Id. The “elephant” here is that the DOJ-settled divestiture removed SAB as an ABI competitor, making it impossible for ABI to increase its U.S. market share via the acquisition. ABI did acquire a former competitor, but the somewhat complicated maneuvering that accompanied the deal meant that market concentration remained the same. In DeHoog, then, the Ninth Circuit has emphasized that, for Section 7 claims, it is the “ale”-a-gation of net impact on market concentration that matters.