Staff members at the Federal Trade Commission were shocked in January when Judge Joan Ericksen of the U.S. District Court in Minnesota dismissed its case against a drugmaker that had bought the only product that competed with its infant drug treatment, only to raise prices on both promptly and dramatically. The FTC had viewed the case as a slam dunk.

The agency is now appealing that decision, and within the next few months, a panel of judges from the U.S. Court of Appeals for the 8th Circuit in St. Louis will hear oral arguments in the FTC's attempt to break up Deerfield, Ill.-based Lundbeck Inc.'s deal.

However the appeals court rules, the case could be a candidate for review by the nation's highest court. Supreme Court rulings on merger law are a distant memory even for veteran antitrust lawyers -- its last major review of an acquisition occurred in 1974 when it upheld the takeover of a strip mining company by a subsidiary of General Dynamics Corp. Its last merger ruling of any sort occurred in 1975. Since then, merger review practices at the FTC and the Department of Justice have transformed radically.

"There is a serious need for the Supreme Court to revisit antitrust merger doctrine," says FTC Commissioner William Kovacic. "Since the mid-'70s, lower court decisions and federal enforcement policy have deviated significantly from standards the Supreme Court established in the '60s and early '70s. [Lundbeck] could provide the opportunity for the court to reconsider its earlier jurisprudence in light of developments."

While Ericksen's ruling in Lundbeck -- widely derided among antitrust experts -- hardly presents a perfect vehicle for Supreme Court review, it does present a vehicle. Indeed, the primary reason the Supreme Court has been silent on merger cases is because few even make it to the appellate court level. Merging parties typically cancel their deals if a district court grants antitrust regulators a preliminary injunction blocking consummation. Conversely, regulators tend to drop their challenges if an injunction is denied because it would be too hard to "unscramble the eggs" once two companies are joined.

In the Lundbeck case, the acquisition has closed, but the divestiture of one drug would be a simple matter to enforce -- so the disincentives typically faced by the government and plaintiffs in pursuing a court fight are absent this time.

In 2006, Lundbeck, then named Ovation Pharmaceuticals, acquired NeoProfen, a drug used to treat a potentially fatal infant disorder named patent ductus arteriosus, or PDA. NeoProfen, still in trials at the time, was the only potential competitor to Indocin IV, Lundbeck's PDA treatment. With the market cornered, Lundbeck then raised the price of Indocin IV's three-dose treatment course from $120 to $1,500. When NeoProfen was finally approved later that year, it was offered at $1,449.

The steep price increase was unequivocal evidence that the acquisition of NeoProfen was illegal and should be broken up, according to the FTC. But Ericksen instead held that the two drugs weren't even in the same market because physicians tended to be loyal to one product or the other and did not consider prices when deciding which one to prescribe.

The FTC's appeal brief to the 8th Circuit lambastes Ericksen's ruling as a series of misreadings of facts of the case and of conflicting conclusions. That's hardly an ideal platform for the justices to make a sweeping review of merger law. Kovacic thinks that justices such as Antonin Scalia and Stephen Breyer, who have encouraged their colleagues to tackle broad areas of case law, are eager to weigh in on a merger case and realize this may be their only opportunity for a long time.

Regardless of whether Federal Trade Commission and State of Minnesota v. Lundbeck Inc. is the right case for Supreme Court review, some antitrust scholars agree that it's high time the justices weighed in on current merger practices. "We are long overdue for a Supreme Court merger opinion," says Stephen Calkins, a law professor at Wayne State University. "Antitrust merger law currently consists of a mix of lower court opinions and the antitrust agencies' guidelines, all written in the shadow of dated but never officially rejected or modified Supreme Court opinions. That is obviously not the optimal situation."

A look at nearly any ruling or legal brief filed in a district- or circuit-court-level merger case indicates the irrelevance of Supreme Court precedents to the field. Calkins notes that the FTC's 2007 opinion against a hospital merger in Evanston, Ill., contained 85 citations of lower-court rulings. Citations of Supreme Court opinions: a paltry 14.

Most of the Supreme Court rulings cited in typical merger cases were handed down in the '50s and '60s and reflect much different merger review standards than those currently practiced. One of the most frequently cited is the 1962 Brown Shoe Co. Inc. v. United States case, in which the justices blocked a merger that would have given the maker of Buster Brown shoes control of more than 8% of the country's retail shoe outlets. Another is the 1966 United States v. Von's Grocery Co. ruling that blocked a merger that would have resulted in one grocery chain holding a 7.5% market share in Los Angeles. And then there's the United States v. Philadelphia National Bank case, a 1963 ruling in which the Supreme Court ruled that mergers creating a 30% market share were nearly always illegal. Today, market shares in the low double digits would hardly cause regulators to blink, and even deals that cause heavy concentration are waved through if there's little evidence prices will rise.

In those years, the focus was to combat even a tendency toward consolidation, which was viewed as a problem in and of itself, regardless of whether there was evidence that people would be harmed by rising prices. Beginning in the late '70s, merger practices were transformed by two radical changes in regulators' thinking. The first was the notion that antitrust law should be limited to protecting consumer welfare and no longer should focus on protecting the competitiveness of small businesses. The second driver was the increasing acceptance of theories designed by economists and legal scholars at the University of Chicago, who preached that consumers can benefit from bigger, more efficient companies via better service, more innovation and lower prices.

The Supreme Court itself ushered in much of the revolution with the United States v. General Dynamics Corp. decision, which required regulators to prove that a merger would cause harm rather than simply demonstrate that it would lead to consolidation. The consequence of that ruling was a level of merger activity unheard of since 1904 when the courts first affirmed that the Sherman Act applied to mergers.

In the wake of the General Dynamics case, regulators in 1982 formally began adopting many Chicago School and other theories when they issued what would become the Horizontal Merger Guidelines (although merger guidelines had existed previously, they had long lost any relevance to merger policy prior to 1982). These guidelines included the use of the Herfindahl-Hirschman Index, or HHI, to measure changes in concentration caused by mergers. The guidelines were an attempt to make standards of merger review consistent across both the FTC and DOJ and to give merging parties a way to predict whether a deal could pass muster with the regulators.

Since 1982, additions to the guidelines have included requiring regulators to consider ease of entry into the market affected by a merger. The agencies also have utilized new tools aimed at helping them halt mergers too. The rise of the computer industry and other tech businesses has led to the notion that mergers should be challenged when they will reduce innovation in a market. The regulators have also toyed with narrower definitions of the relevant market, as they did in the FTC's case against Whole Foods Market Inc.'s purchase of Wild Oats Markets Inc.

The high court has weighed in on none of this. "There is no Supreme Court case addressing HHI levels, the market definition approach or other element of the merger guidelines," Calkins says. "Nevertheless, litigants in merger cases assume guidelines are important and address them in briefs to lower courts."

Despite the need for Supreme Court guidance, Calkins questions whether Lundbeck is the right vehicle. Regardless of whether the 8th Circuit upholds or reverses Ericksen's decision, its ruling is likely to be on narrow grounds and will give the justices little to chew on regarding the broader scope of merger practices, he says. "The district court decision was very fact-specific. If the 8th Circuit affirms the decision by deferring to the district court's fact-finding, that would probably not present a good candidate for Supreme Court review. Nor would a narrow reversal seem likely to present a good candidate for certiorari."

FTC Chairman Jon Leibowitz is taking a wait-and-see approach. "Among the commissioners, William Kovacic is a Cassandra-like visionary, and he may very well be right," Leibowitz says.