Incipiency Doctrine

The Incipiency Doctrine is a rationale used to evaluate and potentially block mergers that might result in harm to competition among American businesses. It arises under the Clayton Act and is used in evaluating whether the effect of a proposed merger may be to substantially lessen competition or to tend to create a monopoly. If so, the potential harm that could result from the merger is deemed under the Incipiency Doctrine to be sufficient to block the merger. In addition to the difficulty of determining whether harm will, in fact, result from a merger, the type of harm that may result has not been clearly defined, thus leading to confusion about when to apply the doctrine.

Antitrust laws in the United States such as the Sherman Act, the FTC Act, and the Clayton Act contain provisions describing unlawful business practices. The Clayton Act, an amendment to clarify and supplement the Sherman Antitrust Act of 1890, was passed by Congress in 1914. Whereas the Sherman Antitrust Act prohibited monopolies, the Clayton Act was designed to define illegal business practices that were conducive to the creation of such monopolies or that result from them. Although the Clayton Act prohibited stock purchase mergers that resulted in reduced competition, loopholes existed, allowing individuals to find ways around the Clayton Act by simply buying up a competitor's assets. The Celler-Kefauver Act was passed by Congress in 1950, in part to address such loopholes, and strengthened Section 7 of the Clayton Act by prohibiting one firm from securing either the stocks or physical assets of another firm if competition would be reduced as a result of the asset acquisition. The legislative history of the 1950 amendments contains a dominant theme evidencing a fear of what was considered to be a rising tide of economic concentration in the American economy. In stating the purposes of their bill, both its sponsors, Representative Celler and Senator Kefauver, emphasized their fear, widely shared by other members of Congress, that this concentration was rapidly driving the small businessman out of the market. Congress appeared to see the process of concentration in businesses as an increasing tide and, to stem that tide, provided authority for arresting mergers at a time when the trend to a lessening of competition in a line of commerce was still in its incipiency or onset. Thus the Incipiency Doctrine was born. The Celler-Kefauver Act 1950 amendments included descriptions of illegal business practices designed to block mergers, the effect of which may be to lessen competition substantially or to tend to create a monopoly. In using such language, Congress indicated that its concern was with probabilities, not certainties. The language makes it clear that courts have the authority to declare mergers illegal that didn't [Page 1115]necessarily in themselves represent a lessening of competition but rather represented the onset of a trend of lessening competition.

The Incipiency Doctrine was never fully and clearly defined, although a number of significant court cases cited the legislative history of the CellerKefauver Act and its Incipiency Doctrine to rationalize the blocking of mergers. The doctrine at a minimum appears to call for strict antimerger enforcement due to a perceived fear of trends toward concentration, although the understanding of how to achieve that enforcement as well as the application of the doctrine itself has varied throughout the years. The Incipiency Doctrine calls for a variety of predictions about the anticompetitive effects of mergers that may include leading to small decreases in competition, causing an industry trend or wave toward mergers and looking further into the future for possible harm.

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